Finding investment for gene therapies
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Ex life science investors Frazer Hall and Sandi Greenwood from MEDiSTRAVA Consulting, an Inizio company, discuss how gene therapy developers can navigate challenging markets and provide a compelling story for investors to ensure their therapies get to patients
By Frazer Hall and Sandi Greenwood
A coming of age for gene therapy
Gene therapy is about to come of age. Although so far the FDA has only approved nine genetic medicines, a report by investment bank HC Wainwright predicts that approximately 134 gene therapies are likely to be approved and commercialised in the next 10 years, many of which will target rare diseases with no other available treatments.
But in order to progress gene therapies through development, companies will need to attract investors into what has always been a high-risk, high-reward sector. Although the efficacy of these potentially curative therapies combined with high margins mean that returns for investors may be greater than for other medicines, the relative newness and complexity of gene therapies means they can present huge challenges in manufacturing, supply, market access and administration to patients, on top of normal drug development risks.
Moreover, the wider biotech sector has struggled over the last couple of years—in part thanks to a slew of early-stage companies going public too quickly, saturating the system, combined with negative clinical data outcomes. With investors having less appetite for risky, early-stage companies, the flow of new capital into areas like gene therapy has suffered. According to a report by investors at William Blair, gene therapy company share prices fell by an average of 43% in 2022, even as large-cap pharma share prices increased by 11% on average.
Without strong and sustained investment, the development of important new gene therapies for rare diseases will be stymied—so companies need to consider how they can reassure investors and tempt them back into the sector.
The right message
Of course, the more positive data and success stories that come out of the sector, the more confidence investors will have in gene therapy. Although there have been enough gene therapy approvals now to reassure markets that, broadly speaking, these therapies are effective, investors are still being highly selective, looking more closely at companies’ data and pipelines to see who is truly delivering on their promises. The days of money flowing into the gene therapy space based solely on the exciting promise of the sector as a whole are over.
This means that investment will start to trend towards later-stage companies with positive and safe clinical data that demonstrates a clear differentiation from other therapies. There is likely to be some Darwinian selection in the next couple of years as earlier-stage companies struggle to raise money.
Developers must therefore consider how they can best communicate a differentiated story to investors—which will become even more important as the gene therapy market becomes increasingly crowded. They must also build a credible foundation to these communications—for example through publishing peer-reviewed data earlier than might normally be expected from pharma companies.
It will also be important for companies to demonstrate that they fully understand the complex path most gene therapies must take from development through to commercialisation. Even the most promising genetic medicines can struggle with product launch and market access, with supply chains being unable to support the massive complexities involved in manufacturing and delivering gene therapies to patients, and payers often balking at the extremely high up-front prices needed to support this infrastructure (and accounted for by the fact that many gene therapies may only need to be administered one time).
Bluebird bio, for example, has pulled two of its gene therapies from European markets after being unable to come to favourable reimbursement agreements with pricing authorities—which was partly related to the company deciding to invest in their own manufacturing facilities rather than outsourcing to contract development and manufacturing organisations (CDMOs), meaning there was less flexibility in their pricing structure.
But without broad market access, companies and investors will struggle to get a return on their investment—and so developers will need to think about de-risking strategies well ahead of time, then communicate these strategies confidently to investors.
This may involve working with payers, from as early a stage as possible, to co-develop innovative reimbursement models that shift some of the risk onto the drug’s developer. Many payers have already shown willingness to consider value-based models where part of the cost is only paid upon successful treatment with the drug.
At the same time, while the infrastructure for gene therapy supply chains is improving every year, companies will need to show that they understand how exactly to utilise existing pathways and where they need to build their own capabilities.
More broadly speaking, the high costs associated with development, manufacturing and complex launches, combined with limited availability of capital, means that gene therapy biotechs may have to consider partnering earlier in the process than they might have done if they had access to significant capital from private or public markets. Many gene therapies will be difficult to launch without the backing of big pharma companies. Again, it will be essential for companies to speak to experts as early in the process as possible to consider their options, and then tailor their messaging to the kinds of investors or partners they wish to attract.
More than anything, though, investors want to understand what is actually driving the value of a biotech—and companies therefore need to be able to communicate very clearly what they are looking to achieve, what their clinical and other development milestones will be, and what specifically needs to be executed. As ever, timely, clear and consistent communication is most likely to be rewarded.
There are a wide variety of experts with deep knowledge about the sector that companies can speak to from an early stage to help put these strategies and messages together. With the right equity story and the ability to communicate the strength of their product and their understanding of the gene therapy market, biotechs with strong candidates should have little trouble attracting interest from investors.
Harnessing an imminent boom in the pharma market
Gene therapy has attracted considerable investor interest with the promise of highly lucrative returns, not to mention being a force for great social good given the potential healthcare benefits. Although the investment environment is challenging now, there is no lack of opportunity as the science continues to progress. As more and more data proving the potential of gene therapy comes to light, and as healthcare systems become more comfortable with new methods of paying for and delivering these therapies, the sector will only continue to flourish.
The pharma market is poised for a gene therapy boom. According to Evaluate Pharma, revenues from cell and gene therapies are forecast to grow from $4bn a year in 2021 to over $45bn by 2026. Now is the time for companies in the sector to be thinking about how they can harness this momentum to get their voices heard and help bring their revolutionary new treatments to patients as quickly and effectively as possible.
About the authors
Frazer Hall is a partner at MEDiSTRAVA Consulting. Frazer joined MEDiSTRAVA following over 32 years of buy-side and sell-side experience in the healthcare, pharmaceutical and biotechnology sectors, including more than 10 years managing money for long-only and hedge fund investors, as well as being an investment advisor to Biotechnology Investments Ltd. He has over 20 years’ experience as a top-rated healthcare sales specialist working for Credit Suisse, Berenberg and Redburn, and holds a BSc in biochemistry from Imperial College London.
Sandi Greenwood is a consultant at MEDiSTRAVA Consulting. She has 20+ years of investment and analyst experience in the global healthcare sector. She spent 14 years at Ninety One (formerly Investec Asset Management) as a global healthcare equity analyst and product specialist, and also worked in investment research as a pharma analyst, at both ABN Amro (London) and Merrill Lynch (South Africa). Sandi has a bachelor of commerce from the University of Witwatersrand and an economics degree from the University of South Africa.
