Even With High Costs & Uncertainty, Gene Therapy Finds Funding And Warm IPO Waters

This is the first entry of the Homo Posterius (“the Next Human”) column on investments in future-setting technologies. This week, we will dive into gene therapy startups and the money that goes into them.

Gene therapy, like its parent discipline life sciences, can be unpredictable and costly. However, significant life-saving milestones in the field have been reached over the past three decades. As a result, gene therapy use cases are expanding.

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Previously, gene therapy research focused on curing severe combined immunodeficiency disorder (SCID). Now, scientists are beginning to treat hereditary diseases such as hemophilia, inherited blindness, and possibly cancer. And so far, it’s an area of innovation ripe for investment.

What Is Gene Therapy?

Scientific American defines gene therapy as “the addition of new genes to a patient’s cells to replace missing or malfunctioning genes.” Essentially, a vector (usually a virus) carrying correct copies of a gene is injected into the patient’s body, infects the designated body part, and inserts the correct genetic material.

It may sound odd that scientists would use a virus to transport the changed gene, but these viruses won’t give you a cold.

Life Sciences vs. Consumer Tech Companies

This being Crunchbase News’ first piece unpacking investment into life sciences companies, let’s start by breaking down the differences between life sciences companies and consumer tech companies.

It’s common for a life sciences company to raise and spend hundreds of millions of dollars on R&D before a viable product appears. Many startups raise money just to reach the proof-of-concept stage. However, because life sciences is such a capital-intensive category, these companies tend to raise a lot more money in the early stage.

Investing in life sciences companies can almost look like, externally, at least, throwing money into a bottomless pit. Clinical trials take six to seven years on average. FDA approval adds about ten years to the timeline before the new drug commercializes. You may never know when a marketable product comes out, if one comes out at all.

Life sciences startups also go public sooner than consumer tech companies in the United States. Some life science companies go public after raising one or two rounds of funding, or even none at all. In the world of life sciences, early-stage companies can successfully raise from public markets, which isn’t always true in tech. In fact, some late-stage tech startups merely go public to provide liquidity to their investors; raising new capital from public markets becomes a consequence, not a goal.

The reason for earlier IPOs in biotech can be obvious: going public generally brings more money than those raised in private markets, which means more funding for R&D and IP protection. But the high valuations of some biotech startups has led to speculations of a biotech bubble. Theranos, the blood test company once adored by Silicon Valley VCs, taught us that a biotech company run without proper oversight can fall prey to its own hype—something that Silicon Valley is loathe to correct.

The Gene Therapy Market

Both big pharma and biotech startups are closing in on gene therapy research. To compete with gene therapy startups, pharmaceutical corporations like BioMarin (Nasdaq: BMRN), Bristol-Myers Squibb (NYSE: BMY), and Pfizer (NYSE: Pfizer) are either developing their own drug or teaming up with leading gene therapy companies.

Excluding pharmas, Crunchbase has 68 gene therapy companies on record. Below is the geographical distribution of gene therapy companies around the world:

Out of these gene therapy companies, 53 percent come from the United States and 32 percent originate from Europe. The rest hail from China and South Korea.

Over the last decade, a total of $2.3 billion was invested in gene therapy companies during pre-IPO funding rounds. Upon IPO, the same cohort raised a little over $767 million. This is a pretty significant amount since it makes up for 63 percent ($767 million divided by $1.2 billion) of money raised at life science IPOs within the same timeframe.

Here’s a line graph that shows the number of gene therapy companies that went public each year from 2007 to 2016:

As you can see, the number of gene therapy IPOs spiked from 2012 to 2013. This matches the overall trend of the 2013 biotech IPO boom. In fact, 12 gene therapy companies went public since the beginning of 2013.

Key Players

The graphs above put gene therapy in the context of financial markets. But to help you understand the progress and current endeavors of gene therapy companies, here are a few big names picked from the top 15 most-funded gene therapy companies.

• BlueBird Bio (Nasdaq: BLUE). Headquartered in Massachusetts, Bluebird Bio focuses on developing gene therapies for severe genetic diseases. With a valuation close to $0.4 billion at IPO, Bluebird Bio ranks first in terms of total funding amount and second in terms of money raised at IPO. As of March this year, the company published a case study on the first patient with sickle cell disease (SCD) to be treated using gene therapy in general. This also makes Bluebird Bio the first company to use its own gene therapy drug on a SCD patient.
• Spark Therapeutics (Nasdaq:ONCE). A Philadelphia-based company, Spark could make the first-to-market gene therapy drug in the U.S. The company already entered Phase 3* trial for inherited retinal disease (IRD) treatment and is in the midst of Phase 1/2 trial (meaning that the trial was designed with Phase 1 and Phase 2 combined) for hemophilia B. In December 2014, Spark Therapeutics joined forces with Pfizer on hemophilia B gene therapy research.
• UniQure (Nasdaq: QURE). Based in Amsterdam, UniQure developed Glybera, the first and the only EU-approved gene therapy product today. Glybera treats lipoprotein lipase deficiency (LPLD), a genetic disease that clogs the blood with fat. Priced at 1.1 million euros (1.4 million USD), Glybera also sets the price record in the world of medicine. However, in April this year, UniQure announced that it will not renew Glybera’s marketing authorization, which will expire in October. Because of Glybera’s narrow application, UniQure decided to focus more on hemophilia B and Huntington’s disease.

Looking Forward

While gene therapy has had several successful clinical trials, marketing the treatment encounters two main challenges. First, companies have to take various risks into account. The virus vector can be intercepted by the patient’s antibodies, triggering a deadly immune response, as in the case of Jesse Gelsinger, the 18-year-old boy who died in a gene therapy trial in 1999. Such a mistreatment can set back research for years.

The second challenge is cost. Companies need to compare the cost of a one-time gene therapy treatment with that of managing a hereditary illness. Would the patient pay for a $1 million one-time dose or annual treatments for the rest of their life ($300,000 per year for hemophilia)? The specific disease a biotech company chooses to target also depends on patient demand. Based on profit, it’s not worth spending a decade developing a drug that only affects a couple hundreds of people annually.

Despite the uncertainty and the cost, gene therapy may hold the key to the promising future of medicine. Once this technology matures, it also has the potential to treat cancer, heart failure, and other fatal illnesses.

*Before clinical trials, which tests the drug on people, pre-clinical trials have to be done to find out the drug’s dosing and toxicity levels. Clinical research is a crucial step prior to applying for FDA review. It usually involves four phases. From Phase I to Phase IV, the length of study and the number of volunteers increment. The following table was made based on data from FDA’s website.