Here's Why Gene Therapy Stocks Are Soaring Today

What happened

Seemingly every company that mentions the term "gene therapy" or "gene editing" is rising today after Roche announced it would acquire Spark Therapeutics for $4.8 billion. That represents a premium of more than 120% for the gene therapy pioneer, which is bringing a treatment for a rare eye disease to the market. The genetic medicine, branded as Luxturna, will cost $425,000 per eye. It has gotten off to a slow start.

The acquisition of Spark Therapeutics shows there's an appetite among established pharma companies for promising genetic cures and treatments. Or at least that's what investors and Wall Street analysts are hoping. The excitement has sent shares of many related companies higher today.

Crispr Therapeutics (CRSP +5.16%) and Editas Medicine (EDIT +4.44%), just now entering clinical trials with CRISPR-based gene editing tools, rose as much as 24% and 11.8%, respectively. bluebird bio (BLUE +0.00%), Solid Biosciences (SLDB +4.35%), Regenxbio (RGNX +10.85%), and Audentes Therapeutics (BOLD +0.00%) each rose at least 16.5% to start the day. uniQure (QURE +7.84%) outpaced all peers, however, rising as much as 42.9%.

Check out the latest earnings call transcripts for companies we cover.

Image source: Getty Images.

So what

Gene therapy is an awfully broad term. There are various approaches being studied in clinical trials attempting to determine the safest, most effective, and most efficient way to correct or edit specific disease-causing genes. In some studies that's done directly in a human body (in vivo), while in others cells are extracted, engineered in a lab, and then injected back into a patient (ex vivo). Sometimes the gene therapy is powered by a modified virus, while other times the editing is attempted enzymatically. Simply put, no one really knows which approach will be optimal for which indications.

That's why it seems investors are extrapolating the logic behind the Spark Therapeutics acquisition a bit too far. The thinking seems to be that if other biopharmas can develop genetic cures or treatments that help patients manage previously unmanageable diseases, then they, too, could be gobbled up by a deep-pocketed pharma company. That's always a possibility, but many of the gene therapy stocks rising today sport pipelines still in the earliest stages of development.

The primary targets of development-stage gene therapies today tend to be in blood diseases, eye diseases, and rare diseases affecting muscle tissues. For instance, Spark Therapeutics developed Luxturna as an adeno-associated virus (AAV) gene therapy for a rare form of blindness. Here's where each company stands regarding its lead drug candidate and genetic medicine approach:

Data sources: Yahoo! Finance, company websites.

The success of Spark Therapeutics doesn't necessarily mean AAV-based gene therapies will be the best approach, nor does the nauseating hype surrounding CRISPR gene editing mean it'll be the approach for enzyme-based genetic medicines (scientists are already moving on to other technologies for human therapeutic applications).

Now what

Gene therapy and gene editing hold tremendous promise for treating and even curing diseases. However, the swift pace of innovation in biology-based technologies is both an opportunity for investors and a huge risk. Even if one approach works and earns a product marketing approval, it may only be a few years before an even better approach clears late-stage trials and takes over the market virtually overnight. That would be great news for patients, but it promises to create a perpetual stream of volatility for individual investors. Simply put, none of these stocks really earned the bump received today.