This year’s numerous gene therapy acquisition and licensing deals, market approvals and other regulatory milestones indicate a great future for this innovative field. The field’s shown major advances in 2019 and has a forecasted growth of 24% CAGR over 2018-2024. But it’s certainly not for the faint-hearted since a gene therapy’s path to market is lined with challenges in everything from efficacy data and manufacturing to regulatory and pricing uncertainties. There are, however, a number of risk-thirsty investors ready to encourage gene therapy innovation that have placed significant capital into this lucrative field. Curiosity drew us in, and we’ve dug into the challenges as well as the who’s who of the investors in the gene therapy space.
It wasn’t until 2007 that the EU agreed on a shared regulation on advanced therapies in a directive called EC 1394/2007 spurring a real change in the space. Prior to this, the lack of an EU-wide regulatory framework had long hampered the growth of gene therapies and led to divergent national approaches. The new directive was designed to enable patients’ access to products by ensuring free movement of gene therapy technologies within Europe by centralizing the marketing authorization procedure, adapting technical requirements to the particular characteristics of these products and by creating special incentives for smaller companies (SMEs). Although these improved regulations have made a difference for the commercialization in different countries, there are still many complex development challenges remaining before one can claim success.
Key challenges come in varying shapes and forms
The first bottleneck involves the unique logistical manufacturing challenges associated with gene therapies. As opposed to traditional biologics, the manufacturing of gene therapies requires a more complex process and numerous supporting technologies. Due to this complexity, some developers establish own manufacturing capabilities as opposed to contracting with CDMOs and nearly half of cell and gene therapy companies (48%) plan to conduct at least parts of their manufacturing in-house. For those choosing to outsource, securing contract manufacturing slots very well in advance is a necessity since the available slots with adequate CDMOs are few.
Another key challenge, which is highly connected to manufacturing, is the future price of the treatment. The hefty price tag for gene therapies has created requirements for alternative payment models to ensure sustainable healthcare resource utilization. Nevertheless, no payment model has been appointed the gold standard for gene therapies and there are disagreements in the industry on how to define the value of gene therapies. Some claim that the potential societal benefits should be accounted for as part of the value of gene therapies and that governmental bodies therefore should take a bigger role in the reimbursement, while other vouch for pay-for-performance on annuity models. The only certainty at this point is that pricing is a concern for all gene therapy developers as well as investors.
It appears that irrespective of the challenges that could introduce skepticism in any investor, gene therapy companies continue to be funded, even in the early phases. In fact, the life science investment landscape has changed in the recent years with more innovative approaches being introduced over the entire development chain. This has forced VC firms to move from low-risk, low-return late stage portfolios to a broader range of development phases. The changing landscape has certainly caused a decline in the proportion of venture capital invested in the gene therapy field and also opened to the entry of other actors. VC’s is still, however, constituted as a linchpin in terms of big gene therapy investments.
“Manufacturing becomes question one, two and three when getting to know a gene therapy company for the first time”
So, what attracts investors to place money into gene therapy companies?
Big pharma companies are eager to expand their portfolios to include cell and gene therapy assets. As a result, we have recently seen a flood of news activity about high valued partnership and acquisition deals. For example, Novartis acquired AveXis for $8.7B in 2018 and Roche acquired Spark Therapeutics for $4.8B in early 2019 – these being only two examples of acquisition deals with big price tags. Gene therapy stocks have also been soaring during the year, which provides confidence for other investors to follow. Altogether, it’s the hefty price tags and big potential deals awaiting these companies that makes the gene therapy space an intriguing opportunity for risk-thirsty investors.
For investors ready to take their bets on gene therapy, due diligence is an important part when deciding upon an investment. With manufacturing being the main bottleneck for gene therapy development at the moment, investors look closely at a company’s manufacturing plan. Patrick Rivers from Aquilo Capital Management even explained it as “manufacturing becomes question one, two and three when getting to know a gene therapy company for the first time” in a panel discussion at the Alliance for Regenerative Medicine’s Cell and Gene Therapy Investor Day earlier this year. For companies in this space, it certainly is exciting to understand which investors are currently the most active and willing to place their bets on high-risk gene therapies.
Looking deeper into this landscape, an analysis of the investment rounds taken place in Europe and the U.S. in 2019 was done to find the most active investors in gene therapy based on the largest number of rounds participated. Our proprietary database-based research covered corporate loans, private equity, venture capital as well as placements from private individuals. Below, we have listed five of the most active VC firms in the gene therapy space together with some of their gene therapy investments in 2019.
- Alexandria Venture Investments
Alexandria Venture Investments has been recognized by Silicon Valley Bank as the most active biopharma investor by new deal volume during 2017-2018 and continued with a high pace in 2019 with 22 investments to date in rounds ranging from $7M to $191M. The VC’s portfolio is focused on innovative life science, technology, and ag-tech companies developing breakthrough technologies and therapies. The VC has invested in advanced therapy medical products throughout the development life cycle including as early as preclinical stage. An example is the investment in Immusoft, a company developing an immune system programming candidate that is nearly in Phase 1. Additionally, Alexandria Venture Investments was part of 2019’s Series C round of $104M for Encoded Therapeutics to push their preclinical programs and develop new treatments for severe genetic disorders.
- Boxer Capital
Boxer Capital has a wide portfolio across multiple therapeutic indications, and this VC firm invest in both public and private biotech companies throughout the business life cycle. Acting as a lead or co-investor in rounds ranging between $23M and $142M (2019), Boxer Capital is a strong VC in the field of emerging biotech. In 2019, Boxer Capital have among others invested in Poseida Therapeutics, a company that develops both cell and gene therapies with a lead candidate in Phase 1. Boxer Capital has previously also invested in AveXis, a company developing a proprietary gene therapy that halts disease progression of spinal muscular atrophy and was acquired by Novartis in April 2018 for $8.7Bn.
OrbiMed has been part of 28 investment rounds this year – in eight as a lead investor. The investment rounds have ranged from $3.6M to $150M. OrbiMed’s strategy is to invest across the global healthcare industry in all stages of business life cycle. This VC has invested in both Series A as a lead investor and Series B in Passage Bio’s, a company developing a portfolio of six life transforming AAV-delivered therapeutics. In 2019, OrbiMed also invested in the promising gene therapy company Repare Therapeutics. This company has developed and deployed a proprietary, high-throughput, genomic and chemo-genomic synthetic lethal screening platform which harnesses the power of CRISPR/Cas9 genome editing to identify promising new targets.
- Perceptive Advisors
Perceptive Advisors is a privately-owned hedge fund sponsor. The VC invests in transformative technologies in the life science industry. In 2019 so far, this VC took part in 23 investment rounds ranging from $15M to $299M. One of these investments was Oncorus, a company developing oncolytic virus programs which are currently in preclinical phase. Perceptive Advisors also recently invested in a Series C for Avidity Bioscience and also as a co-investor with Boxer Capital in the Series C financing round for Poseida Therapeutics.
- Versant Ventures
Versant Ventures invests mainly in biotech companies focused in drug discovery and has also an in-house scientific team working independently to validate novel academic discoveries as potential new companies. In 2019, the VC participated in placement rounds ranging between $15M to $115.5M. One of the investments in 2019 was in Coda Biotherapeutics, a company with a chemogenetic platform that aims to control the activity of neurons to treat neurological diseases. Versant Ventures have also been co-investor in previously mentioned Passage Bio and Repare Therapeutics.
Today, investors claim that manufacturing has a big impact on their due diligence when assessing a gene therapy company. Many companies are, however, being reluctant to give away too granular information about their proprietary manufacturing methods since it’s regarded as their “secret sauce”. That may seem like a rational reason; however, it adds risk through unknowns. This also brings added complexity to financing agreements since it’s important for investors to understand the scalability and the manufacturing setup. Daring to break the status quo might just be the successful way of differentiating in the competitive space; showing investors that there is a scalable manufacturing plan and the pricing challenges are being considered. It’s just not enough to have a breakthrough therapy, managing the investor base is just as imperative for survival and, hopefully, lucrative success.
By: Axel Desaix, Business Analyst at MSC