J.P. Morgan Roundtable: Financing Challenges, And Opportunities, For Complex Therapies

Part 1: Scrip spoke with companies working on cell and gene therapies and novel neuroscience platforms – areas difficult to finance in the past, but seeing increasing investor interest – about funding challenges and opportunities in 2019.

Financing a biopharmaceutical company never is easy, and in the past, it has been hard for firms with novel therapeutic modalities to raise money. But with record-breaking levels of investment in the industry in 2018, even the riskiest drug development platforms benefitted from the exuberance.

So, will 2019 be any different?

Roundtable Participants

Athersys Chairman and CEO Gil Van Bokkelen – Athersys is developing MultiStem from adult stem cells derived from donated bone marrow and other tissues. It is in Phase III with a regenerative medicine advanced therapies (RMAT) designation from the FDA for ischemic stroke and in mid-stage studies for heart attack and acute respiratory distress syndrome. Healios KK holds a license for MultiStem in Japan. (Also see "Early-Stage Cell And Gene Therapy Progress: Updates From Casebia, BlueRock, Athersys, Cynata" - Scrip, 11 Oct, 2018.)

BlueRock Therapeutics VP of Corporate Development and Strategy Eric Soller – BlueRock uses induced pluripotent stem cells (iPSCs) to develop engineered cells in the areas of neurology, cardiology and autoimmunity. Lead programs include a dopaminergic neuron for Parkinson’s disease moving into the clinic this year, a cardiomyocyte for congestive heart failure, and a macrophage to treat autoimmune diseases.

United Neuroscience (UNS) CEO Mei Mei Hu – UNS is leveraging vaccine technology commercialized in more than 4bn doses – primarily in animal health – to develop therapeutic vaccines. The company recently reported positive Phase IIa data for its lead candidate targeting amyloid beta in Alzheimer's disease. (Also see "United Neuroscience To Move Forward Alzheimer's Vaccine After Promising Phase IIa" - Scrip, 16 Jan, 2019.) 

PTC Therapeutics Inc. Chief Scientific Officer Mark Pykett – Most known for its commercial Duchenne muscular dystrophy (DMD) drugs Emflaza (deflazacort) and Translarna (ataluren), PTC got into gene therapy by acquiring Agilis Biotherapeutics LLC last year; Pykett was president and CEO of Agilis. Lead gene therapy candidate GT-AADC for aromatic L-amino acid decarboxylase (AADC) deficiency will be submitted for US FDA approval in 2019.

Scrip spoke with executives from three biopharma firms developing cell and gene therapies, and a fourth that's repurposing vaccine technology to treat neurological diseases, about financing, deal-making and regulatory challenges and opportunities in the year ahead in a roundtable interview conducted during the J.P. Morgan Healthcare Conference, which took place Jan. 7-10 in San Francisco.

The participants included Athersys Inc. Chairman and CEO Gil Van Bokkelen, BlueRock Therapeutics Vice President-Corporate Development and Strategy Eric Soller, United Neuroscience (UNS) CEO Mei Mei Hu and PTC Therapeutics Inc. Chief Scientific Officer Mark Pykett.

Van Bokkelen, chairman of the National Center for Regenerative Medicine and a member of the Alliance for Regenerative Medicine (ARM) board of directors, cited data that ARM presented concurrent with the J.P. Morgan meeting, showing that global financings for cell and gene therapies totaled $13.3bn in 2018 – a 73% jump from 2017.

[Editor’s note: The Q&A that follows has been edited for length and clarity. Scrip will publish additional parts of the roundtable covering deal-making and regulatory issues in the coming days.]

Scrip: Last year, we saw a record amount of money going into the industry – it was $23bn-plus in venture capital across the globe. We also saw a lot of activity in the public market. It wasn’t until right at the end of the year that there was a blip in the stock markets, but that was more due to external factors than what was going on in the industry. So, as we go into 2019, what is your sense of what that financing environment looks like? What are the challenges?

Gil Van Bokkelen: There’s a couple of things that I think we can all agree are fundamental and true. The first is that the regulatory environment right now is incredibly positive and supportive. … That’s really important, because it has an impact on the financing environment.

The other thing that I think is really important from a macro perspective is … over the past few years, we have seen an unprecedented demographic shift, the likes of which the world has never seen before, where we see this massive increase in the number of elderly people that are much more susceptible to aging-related diseases and conditions. Those numbers continue to get bigger and bigger, and the situation continues to get more and more challenging, so from an innovation perspective, there’s never been a greater need for the types of technologies and therapeutic interventions that we are developing.

When you get those two things working in concert, it creates a lot of opportunity for all of us. And it also creates opportunity for investors who are looking to deploy their capital.

Eric Soller: You’re also looking at R&D productivity continuing to decline in large pharma and even biotech, and that’s true for neuroscience and for other areas. I think people and investors are still looking at companies like ours to really drive that innovation. That speaks to the kind of deals we’ll continue to see, which are more around early-stage partnerships, bolt-on acquisitions.

There is [an economic] slowdown. The growth rate that [the International Monetary Fund (IMF)] put out has decreased a little bit, but the fundamental jobs data, consumer spend data are all good.

Yes, it was a banner year for IPOs, for crossover investing, for venture dollars put to work. We have seen a contraction in the value, particularly for the upper tier of the IPO class. I think part of that is healthy. You know, a slight readjustment is a good thing, especially for those of us that are in active discussions with crossover investors and thinking about the next stage of financing this year. We think the [IPO] window is still open. We’re excited about preparing ourselves for engaging in the public markets.

I think for a company at our stage, which is lucky to have a couple of years of runway from our [$225m Series A] financing, we’re in a good spot to basically take advantage of investors that are looking for a diversified thesis, exciting modalities and new approaches to areas that have lacked innovation. (Also see "Bayer/Versant Launch New Stem Cell Company With Massive Cash Injection" - Scrip, 13 Dec, 2016.)

Mei Mei Hu: We’re in a global financing situation, and if you look at where a lot of the dollars came from over the past few years, much more as a percentage is coming from China.

Typically, geopolitical issues don’t necessarily affect particular deals, and yet they are [because of increased scrutiny by the Committee On Foreign Investment In The United States (CFIUS)]. There’s a lot more tension and uncertainty about what’s going to happen, and that’s not resolved – and I’m not sure where it’s going to go. (Also see "Trade War Spreads: Trump Rains On China Biotech Investment Parade" - Pink Sheet, 14 Aug, 2018.)

There are lots of deals that have been signed and pretty much done between Chinese investors and US companies, and yet now they’re frozen. There’s a massive amount of capital that is now waiting on the sidelines to figure out what is going to happen.

One of the biggest lessons of last year is don’t have just a plan B, but have a plan C and plan D as well. You can’t rely on previous things that you were relying on. We have to tackle multiple stages of financing, and get more creative with financing, actually. 

Mark Pykett: The entire [biopharma] space remains capital-intensive, [but] I think that when you look at the macro level returns, the overall aggregate returns and even rate of returns support continued investment. It might be a question of flow and overall scope, but it continues to be a positive area for investors that I think is supported by an underlying driving need that we can’t ignore these questions, both the big questions about an aging population, but also individual, specific disease-state needs.

When I was with Agilis, we were a private company funded by venture, and we were looking at some of these questions about how are we going to access the required capital to continue to support our business model. And when PTC approached us about an acquisition, one thing that we found very comforting was an underlying revenue base. (Also see "Deal Watch: Gilead Continues To Add To IO Armamentarium In Collaboration With Gadeta" - Scrip, 20 Jul, 2018.)

So, as companies think about how you manage uncertain capital-raising environments and overall financial capital market uncertainty, the degree to which companies can drive toward revenue [can point] to success, but it also gives them some insulation relative to the variability and flow of capital into intensive businesses like this.

Soller: You can scale faster [with the amount of money available in the current financing environment]. Look at gene and cell therapy companies, and they’re all going from 10 employees to like 100, 200. But they’re building core capabilities internally, which actually are part of the acquisition thesis [for big pharma].

We actually like these discussions, because it’s less a discussion around dismantling [a company following] M&A and all the integration stuff. It’s around, "We couldn’t build this inside of our pharma company. We want to keep you guys intact."

"There is a big strategic advantage to being overly capitalized from the outset, with heavyweight institutions that are going to stand behind that investment to help you go the distance," Gil Van Bokkelen said.

Van Bokkelen: I think that some investors say, "Look, how are we going to maximize value?" And I think this is one of the things that’s actually led to the unicorn financing, where people have said, "You know what? We’re not going to do this $10m, $15m, $20m Series A kind of financing and then hope that we’re going to be able to get enough de-risking to the point where we can go out and raise $50m and then $150m or whatever it might be. We’re going to start with $250m."

There is a big strategic advantage to being overly capitalized from the outset, with heavyweight institutions that are going to stand behind that investment to help you go the distance, or as far as it is reasonably practical to go, and then get to the other side.

Soller: We really think this is going to be the year of the [induced pluripotent stem cell (iPSC)], but the iPSC cell deployed towards these more prevalent chronic conditions like heart failure or like neuroscience. But I think it’s really been the success of gene therapy for monogenic disorders, it’s been the success of the adoptive CAR-T therapies, and those exits [via M&A] that are really giving people and investors confidence that these technologies will work their way into more prevalent conditions.

And one of the things that we’re excited about – and we know that investors get – is [regulatory programs] like RMAT designation, which are taking what would be incredibly large confirmatory Phase III trials and [potentially replacing them with] post-marketing surveillance.

So, you’re actually now able to talk to investors credibly and say, "Look, this depends on the efficacy signal, which is not well defined in the FDA documentation, so it’s a case-by-case basis, but assuming we have the kind of signal that we’re expecting in some of these indications, we could be … really moving closer to the market much faster."

Scrip: What are the challenges to raising new financing? We see a lot of money being deployed in oncology and immuno-oncology, so what’s the pushback you’re getting, and how do you deal with it, in regard to cell and gene therapy and neuroscience?

Soller: [Soller explained that BlueRock has had challenges with some investors because major indications like congestive heart failure and Parkinson’s are fairly well served by established therapies, making cell therapy a tougher sell.]

Most institutional investors don’t really understand the new developments. They’re not tracking the Nobel Prize in 2012 that led to new pluripotent stem cell technology that’s the foundation of our platform, so … we have to educate them on the fact that we are in a very different space than where we were even 10 years ago. Technology has stabilized. We have control over cells in a way that we never did before. We’re building on actually 20 years of great work; trials that did not lead to the signal that people were hoping for, but we learned how to identify patients, we learned how to do some protocols, we learned how to safely deliver cells.

There’s a lot time that we spend really saying, "Let’s get out on the table what you think you know about where cell therapy is, and where we are today."

One more comment that’s specific to us: stem cells are not created equal. There’s a lot of unregulated stem cell stuff that’s actually quite frightening that’s happening in the US and across the world, and we were really pleased to see in 2018 that the FDA leaned in heavily on this. The Department of Justice is now involved. (Also see "FDA Ups Pressure On Stem Cell Therapy Makers To Follow Product Approval Rules " - Pink Sheet, 3 Jan, 2019.)

But that’s another thing that even institutional investors ask us about. And the average investor who may invest in an IPO down the road, they need to be educated as well. So, there’s a lot of time and effort that we spend in all of our discussions really helping people understand what kind of therapies we’re trying to create and why they’re different from some of the other things that are out there.

Pykett: It's really sort of a bifurcated set of opportunities and challenges that [PTC is] facing. On the one hand, there’s sort of a lot of focus on execution – growing the revenue base, meeting quarterly and annual targets, being able to bring products to commercialization in a timely manner so that that underlying revenue expectation is met.

Part two is still creating a lot of excitement about the near-term pipeline and the very deep pipeline behind that, so that there’s still a lot of blue sky for investors to get excited about and [they] can look for inflection points in the overall value of the business – and that takes a lot of education. It’s sort of the drumbeat part of business, that you have to go out and do it over and over, and tell the story again, and show that you delivered on what you promised and said you were going to do, quarter by quarter and year by year.

"Particularly in the Alzheimer’s space, is there’s a lot of fatigue around certain hypotheses," Mei Mei Hu said.

Hu: Well, for UNS, we face very similar challenges – you’ve got to explain. There’s a lot of education to investors, particularly since we’re trying to reinvent a very old concept. I mean, vaccines are one of the oldest concepts in terms of medicine, and yet we’re trying to take a completely different approach to it.

One of the things that I found interesting, particularly in the Alzheimer’s space, is there’s a lot of fatigue around certain hypotheses. And it’s ironic, because on one hand, you’re de-risking something because you’re learning more and more – with every trial you’re actually learning more how to target the right patients, what biomarkers to use. And yet, the investors still feel fatigue.

So, even though it’s being de-risked and it should be easier to plow more money in, they’re actually trying to hold on to more money, because they don’t want to be that next learning, as opposed to that next success. It’s a funny balance.

Van Bokkelen: I can totally relate to everything you just said and agree with it. I mean, the area that we’re in, stroke, is another perfect example of that, where it was thromboembolic after neuroprotective after all the different things that people kept trying to do over and over and over again. Until finally, the market just said, "Yeah, we just don’t see that happening."

It needed somebody to come in from an entirely different trajectory, a different angle that basically was doing something fundamentally different.

Pykett: New investors may come and go. They sort of cycle in and out. Gene therapy is a great example. Twenty years ago, gene therapy had some very dark days. And yet, people recognized that the premise was sound and cogent, and if we could [address] those things which represented challenges, you would have your way forward for others.

I think clinically and from a regulatory standpoint, now the environment is actually very favorable and a lot of people are investing in it for that reason. The next step for the business will be commercial success, and making sure these patients can be identified routinely, and that the investment that was made over those years is supported by good [outcomes measures].