Investment Institute

How genetics innovation has expanded biotech investment opportunities

  • 23 June 2023 (3 min read)

Key points: 

  • Genetics has formed the basis for a range of new treatments and drugs from the biotech industry
  • Targeted therapies have changed the outlook for patients suffering from several diseases including cancer
  • The innovation and ongoing development of new drugs present potentially compelling long-term investment opportunities

From cancer and heart disease to rarer but equally devastating diseases, the development of life-saving treatments has been turbo-charged in recent years by our improved understanding of one key area of medicine – genetics.

From the discovery of DNA structure and the completion of the human genome project – both of which celebrated milestone anniversaries in April – to the exciting innovations taking place today, genetics has formed the basis for numerous successful drugs.

In the narrower field of gene therapy specifically, around 400 therapies were in development in 2022. These were projected to comprise around 20% of new pharmaceutical product launches by 2025.1

What’s more, the use of genetics to select patients for certain treatments has been found to have a higher success rate than when preselection biomarkers are not used.2

We believe this rapidly growing area of biotech continues to create exciting long-term investment potential.

Genetics in cancer 

The therapeutic area which has arguably been most positively impacted by genetics’ breakthroughs is oncology – the diagnosis and treatment of cancer. The fact genetic changes or genetic differences underlie many cancers has meant that effective drugs can be designed to target these specific changes and differences. These drugs are commonly termed ”targeted therapies” and more than 180 cancer therapies which specifically target the genetic faults have been approved in the US.3

Breast cancer is the most common form of cancer4 and an area where we have seen great strides in treatment. Identification and measurement of HER2, a cell surface receptor found in breast cancer cells, have allowed for the development of several drugs to target this specific disease.

Herceptin is probably one of the world’s best-known targeted cancer therapies. Approved 25 years ago, it achieved annual sales of around $7bn before competitors entered the market.5 It has dramatically changed the disease and survival outlook for women with HER2-positive breast cancer.

More recently Daiichi Sankyo and AstraZeneca have developed Enhertu, also for patients with HER2-positive breast cancer. This drug has shown broader clinical success including improved survival rates, with its recent clinical data warranting a standing ovation when presented to cancer specialists at last year’s American Society of Clinical Oncology annual meeting for its practice-changing potential for treatment of breast cancer.6 Currently, analysts forecast sales potential of at least $5bn in 2026,7 making it another potential commercial blockbuster for the companies involved.        

Deeper innovation

Another innovative drug making waves in the biotech sector, with the potential to improve patient outcomes is Darovasertib from Ideaya, a small-cap oncology-focused biotech firm. The company has gathered what is describes as “compelling” early-stage data for its drug in metastatic uveal melanoma (MUM) – a cancer of the eye which can mean patients lose their eyes, while the cancer can also spread to the liver – which affects over 14,000 people in the US and European Union.8

Some 95% of MUM patients have a common genetic mutation that drives the cancer growth which Darovasertib targets.9 If the drug continues to show efficacy in later stage trials, this could then offer a meaningful treatment option for patients – and current estimates suggest a $500m commercial opportunity for Ideaya.10

Targeted oncology therapy has been an accessible area of clinical development for smaller biotechnology companies and their investors too. In general, higher efficacy and the ability to select patients whose genetics indicate they are more likely to see a benefit can potentially provide a more cost-effective opportunity with a higher probability of success.

We have also seen smaller companies in this field account for a large proportion of merger and acquisition targets in recent years, as larger oncology-focused biopharmaceutical companies look to add products into their research and development pipelines. 

Genetics in neurology

Genetics is also thought to be at the root of many neurodegenerative conditions though the industry’s understanding of the genetic basis for these types of diseases is at an early stage. Even so, there is much to be excited about if genetics can be used to treat neurological conditions as it has for oncology.

The US Food and Drug Administration recently approved Ionis/Biogen's drug Tofersen as the first to treat a genetically-defined subgroup of patients with amyotrophic lateral sclerosis (ALS) – a condition also known as motor neurone disease. The drug could offer a therapeutic option for ALS patients with a certain genetic mutation known as SOD1, who have few other treatment options. While it is likely to have limited commercial opportunity given the small patient number, it potentially opens the door to further development of genetics-based neurodegeneration drugs.

Elsewhere, Denali Therapeutics has been a pioneer in this area. Along with its large-cap partners including Biogen, Sanofi, and Takeda, the company has several later-stage clinical drug candidates for diseases like ALS, Parkinson’s disease, and Alzheimer’s disease. 

Genetics in the most common and rarest diseases

Globally, cardiovascular disease is one of the biggest killers, with lipids – such as cholesterol – one of the key contributors. Lipid-lowering drugs have been very effective in reducing risk for many people who may be susceptible to heart disease. However, there are other risk factors and causes of cardiovascular disease that have been identified, and biopharma companies have used their understanding of genetics to design drugs which specifically target the underlying production of a number of these disease proteins.

For example, Alnylam and Ionis/AstraZeneca are developing drugs that prevent the toxic build-up of protein in TTR-cardiomyopathy, which makes it harder for the heart to pump blood around the body; potential sales are estimated at over $5bn.11

Meanwhile Ionis/Novartis, Amgen/Arrowhead, and others are creating drugs to reduce production of Lp(a) and apoC-III, both proteins that are implicated in heart attacks. If successful, these also have the potential to be meaningful commercial breakthroughs – and what these drugs have in common is that they all work through preventing the production of proteins by targeting the genetic code.  

At the other end of the spectrum, there are hundreds of often rare diseases caused by a single mutation in the genetic code. There are likely many more currently unknown. Recently, a huge UK-based 10-year study on developmental disorders analyzed the genetic codes of more than 13,500 families where children had unexplained conditions, and successfully provided 5,500 with a diagnosis. In the process 60 new diseases were identified.12

Academics and companies have been investigating ways to disrupt or correct faulty genes and thus treat these conditions for many years. While there have of course been challenges along the way, we now have several genetic medicines approved that are effective in treating conditions like spinal muscular atrophy and a specific inherited form of childhood blindness with a single infusion.

Regulators in Europe and the US have also recently approved a gene therapy from CSL and uniQure to treat hemophilia B, a blood clotting disorder that affects one in 40,000 males.13 We expect imminently a much-anticipated US approval for BioMarin’s gene therapy to treat hemophilia A, which has five times the number of patients. Here, the one-time infusion replaces a missing gene that produces a protein critical in blood clotting. Collectively, these therapies can potentially provide a ”one and done cure” option for patients, though how the companies involved will price this innovation and what patients will pay is yet to be determined. 

The future of genetics

We expect the first gene-editing drug to be approved this year, taking genetic medicines one step further. Exa-cel, from Vertex and CRISPR Therapeutics, is intended as a one-time treatment that could be life-changing for patients with beta thalassemia or sickle cell disease.  

These treatments and drugs give just a brief glimpse at the innovation that is taking place in the biotechnology sector today. Companies across the industry are harnessing genetics to develop their pipelines, building on the advances of the last 70 years to remain at the cutting edge today. We believe that more diseases will find new treatments and perhaps even a cure – and for long-term investors, there is also the scope to potentially reap rewards while funding this vital innovation.


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Risk Warning

Investment involves risk including the loss of capital. Companies shown are for illustrative purposes only. It does not constitute investment research or financial analysis relating to transactions in financial instruments, nor does it constitute an offer to buy or sell any investments.

The information has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. This analysis and conclusions are the expression of an opinion, based on available data at a specific date. Due to the subjective aspect of these analyses, the effective evolution of the economic variables and values of the financial markets could be significantly different for the projections, forecast, anticipations and hypothesis which are communicated in this material.

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