Two Promising Gene Therapy Stocks Tackling Eye Disease

Correction: The story has been changed to more accurately reflect the amended agreement between Applied Genetic and Sanofi regarding their respective gene therapy programs in wet AMD.

NEW YORK (TheStreet) -- Two newly public companies -- Applied Genetic Technologies (AGTC) and Avalanche Biotechnologies (AAVL) -- are developing promising gene therapies to potentially cure or treat a host of eye diseases. Investors will get a first look at data from an early stage study of an Applied Genetic therapy on Friday -- an important event for both companies. 

Applied Genetic went public in March at $12 per share. Most of the company's gene therapy development platform is focused on eye diseases: X- linked retinitis pigmentosa (XLRS), X-linked retinoschisis, achomatopisa, wet age-related macular degeneration (wet AMD) and a form of Leber's congenital amaurosis (LCA2.) 

On Friday at a Retina Society meeting in Philadelphia, preliminary results will be presented from a phase I study treating wet AMD patients with a gene therapy known as AAV2-sFLT01 developed by Applied Genetics. Wet AMD is  a chronic eye disease in which blood vessels leak fluid into the center of the eye, causing progressive loss of vision and blindness. The current leading treatments for wet AMD -- Regeneron Pharmaceuticals (REGN) Eylea and Roche's (RHHBY) Lucentis -- both work by blocking a protein known as VEGF responsible for the growth of the abnormal (and leaky) blood vessels. Eylea and Lucentis each generate billions of dollars in sales but the drugs require patients to undergo regular injections directly into the eye. 

Applied Genetic believes gene therapy has the potential to treat or even cure wet AMD just as effectively and without the need for chronic injections. AAV2-sFLT-01 is a neutralized virus carrying a gene coded to produce an antagonist to the VEGF protein. Injected into a patient's eye, AAV2-sFLT-01 is designed to prod retinal cells to continuously produce the antagonist to VEGF, thereby halting the production of the abnormal and leaky blood vessels which cause the progressive loss of vision. One day in the future, instead of regular injections of Eylea or Lucentis, a patient with wet AMD might receive a single injection of the Applied Genetic gene therapy and be potentially "cured" of their disease for years. 

There are a lot of qualifiers in that last sentence and rightly so because gene therapy for wet AMD -- or any eye disease -- has a long way to go before acceptable efficacy and safety are demonstrated. But on Friday, investors will get an early look at proof-of-concept data from the Applied Genetic approach, which is very exciting. The primary outcome of the phase 1 study is safety, but retinal thickness (a biomarker for efficacy) will also be measured.  Preclinical work suggest AAV2-sFLT-01 should be safely tolerated and potentially effective, but the real test will come when we see human data. One lingering concern raised recently is the possibility of AAV2-sFLT-01 causing inflammation but the data presented on Friday should shed more light on this. 

Good results from this phase I study of AAV2-sFLT01 will help validate the Applied Genetic gene therapy approach to treating eye disease. The Genzyme unit of Sanofi  (SNY) is actually conducting the phase I study, relying on Applied Genetic manufacturing technology. Under an amended agreement, Sanofi would no longer use Applied Genetic manufacturing technology in future studies. However, Applied Genetic has started its own in-house program on wet AMD. Positive results on the current trial will indicate that Applied Genetic is on a good path and bodes well for their in-house program. 

What happens if the AAV2-sFLT01 interim results are negative? The details are important, but suffice to say, a clear failure will resurrect old concerns about gene therapy and negatively impact Applied Genetic.

I mentioned above that the AAV2-sFLT01 results on Friday are also important for Avalanche Biotechnologies. Let me explain why:

Avalanche went public at the end of July at $17 per share. Like Applied Genetic, Avalanche is focused on developing gene therapies for eye disease. The company's lead compound AVA-101 is in a phase 2 study for wet AMD with results expected in the middle of 2015. AVA-101 also utilizes an inactive virus to deliver a gene into retinal cells to express an anti-VEGF protein. Regeneron is partnered with Avalanche. [Interestingly, the tight financial relationship between Sanofi and Regeneron might be the reason for Sanofi exiting its relationship with Applied Genetic.]

At this early stage of development, it's difficult to point to Applied Genetic or Avalanche and say one wet AMD gene therapy approach is superior over the other. For this reason, I tend to see positive results from the Applied Genetic study would also be positive for Avalanche. Generally, the same can be said for negative results, although I'll note that Applied Genetic and Avalanche utilize slightly different delivery approaches related to how their respective gene therapies are injected into the eye. For this reason, if a problem is detected with Applied Genetic's delivery method, it could be seen as positive for Avalanche. 

Fontanini is long Applied Genetic and Avalanche. 

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