Last Updated on May 30, 2019 by Sultan Beardsley
On Friday May 24th, 2019 Novartis (NYSE: NVS) gained FDA approval of its gene therapy product ” Zolgensma® ” for spinal muscular atrophy (SMA), originally purchased from AveXis in 2018 for $8.7 billion. Priced at $2.1 million Zolgensma is the most expensive drug ever commercialized. In a single treatment for patients 2-years old and younger, Zolgensma replaces a life-time of chronic therapies. Before now, the only FDA approved gene therapy belonged to Sparks Therapeutics (NYSE: ONCE); acquired by Roche (OTCMKTS: RHHBY) in February 2019 for $4.8 billion. Zolgensma was developed using REGENXBIO Inc.’s (Nasdaq: RGNX) proprietary NAV technology platform.
About RGNX
REGENXBIO is a clinical-stage biotechnology company dedicated to developing curative gene therapies using their proprietary NAV vector platform technology. RGNX holds exclusive rights to over 100 adeno-associated virus (AAV) vectors. In addition to developing gene therapies internally, RGNX has revenues from licensing agreements with room to grow. As of March 31st, 2019 more than 20 product candidates were being developed through partnerships with 11 licensees. Big names aside from Novartis are Takeda (OTCMKTS: TKPHF) and Biogen (Nasdaq: BIIB). These agreements entail high potential monetary upside for RGNX via milestone payments, royalties, and sub-licensing fees.
Statistics
In the past year RGNX has traded between $38.56 and $85.10 and has a market cap of $1.67 billion. The company has 36.64 million shares outstanding, 28.66 million of which are float. The dilution rate between 2018 and 2019 was only 6% YOY (year over year). Something else I like is there is relatively high insider ownership at 15.7%; institutional ownership is high too at 83.65%. The top 3 stakeholders being Blackrock (13.31%), Vanguard Group (9.30%), and State Street Corporation (4.57%). Perspective Advisors further owns 3.13% of RGNX.
Internal Pipeline
Financials
As of March 31st, 2019 RGNX had $444.3 million cash, cash equivalents and marketable securities. Management projects this will be enough to fund operations for the next year. Revenue grew substantially from 2017 to 2018 from $10.4 million to $218.5 million. Moreover, the company actually turned a $125 million profit last year. Because all the revenue earned so far was from licensing agreements its subject to fluctuate significantly year to year. A quick glance at the latest quarterly report reflects confirmed this.
Revenue in 1Q19 was only $884,000 compared to $132 million in 1Q18. Now that NVS’s gene therapy is commercialized RGNX can begin to enjoy milestones and royalties related to Zolgensma sales. Approval on Friday triggered a $3.5 million milestone payment. Additionally, upon achievement of $1 billion in sales RGNX earns an $80 million commercial milestone payment. The company shall receive tiered royalties ranging from high single digits to low double digits. To date, RGNX has secured almost $190 million related to the development of Zolgensma. Furthermore, Zolgensma is being reviewed by European and Japanese regulatory bodies. I suspect approval in both regions would trigger additional milestones.
Investment Thesis
When Zolgensma was approved it proved that RGNX’s NAV platform could be used to create marketable gene therapies. That will make the company attractive not only to Novartis who is familiar with applying the technology, but other big pharma companies looking to get a foothold in the gene therapy market. The likes of which is projected to hit $5.50 billion by 2026 with a compound annual growth rate (CAGR) of 34% according to a Grand View research report published in April 2019.
Gene therapy technology is one of the hottest and most innovative areas in bioscience research. The goal of these programs is to replace a lifetime of treatment for rare genetic diseases with one, or a few treatments, of a gene therapy product. Let’s look at a couple of examples.
Mustang Bio (Nasdaq: MBIO) licensed a lentiviral gene therapy they named MB-107 for the treatment of SCID-X1, aka bubble boy disease. On 4/17/19 MBIO announced research from Saint Judes showing the therapy worked and sky-rocketed +200%. The share price has since came back down as Chris Stang anticipated would happen in his article. Sarepta Therapeutics (SRPT) is on track to have the first gene therapy approved in the U.S for Duchenne muscular dystrophy (DMD); a genetic disease characterized by muscle degeneration. They trade for a hefty $121 per share. As discussed earlier, Roche made a tender offer to buy Sparks Therapeutics (ONCE) for $114.50 per share in February. At the time, ONCE traded around $50.0 making for premium of 122%.
In short, RGNX is a revenue generating company with a robust pipeline, and validated gene therapy technology platform. Buy out or not, I am bullish on the future prospects for RGNX. If a buyout did occur I would put it between $120-150 per share (i.e. $4.4-5.5 billion).
RGNX CEO Speaking At A conference November 2018
I am long RGNX.
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