The Cell & Gene Therapy Market: Coming into Its Own

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David H. Crean, managing director for Objective Capital Partners, highlights the latest trends in the cell and gene therapy market for investments and deal activities.

 

Background

Cell and gene therapies hold the promise of bringing significant clinical benefits to patients by directly targeting the underlying cause of disease. With tremendous momentum taking place over the past few years, the market is coming into its own. Coherent Market Insights states the global cell and gene therapy market was valued at USD 6 billion in 2017 and is projected to exhibit a CAGR of 21.9 percent over the forecast period (2018 – 2026), exceeding USD 35 billion by 2026.

With nearly 300 cell and gene therapies in development, targeting more than 100 diseases, 2019 could be set to be a big year for cell and gene therapies

Within the last two years, there have been several first-time regulatory approvals worldwide. In May 2019, the U.S. Food and Drug Administration (FDA) approved a gene therapy (Zolgensma) for a rare childhood disorder that is now the most expensive drug on the market. It costs USD 2.125 million per patient. In 2018, Novartis acquired the rights to Zolgensma via the USD 8.9B acquisition of AveXis. Zolgensma transfects additional copies of the SMN1 gene into motor neuron cells using an adenovirus vector. In two remarkable single arm clinical trials, infants who had already developed symptomatic type 1 SMA and then received Zolgensma not only survived well past their predicted date of death, but experienced improvement in neuromuscular function. Zolgensma is approved for infants under the age of 2 with any type of SMA, whether symptomatic or not. While SMA is rare, there are more gene therapies to come. Another gene therapy being watched closely is bluebird bio, Inc.’s (Nasdaq: BLUE) investigational LentiGlobin gene therapy for sickle cell disease.

With nearly 300 cell and gene therapies in development, targeting more than 100 diseases, 2019 could be set to be a big year for cell and gene therapies. For those already on the market, novel payment mechanisms, such as installment plans tied to efficacy, have emerged, as manufacturers and payers work together to ensure patient access is balanced with value-based pricing (source: Scrip, 2019).

Cell and gene therapies are providing patients with treatments for many traditionally incurable diseases. These clinical successes are just a proxy for things to come as the full promise of this field is yet to be realized. Pharmaceutical companies are therefore investing heavily in R&D to develop new products, with a surge of gene and cell therapy agents now entering early development. In fact, the FDA is anticipating more than 200 Investigational New Drug applications in this field per year by 2020, with 10-20 new approvals per year by 2025. Some predict that in 5-10 years, “mass market” disorders, such as Alzheimer’s, Parkinson’s, diabetes, and heart disease, will eventually be targeted by gene therapy.

 

Cell and Gene Therapy Market Trends

To identify promising business opportunities in cell and gene therapy, it’s useful to examine how research trends vary between countries. This helps to show where innovation is focused and predict where the market is likely to grow, so companies and investors can plan where best to invest to gain a commercial advantage over the competition. Taking into account the global picture of gene and cell therapy R&D, the United States is a strong leader, generating overwhelmingly more journal articles and patents than any other country. Other significant contributors include China, Japan, Germany, South Korea and the United Kingdom.

Three sectors have been identified as areas of significant future promise: stem cell therapies, chimeric antigen receptor (CAR) T-cell therapies and gene editing technologies. Stem cell therapies are a hot research topic due to their huge clinical potential. The field of stem cell therapy is growing rapidly, with many different types of cells under investigation such as mesenchymal stem cells, hematopoietic stem cells, embryonic stem cells, induced pluripotent stem cells (iPSC) and neural stem cells. These highly studied areas might be worth exploring for commercial potential if stem cell therapy is an area of investment interest. Alongside stem cells, CAR T-cell therapies, a combination of gene and cell therapies, constitute a significant area of interest. These novel treatments involve genetically engineering the T-cell receptor to target biomarkers associated with the surface of malignant cells. Therefore, if companies and investors are interested in identifying business opportunities in this sector, it’s valuable to know which of these biomarkers attract the most research interest. There are a range of these targetable biomarkers under investigation, of which the most highly studied is CD19. Expressed in malignant B cells, this antigen forms the target for several CAR T-cell therapy drugs currently approved by the FDA. Other highly studied biomarkers include CD20, HER2 and CD30. Lastly, gene editing technologies, especially the recently developed CRISPR-Cas9 system, have greatly expanded the scope of gene and cell therapies. The CRISPR-Cas9 technique has enormous therapeutic potential as it allows efficient and precise insertion, deletion, modification or replacement of a particular gene in the genome.

 

Deal Making and Investment Activities

Top mergers and acquisitions (M&A) deals, Venture Capital (VC) investments and partnerships point to a growing number of cell & gene therapy deals. Big pharmaceutical companies and other large companies are paying significant sums not only for therapeutics but also for manufacturing capabilities. The top market players are actively investing in research for developing cell and gene therapy. Moreover, key players operating in the market are focused on adopting strategies such as M&A, in order to gain access to innovative products and expand their product offerings in the potential markets (e.g., planned acquisition of Celgene Corporation by Bristol-Myers Squibb Company). The players are offering new and improved products, in order to address the critical unmet needs of patients. It is no surprise then that the investment outlook in cell and gene therapies for the near term is positive.

 

Keys to Successful Investments in Cell & Gene Therapy

Three primary qualities that investors and partners are seeking in their cell and gene therapy portfolios include: strong management team, solid and differentiated technology, and existing financing to advance the company. Management teams that know how to pivot, or adopt an agile mindset as the business evolves, are extremely attractive to investors. The underlying technology has to be a game changer. A platform that can create repeatable quality assets is critical because it provides more breadth and depth to the investment.

Investments in the area, however, are not without their challenges. Manufacturing is the most important barrier in cell and gene therapy right now. Manufacturing becomes question numbers one, two, and three when you are beginning to know a cell and gene therapy company. Not surprisingly, industry has taken note, with several cell and gene therapy players building out their own manufacturing and/or booking manufacturing slots with certain contract development and manufacturing organizations (CDMOs) and contract manufacturing organizations (CMOs). Since the start of 2019, there have been at least three major acquisitions of contract manufacturers: Hitachi Chemical’s purchase of apceth, Danaher’s USD 21.4 billion takeover of GE Healthcare’s biopharma business, and Thermo-Fisher’s USD 1.7 billion acquisition of Brammer Bio. It is important for potential investors and companies to understand the manufacturing setup, how scalable the processes are, and what is being done in process development. As I was once told “the product is the process and the process is the product”.

 

CDMOs Investing More in Cell and Gene Therapy Capabilities

This year has also seen two major deals among CDMOs for cell and gene-therapy manufacturing. In April 2019, Catalent agreed to acquire Paragon Bioservices, a Baltimore, Maryland-based contract provider of viral vector development and manufacturing services for gene therapies, for USD 1.2 billion. Paragon has specialized expertise in adeno-associated virus (AAV) vectors, the most commonly used delivery system for gene therapy as well as capabilities in GMP plasmids and lentivirus vectors. The company provides GMP development and manufacturing services for recombinant viral vectors, vaccines, hard-to-express recombinant proteins, and oncolytic viruses from research and process development to GMP manufacturing for clinical trials and commercial launch.

In March 2019, as mentioned previously, Thermo-Fisher Scientific agreed to acquire Brammer Bio, a CDMO of viral vector manufacturing for gene and cell therapies. Brammer Bio is on track to deliver USD 250 million of revenue in 2019 and expects to continue to exceed the projected market growth rate of 25 percent over the mid-term. Upon completion of the deal, Brammer Bio will become part of Thermo Fisher’s pharma services business within its Laboratory Products and Services Segment.

 

Transactions

DealForma provided data over the past 10 years, as the number of deals, R&D partnerships and M&A buyouts steadily have gained steam, spiking in 2018 and potentially on track to maintain the surge in 2019. The upfronts and totals for the dollars on deals so far in 2019 is already close to the 2018 mark, underscoring a new phase of negotiations as the major players step up to gain a piece of the late-stage and commercial action. Deals over the span of the last decade have been structured with payouts on the back end. Corporate deals accounted for 114 of the 256 deals done since 2008. But when it comes to M&A, the money arrives up front: 27 acquisitions provided USD 18 billion up front with a total deal value of USD 20 billion.

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Since 2010, DealForma has also tracked 120 venture seed and venture rounds in gene therapy, with USD 5 billion raised. Half of that has arrived in the last 18 months. And over USD 3 billion went to companies with only a platform technology or preclinical work — with nothing in the clinic.

 

Final Thoughts

Since 2010, DealForma has also tracked 120 venture seed and venture rounds in gene therapy, with USD 5 billion raised. Half of that has arrived in the last 18 months. And over USD 3 billion went to companies with only a platform technology or preclinical work — with nothing in the clinic.

Unlike conventional biologics which have been commercialized for nearly three decades, the first approvals for cell and gene therapies in the United States came only recently in 2017. As such, the market for these next-generation therapies are still emerging, and this developing and evolving industry is currently a hot area for companies looking to grow and investors. Although it is viewed as an active investment area, it is a sector that needs appropriate diligence before investing due to the need for maturing and scale in infrastructure, people with experience and expertise in this area, raw material availability and manufacturing and analytical technologies. There is a growing robust clinical pipeline, with several products expected to come to market in the short term and many in late-stage clinical development. As such there is strong investor interest expected this year and next. Overall, positive regulatory environments across the globe are fueling interest in working with sector stakeholders to promote patient access to safe and effective therapies.

 

Disclosure

Objective Capital Partners is a leading investment banking advisory firm whose Principals have collectively engaged in more than 500 successful transactions serving the transaction needs of growth stage and mid-size companies. The executive team has a unique combination of investment banking, private equity, and business ownership experience that enables Objective Capital Partners to provide large enterprise caliber investment banking services to companies with annual revenues up to USD 500MM. Services include sale transactions, partnering/ licensing, equity and debt capital raises, valuation and comprehensive advisory services. The firm uses a proprietary process to work to achieve maximum company valuation, premium pricing, and high client satisfaction rates post-sale. The firm’s industry expertise is focused on 5 verticals including healthcare, life sciences, business services, technology, and consumer products. Additional information on Objective Capital Partners is available at www.objectivecp.com.

This article is provided for informational purposes only and does not constitute an offer, invitation or recommendation to buy, sell, subscribe for or issue any securities. Securities and investment banking services are offered through BA Securities, LLC Member FINRA, SIPC. Objective Capital Partners and BA Securities are separate and unaffiliated entities. While the information provided herein is believed to be accurate and reliable, Objective Capital Partners and BA Securities, LLC makes no representations or warranties, expressed or implied, as to the accuracy or completeness of such information. All information contained herein is preliminary, limited and subject to completion, correction or amendment. It should not be construed as investment, legal, or tax advice and may not be reproduced or distributed to any person.

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