Landing a partnership with a huge drugmaker is monumental for a small biotech company. It provides a measure of validation for the small company's pipeline.
Voyager Therapeutics (VYGR -2.11%) has struck such a deal not just once but twice within the last six months. In October, Pfizer (PFE -3.24%) teamed up with Voyager. Earlier this month, Voyager announced another license agreement with Novartis (NVS 0.67%).
While these deals gained attention for Voyager, its market cap remains below $300 million. There are still many investors who aren't familiar with the company. But Pfizer and Novartis are betting on this under-the-radar biotech. Should you?
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Behind the attraction
Both Pfizer and Novartis appear to like the potential for Voyager's adeno-associated virus (AAV) capsid platform. AAVs have been used for several years to deliver gene therapies. However, they require high doses that are linked with serious side effects. As a result, the gene therapy landscape is littered with development setbacks and disappointments.
Voyager thinks that it has a solution to this problem. The company's TRACER (Tropism Redirection of AAV by Cell-type-specific Expression of RNA) platform has enabled it to develop capsids that hold the potential to penetrate the blood-brain barrier and target tissues with a laser focus. These capsids could offer much better delivery than conventional AAVs, with fewer toxicity issues.
Pfizer paid Voyager $30 million upfront with the potential for up to $600 million in additional payments. Voyager also stands to receive mid- to high single-digit royalties on net sales of any products resulting from the deal. Pfizer plans to use Voyager's AAV capsids in the development of gene therapies targeting neurologic and cardiovascular diseases.
Novartis will pay Voyager $54 million upfront and another $37.5 million within the next 12 months. Voyager could also receive up to $1.5 billion in milestone payments plus a similar level of royalties that it stands to get under the Pfizer licensing deal. Novartis is targeting three undisclosed central nervous system indications and has options for two additional targets.
Significant risks
The upfront payments for Pfizer and Novartis amount to pocket change for both companies. Pfizer is a money machine these days, thanks largely to its COVID-19 vaccine. Novartis racked up a $24 billion profit last year with multiple growth drivers. While the big drugmakers are placing bets on Voyager's TRACER capsid platform, those bets are relatively small.
Although Voyager's next-generation AAV capsids are promising, the company faces significant risks. The odds likely aren't in Voyager's favor.
Fewer than one out of 10 experimental drugs that are evaluated in phase 1 clinical studies go on to win U.S. Food and Drug Administration (FDA) approval, based on an analysis by the Biotechnology Innovation Organization. So far, none of Voyager's pipeline candidates have advanced from preclinical testing into clinical studies.
There are also some questions about Voyager's executive ranks. The company's board chairman, Michael Higgins, took over as interim CEO last year after Andre Turenne stepped down "to pursue new opportunities." Another member of the board, Glenn Pierce, assumed the role of interim chief scientific officer after Omar Khwaja resigned as chief medical officer and head of research and development. Voyager hasn't yet announced permanent replacements for either top position.
Wait and see
My view is that it's best to take a wait-and-see stance with Voyager. The company's risk level will decline if and when one or more of its pipeline candidates achieve success in clinical studies.
But for investors who want to roll the dice with the biotech stock, Pfizer and Novartis are following the best approach. Start with a relatively small position. If Voyager's AAV capsids score key clinical victories, add incrementally to the initial investment. The smartest bets are the ones that don't wipe you out if you're wrong.
