Investing in highly innovative era: case study Cell Therapy

Over the last couple of decades, biotechnology has been ripe with innovation. The changes to treatment paradigms have morphed from tablets made in sterile factories to cell produced protein-based biologics, and today we are seeing several new platform technologies with corresponding treatment paradigms. Examples such as gene-, cell- and RNA therapies. The discovery and evolution of these platform technologies has allowed the industry to address a cross spectrum of diseases that previously were considered untreatable.

How can investors keep up with this accelerating pace of innovation? Next generation treatments are often bettered in a matter of years with improvements in safety, efficacy, and convenience. The 20-year patent protection has been replaced by out-innovating an incumbent drug with ever improved treatments.

Our approach at IBT is not to second guess whether a binary trial read out will succeed or not. After all, the whole point of a clinical trial is to prove safety and efficacy and is hard to predict success. A 'good biotech company' can do everything right, designing trials correctly and acting with speed and efficiency but if the drug fails the trial, or as we're seeing more often, the trial succeeds but doesn't improve an ever-increasing efficacy or safety bar, the investment will be deemed a commercial failure.

Using Cell Therapy as a case study to exemplify our thinking, we have seen multiple iterations of innovation over the past decade. What was cutting edge science five years ago, is now considered out of date. You may remember the trust benefiting from two acquisitions in this space, Kite (acquired by Gilead in 2017) and Juno (acquired by Celgene in 2018). At the time, these acquisitions were considered strategically sound for the companies, looking to diversify their revenues and be part of the innovation cycle. Would these companies with the technology at hand be acquired today? Let's look at what's happened in cell therapy since those acquisitions. But first, some background on the science.

What is cell therapy?

Cell therapy involves the delivery of cells to patients for therapeutic benefit and represents an incredibly diverse array of potential technologies. The term has come to apply to a rather narrower group of treatments involving the introduction of immune cells that have been engineered in such a way that they can specifically target, and hopefully destroy, a patient's cancer cells. It may be used for treatment of a wide range of different types of cancer.

First Generation Cell Therapy

Six cell therapies have been approved by the Food and Drug Administration (FDA) since 2017. All six are known as Autologous CAR-T therapies. Autologous means that the cells used to target the cancer have to be taken from the cancer patient's own body. The cancer patient's own cells are harvested, modified and re-infused into that patient. The CAR-T therapies that have been approved so far are for the treatment of cancers involving cells from the blood, including lymphoma, multiple myeloma and some types of leukaemia.

Whilst boasting an acceptable safety profile, considering the severity of the conditions that the treatments address, first generation CAR-T therapies are not free from various adverse side effects, in some cases resulting in death. This was a trade-off the agencies were willing to accept but it has led to regulatory agencies limiting their use to cases where the patient is in an advanced stage of the disease and has little alternative.

Furthermore, despite remarkable results, the process of extracting and modifying a patient's own cells is poorly automated, extremely expensive with treatment costs in the several hundred of thousands of dollars per course, takes a long time (something that very sick cancer patients don't have) and requires specialised treatment centres. This unfortunately means that patients frequently succumb to the disease while waiting for their treatment.

Moreover, outside certain specific and well-defined liquid haematologies, cell therapies have thus-far struggled to show meaningful benefit outside these settings. Alternative approaches will be required, especially for solid tumours which is considered the wholly grail for cell therapies.

Second generation Cell Therapies

A plethora of Biotech companies are exploring technologies that can overcome some of the above limitations. Most advanced in development are allogenic cell therapies, in which immune cells (obtained from a healthy donor) are engineered to target suitable tumour antigens, expanded, and then stored as a ready-to-use 'off-the-shelf' therapy.

Such allogenic cell therapies have major manufacturing advantages versus autologous therapies, can be produced in an automated manner in large batches that can treat many patients, show less variability, can be available upon demand (without lengthy wait periods) and are inherently cheaper to produce. Various companies now have allogenic cell therapy products in clinical development. However, treating a patient with non-self-cells introduces other challenges, like with organ transplants, the patient's immune system might destroy the cells that are intended to treat the cancer. We are in the early stages of this treatment paradigm and have high hopes this issue will eventually be addressed.

Non T-Cell Therapies

The use of alternative (non-T cell) immune cell types has the potential to avoid several of these challenges, and NK (Natural Killer) cells, macrophages and non-traditional T cell subtypes are all being explored. Showcasing this approach are Fate Therapeutics, one of several companies focussing on Natural Killer (NK) cells.

Another new approach has come from Adicet who initiated trials of its lead CD20-targeting CAR γδ-T cell product, ADI-001, in non-Hodgkin's lymphoma (NHL) in March 2021 and hopes it will ultimately prove effective in targeting solid tumours. As an additional benefit which may allow for repeat dosing which is not possible with the earlier forms of cell therapy. This would, overcome the issues seen with duration of response observed with second generation allogenic CAR-T therapies.

What's Next for Cell Therapy

The cell therapy marketplace is ever changing, evidenced by the many IPOs and M&As in the space. Many of these newer companies hold the promise of improvements over the previous generation, some will succeed but unfortunately many will fail.

We believe at IBT that a buy and hold strategy is not the best way to invest in such high paced therapeutic modalities, as the threat of incumbent drugs, or even one still in development, being outclassed by a newer drug with a better approach before having a chance to reap the full benefit of coming to market is very real. We monitor and assess every new company continuously, evaluating data readouts at each stage, and ruling out companies that have failed to show sufficient improvement vs the existing or more developed products. The consequence of this is that we will actively trade out of a company which we deem to have lost in the arms race rather than being tied to the first iteration of innovation. Our strategy allows us to bank the gains we have made as investors in the earlier one and rotate into each newer, better drug as it comes along. As investors, we will continue to take this approach as long as the innovation in our sector continues to evolve at this pace.