A Tale of Two Futures: Financial Trends Shaping The Advanced Therapies Space

By Anna Rose Welch, Editorial & Community Director, Advancing RNA

“It was the best of times, it was the worst of times…”

I dare say most of us have heard (or used) this A Tale of Two Cities quote by Charles Dickens in a manner of situations — and now, the time has come to apply it to the ATMP space.

To be fair, I can’t take all the credit for this fitting literary allusion; in fact, I owe my thanks to William Blairs’ Kevin Eisele who used this quote in his presentation on biotech funding trends at the recent AGC Biologics CDMO conference in Milan. It was certainly “the best of times” to be invited back to attend the CDMO Summit for two days of presentations on the state of the cell and gene therapy world. But despite all the progress that has been made in the ATMP space — and yes, there has been a lot of progress — there’s also a seemingly increasing amount of unease roiling under the surface.

As Eisele went on to explain, financially, the “tough slog of the last couple of years” still feels like a “hangover that just won’t go away.”

Dark Horse Consulting’s Anthony Davies started his presentation with the phrase, “There’s good news and there’s bad news,” which, to be fair, was the same title slide he presented at the 2022 CDMO Summit. But here we are in 2024, continuing to see “conflicting trends of macroeconomics, clinical progress, regulation, and manufacturability,” he continued. “That’s why it’s hard to make sense of this world.”

There are a lot of reasons why navigating the world as a biotech is hard. There are a lot more reasons why it’s even harder for biotechs in the advanced therapies space today — our current “COGS crisis,” as Davies termed it, being a big one. But I’d also argue our recent feelings of topsy-turviness have been exacerbated because, in this tricky financial climate, we’re increasingly being asked to defend our therapies’ relevance to investors, payers, governments, and, in some cases, even patients. And, if you’ll pardon my French, that’s a shitty, destabilizing place to be.

Though the conversations during this conference were not directed specifically to mRNA-based therapeutics, there were several presentations underscoring the current financial market’s dedication to practicality and differentiation — both traits I’ve previously argued are exceptionally important for RNA therapeutics. As the cell- & viral vector-based ATMP space treads water in the Gartner Hype Cycle’s “Trough of Disillusionment,” there are lessons and opportunities for the younger RNA field to seize (or continue seizing) as we position our products as an answer to patients’ greatest therapeutic needs.

In the first of this two-part article, I’ll share a few of the commercial nuances informing what the path forward may look like for all of us in the ATMP financial sector. Stay tuned for part 2, in which I’ll touch on the ways the mRNA space can begin to tackle what I see as our own budding “relevance” problems.

A Closer Look At The Financial Sector For CGTs

As I was reviewing my notes from the CDMO Summit, it became clear there are two ways we can “divvy up” our discussion on the commercial challenges facing all ATMP products —starting first with the nuances of financing their development. As Eisele explained throughout his presentation, when it comes to funding, we’re fortunately starting to feel the persistent financing “hangover” lift.

“I shared this optimistic message last year at this conference,” he acknowledged, “but I don’t think I’ve been wrong. We’re seeing gradual improvements, and sentiment continues to improve across the market. This has been the longest recovery in the biotech sector over the last generation or two.”

Now, to be clear: Small-cap biotech companies have been and continue to be the hardest hit — particularly in the CGT sector — as investors (i.e., multi-strategy hedge funds/large asset managers) prioritize mid/large-cap clinical-stage pharma companies. In general, this persistent sentiment has left preclinical and early-stage companies in choppy waters, trying to navigate biopharma’s own “chicken or egg” quandary: “What comes first — the funding or the data?” However, as Eisele went on to point out, the recent Federal rate cut (50 basis points) was a highly anticipated rebound that stands to benefit small cap stocks and biotech, in particular.

If you needed further proof that clinical data are the keys to the bank vault, look no farther than data out of the biopharma private financing sector: 56 percent of series rounds went to clinical stage companies compared to 36 percent in 2022. Though biopharma private financing overall has decreased the past few years, it’s important to note that rounds are getting larger albeit becoming more “concentrated” on a smaller number of companies.

“The goalposts have shifted for a lot of investors and for pharma companies in terms of what companies need to demonstrate to justify an M&A takeover, an IPO, or a funding round,” Eisele clarified. “You need to show clinical differentiation. In turn, funds are supporting their companies for longer and must allocate more capital to continue to support those positions. This is a very different dynamic than we’ve seen over the past couple of years.”

We can’t talk about financing of the CGT sector without reflecting on the impact that commercialization issues can have in garnering investor favor/interest. In fact, as Eisele went on to say, for investors, commercial success is first and foremost what drives positive cycles in biotech. For certain portions of the (albeit very broad) CGT field, the shakiness of recent commercial launches and ongoing concerns about scaling into larger indications have turned some of our modalities into the slightly bruised apples of investors’ eyes. We can see this reflected in the fact that gene editing and gene therapy (along with vaccines, for my mRNA peeps) were the three least favored modalities in a William Blair survey of investors, compared to the “favored four:” ADCs, radiopharma, RNA/oligos, and precision oncology.

Likewise, as Otello Stampacchia, founder of Omega Funds, furthered, Big Pharma’s buy-in is another critical factor influencing investor interest. Broadly speaking, current doubts about ATMPs’ abilities to adequately scale to reach larger patient populations have left Big Pharma feeling somewhat squeamish. While three to five years ago a drug promising peak market sales of $700 million to $800 million might’ve been tempting enough to please Big Pharma, that number — like all things — has inflated to upwards of $1.5 billion. This shouldn’t be surprising, considering large pharma companies anticipate losses of $180 billion-plus, thanks to a wave of patient expiries in the next four years.

“Niche products will not fill these losses,” Stampacchia explained. “Now, obviously the universe is no longer just the Pfizer’s, Merck’s, or Lilly’s. There are other potential buyers, and for some of those buyers, markets of six-seven-eight-hundred million makes a lot of sense. But these companies cannot spend billions.”

Overall, to garner much-needed investor attention and funds, Eisele and Stampacchia were aligned in recommending two things. First and foremost, we as individual companies — regardless of modality — must have an exquisitely crafted (aka “defined and differentiated”) thesis about why our product/target/modality. (Bonus must have: A proven management team also pays dividends today.)

Secondly, there was a lot of conversation throughout the two-day CDMO Summit about incremental improvements to technology and manufacturing paradigms. “Competitive intensity” is one factor lighting a fire under the industry to make fundamental technology improvements. As Stampacchia clarified, competitors are arriving to the clinic/market much quicker than they used to, which can prove that “first-in-class” does not necessarily equate to “best in class.”

He also argued that based on historical trends, our current economic landscape is well-suited for making incremental improvements to our manufacturing to better improve COGS.

“If you look at when the best incremental innovations were made, it’s usually at times of capital scarcity,” he said, pointing out that venture capital saw the biggest gains in the years following both the dotcom bubble and the great financial crisis. The next year or so before us promise similar trends.

“Now, entrepreneurs just need to convince us of the use case,” he concluded.

 

Stay tuned for part 2, in which I’ll unpack a few other insights from the CDMO Summit and how I see these instructing the mRNA space to tackle what I see as our own budding “relevance” problems.