Biotech stocks can deliver eye-popping returns when clinical trials pan out and regulators approve new drugs. But most trials fail, and there aren't any guarantees of a regulatory OK. Uncertainty over trial outcomes and Food and Drug Administration (FDA) go/no-go decisions make Sarepta Therapeutics (NASDAQ:SRPT)bluebird bio (NASDAQ:BLUE), and Vertex Pharmaceuticals (NASDAQ:VRTX) important stocks to watch in 2019. 

Expanding its lead

Sarepta Therapeutics broke new ground when it won approval for Exondys 51 in 2016. The first FDA-approved treatment for Duchenne muscular dystrophy (DMD), Exondys 51 may help delay the progression of this devastating muscle-wasting disease by increasing the production of dystrophin, a protein necessary for muscle building and maintenance.

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Image source: Getty Images.

DMD is caused by mutations that result in inadequate dystrophin production. Sadly, most DMD patients lose the ability to walk in their teens because of muscle loss and pass away in their 30s because of cardiovascular complications caused by the loss of heart muscle.

In an attempt to improve outcomes, Exondys 51 skips over mutations located at the gene segment known as exon 51 so patients can produce more useful dystrophin. Unfortunately, only about 13% of DMD patients have such mutations, so more treatment options are needed.

Fortunately, Sarepta Therapeutics has other fast-approaching therapies that could be used to treat an additional 16% of DMD patients if the FDA approves. In December, Sarepta filed for approval of golodirsen, a therapy that skips mutations at exon 53. And this year, it hopes to file for approval of casimersen, which skips mutations at exon 45.

If these drugs pass muster with regulators, the commercial opportunity could be significant because they would more than double Sarepta's addressable market. Exondys 51 costs about $300,000 per year, and in Q3 2018, its sales totaled $78.5 million despite its limited addressable market. In Q4 2018, sales clocked in at $84.4 million, bringing full-year revenue to approximately $301 million. That was up from $57.3 million and $154.6 million in Q4 2017 and for the full year 2017, respectively.

Check out the latest Sarepta Therapeutics earnings call transcript.

A gene therapy that may move the needle

In 2018, bluebird bio reported positive data from trials evaluating LentiGlobin, a gene therapy that aims to reduce blood transfusions in patients with beta-thalassemia. The positive results allowed the company to file for European approval, and a decision on LentiGlobin is expected by those regulators this year.

If approved, LentiGlobin could become a top-selling treatment. Blood transfusions are expensive, burdensome, and can increase the risk of organ damage from iron overload, requiring treatment. LentiGlobin could eliminate transfusions altogether for some patients because it delivers a functional gene to patients that can produce beta globin, a protein necessary for red blood cell survival.

In clinical trials, a single dose of LentiGlobin resulted in transfusion independence in eight of 10 patients. All eight of those patients maintained transfusion independence through the last data cutoff period in September, with a median duration of independence of 38 months. 

Eliminating transfusion in patients would be game-changing, but it remains to be seen how bluebird bio and payers will deal with the issue of pricing. Recently, bluebird bio made the case for a pricing scheme that would include an up-front payment and then payments spread over five years for patients who benefited from it. The company didn't set any price, but it implied that a gene therapy like LentiGlobin offers $2.1 million in intrinsic value per patient. 

Since 60,000 people are born with beta thalassemia worldwide every year, including 1,500 in the United States, an approval in the EU this year -- and possible approval in America next year -- could generate billions of dollars in revenue for bluebird bio over time. 

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Image source: Getty Images.

As simple as one, two, three

Vertex Pharmaceuticals has revolutionized cystic fibrosis treatment. First, it launched a single-drug therapy, Kalydeco, in 2012; then it launched the two-drug therapy, Symdeko, in 2018. And now it's on the verge of filing for FDA approval of a three-drug combination that could allow it to treat up to 90% of the 75,000 people with cystic fibrosis.

The company's laser-focus on cystic fibrosis research has allowed it to expand its addressable market and sales significantly over the past six years. In 2013, Kalydeco's sales were $371.3 million. Today, sales of Kalydeko, Symdeko, and a third drug, Orkambi, are expected to be between $2.9 billion to $3 billion -- and that's from only being able to treat about 60% of cystic fibrosis patients.

Soon, Vertex will get phase 3 data from the second of two triplet combination therapies, enabling it to decide which of the two it will file for approval with the FDA. In November, it reported positive results from its first triplet therapy, a combination of VX-659 and Symdeko. So that triplet would be filed for an OK if the second triplet, which combines VX-445 with Symdeko, doesn't perform as well. At four weeks, the VX-659 containing therapy improved lung function versus placebo by 10% to 14% from baseline, depending on genetic makeup.

Vertex Pharmaceuticals didn't say exactly when it will make its decision, but it has said that one of the two triplets will be filed for approval "no later than mid-2019." If management hits that target, then this company could get an FDA decision early in 2020, clearing the way for its sales to jump considerably yet again.

Check out the latest Vertex Pharmaceuticals earnings call transcript.