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Risk Versus Reward: The Value of Cell Therapy for Patients and Investors

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Jason McCarthy The cell therapy space, encompassing disruptive new treatment including stem cell therapy, immunotherapy and gene editing, has begun to mature, with a handful of product approvals and others in late-stage development. In the first of a two-part series examining the disruptive technology, Maxim Group analyst Jason McCarthy exposes the upsides and downsides of the space, and the companies at its forefront.

The Life Sciences Report: Cell therapy has been a disruptive newsmaker in the life sciences industry for years now. Can you describe the different types of treatment—stem cell therapy, immunotherapy, gene editing—and the promises they present?

Jason McCarthy: Sure. From a perspective of disruptive news, the focus on Wall Street and for investors has been immune-oncology and chimeric antigen receptor (CAR) T-cell therapies, as well as gene therapies, which integrates gene editing as well. Something that has lagged behind, and I think maybe fairly so, is stem cell therapy.

Events over the last couple of years have centered around the CAR-T therapies, and particularly Juno Therapeutics and Kite Pharma developing what's now Yescarta and Juno's JCAR017 (formerly JCAR015), for relapsed refractory blood cancers. A handful of patients who were, essentially, completely out of options are now experiencing complete responses and going into complete remission, sometimes lasting for years. That has been the most significant disruption, in my view, of the life sciences space.

Gene therapy has emerged right next to CAR-T. If you think about CAR-T, where you take T-cells out and put in a new gene to make a CAR receptor, it's essentially gene therapy for T-cells. So there's some overlap there.

We've seen some really good data in gene therapy from bluebird bio Inc. (BLUE:NASDAQ) in sickle cell anemia and beta thalassemia. We've seen good data from AveXis Inc. in spinal muscular atrophy, and there's a host of other companies working in the space, including Abeona Therapeutics Inc. (ABEO:NASDAQ) in Sanfilippo syndrome and epidermolysis bullosa; the latter is gene-corrected skin grafts. Overall, these companies and the data they've shown in a relatively small number of patients have transformed the life sciences industry over the last several years.

Stem cell therapy, in terms of valuation, seems to be the laggard. You see companies like Mesoblast Ltd. (MESO:NASDAQ; MSB:ASX), Cytori Therapeutics Inc. (CYTX:NASDAQ), BrainStorm Cell Therapeutics Inc. (BCLI:NASDAQ)—and the list goes on—with valuations in the $50–400 million ($50–400M) range, which is multiples below where the CAR-T, gene therapy and gene editing companies are. In my view, there is a valuation gap here.

The questions I get asked from investors are: Why are gene therapy and CAR-T so high? Are they too high? Is there a bubble? And why is stem cell therapy so low? Stem cell therapies are emerging behind CAR-T and gene therapy, and in my opinion, they are going to have their day, and we could see valuations rise.

TLSR: As trials in cell therapy treatments move through Phase 3, have any problems emerged? Are there downsides?

JM: It depends on the particular therapy. You might remember the setbacks experienced in CAR-T therapies, particularly for Juno. Two patients unfortunately died during the cell therapy treatment process for acute lymphocytic leukemia in the summer of 2016. Then the trial was put on hold. In November, three more patients died. There was the question of balance between risk and reward—risk meaning that cell therapies, particularly CAR-T with cytokine release syndrome and neurotoxicity, can potentially kill patients, versus reward, meaning extending the lives of patients, including very young children.

In my opinion Juno was, in some ways, unfairly treated. There were deaths in other trials, including Kite's trials. And it's just an artifact of this type of T-cell therapy, as well as the underlying condition of the patients—they are extremely sick. It's not completely understood what drives neurotoxicity. Problems have emerged, but problems emerge with new therapies sometimes, and it’s a part of the process. The balance of treating or even curing disease, and risks that may be associated with the therapies, must be considered across multiple factors. These companies are working diligently and have made huge strides in reducing side effects and developing more "fine-tuned" T-cell therapies.

Looking at gene therapy, a good example of downside would be Solid Biosciences Inc. (SLDB:NASDAQ), where there was an issue with its gene therapy trial in Duchenne muscular dystrophy. More specifically, one patient who was dosed with SGT-001 was hospitalized for lowered platelet count, decreased red blood cells and complement activation—immune responses that may have been triggered by SGT-001. The trial was halted. There are some questions of immunogenicity with gene therapies in general, as well as questions about durability—how long a one-time gene therapy treatment will last—and the right indications for gene therapy use. I don't know if they're really problems; I think they're clinical and scientific/medical challenges that need to be addressed. And the gene therapy companies, like the CAR-T companies, are continuously working to improve their therapies.

For example, take the gene therapy from AveXis, which is targeting young children—newborns with spinal muscular atrophy children who can pass away by 12 months of age. With Sanfilippo syndrome, which is where Abeona works, children can live into their teens, but they obviously have a very poor life expectancy. If you could extend the life of a child by a few years while other therapies are being developed, and even possibly have the ability to redose, gene therapy makes for a viable option.

One of the challenges in the space is: What do you do for diseases with gene therapy where patients are going to have very long life expectancies—30, 40, 50 years or beyond? Will the gene therapy last that long? Can you actually retreat these patients? Those questions have not been answered because the clinical data are just not that mature yet. In the case of Spark Therapeutics Inc.'s (ONCE:NASDAQ) Luxturna, a gene therapy approved for a rare eye indication, the data out to four years has demonstrated durability. Other groups in the gene therapy space? More time will tell, they're still pretty fresh.

Other challenges in the space are related to manufacturing autologous cell therapies, from CAR-T to stem cell therapies. They're expensive to manufacture. There are logistical issues that need to be addressed. And another challenge the spaces will face is the switch over to allogeneic cell or gene therapies. How do you make drug in a bottle that you could write a script for, so a practitioner or a nurse can just infuse the patient and let them go. That's down the road, but the problems of autologous versus allogeneic, and the other things I mentioned, are issues that will come to fruition as more therapies reach the market. Pricing is also a concern and something less talked about. What is the co-pay burden on the patients who want to access CAR-T?

TLSR: Several companies—and you've mentioned them—have been bellwethers in this field, both in terms of the science and for investors. These include Juno, Kite and bluebird bio. Why have these companies been standouts?

JM: They're all standouts, obviously, but I'll start with bluebird. Back in 2015, when gene therapy was reemerging into the biotech investor community, bluebird bio showed, with LentiGlobin in one patient—the n=1 story, as we call it—that a sickle cell patient could essentially be cured of disease. That patient has remained transfusion-free now for almost three years. This disease is a one-way street, right? These patients are on transfusions once a month. They're not going to get better. There's no artifact in bluebird's gene therapy that you can point to that's contributing to this patient getting better. It's the gene therapy. That sent the valuation soaring.

Juno and Kite: same thing. As I mentioned earlier, you're talking about relapsed refractory blood cancer patients who have six months or less to live, and the CAR-T therapies from both companies are extending life with complete response rates of 40% of better. And it's durable, going out to a year or more. That's incredible.

These three companies really have led the biotech space in driving valuations higher in the past few years.

TLSR: Juno has been acquired by Celgene Corp. (CELG:NASDAQ), Kite by Gilead Sciences Inc. (GILD:NASDAQ) and most recently, AveXis by Novartis AG (NVS:NYSE). Bluebird is considered ripe for acquisition. What is it about the gene therapy companies that makes them appealing to large pharmas and biotechs?

JM: If you look at it from a macro perspective, the concept of gene editing and gene therapy—being able to alter disease at the genetic level—is absolutely integrated into the medical treatment paradigm. It will be, and is now, the future of medicine. Cell therapy is also, in my view, the future of medicine. There is overlap between gene therapy and CAR-T and cell therapy, in my opinion. Even though they're being teased out and separated as these three individual therapeutic verticals, they're really not.

When you talk about Celgene acquiring Juno or Gilead acquiring Kite for $10 billion ($10B) and $12B, respectively, what did they actually get? Looking at just the relapsed refractory blood cancer population—and by the way, these companies reach just a sliver of those populations—these are $300,000 ($300K) and $400K therapies. These are potential $3–5B per year products in out-years. When you consider that the big pharma companies are going to develop these therapies for much larger swaths of the blood cancer community, and also for solid tumors, the possibilities—the size of the markets—are just so tremendous. I think this is why these companies are being acquired.

Novartis acquiring AveXis: What did it get? Spinal muscular atrophy. About 20K newborns a year will die by the time they're one year old. If you can give them a gene therapy, as AveXis did, these kids are sitting up and speaking on their own at two years, it's incredible. They could be cured—time will tell. But given what we have seen, this is a therapy that could come with a million-dollar price tag. It's a multibillion dollar opportunity for Novartis. And Novartis isn't just with AveXis. It is also partnered with Spark Therapeutics for Luxturna, another gene therapy for inherited retinal conditions—also a million-dollar therapy.

These are multibillion-dollar opportunities for all of these big pharmas. Some might argue that they're paying high price tags. Some might also argue that maybe it was cheap to get Kite at $12B or Juno at $10B. But as I said, this is the future of medicine, and I think large pharmas are getting on board by making acquisitions now.

Bluebird has also been speculated to be an acquisition target. What makes that company interesting is the valuation is around $9B today, in the range of where Kite, June and AveXis were acquired. Bluebird also has CAR-T and gene therapy and gene editing. It's very different. So could bluebird be acquired for a much higher valuation? I don’t know; it could be a possibility. We’ll see. But many have speculated about it.

TLSR: I've seen it in the news, so that's why I ask.

JM: Well, the other reason it's in the news is that nobody else is out there. You could look at Abeona: It is very similar to AveXis in terms of the vector it uses, and it has about a billion-dollar valuation today. I would argue that is cheap. But there are not a lot of clinically advanced gene therapy companies in the space that pharma might be interested in, so bluebird is obviously at the top of everybody's list.

TLSR: Thank you, Jason.

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1) Tracy Salcedo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this interview are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Jason McCarthy: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. I, or members of my immediate household or family, are paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this interview: Abeona, Cytori Therapeutics, Mesoblast, BrainStorm Cell Therapeutics, Athersys. I determined which companies would be included in this article based on my research and understanding of the sector. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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