Codexis Is Chasing a Blockbuster Opportunity. Can It Compete With Gene Therapies?

Genetic medicines and cellular therapies have an enormous potential to treat, and possibly cure, currently untreatable diseases. Nonetheless, it's important for investors to remember that "simpler" treatment options won't become obsolete just because gene therapy, gene editing, and immunotherapy approaches are becoming feasible.

Investors are hoping that the 'simple is better' approach proves true for Codexis (CDXS -5.36%). The company's first drug candidate, the enzyme-based CDX-6114, is being developed to treat a rare disease called phenylketonuria (PKU). Can the simpler approach of Codexis compete with a growing list of gene therapies that are also targeting the disease?

Image source: Getty Images.

An enzyme engineering platform with broad applications

Codexis isn't a biopharmaceutical company. It has developed a platform for engineering enzymes, which are complex molecules that power virtually all biological processes in living cells. Enzymes can also be added to industrial processes, health diagnostics, and consumer products to reduce energy consumption, lower input requirements, improve functionality, and eliminate toxic wastes. 

Today, the company generates most of its revenue from three sources: selling enzymes that improve drug manufacturing processes, selling enzymes that improve the manufacturing process for a zero-calorie sweetener ingredient from Tate & Lyle, and selling licenses to its enzyme engineering software platform. But Codexis is also eyeing a large opportunity in developing novel therapeutics. 

In late 2017, Codexis and Nestle Health Science, owned by Nestle, entered into an agreement to develop rare-disease drug candidates. The goal is to engineer enzymes that can be administered orally, rather than injected or given intravenously, which would provide a significant advantage in cost and convenience relative to treatments for many rare diseases.

Designing medicines that can be taken orally may not sound very novel, but enzyme-based treatments are typically degraded as they journey through the gastrointestinal (GI) tract. That requires enzymatic medicines to be administered subcutaneously, which can trigger severe allergic reactions and doesn't efficiently deliver them to the liver, where they're most effective. Therefore, Codexis must engineer enzymes that are stable enough to make it through the GI tract so they can be transported into the liver -- a capability uniquely accessible to Codexis.

The first asset to advance into clinical trials was the experimental PKU treatment called CDX-6114. Individuals born with PKU have a nonfunctioning copy of the enzyme phenylalanine hydroxylase (PAH) that metabolizes the amino acid phenylalanine (Phe). When Phe accumulates to dangerous levels, it can cause significant intellectual disabilities in newborns and mental impairments in adults. Individuals must follow a strict (and expensive) diet that limits daily protein intake to just five grams and avoids the artificial sweetener aspartame, which breaks down into Phe. CDX-6114 was designed to help individuals metabolize Phe and live a normal lifestyle.

In early 2019, Nestle Health Science, which sells many nutritional products for PKU patients, exercised an option granting it exclusive rights to develop and commercialize CDX-6114. Codexis is eligible to receive up to $85 million in remaining development and approval milestones, up to $250 million in revenue milestones, and royalties on sales. 

For comparison, Codexis generated $44 million in the first nine months of 2019. While the industrial business is growing, achieving success with the therapeutic pipeline could provide a significant boost. Will gene therapies stand in the way? 

Image source: Getty Images.

What's at stake for CDX-6114 in PKU?

The hypothesis supporting the collaboration between Codexis and Nestle Health Science is pretty simple to understand: Many rare diseases are caused when individuals fail to make a specific functioning enzyme, so treatments that provide a working copy could prove valuable. Of course, that's the exact hypothesis supporting the industry's pursuit of genetic medicines. 

Whereas Codexis wants to provide an enzyme substitute through an orally available drug, a gene therapy aims to provide direct replacement of an enzyme by potentially fixing the genetic error at the root of a disease.

It might be tempting to think that gene therapy is the ideal solution for PKU, but not every gene therapy will succeed in providing a cure. If a gene therapy only partially succeeds in replacing adequate levels of the gene responsible for producing the PAH enzyme, then individuals might still be dependent on strict diets and imperfect treatment options. Simply put, barring the successful development of a curative gene therapy, the enzyme-based approach of Codexis and Nestle Health Science could be a competitive option. 

It's not much of a competition at the moment, as there's not much to compare. CDX-6114 is being studied in a phase 1b study, while early-stage results for gene therapies have been unimpressive or non-existent.   

Data sources: Codexis, Homology Medicines, and BioMarin.

Despite the early-stage nature of the industry's pipeline, the opportunity is large and the bar is relatively low. 

Individuals with PKU currently have two main drug options: Kuvan and Palynziq. The two drugs, both sold by BioMarin, generated combined revenue of $396 million in the first nine months of 2019. But they're only partial solutions. 

Kuvan is a coenzyme that can help to break down Phe, but it only works for individuals with milder PKU and comes with a relatively long list of side effects. It still generated $341 million in revenue in the first nine months of 2019. 

Palynziq is a newer therapy. It's a substitute to working PAH enzymes required to metabolize Phe, but the drug can take up to 12 months to begin working and triggers significant side effects in most people. It comes with a black-box warning for severe allergic reactions (observed in 9% of individuals in clinical trials), requires daily injections, and costs $192,000 per year. While doctors have been generally impressed with results for patients that stick with treatment, there's much room for improvement.  

Competition is heating up, but investors must keep their cool

Codexis is hoping that CDX-6114 can provide a convenient and safe enzyme-based treatment option for individuals with PKU. If the asset demonstrates promising clinical results in an ongoing phase 1b trial, then it could begin to factor into the pharma stock's price and the company's market valuation. After all, analysts expect Palynziq to generate over $1 billion in peak annual sales despite the drug's inconveniences and safety issues, and Codexis is valued at just $1 billion today.

However, investors do need to keep track of genetic medicines in development at Homology Medicines, BioMarin, and any other companies that throw their hats into the ring (RNA interference seems uniquely suited for a PKU treatment, but no such drugs are in development yet). If genetic medicines demonstrate a consistent safety profile and provide a cure for most individuals with PKU in early clinical trials, then CDX-6114 might have its market potential severely reduced before it even leaves the clinic. If genetic medicines only provide partial solutions, then the details and nuance might determine which approach, if any, will dominate the market.

The next batch of results from each company is likely to be available before the end of 2020, which means investors will learn quite a bit about the shape of the competitive landscape soon.