Gene therapy, a promising therapeutic approach that corrects disease-causing genetic errors, has spurred an arms race among the world's largest pharmaceutical companies.

Novartis (NYSE:NVS) announced the acquisition of AxeVis for a whopping $8.7 billion in 2018. Roche (OTC:RHHBY) agreed to acquire gene therapy developer Spark Therapeutics for $4.8 billion in early 2019. One week later, Biogen (NASDAQ:BIIB) joined the party by pledging $800 million to gobble up Nightstar Therapeutics. Gene therapy stocks soared on the frenzy, and many have held on to deliver impressive gains since the beginning of the year.

But the arms race isn't what it appears. True, Novartis and its peers are eyeing the obvious financial opportunity to sell corrective gene therapies. However, the pharmaceutical giants are equally, if not more, interested in acquiring scarce gene therapy manufacturing expertise. Individual investors who shift their perspective will see that manufacturing will make or break each investment opportunity in the gene therapy space -- proving even more important than successful clinical trial results.

A woman standing in the background with a teaching model of DNA in the foreground.

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Blockbuster drugs are only part of the story

Much ink has been spilled on the list price of early gene therapy products. Luxturna, the first directly administered gene therapy to earn marketing approval from the U.S. Food and Drug Administration, treats a rare form of inherited vision loss. Spark Therapeutics sells it for $425,000 per eye. AxeVis sells Zolgensma, a treatment for spinal muscular atrophy (SMA), for more than $2.1 million.

Whether those prices are too high or the healthcare system is structured to handle them can be debated, but one-and-done genetic medicines can be significantly less expensive than lifelong treatment. Novartis estimates Zolgensma will cost the healthcare system 50% less than 10 years of treatment for ultra-rare pediatric diseases, including SMA.

In other words, corrective gene therapies allow pharmaceutical companies to capture all of the lifetime costs of treatment that would've been spread across the healthcare system while also lowering the burden to patients and insurance companies (on paper, anyway).

That value pitch underpins the biopharmaceutical industry's deep pipeline of gene therapy drug candidates. However, successful results in clinical trials will be meaningless without robust manufacturing processes ready to churn out usable drug products. And that reality underpins the recent acquisitions by Novartis, Roche, and Biogen.

A technician servicing a bioreactor.

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Manufacturing is king

Gene therapies work by transferring genetic material into cells, which incorporate it into the DNA instructions harbored within the nucleus. If all goes according to plan, then faulty genetic sequences are fixed and diseases are treated at their root cause (in other words, cured).

That's a simple explanation, but it's currently incredibly difficult and expensive to precisely and reproducibly manufacture commercial-scale volumes of delivery vectors used to shuttle genetic material into target cells. The enormous obstacle represented by bioprocess scale-up marks an equally enormous opportunity for companies that solve it.

Spark Therapeutics CEO Jeff Marrazzo told BioPharma Dive the biologics license application for Luxturna was nearly 60,000 pages long, but most was filled with information pertaining to manufacturing, not clinical data. He went on to explain how developing nonexistent gene therapy manufacturing talent and know-how from the ground up was the most challenging aspect of it all.

AveXis is learning similar lessons and is now eager to apply them at scale. The gene therapy pioneer recently acquired a 700,000-square-foot biologics manufacturing facility in Colorado. It will be the largest of the company's four facilities, which will collectively accommodate more than 1,000 manufacturing jobs by the end of 2019. As the company noted to investors:

AveXis has now established leading technical manufacturing capabilities with the capacity to deliver our robust pipeline, as well as the flexibility to enter into multiple external partnerships as the development and manufacturing partner of choice in gene therapy. 

If AveXis maintains its leadership position in gene therapy manufacturing and rents out its spare capacity to others in the industry, then Novartis shouldn't have much difficulty reaping returns on its nearly $9 billion investment -- just not for the reasons Wall Street expected. The business could generate more revenue from manufacturing services than Zolgensma.

Biogen's proposed acquisition of Nightstar Therapeutics also came down to manufacturing. That's because the company's experimental gene therapies aimed at rare eye diseases require relatively low levels of the delivery vector, which lessens the manufacturing obstacles and risks. The company says it plans to utilize a global network of manufacturing partners to create its products, although a distributed manufacturing network could prove risky, too.

A businessman with his head in the sand.

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Investors cannot overlook manufacturing

Once aware of the importance of manufacturing, investors who take a closer look at recent developments in the gene therapy space will notice it again and again, even if it doesn't seem obvious at first glance. For example, when Amicus Therapeutics (NASDAQ:FOLD) announced a $150 million public stock offering in May, it said the funds would be used to expand manufacturing capabilities, secure contract manufacturing partnerships, and complete the design and building of its own gene therapy manufacturing facility.

Sarepta Therapeutics (NASDAQ:SRPT) gained firsthand knowledge of the risks posed by gene therapy manufacturing. One of its most important gene therapy candidates was placed on a clinical hold after trace amounts of DNA fragments were discovered in a manufacturing lot. The clinical hold was later lifted by the FDA, but the gene therapy developer announced a long-term partnership with gene therapy manufacturing leader Paragon Bioservices shortly thereafter to show investors it was keen to de-risk its future. Paragon Bioservices, which expects to generate $200 million in revenue in 2019, was scooped up by drug manufacturer Catalent (NYSE:CTLT) for $1.2 billion months later.

Simply put, innovative biologic drugs may grab all of the headlines, but companies are scrambling to develop or acquire the scarce bioprocess engineering and biologics manufacturing expertise required to monetize biopharmaceutical R&D. It's played a significant role in recent acquisitions in the gene therapy space and broader cellular medicines space (Kite Pharma's manufacturing prowess played a significant role in its acquisition by Gilead Sciences), as well as recent fundraising activities. Considering manufacturing is likely to make or break the investment case for gene therapy developers, investors cannot overlook it when poring over the industry.