SPECIA L REPORT

The Next King of Biotech

Unlocking the Genetic Therapy Revolution
By Jeff Brown

A Brownstone Res ea rch Pub lica tion

Special Report
The Next King of Biotech
Unlocking the Genetic Therapy Revolution
By Jeff Brown, Editor, The Near Future Report
Brian Kaspar’s company was not even five years
old. But in that short time, it was already worth
$8.7 billion.
Kaspar and cofounder John Carbona started the
company in July 2013. They called it AveXis,
and it had one goal. The team at AveXis wanted
to create a cure for babies with a deadly genetic
disease called spinal muscular atrophy (SMA).
SMA is a horrible genetic disease that causes
people to lose control of their muscles. Those
with the disease get weaker and weaker,
struggling to move, eat, or breathe. A very severe
form of SMA, Type 1, affects children at birth
or within the first months of life. If untreated,
most die before their second birthday. It’s
heartbreaking.
Kaspar and his team at AveXis set out to cure
Type 1 SMA… and give these babies a life
they may not have otherwise had. The team
succeeded. It created a drug called Zolgensma.
Zolgensma was a new kind of precision
medicine called a gene therapy. SMA is caused
by mutations – “typos” – in a person’s genetic
material. If we fix those mutations, we can cure
the disease permanently.
That’s precisely what Zolgensma did. And
incredibly, all it takes is one intravenous
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2021
injection to eradicate the disease.
Zolgensma finds and replaces the defective gene
with a normal, healthy gene… the way it was
supposed to be. This gives the child control of
its muscles again. The child can live a relatively
normal life.
For children suffering from SMA, it’s a miracle
cure.
It’s hard to put a price tag on life. But AveXis
did… $2.1 million. That made Zolgensma the
most expensive drug on the market.
Even though the price tag of $2.1 million seems
high, it was cheaper than the alternative. The
previous treatment for Type 1 SMA had to be
administered on a regular basis. It required
hundreds, if not thousands, of trips to a medical
facility. And it didn’t restore bodily functions to
the same degree as Zolgensma. Over a 10-year
period, the previous treatment cost over $4
million – roughly double that of Zolgensma.
This makes Zolgensma a relative bargain… so
insurance companies will pay the price tag for
the cure.
And as you can see in the chart on the next
page, AveXis made investors a lot of money.
In February 2016, AveXis had its initial public
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offering (IPO) at $20 a share…
And just over two years later,
Novartis paid $8.7 billion for
AveXis at $218 a share. Investors
who got in at the IPO earned
990% on their investment.

In this report, we’re going to

invest in a company that reminds
me of AveXis. It’s working to cure
another debilitating disease called
hemophilia A. And this new gene
therapy could surpass Zolgensma
in price.

And like Zolgensma, this gene

therapy is still cheaper and more
effective than what is available today. It will
save insurance companies millions… and more
importantly, it will dramatically improve the
well-being of those who suffer from hemophilia
A.
And as trillions of dollars flood into the
biotechnology sector over the next several years,
this company is set to reap the benefits.
But first, let’s dig into this technology trend a
little deeper…
The Power of Precision Medicine
Precision medicine is an emerging approach to
treat and prevent diseases by considering each
person’s genes, environment, and lifestyle.
In other words, we won’t have to wait until we
present symptoms of a disease before we seek
treatment. Our genes can alert us to a future
condition years before symptoms manifest.
And if we get sick, we won’t use a “one size fits
all” approach to treating the disease. Currently,
many treatments just address the symptoms, not
the underlying causes. Precision medicine, like
the genetic therapies we’re talking about today,
will cure the underlying cause of the disease.
Companies well-positioned with technology and
therapies to enable this are taking off. What
makes me so confident in this trend?
For starters, it’s cheaper than ever to sequence
a human genome. Think of genome sequencing
as creating a “blueprint” of our genetic makeup.
We can spot genetic mutations from a single
genetic sequencing of our DNA. That means we
can diagnose these genetic diseases quickly and
cheaply.
In 2001, it cost $100 million to sequence a
human genome. Today, it’s a tiny fraction of that
– less than $1,000. According to data published
by the National Human Genome Research
Institute, a division of the National Institutes
of Health, the cost dropped to around $600 in
May 2019. It now costs less than half a year’s cell
phone bill… and pretty soon, it will be the same
as our monthly bill.
And in fact, in early 2020, Chinese genetic
sequencing company BGI Group announced that
it can deliver full genome sequencing for a mere
$100.
Now just about anyone can afford to get their
genome sequenced to see if a genetic mutation
is causing their condition or if they might have

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a mutation that will eventually
cause a condition over time.
Cost to Sequence a Human Genome
In fact, with the cost below
$1,000, some insurance
companies are paying to have
genomes sequenced for hard-
to-diagnose cases. And most
companies already pay to have
genetic screens – a subset of a
full sequencing – run for specific
things like cardiovascular or The cost to sequence a human genome
metabolic conditions. has fallen exponentially, dropping below
$1,000 in 2019
For example, as of November
1, 2017, UnitedHealthcare ’01 ’02 ’03 ’04 ’05
began covering “whole exome
sequencing for patients
where clinical presentation is
non-specific and does not fit a well-defined
syndrome.” In other words, if a physician knows
something is wrong but can’t figure out what it is,
UnitedHealthcare will pay to have the patient’s
whole exome sequenced (an exome is a part of
the genome that determines protein creation,
where most mutations are found).
And in late 2019, Cigna became in-network with
direct-to-customer genetic testing screenings.
This gave 16 million lives easy access to genetic
sequencing.
And in March 2020, Blue Shield of California
began covering rapid and ultra-rapid genome
sequencing for critically ill children.
Doctors have never been able to diagnose
genetic diseases so easily before. And with
more diagnoses, drug companies have more
opportunities to sell genetic therapies.
That’s why I believe the precision medicine market
is going to explode in the near future… And very
few realize how quickly this shift will happen.
I’ve been researching precision medicine for over
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$100M
Moore’s Law $10M
$1M
Cost in USD
$100K
$10K
$1K
$100
’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19
Source: National Human Genome Research Institute
five years. The progress that has been made is
just incredible, and developments in this space
are happening almost every week. But because
this is such a new area of biotechnology, it is very
easy to underestimate the future growth. And
this is definitely true for gene therapy.
Even optimistic reports, like one from Grand
View Research, end up being overly conservative.
Grand View estimates the genetic therapy market
will grow over 30% a year through 2025 to
become a $4.1 billion industry.
That sounds impressive. But when the company
in this report gets its gene therapy approved,
it alone will have the capacity to make over
$4.1 billion in sales. And remember… Novartis
paid $8.7 billion for AveXis… more than twice
Grandview’s 2025 estimate for the total market
size.
The reality is that the market is much, much
larger.
This is the quintessential setup for our strategy
here at The Near Future Report. This technology
is here now, but Wall Street is still struggling to
understand how significant the trend is and how
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fast the market will grow.
This is our advantage. We establish positions
before Wall Street piles in.
And that leads us to this report’s
recommendation…
Gene Therapy for Genetic Disorders
BioMarin Pharmaceutical (BMRN) was
founded in 1997 to leverage its proprietary
enzyme technology and develop therapies for the
treatment of numerous genetic diseases.
Its first drug was approved in 2003. It’s called
Aldurazyme – an enzyme replacement therapy for
a disease called mucopolysaccharidosis type I (MPS
I). MPS I occurs when a person has a deficiency in
a lysosomal enzyme, which prevents the body from
clearing waste and debris from its cells.
Since then, the Federal Drug Administration
(FDA) has approved six other drugs by BioMarin
for the treatment of various genetic disorders.
BioMarin’s current top seller, Vimizim, is the
only enzyme replacement therapy approved for
people with Morquio A – a genetic disease that
causes skeletal deformities and problems with
internal organs.
What’s important for our investment thesis today
is that BioMarin has one of the best gene therapy
platforms in the industry. It has been able to
leverage its unique enzyme technology to bring
seven therapies to market.
While developing a gene therapy and
getting FDA approval may be expensive and
complex, administering a therapy is actually
straightforward. A gene therapy is comprised
of the healthy genetic material and a delivery
method to get the genetic material into the cells.
Before a company can bring a therapy to market,
the FDA needs to approve both parts of the gene
therapy.
The Near Future Report
First, it needs to make sure the genetic changes
introduced by the gene therapy treat the
underlying disease without altering other genetic
material – this is referred to as off-target editing.
The second part that the FDA must approve is
the modality, or the method of applying a gene
therapy.
One of the most common modalities is a virus.
This might be surprising to some of us, but if
we think about it, a virus is a perfect delivery
mechanism for these changes.
Viruses have evolved for one specific task… to
infiltrate our cells and make changes. Why not
use that ability for good?
If scientists can strip out the harmful aspects of
a virus and get it to transmit healthy changes,
they’ll have an effective modality for treating
genetic diseases.
For instance, in BioMarin’s new drug,
researchers use the adeno-associated virus
(AAV) to introduce the genetic changes.
The AAV is nonpathogenic, meaning it won’t
cause a disease. In fact, most people always carry
this harmless virus. And because it’s harmless,
most people don’t develop an immune system
response to it. This allows the AAV time to
deliver the genetic changes to your cells.
This may sound simple, but it takes a lot of
careful planning and precision to get the formula
just right.
But once the FDA approves a delivery mechanism,
the company doesn’t have to prove its safety every
time. In other words, it is much easier to get FDA
approval the second time around.
BioMarin’s technology platform for gene therapy
is among the best in the industry. That is why
I believe it will get its drugs in the pipeline
approved quicker than any potential rivals… This
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gives BioMarin a clear competitive advantage.
The Next Blockbuster Drug
While BioMarin has a robust pipeline of new
therapies, we’re going to focus on just one of them
for our investment thesis. That drug is called
Roctavian (valoctocogene roxaparvovec, or valrox,
for short).
Roctavian will drastically improve the lives of
those with hemophilia A – a genetic disorder in
which blood does not clot properly due to a lack of
blood-clotting proteins.
Those with hemophilia A will bleed more than
most from cuts or other injuries. Or in severe
cases, they can spontaneously bleed into their
muscles and joints.
Approximately 60% of hemophilia A cases are
considered severe… And up until Roctavian, there
was no cure. All physicians could do was try to
treat the excessive bleeding by injecting extra
clotting proteins.
But that won’t be needed for long. Patients in
the Roctavian clinical trials have seen their
average number of bleeding instances go from
16.5 episodes down to zero. This impact has been
sustained over a three-year period.
That’s worth repeating. Patients in the trial, from
just one shot, have had zero bleeding instances.
They can lead relatively normal lives and not
worry about excessive bleeding over a minor
scrape.
Now, it’s worth noting that in some people, the
level of clotting proteins started to diminish after
three to eight years. But another shot will get the
body to produce enough proteins again.
Roctavian is incredible. The worst-case scenario
is to get a shot every few years. For most, it will be
even less frequent – or even just a one-and-done
cure.
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We can compare this to the current treatment
option of getting a clotting protein infusion
several times a week to stem the bleeding. The
cost of getting multiple treatments a week adds
up over time. BioMarin estimates that current
therapies end up costing $25 million over a
lifetime.
BioMarin plans to charge somewhere between $2
million and $3 million for the Roctavian therapy.
And while that sounds high for just one shot,
it is a relative bargain compared to the current
standard of treatment.
That’s why it reminds me so much of AveXis’s
Zolgensma.
BioMarin is considering alternative payment
plans for some insurance companies, but
management believes most U.S. insurers will pay
the full cost upfront.
Right now, an estimated 20,000 people suffer
from hemophilia A in the U.S., and 65,000 people
would benefit from Roctavian around the world.
This is a large base of patients. If BioMarin got
just 10% of U.S. patients – or 2,000 people a year
– that would be $4 billion in revenue. That alone
would cause revenue to more than double. And it
isn’t a stretch to say that once the FDA approves
Roctavian, anyone with hemophilia A will want it.
CEO Jean-Jacques Bienaimé believes reaching
2,000 patients a year is realistic. He cited a study
saying doctors would switch 34% of hemophilia
A patients over to a gene therapy after its launch.
When that happens, BioMarin won’t be able
to produce Roctavian quickly enough to meet
demand. That’s a great problem to have. And
when the word gets out about how effective the
therapy is, other doctors will follow.
A New Buying Opportunity
In August 2020, the market got some news about
Roctavian that it didn’t like. Shares of BioMarin
dropped 30% after the FDA requested more data
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on the Phase 3 trial.
The drug trials all looked very promising for
Roctavian. In the combined Phase 1/2 trial, the
14 people who received the gene therapy all
showed higher levels of Factor VIII protein three
and four years later. Only two of the 14 had a
spontaneous bleed, and those instances occurred
in previously damaged joints in the two lowest-
responding participants.
And after four years, this gene therapy showed
a 95% reduction in the annualized bleed rate
(ABR), which is the key metric the FDA wants
more information on.
In its complete response letter, the FDA said that
differences between the Phase 1/2 study and the
Phase 3 study limited its ability to rely on the
Phase 1/2 study to support the durability of the
drug.
So the FDA wants to see follow-up safety
and efficacy data for two years in all Phase 3
participants. The last Phase 3 participant started
in November 2019. So final results won’t be
available for review until November 2021. FDA
approval most likely won’t happen until early
2022 but could happen as soon as the end of this
year.
This was the first time the FDA brought up this
point to BioMarin. It’s rare to see new criteria
for a drug trial show up at the end of a Phase
3 trial. BioMarin said it was “surprised and
disappointed that the FDA introduced new
expectations for the first time in the Complete
Response Letter.”
While this was a setback for BioMarin, it is
temporary. The Phase 2 data clearly shows the
therapy is effective for over four years. And none
of the participants had any negative side effects.
So this will just delay revenue for a bit longer.
It was hardly a reason for a 30% drop in stock
price.
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BioMarin is seeing growth in all its approved
drugs. So it will have solid cash flow until its
gene therapy Roctavian gets approved.
And BioMarin will still likely be the first
company out with a gene therapy for hemophilia
A. Its main competitor for this drug is a
collaboration between Sangamo Therapeutics
and Novartis. But that trial is at least four years
behind.
This is a major buying opportunity for BioMarin
for a couple of reasons. First, this setback only
delays revenue by a couple of years at most. The
therapy is still likely to get approved.
Second, BioMarin’s other drugs are performing
well. And BioMarin has one of the most robust
pipelines in the market. It has plenty of potential
approvals coming up.
That makes this a fantastic chance for new
investors to build their positions in BioMarin.
Action to Take: Buy shares of BioMarin
(BMRN) up to a price of $91. At this time,
we will not set a stop loss for this position.
As such, let’s make sure to position size
rationally. We don’t want to go “all in” on
any single recommendation.
Note: If this stock is trading above its
recommended buy price when you read
this research, my official recommendation
is patience. Technology stocks have natural
volatility that often brings them back within
range. I will always alert readers if we raise
our recommended buy prices. And you can
always check our most up-to-date buy price
by visiting our model portfolio here.
Regards,
Jeff Brown
Editor, The Near Future Report
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