Passage Bio (PASG) is addressing >$1.5B market in rare neurologic diseases with little competition

Passage Bio (PASG) is an exciting gene therapy biotech company that recently IPO'd on February 28, 2020 at $18 per share. It's currently trading at $17.89 with a market cap of $787M. This innovative company addresses protein deficits using virus-delivered genetic material to potentially cure central nervous system (CNS) diseases, including infantile GM1 gangliosidosis (GM1), frontotemporal dementia (FTD), and infantile Krabbe disease. While still in early stages, PASG has the makings of an impactful biotech company with significant upside and relatively low risk if they scale their scope to treating additional rare diseases with minimal competitors.

Significant Opportunity Size Within Its Pipeline

If PASG indeed can create curative therapies, its looking at addressing a >$1.5B market opportunity, primarily driven by FTD. GM1 and Krabbe disease only contribute ~30% of the total market opportunity due to their smaller patient populations.

Small Market Size, but Great Unmet Need in rare CNS diseases

PASG focuses on treating rare diseases that are currently undeserved. FTD, Krabbe disease, and GM1 comprise of 4500, 210, and 100 patients each. The patient populations for Krabbe disease and GM1 is incredibly small because the disease is typically fatal in the first 2 - 5 years of life.

FTD has moderate disease severity as the disease manifests during midlife and primarily in a behavioral manner, including loss of inhibition, apathy, social withdrawal, hyperorality (mouthing of objects) and ritualistic compulsive behaviors. Survival averages 8 years after onset of symptoms. There are currently no direct treatments for FTD; anti-depressants have been used to manage behavioral symptoms.

Krabbe disease and GM1 are similar disorders, both manifesting soon after birth. Both allow for 2 - 5 years of survival after symptomatic onset. Krabbe disease can be characterized by loss of acquired milestones, staring episodes, apnea, peripheral neuropathy, severe weakness, unresponsiveness to stimuli, seizures, blindness, deafness. GM1 is defined as hypotonia (reduced muscle tone), progressive CNS dysfunction leading to deafness, blindness, rigidity and progressive skeletal dysplasia that leads to restrictive lung disease and aspiration pneumonia. There are currently no therapies for manage either diseases.

Low Diagnostic Rate, but High Likelihood of Treatment

Diagnosis rate is relatively lower than most diseases for all the diseases because they are rare and may often be confused with other disorders, especially FTD, which is often confused with withdrawal or eccentricity. Furthermore, the lack of treatments often limits the degree to which physicians diagnose these diseases. Krabbe and GM1 have higher diagnosis rates because of extensive screening of infants when severe symptoms arise.

Upon diagnosis, treatment will be very high for all three diseases due to their high severity in symptoms as well as imminent death. Because the three diseases are degenerative disorders, immediate treatment is critical to stop disease progression. We expect near 100% treatment rate.

Close to No Competitive Landscape

The biggest competitor to PASG for the treatment of FTD is Alector (ALEC), which created a humanized recombinant monoclonal antibody that is intended to be delivered by intravenous, peripheral infusion to the bloodstream to increase the levels of PGRN in the brains of FTD patients. ALEC's drug functions by shutting down the SORT1 degradation mechanism for the missing protein and increasing the circulating half-life of the missing protein in the brain. The biggest drawback of this approach is that it does not simply increase the missing protein, but reduces an important degradation pathway that could impact other protein levels, therefore, having off-target effects. ALEC is in Phase 2 development of its FTD drug.

Currently, there are no competitors in clinical or pre-clinical development for Krabbe disease, GM1.

Favorable Pricing Due to Lack of Treatments and Orphan Disease Status

The best pricing comp for drugs targeting severe, life-threatening diseases is Novatris' Zolgensma, a $2.1 drug made to cure spinal muscular atrophy (SMA). SMA is a CNS disease, most similar to GM1. SMA disease severity can be fatal, but is now considered a continuum. Therefore, as Krabbe and GM1 are more life-threatening and severe than SMA, the pricing potential for drugs addressing these two indications may be above $2.1B, if the drugs are curative. However, because FTD does not impact quality of life as great as the other two diseases and SMA, its pricing potential is likely much lower.

Significant Institutional Support from Top Venture Capital Firms

  1. Versant Ventures (9.2% stake)

  2. OrbiMed Advisors (13.5% stake)

  3. Frazier Life Sciences (10.9% stake)

  4. Vivo Capital (4.9% stake)

Key Events to Look Out For:

Passage plans to start a phase 1/2 study in GM1 in the second half of 2020, with the trials for its programs in frontotemporal dementia and Krabbe disease to follow in the first half of 2021. 

Key Risks to Be Aware Of:

  1. ALEC's FTD competitor drug. PASG relies on FTD for its valuation given it makes up for >50% of its pipeline market opportunity. If ALEC has significant impact on FTD, PASG value may be at significant risk.

  2. Low diagnosis rates. Low diagnosis rates may mean that PASG's drugs are not as widely adopted as expected initially. However, the availability of treatments often spur additional testing so diagnosis rate increases significantly over time.

Overall, PASG is a solid investment with upside, especially if it can add additional monogenic rare disease into its pipeline. PASG's stacked leadership with significant business, investment, and biotech experience and its collaboration with a top gene therapy center at University of Pennsylvania are two points that we did not touch on in the diligence, but are also good indicators of potential success. We are excited to see this company move the needle in rare diseases in the realm of CNS.

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