No CEO should be evaluated on their company's stock performance in a single year. Strategies often take several years to play out. When a company's fortunes depend on drug development, the timeline can be even longer. That's why no investor should take it too hard that Galapagos NV (GLPG 1.55%), Sage Therapeutics (SAGE -1.77%), and bluebird bio (BLUE 0.67%) have had a rough year.
The stocks could have wildly different outcomes in 2021, although recent developments make it seem like they are as likely to stage a comeback as they are to throw in the towel. During the holiday season, parents often tell misbehaving kids that Santa won't bring them what they want for Christmas. With share prices down dramatically from all-time highs, let's find out why shareholders of these three biotechs are getting coal in their stockings this year.
If you asked investors in July 2019, they probably would have been surprised to see Galapagos on a list like this one. Spirits were high at that time, as Gilead Sciences (GILD 0.17%) had just made a $5.1 billion investment in Galapagos for its research pipeline including filgotinib, the company's arthritis drug now marketed as Jyseleca. Although the drug was approved in Europe and Japan, the U.S. Food and Drug Administration rejected it due to toxicity concerns and doubts about the risk/benefit profile at dosage levels in the study.
The FDA's action will push approval out at least a year -- that is -- if Gilead wants to keep up the effort. Even if the drug were to make it through the regulatory gauntlet, it would face stiff competition from AbbVie's (ABBV -0.06%) Rinvoq, which gained approval in 2019. Galapagos has run more tests to allay the concerns, and if successful, Gilead could refile for approval next year. But today's investors don't seem confident. Shares in Galapagos are down 42% this year.
2. Sage Therapeutics
Zuranolone, Sage's drug that helps treat depression, failed a phase 3 trial in 2017. That was strike one. Last December, shares fell nearly 60% in a day after the drug once again failed a clinical trial. That was strike two. At one point in 2020, shares of Sage were down 86% from their 2019 highs. Clearly not quitters, management restructured to conserve cash, and launched three new phase 3 studies of the drug as a treatment for major depressive disorder and postpartum depression. Then, a funny thing happened on the way to the results expected next year.
In November, Biogen (BIIB -0.86%) injected $1.5 billion into the company to jointly develop and commercialize zuranolone. Shares sold off on the news but still sit about where they began 2020. The stock is up 160% since the beginning of April. For its money, Biogen earns 50% of profits in the U.S., and shoulders the costs in most non-U.S. markets while paying royalties to Sage from any sales. While one analyst applauded Biogen for "getting the milk without having [to] buy the whole cow," Sage shareholders are on the other end of that colorful analogy. Three years after the first failure of zuranolone, the best shareholders can now hope for is to share any windfall with Biogen.
3. bluebird bio
Bluebird bio is trying to cure sickle cell disease and beta thalassemia through gene therapy. Despite the company's LentiGlobin product showing promise in clinical trials, bluebird's stock is down 50% in 2020 and more than 80% from all-time highs in 2018. The therapy candidate is essentially a stem cell transplant that takes a functioning gene, inserts it into the patient's harvested stem cells, and then reinserts those stem cells into the body.
After receiving approval in Europe, as well as both fast-track and breakthrough designation from the FDA, progress has been slow due to pricing negotiations, COVID-19 constraints, and an FDA request for the company to prove it can scale up from clinical trials. Bluebird also ran afoul of the FDA in May for the same issue, when the agency refused to review the application for ide-cel -- a CAR-T therapy for multiple myeloma being developed with Bristol Myers Squibb (BMY 0.76%). Although bluebird still plans to file for approval of LentiGlobin in mid-2021, the delays are costing the company its head start in the race for a cure. CRISPR Therapeutics (CRSP -0.88%) and partner Vertex Pharmaceuticals (VRTX 0.86%) have received advanced therapy designation for their cure using gene editing to target the same diseases. If CRISPR and Vertex get there first, shareholders might as well forget next Christmas too.