Will 1 Biotech's Pain Be Another's Long-Term Gain?

The battle over Duchenne muscular dystrophy, or DMD, recently took a dramatic turn when GlaxoSmithKline and Prosensa's potential DMD treatment, drisapersen, failed a late-stage study. Although shares of GlaxoSmithKline weren't affected by the news, shares of Prosensa, which was entirely depending on the success of drisapersen, plunged more than 70%. Meanwhile, shares of Sarepta Therapeutics , which makes the main competing treatment, eteplirsen, soared 18%.

Source: YCharts.

Did investors miss the warning signs?
DMD is a rare and fatal genetic disease that causes progressive muscle weakness throughout the body. It affects one in every 3,500 boys born worldwide. On average, DMD confines most patients to a wheelchair by the age of 12 and causes death by the age of 16.

There are two key factors that GlaxoSmithKline, Prosensa, and Sarepta have been focusing on in treating DMD -- dystrophin production and a six-minute walk test.

Dystrophin is a protein necessary for muscle growth, the lack of which is a primary cause of DMD. GlaxoSmithKline and Prosensa's drisapersen and Sarepta's eteplirsen both attempt to increase the body's production of the protein with exon-skipping technology. In a phase 2 study, drisapersen was shown to increase dystrophin in 72% of patients given a continuous dose, and in 59% of patients who received intermittent doses. By comparison, eteplirsen increased dystrophin production in 100% of dosed patients during clinical trials.

The six-minute walk test, which gauges how far a patient can walk within six minutes, is another standard test. In a phase 2 study, GlaxoSmithKline reported that patients dosed with drisapersen could walk an average of 117 feet more than those given a placebo. However, that paled in comparison to Sarepta's report that boys on eteplirsen walked an average of 152 feet more. However, GlaxoSmithKline's trial group was significantly larger, with 53 boys compared to Sarepta's 12.

Hopes of future growth dashed
Dissatisfied with those results, GlaxoSmithKline and Prosensa initiated a phase 3 study, using a much larger group of 186 boys. Unfortunately, the results were even worse than its phase 2 study, and the companies announced that drisapersen failed to show benefits over the placebo in the six-minute walk test. Researchers also stated that secondary tests -- such as a stair climb and walk/run test -- also showed no statistical differences. Other data was not released, but GlaxoSmithKline will disclose more information on October 5 at the World Muscle Meeting.

GlaxoSmithKline and Prosensa haven't given up completely on drisapersen, stating that they remained "committed to the overall program," but things look grim. Analysts had originally expected drisapersen to generate $350 million in annual revenue by 2020 if approved.

Not all hope is lost yet, however -- Prosensa still has six pipeline candidates for DMD, which are still in earlier studies.

Is this a blessing or a curse for Sarepta?
Although drisapersen's failure appears to be a boon for Sarepta, it also raises other serious questions about eteplirsen's future.

Eteplirsen is still in a phase 2 study that is using a much smaller group of 12 boys, which the company hopes will be enough to use to seek Food and Drug Administration approval. If GlaxoSmithKline failed with a group of 186 patients, it is highly likely the FDA will request more thorough data from a larger study group. It also raises concerns about the exon-skipping technology that drisapersen and eteplirsen both use -- if the former is ineffective, could the latter be as well?

On the bright side, drisapersen's failure takes out Sarepta's only competitor. It could also allow Sarepta to expand into the European market, where Prosensa currently controls critical patents, which block Sarepta from accessing patients. Most importantly, investors should keep an eye on the dystrophin production numbers, which have shown that eteplirsen is a more potent treatment than drisapersen.

Don't overlook the smaller DMD treatments
Although most investors recognize GlaxoSmithKline, Prosensa, and Sarepta as the major names in DMD treatments, a smaller company, PTC Therapeutics , shouldn't be overlooked.

PTC is not a direct competitor to Prosensa or Sarepta, because it focuses on a subset of DMD called nonsense mutation DMD, which cannot be treated by exon-skipping treatments like drisapersen and eteplirsen. Nonsense mutations account for 10% to 15% of DMD cases. PTC's treatment, ataluren, is currently in a phase 3 trial, 220 patients being treated at 50 sites globally.

Even though PTC occupies a niche market separate from GlaxoSmithKline, Prosensa, and Sarepta, the stock also sold off more than 8% after GlaxoSmithKline's announcement, although there isn't any direct correlation between drisapersen and ataluren.

A Foolish final thought
The fall of Prosensa and the rise of Sarepta are harsh lessons in the volatility of the biotech sector. Yet shrewd investors should have already seen this coming after GlaxoSmithKline and Prosensa's lackluster phase 2 results.

However, this doesn't mean investors should just load up on shares of Sarepta and expect eteplirsen to succeed unopposed -- its phase 2 study group is small and will likely face further scrutiny from the FDA after drisapersen's failure.

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The article Will 1 Biotech's Pain Be Another's Long-Term Gain? originally appeared on Fool.com.

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