Gene Therapy Pullback Looks Like Opportunity to Some Investors
Gene therapy setbacks have discouraged many investors. But not everyone is giving up on the sector.
- Investors have turned from gene therapy to areas like obesity amid commercialization concerns.
After a rush of funding into gene therapies earlier this decade, investors have pulled back amid concerns about their commercial viability. But while many retreat from the sector in favor of safer bets, a few are seizing opportunities amid the tumult.
“In retrospect [the earlier boom] looked like a period of irrational optimism,” said Stephen Majors, vice president of global communications and investor relations at the Alliance for Regenerative Medicine, an industry group. Now, he added, “we’ve entered a period of irrational pessimism.”
Over the past decade, gene therapy – treatments which tackle the root cause of inherited disorders by introducing a working gene in place of a faulty one – has come of age. Since 2017, about a dozen gene therapies have been approved in the U.S. and Europe for a range of rare diseases, delivering life-changing results for patients.
In recent months, however, the industry has experienced significant growing pains.
Pfizer stopped selling its hemophilia B gene therapy, citing limited interest from patients and doctors, while Bluebird Bio was taken private in a deal worth $30m – a fraction of its one-time market valuation of around $10bn – after struggling to commercialize three therapies it successfully developed. Roche, meanwhile, restructured its gene therapy unit amid lackluster sales of its treatment for a type of vision loss.
One of the main challenges is the cost. These one-time therapies typically come with multimillion-dollar price tags but offer healthcare systems potential cost savings over the long run by reducing or eliminating the need for expensive lifelong care. Payers in some cases have balked at these sums and refused to cover the therapies.
“There’s a growing recognition that the commercialization concerns need to be addressed early on,” Majors said. “That’s something investors are also looking at more closely.”
Those setbacks have given investors cold feet as they realize that it takes more than cutting-edge science to achieve success. In 2024, gene therapy companies raised around $4bn in venture funding, less than half of the $10.7bn that poured into the sector at its 2021 peak, according to PitchBook. Investment has remained sluggish, with just $1.7bn raised in the first six months of this year.
Venture Capital Investment in Gene Therapy
Where many investors see pitfalls, others see potential. The sector is expected to expand as more gene therapies go on sale for an increasing number of diseases. Analysts predict that the market will grow to around $19bn by 2030, from $2.1bn in 2024, according to Majors, citing an analysis by Deloitte. In some countries, payers are seeking innovative ways to pay: Medicare and Medicaid in the U.S., for example, are striking deals tying payments to results for therapies targeting sickle cell disease.
“We saw this period of investors refraining from investing in gene therapy as an opportunity for us to really go after the most impactful, differentiated and interesting angles,” said Daniela Begolo, a managing director on EQT’s life sciences team, which co-led a $135m financing round for gene therapy biotech SpliceBio in June.
By focusing on Stargardt disease, a disorder that usually leads to severe vision loss in children and young adults, SpliceBio may overcome obstacles that have tripped up other companies. With some diseases, such as hemophilia B, gene therapies are competing with well-established lifelong therapies that, while burdensome, are familiar to patients. There is currently no treatment approved for Stargardt’s.
While Stargardt’s is rare, it’s one of the most common inherited eye disorders, affecting around one in 10,000 people. Some gene therapy rollouts have faltered because they address disorders that affect such a small number of people that even strong uptake may not lead to blockbuster sales. The potential market size is a key attraction, alongside SpliceBio’s promising science.
“We felt that the technology was fit for the purpose, and the purpose was to bring the benefits of gene therapy to these patients for the first time, but also to unlock a significant market,” said Begolo, who is on the board of the Barcelona-based company.
Other gene therapy developers backed by EQT Life Sciences include AviadoBio, which focuses on dementia and neurodegenerative illnesses, and XyloCor Therapeutics, which is targeting cardiovascular disease.
Signs of a turnaround
There are successes to build on. Zolgensma, a gene therapy for a severe disorder that affects muscle development, became a blockbuster with annual sales topping $1bn within three years of its approval. Spinal muscular atrophy most commonly strikes in infancy and, without treatment, proves fatal by age two. Some of the first babies to receive Zolgensma, during clinical trials, are hitting their tenth birthdays, and around 95 percent of babies born with this condition are now treated with the therapy. Sarepta’s gene therapy Elevidys for Duchenne muscular dystrophy, a muscle-wasting disease that mainly affects young boys, is also on course to achieve blockbuster status.
Some large drugmakers are sticking with gene therapy, even as others shift their focus to booming areas such as obesity and cancer. AviadoBio got a boost last year from a deal with Japan’s Astellas Pharma worth up to $2.2bn, while Roche extended a strategic partnership with gene therapy company Dyno Therapeutics in a deal worth up to $1bn.
Majors points to the stock market as evidence that gene therapy companies are starting to attract investors’ attention again. Although they’re still generally trading at lower valuations than at their peak, they’re now more in line with the wider biotech sector. “Some investors have recognized the irrational pessimism, and they see an opportunity,” he said.
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