There are over 6,000 genetic disorders, and most don't have any regulatory-approved treatment options. That's discouraging, but there's reason for hope; gene therapies are in development that aim to address the root cause of genetic diseases. On Friday, the Food and Drug Administration (FDA) gave a green light to Novartis' (NYSE:NVS) Zolgensma, a revolutionary gene therapy for spinal muscular atrophy (SMA).
Zolgensma's $425,000-per-year price tag suggests it will be a blockbuster for Novartis; if it is, then Regenxbio (NASDAQ:RGNX) could pocket nine figures per year in royalties. Here's what you need to know about this important approval.
Spinal muscular atrophy is a genetic disorder; SMA patients are unable to produce survival motor neuron (SMN) protein, which is critical for motor neurons to function. Since they don't produce SMN, infants with the disorder can lose their ability to eat and breathe independently; about 9 in 10 infants diagnosed with type 1 SMA pass away, or need permanent ventilator support, before their second birthdays.
Over 450 children are born with SMA in the United States every year; if you include Europe, the number of infants affected is about 1,000. Because early diagnosis and intervention is critical to battling this disorder, screening for SMA in newborns is becoming more common.
What Zolgensma does
Historically, SMA treatment involved supportive care, but Biogen (NASDAQ:BIIB) and Ionis Pharmaceuticals (NASDAQ:IONS) won FDA approval for Spinraza in 2016, after trials demonstrated it can help patients.
Spinraza has become a staple in caring for SMA patients, but it's not a perfect drug. It's designed to fix a splicing error in SMN2, a backup gene that exists in most SMA patients, to restore more complete SMN production. However, it needs to be injected into the fluid surrounding the spinal cord four times during the first year of dosing and three times per year afterwards. In trials, just 40% of patients treated with it achieved improvement in motor milestones.
Zolgensma works differently, and arguably better.
Rather than fixing the splicing error in SMN2, Zolgensma uses a viral vector -- AAV9 -- specifically engineered by Regenxbio to deliver a functioning copy of the missing or mutated SMN gene. Unlike Spinraza, it only requires one dose.
In clinical trials, responses to Zolgensma have been remarkable. Patients have experienced rapid motor-function improvement within one month of treatment, and benefits have been durable beyond two years.
As of March 2019, 19 of the 21 patients enrolled in its Str1ve clinical trial were alive and not requiring permanent ventilation, and 13 of those patients had reached the age of 14 months. Also, 10 patients were able to sit without support for at least thirty seconds at an average age of 12.1 months, something Novartis says wouldn't normally happen in this patient group. Furthermore, Novartis' studies show that only about 25% of patients meeting the criteria to enroll in Str1ve would be expected to live beyond the 14-month mark.
In another trial named Start, 15 patients were enrolled, including 12 who were enrolled in a high-dose cohort. At 24 months, all 12 high-dose patients were alive without requiring permanent ventilation, and 9 patients were able to sit without support for at least 30 seconds.
What it means for these companies
Novartis didn't develop Zolgensma; it acquired the drug last year when it bought AveXis for $8.7 billion. The price it paid is substantial, but following Zolgensma's approval, the acquisition could wind up being a bargain.
The company will have to iron out the details of payment with insurers and government programs, but it says that it's set a price of $2.125 million per patient. At first blush, that sounds like an eye-popping figure, but it's not as expensive when compared to existing costs of caring for patients with SMA.
Novartis is working with payers to provide a five-year payment structure, dropping the cost to $425,000 per year. For comparison, Spinraza costs $750,000 in year one, and $375,000 per year thereafter.
According to Novartis, Zolgensma's cost is half what it currently costs to treat SMA over a 10-year period. The price also puts it "within the range of traditional cost-effectiveness thresholds used by ICER when updated for its full labeled indications." ICER -- the Institute for Clinical and Economic Review -- statistically evaluates the value of drugs based on their price and effectiveness.
Given that Spinraza's sales were $518 million in the first quarter, up from $364 million in Q1 2018, and Zolgensma is competitively priced, it's not a stretch to think that Zolgensma could become a top seller.
Most of Zolgensma's sales will benefit Novartis, but Regenxbio will collect milestones and royalties. Regenxbio's royalties range from the mid-single to low double digits, and it could receive up to $80 million in milestone payments if Zolgensma's sales eclipse specified targets. Investors should also know that AveXis paid Regenxbio $100 million in accelerated milestone payments last year, when it was acquired by Novartis.
What to watch next
Biogen and Ionis could respond to Zolgensma's approval by cutting the cost of Spinraza, but that might not be enough to keep doctors from recommending, or patients from demanding access to, Zolgensma. It's hard to imagine Zolgensma won't win widespread use over time in this indication, but how quickly sales materialize will depend on how negotiations go with payers.
So far, comments from Cigna and Harvard Pilgrim Health suggest that they're happy with progress being made, including the option to stretch payments out over time, and perhaps having some of the cost tied to effectiveness. However, we're in relatively new territory, because Zolgensma is the first gene therapy for a genetic disorder that's addressing a blockbuster indication.