Investors often like to be on the cutting edge of new developments, and it doesn’t get much more cutting edge than gene therapy and editing. The ability to make changes to a person’s DNA — the literal building block of life — sounds like science fiction, but it is quickly becoming a reality.
The first gene therapy was approved in Europe in 2012 after two decades of failed attempts. Today, there are 27 approved gene and cell therapies in the U.S. and more than 2,300 in clinical trials.
Related: Sign up for stock news with our Invested newsletter.
“We’ve seen the pipeline of treatments for genetic diseases like sickle cell disease, but also certain types of cancer — just in December, the FDA approved the first gene therapy for bladder cancer,” says David Barrett, CEO of the American Society of Gene and Cell Therapies. “We have members working on using gene-editing tools like CRISPR for diagnostics, and we’ve seen the success of mRNA vaccines for COVID-19. Now our hope is that these types of vaccines can be similarly as effective for HIV, herpes, environmental allergies and more.”
As the global population ages, the demand for health care is only going to increase, and with it the need for health care innovation, says Jeff Spiegel, U.S. head of iShares Megatrend, International and Sector ETFs. The gene-editing market is expected to reach $19.4 billion by 2030, growing at a compound annual rate of about 14.7%, according to a market research report by Market Research Future.
Gene therapy and gene editing aren’t only used for health care, either: Agriculture is another key driver as farmers and ranchers strive to grow more sustainable and disease-resistant food. If you’re now thinking about the controversy over GMO crops, you’re hitting on a key concern in the genomics space.
Gene therapy and editing are still in the experimental stage, and their long-term safety and efficacy are not fully understood. These treatments have the potential to revolutionize medicine and help create a more sustainable agricultural system, but they also raise ethical and social concerns around manipulating genomes. Just because science can do something, does that mean it should?
These concerns could create roadblocks to what may otherwise be a lucrative industry and, by extension, investment opportunity. Here are some key things to know about this exciting megatrend:
— What are gene therapy and gene editing?
— Barriers to the gene therapy and editing market.
— Investing in gene therapy and editing.
What Are Gene Therapy and Gene Editing?
Gene therapy and gene editing are two related but distinct approaches to manipulating genetic information. To understand the distinction between these two, it helps to first define a gene.
Genes are the operating manuals for life. If you want to understand how an organism works — or why it doesn’t work — look to its genome.
“This is an incredibly exciting time for investors in areas like genomics, but it’s also an incredibly exciting time for society to be able to have populations living longer. We’re starting to foresee ways to treat diseases that were untreatable in years past, so I think investors have to be taking notice.” — Jeff Spiegel, U.S. head of iShares Megatrend, International and Sector ETFs
The latest research suggests that there are between 20,000 and 25,000 genes in every cell of the human body. Coded within your genes are the instructions for how your body does what it does. When everything works as it should, you’re able to live and function to the best of your abilities. But just one mutation within that genome can wreak havoc on your health.
Scientists have identified more than 10,000 diseases caused by a mutation in a single gene. These diseases can range from relatively benign, such as red-green color blindness, to fatal illnesses like Huntington’s disease. As scary as this number may be, hope lies in the fact that if scientists can identify where the genetic code went wrong, they may be able to fix it through gene therapy and editing.
Gene therapy involves replacing or supplementing a missing or defective gene with a healthy one. This is most often done by replacing the disease-causing genes inside a virus with therapeutic ones. When the virus enters a cell, these therapeutic genes then provide new instructions for the cell.
Alternatively, gene editing directly edits existing pieces of DNA within a cell. One of the most widely used techniques for gene editing is the CRISPR-Cas9 system, which uses a guide RNA to direct an enzyme (Cas9) to a specific location in the genome where it can make precise cuts in the DNA. These cuts can be used to delete or replace specific genes, or to introduce new genetic material into the genome.
“Often gene therapies are permanent cures,” Spiegel says. One dose of these treatments and you could be set for life. Because of this, however, they also tend to be expensive treatments.
The average cost of a gene therapy treatment is around $1 million to $2 million, according to the Institute for Clinical and Economic Review. A one-time gene therapy for spinal muscular atrophy, which is usually fatal by age 2, priced at $2.125 million, has been labeled possibly the most expensive drug ever.
For investors this raises two questions: First, can anyone afford such lofty price tags? And second, if they can, who stands to profit from it?
READ: Megatrends: AI and Robotics
Barriers to the Gene Therapy and Editing Market
A major hurdle for gene therapy and editing is cost. “Many gene therapies require viral vectors to deliver genetic material,” Barrett says. “These vectors are highly specialized; they are time-consuming and expensive to manufacture; and there is a bottleneck of manufacturing facilities, materials and expertise needed for manufacturing.”
Gene therapies are expensive. So expensive they could be called exorbitant. For a market to thrive, it needs customers who can afford to buy its products. But who besides the extremely wealthy can afford a $2 million treatment?
The health care system is simply not fully equipped to handle the anticipated approvals of new gene therapy products, Barrett says.
“The upfront cost of these therapies contrasts with chronic care treatment, which may incur costs throughout the life of a patient,” he says. “What we are seeing is a system built more than 40 years ago trying to accommodate coverage for therapies that were nearly unimaginable at the time.”
Social impact organizations like Roivant Social Ventures and foundations like the Bill and Melinda Gates Foundation are teaming up with key industry players, such as health care research and development company Novartis, to help make these treatments more accessible. Meanwhile, organizations such as the American Society for Gene and Cell Therapy are working to pave a path through regulatory barriers. But there is still a long way to go.
That said, these are curative therapies for potentially fatal diseases whose sufferers have no other options. “We cannot allow administration or insurance coverage to stand in the way of potentially life-saving treatments,” Barrett says. But the timeframe for treatment availability will depend on the “willingness of policymakers to approve changes to the existing system.”
Progress is happening, however. The Department of Health and Human Services recently announced plans to pilot the Cell & Gene Therapy Access Model to test a partnership between CGT manufacturers and Medicaid agencies. The model would create a new financing approach for Medicaid patients.
Investors should also keep in mind that the clinical trial path is a rocky one. Only 10% to 20% of drugs in clinical trials make it to market. So while there has been an influx in biotech and health tech funding in recent years — these industries combined saw a record $143.5 billion of new funding in 2021 alone — as an investor in this space, it’s important to recognize that the future is anything but certain.
“Anytime you’re going to invest in a really targeted strategy, you should expect more volatility,” Spiegel says. “With innovation, it’s harder to think what’ll happen this year or next year, but easier over five or 10 years.”
He points to iShares’ Genomics Immunology and Healthcare ETF (ticker: IDNA), which took a beating in 2022.
“That had very little to do with specific drug companies or drugs being developed and a lot to do with the broader market feeling less favorable to companies that don’t have high current profitability,” Spiegel says.
This underpins the importance of taking a long-term view when investing in such novel industries.
“Think of these solutions as long-term strategies to buy the trend over time rather than just to make a trade,” Spiegel says.
Investing in Gene Therapy and Editing
So you’re convinced the future is in gene therapy and editing. The next question, then, is how you can profit from these advancements.
Investors have a few possible approaches: Invest directly in the companies poised to benefit or use exchange traded funds, or ETFs, to take more of a blanket approach.
If you opt for the former, you’ll want to look at how exposed the company is to gene editing or therapy, Spiegel says. In other words: How much revenue does it derive from genetic treatments?
What constitutes a satisfactory answer to that question will depend on your preferences. For instance, to be included in its Genomics Immunology and Healthcare ETF, iShares managers require a company to derive at least 50% of its revenue from the industry.
Top gene-editing stocks to consider include:
— CRISPR Therapeutics AG (CRSP). This Swiss-American biotech company focuses on using CRISPR technology to develop transformative gene-based medicines. Clinical trials are underway for a gene-editing treatment for sickle cell disease and transfusion-dependent beta thalassemia created in partnership with Vertex Pharmaceuticals Inc. (VRTX).
— Beam Therapeutics Inc. (BEAM). American biotech company Beam also uses CRISPR technology with a focus on blood and cancer disorders. It has three sickle cell treatments in clinical trials.
— Intellia Therapeutics Inc. (NTLA). This clinical-stage biotech company develops gene-editing products. It has several drugs that treat both genetic and autoimmune diseases in its pipeline.
The enduring challenge with stock picking is having enough confidence that the names you choose will succeed. While CRSP, BEAM and NTLA may look promising today, one unsuccessful clinical trial or run-in with the FDA could wipe out future profits.
The best way to mitigate this systemic risk is through diversification, which is where genomics ETFs come into play. With an ETF, you can gain access to dozens of biotech companies for less than the price of one share of many of the individual companies included in the fund. You also get the benefit of having a professional fund manager do the research and selection legwork.
Top gene therapy and editing ETFs include:
— ARK Genomic Revolution ETF (ARKG). This is an actively managed ETF that is focused on companies expected to benefit from incorporating genomics into their business. Included in its 46 holdings are CRSP, BEAM and NTLA.
— iShares Genomics Immunology and Healthcare ETF (IDNA). A passively managed ETF that tracks the NYSE FactSet Global Genomics and Immuno Biopharma Index, IDNA holds companies that could benefit from the long-term growth and innovation in genomics, immunology and bioengineering. It also counts CRSP, BEAM and NTLA among its 52 holdings.
— Global X Genomics & Biotechnology ETF (GNOM). This ETF tracks the Solactive Genomics Index, which targets companies that could potentially benefit from advances in genomics, including gene therapy and editing. CRSP, BEAM and NTLA are among its 40 holdings.
“This is an incredibly exciting time for investors in areas like genomics, but it’s also an incredibly exciting time for society to be able to have populations living longer,” Spiegel says. “We’re starting to foresee ways to treat diseases that were untreatable in years past, so I think investors have to be taking notice.”
More from U.S. News
7 Ways to Invest With a Weakening U.S. Dollar
What OPEC+ Oil Production Cuts Mean for Investors
10 ETFs to Build a Diversified Portfolio
Megatrends: Gene Therapy and Editing originally appeared on usnews.com
