Breaking Down Barclays' New Bullish Calls On Biotech

Barclays initiated coverage of the U.S. small- and mid-cap biotechnology industry with a Positive view, as it expects the outperformance of the sector relative to the S&P 500 to continue in the next 12-18 months.

The firm's positive opinion was premised on three factors, namely phase 3 and pivotal data, novel therapies entering the market and continued M&A activity. The firm said it prefers companies that have already established a solid clinical profile and new commercial products.

Analysts Gena Wang, Xiaobin Gao and Geoff Meacham see de-risking clinical data for several novel therapies in the biotech sector and several approvals of novel therapies that could be disruptive to current treatment paradigms.

The analysts believe the best-positioned companies in their coverage universe are gene therapy companies that have shown impressive clinical data and are transitioning to commercial stage in the next 12-18 months, including Spark Therapeutics Inc ONCE, AveXis Inc AVXS, Juno Therapeutics Inc JUNO and bluebird bio Inc BLUE.

Barclays named Spark Therapeutics as its top pick in the industry.

Additionally, Barclays said it also likes gene editing companies such as Editas Medicine Inc EDIT, Crispr Therapeutics AG CRSP and Intellia Therapeutics Inc NTLA.

The firm sees meaningful opportunity for Puma Biotechnology Inc PBYI's neratinib, as it believes adjuvant breast cancer is a very large market for HER2 targeted therapies.

Rating/Price Target

• Spark Therapeutics: Overweight/$104.
• AveXis: Overweight/$124.
• Juno Therapeutics: Overweight/$55.
• Bluebird bio: Overweight/$151.
• Editas Medicine: Overweight/$28.
• Crispr Therapeutics: Overweight/Raised from $22 to $29.
• Intellia Therapeutics: Overweight/$29.
• Puma Biotechnology: Overweight/$103.
• Alnylam Pharmaceuticals, Inc. ALNY: Upgraded from Equal Weight to Overweight/ Raised from $80 to $105.

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Spark Therapeutics

The firm noted that Spark focuses on potentially curative gene therapy for three areas of rare diseases, namely eye, liver and brain, and has consistently demonstrated successful clinical development with multiple gene therapy programs.

The firm also indicated that the company's Luxturna, an AAV gene therapy for a rare genetic blind disease, could become the first in vivo gene therapy approved in the U.S.

"We believe the fully owned SPK-8011 program in HemoA likely would be the value driver in the near term and potentially a best-in-class asset in a large market, which appears only partially priced in," the firm said.

AveXis

AveXis focuses on gene therapies for neurological disorders. Based on positive phase 1 data from AveXis' lead candidate AVXS-101, Barclays sees a high probability of successful pivotal trial, with initiation likely in 2H17, and an overall fast path to approval by 2019.

The firm believes AVXS-101's potentially one-time therapy and systemic delivery with impressive efficacy could be disruptive to current treatment paradigm. Accordingly, the firm expects significant market potential for AVXS-101.

Additionally, the firm said the possibility of accelerated approval based on current data could provide additional upside to its valuation.

Juno Therapeutics

Juno Therapeutics is one among the three companies with late-stage CART-T cell programs addressing CD19 associated with B-cell malignancies, with Juno's JCAR017 having an edge due to promising data with a potentially better safety profile. Despite being one to two years behind competitors, Barclays thinks JCAR017 is highly valuable.

The firm also said it sees upside relative to its valuation from initial positive clinical data from early-stage programs in multiple myeloma and solid tumors.

Bluebird bio

Barclays sees room for further upside for bluebird bio, which focuses on gene and cell therapy to address blood cancer and genetic diseases. The upside potential is premised on a leading position in the multiple myeloma CAR-T cell therapy space and continued positive progress in the gene therapy LentiGlobin for beta-thalassemia and sickle cell.

Editas Medicine

Barclays believes the CRISPR/Cas9 technology is a transformative gene-editing tool and that Editas' initial focus on eye diseases maximizes the capability of current technology of in vivo local delivery. The firm expects initial clinical data from LCA10 in 2019.

The firm estimates an initial addressable patient population of more than 100,000.

"We see substantial upside at current valuation when more clinical data are generated from CRSP/NTLA/EDIT to further support broad application of CRISPR/Cas9 technology in multiple disease settings," the firm added.

Crispr Therapeutics

Barclays said Crispr's initial focus on hemoglobinopathies may lead to the first clinical data among the three competitors in the space, given a simpler system for gene editing, well-understood disease mechanism, initial proof of concept from gene therapy, and fairly standard surgical procedure.

With an IND in beta thalassemia expected in end-2017, the firm expects initial clinical data in the second half of 2018.

Intellia Therapeutics

Barclays believes Intellia's initial focus on liver disease maximizes the capability of current technology and leverages clear understanding of disease model and clinical success from multiple companies.

Puma Biotechnology

Barclays noted that Puma's only asset Nerlynx (pan-HER inhibitor) recently received approval with a broad label in extended adjuvant setting for HER2 positive breast cancer. With the large size of the adjuvant breast cancer market, and Nerlynx being the only drug approved in this setting, the firm believes neratinib has significant market potential.

That said, the firm cautioned that its use might be limited mainly due to diarrheal concern and changing treatment paradigms.

Alnylam Pharmaceuticals

Barclays noted that Alnylam's stock has recovered since discontinuation of the revusiran Ph3 trial in familial amyloid cardiomyopathy, with the recovery attributed to positive expectations for patisiran Ph3 data in familial amyloid polyneuropathy. The data is expected in late September.

The company focuses on RNA therapy in diseases caused by liver defects. The firm said its analysis continues to support the promise of the RNAi platform and likely significantly improved safety profile for the new generation assets.

"We see favorable risk/reward heading into patisiran data and expect large market potential with a better efficacy and safety profile vs. competitor Ionis Pharmaceuticals Inc IONS's inotersen," the firm said.

"We see further upside from multiple pipeline programs including fitusiran in hemophilia and inclisiran in hypercholesterolemia."

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