Gene Therapy – Near-term Revolution or Continued Evolution?

MTS Health Partners, L.P. is publishing its second series of Strategic Advisory Analytics reports “Gene therapy – Near-term Revolution or Continued Evolution?” The full report will be published in three parts: (1) Global Proprietary Data – Key valuation and performance data from MTS’ database of global public and private gene therapy companies (2) The Gene Therapy Ecosystem – Description of the Gene Therapy space, the various technologies, and current business models, as well as analysis of the potential impact of approvals and launches on the biopharma industry (3) Conclusions for the Future of the Gene Therapy Space – Dives deeper into the unique sensitivities that each Gene Therapy approach faces in the near-term, providing key insights and potential actionables with the goal of outlining a detailed roadmap to successfully navigate the coming era of Gene Therapy. Today we are publishing Part 1 – Global Proprietary Data.

An abbreviated version of  Part 1 can be found here. Please email Ravi Mehrotra at Mehrotra@mtspartners.com for a full version of the Report.

The first series of our Strategic Advisory Analytics reports on drug pricing can be accessed at http://www.mtspartners.com/investment-banking/news/

By implication the world thinks Gene Therapy is THE future of therapeutics….

Gene Therapy companies now represent 20% and 29% by number and market capitalization, respectively, of precommercial public biotech companies (see slide #15). This makes Gene Therapy the 2nd largest genre of companies, beating mAbs (PS: there are more than twice the number of Gene Therapy assets in clinical development than mAbs, see slide #17) and only surpassed by small molecule companies. Moreover, the mean market capitalization of Gene Therapy companies is the highest, above mAbs and small molecule companies (see slide #16).

It’s been a long time evolving, but are we finally on the cusp of the Gene Therapy therapeutic revolution?

It’s been just over 25 years since the first human Gene Therapy therapeutic approach (for the history buffs amongst us, it was the 14th September 1990) and more than 1700 clinical trials evaluating Gene Therapies have been conducted during that time. Despite the huge investment in time and money, the first approved Gene Therapy products were not until uniQure’s Glybera in July 2012, followed by Ionis’ Kynamro in January 2013. Both of these pioneering products (as well as GSK’s Strimvelis, approved in May 2016) were commercial non-starters. 2016 was however, the year for the first commercially viable Gene Therapies, with the September approval of Sarepta’s Exondys 51 and the approval of Biogen’s Spinraza in December – both of which are expected to generate >$1bn peak sales. Moreover, the next 24 months provide a plethora of surrogate validations for Gene Therapy in the form of potential product approvals – there are 3 products currently filed and expected to be approved by year end, and at least another 8 product candidates in registration-enabling studies with top-line data imminent. Five of these 11 near term potential approvals have peak revenues of >$1B.

Thus the key question is, “Are we about to witness the coming of the Gene Therapy age and a near term revolution, or will the sector still need further time to mature, and rather are we set for continued evolution”? This is the topic of the second series of MTS Health Partners, L.P. (“MTS”) “Strategic Advisory Analytics” Reports (the first series was on drug pricing). Within this current set of Reports we will attempt to answer such questions as “Is Gene Therapy on the cusp of delivering on its promise as a paradigm-shifting therapeutic class”?, “Will the rules of the game for other therapeutic classes apply”?, and “What will be the key metrics for predicting success in Gene Therapy”?

The Gene Therapy space has evolved into a heterogeneous and complex set of technologies, with significantly different clinical, regulatory, and manufacturing hurdles, as well as business models 

The field of Gene Therapy has massively evolved scientifically into a heterogeneous and complex set of technologies since the above described first origins of “simple” Gene transfer in 1990. Many of these could easily be described as standalone technologies (or at least discrete subsets of Gene Therapy), such as mRNA based technologies, CAR-T, TCR, CRISPR, etc. Concomitantly, the words “Gene Therapy” capture an incredibly wide set of approaches in the current day biopharma industry. To further increase the complexity in the Gene Therapy space, the underlying business models of the companies in the space also show a disparate range, from principally platform technology plays, through single asset plays (using “generic” technologies), to companies attempting a fast route to a “FIPCO-like” model. With this inherent heterogeneity in the Gene Therapy space it’s no wonder that even sector experts find the field complex, and for us mortals, the word “confusing” bubbles up.

MTS’ method to demystifying the opportunities and treats in the Gene Therapy space

The commonality of all companies within the Gene Therapy space is the use of genetic material (DNA and RNA) to treat a broad range of diseases, from monogenic disorders to multi-factorial diseases such as cancer. We have created a proprietary pure-play Gene Therapy database, which includes 53 public and 137 private companies. Our central approach to demystify the totality of the Gene Therapy space has been to assign each company to one of four groups, which we call “approaches”; (1) Gene transfer, (2) Gene disruption, (3) Gene-modified cell therapy and (4) Gene editing companies.

Our Gene Therapy Report will be published in 3 parts:

Part 1 – “Global Proprietary Data” published today includes key valuation and performance data from MTS’ proprietary database (described above). In Part 1, we also look at the late-stage pipeline of the Gene Therapy sector and put this into context of the totality of the Biopharma pipeline.

Part 2- “The Gene Therapy Ecosystem”, to be published in the Fall 2017, will describe the Gene Therapy space in detail, highlighting the various technologies and current business models (looking at the sector through the lens of the 4 approaches), as well as analysis of the potential impact of approvals and launches on the Biopharma industry as a whole. Also in Part 2, we’ll analyze the clinical, regulatory, and manufacturing hurdles that could set apart the winners from the not-so-much winners in the space.

Part 3 – “Conclusions for the Future of the Gene Therapy Space”, to be published in Q4:17, will dive deeper into the unique sensitivities that each Gene Therapy approach faces in the near-term, providing key insights and potential actionables with the goal of outlining a detailed roadmap to successfully navigate the coming era of Gene Therapy.

In the same approach we took to our drug pricing work, the main aim of our Gene Therapy Strategic Advisory Analytics Report  is to act as a forum for continued debate on the sector and thus feedback from both corporates and investors is welcomed (please email mehrotra@mtspartners.com).

Some of the key data observations from Part 1: “Global Proprietary Data” include:

1. 1. The first generation of Gene Therapy approvals are upon us but the fundamental hope and dreams of the sector lie within the potential for the technology and many mid-early stage pipelines:   Even with the plethora of upcoming potential Gene Therapy approvals, cumulative sales for these late-stage products is a modest $13 billion, illustrating that the current sector valuation remains largely driven by technologies and mid-early stage pipelines rather than actual near term revenues(see slide #20).
2. 2. Valuation within the space is bimodal – product validation key. Unsurprisingly, the higher market caps are generally attributed to those companies with potential near-term product approvals (see slide #21). But even these companies have valuations that do not fit into the classic sales multiple for biopharma. Interestingly, the most senior companies are not capturing the highest valuations, instead the recent IPO window has produced the majority of the valuation leaders (see slide #22).
3. 3. Near term product approvals are expected from 3 of the 4 Gene Therapy approaches. Gene disruption and gene transfer approaches are leading current product approvals, but Gene-modified cell therapies have near term blockbuster potential, with NVS’ CAR T cell therapy trailblazing the way. Gene editing valuations reflect “holy grail” potential, but it is still very early days. It is worth noting that the top 10 Gene Therapy products by revenue in 2022 are expected to capture more than 50% of the entire market, meaning near term revenue will largely benefit a few key players (see slide #23).
4. 4. M&A in Gene Therapy has been sparse so far. There has been modest M&A activity in the space so far, suggesting large cap BioPharma is looking for further validation to justify current valuations. There is potential for larger M&A appetites as more late-stage candidates achieve approval (see slides #25 and #26).
5. 5. More BD activity in Gene Therapy. But total deal numbers and deal values are still far from overwhelming (see slides #27 and #28). Activity has been equally distributed across all Gene Therapy approaches, with large cap BioPharma showing slight preference for in-licensing Gene transfer candidates (see slide #29).

MTS Securities, LLC., an affiliate of MTS Health Partners, L.P., (“MTS”) offers investment banking services to the healthcare industry. Our professionals distinguish themselves by providing experienced, attentive and independent counsel, and expertise in the context of long-term relationships. Our “Strategic Advisory Analytics” reports exemplify our value add strategic advisory services to clients across all healthcare industry sub-sectors. The reports are also distributed to institutional investors, providing a differentiated macro-perspective on key themes and therapeutic areas within Biopharma.

Previously published Strategic Advisory Analytics reports can be accessed at http://www.mtspartners.com/investment-banking/news/

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