An Important History Lesson for Gene-Editing Investors

The history of biotechnology is full of examples of promising technologies that took decades to reach their full potential. Two recent cases are weight-loss drugs and antibody-drug conjugates (ADCs), which are now generating blockbuster sales and attracting major deals after years of setbacks and failures. Gene editing is another technology hailed as a game-changer for human medicine, but it still faces several challenges before it can deliver on its promise. The long and volatile history of the weight-loss/ADC markets should prove useful to gene-editing investors. Read on to find out more.

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Weight-loss drugs: A long and winding road to commercial success

Obesity is a major public health problem that affects millions of people worldwide and increases the risk of many chronic diseases. However, developing effective and safe weight-loss drugs has been notoriously difficult. In the early 1990s, a handful of drugs were readily available for weight loss, but they soon ran afoul of regulators due to serious side effects, such as heart-valve damage and pulmonary hypertension. In the 2010s, a new wave of weight-loss drugs emerged, but they also had limited efficacy and safety issues, resulting in low market penetration and patient adherence.

In 2021, the tide turned for weight-loss drugs with the Food and Drug Administration (FDA) approval of Wegovy by Novo Nordisk (NVO 2.53%). Wegovy is a once-weekly injection of semaglutide, a drug that was originally developed for type 2 diabetes. Novo Nordisk's next-generation weight-loss drug has been well received by doctors and patients. As a result, some analysts predict it could generate a whopping $50 billion in annual sales at peak, putting it in the running to be the best-selling drug of all time.

Another success story in the weight-loss space is Zepbound by Eli Lilly (LLY +0.27%), which is a once-weekly injection of tirzepatide, another drug that was originally indicated for type 2 diabetes. Zepbound was recently approved by the FDA for obesity and showed an average weight loss of around 18% in clinical trials. Zepbound is also projected to become a megablockbuster drug within the next few years. Despite multiple setbacks in obesity care over the past three decades, these two next-generation drugs show that weight-loss medications can indeed be safe and effective.

ADCs: A success story 60 years in the making

Antibody-drug conjugates (ADCs) are targeted anti-cancer therapies that combine an antibody that recognizes a specific protein on the surface of cancer cells and a toxic payload that kills them. The concept of ADCs dates back to the 1960s, but it took 40 years for the first ADC to be approved by the FDA in 2000. That drug was Mylotarg (gemtuzumab ozogamicin) by Pfizer (PFE 1.05%), which was used to treat acute myeloid leukemia (AML). However, Mylotarg was withdrawn from the market in 2010 due to safety concerns and lack of a clinical benefit in a confirmatory trial.

The next breakthrough for ADCs came in the 2011 to 2013 time frame when two drugs were approved for different types of cancer: Kadcyla by Roche (RHHBY +0.72%) for HER2-positive breast cancer and Adcetris by Seattle Genetics (now known as Seagen) for relapsed Hodgkin lymphoma and relapsed systemic anaplastic large cell lymphoma. These two drugs showed improved efficacy and safety over conventional chemotherapy, and became the first commercially successful ADCs. Since then, several more ADCs have been approved for various malignancies, such as bladder, ovarian, gastric, lung, and breast cancers.

The market for ADCs has grown rapidly in recent years, reaching $4.3 billion in 2020. It is expected to blossom into a $20 billion market by 2028 as more ADCs are developed and approved for more indications. The space has also seen a tremendous amount of deal activity in recent years, with AbbVie's $10.1 billion deal for ImmunoGen being the latest example. This merger and acquisition (M&A) bonanza in the ADC space took decades to come to fruition, but there's little doubt the field will continue to be a hotbed of acquisition activity for the foreseeable future.

What can gene-editing investors learn from these examples?

Gene editing is a technology that allows scientists to make precise changes in the DNA of living cells. It has been widely touted as a revolutionary tool that could enable new treatments for genetic diseases, cancer, infectious diseases, and more. Although the first CRISPR-based product in history reached the market this year, the field as a whole is still very much in its infancy.

This fact has led to a stomach-churning level of volatility among stocks tied to CRISPR and related forms of gene editing, such as base and prime editing over the last few years. The table below lays this point bare.

MC = Market Capitalization. Data courtesy of Ycharts. *Percent decline in the total market cap from peak to current among these high-profile gene-editing stocks.

The total market capitalization among the field's best-known players has declined by 72% from its all-time high at the time of this writing. Moreover, this dramatic revaluation has occurred despite CRISPR Therapeutics (CRSP 2.18%) landmark regulatory approval this year, along with a handful of notable investments from heavyweights such as Eli Lilly, Pfizer, Regeneron Pharmaceuticals, and Vertex Pharmaceuticals over the past few years.

Investing takeaway

The history of weight-loss drugs and ADCs shows that biotech innovation is not a linear process but a complex and dynamic one that requires a tremendous amount of patience. However, for those who do decide to take the long view with gene-editing stocks, the payoff could be truly life-changing.

After all, CRISPR Therapeutics is targeting a wide array of indications that could be worth tens of billions in future sales, and next-generation techniques like prime editing could broaden the technology's applicability beyond rare diseases -- an endeavor that may one day unlock hundreds of billions in annual revenue.

That's an exceptionally intriguing value proposition, given the total market cap of these gene-editing pioneers presently stands at a meager $13.4 billion.