With a comprehensive background in the life sciences, Stephanie Mattsson possesses depth of expertise in strategic venture development. She has experience from one of Sweden’s largest venture capital funds, as well as several years in management consulting. She currently holds a position at CCRM Nordic as Director of Venture Development where she has responsibility for venture development and fundraising. Stephanie graduated with a BSc in Chemistry and an MSc in Intellectual Capital Management.
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The field of cell and gene therapy (CGT) has been one of the most exciting areas in biotechnology, with significant advances and a surge in venture financing during 2020 and 2021 creating a “perfect storm” of innovation and investment. However, as we move further from the pandemic’s peak this storm is calming down, and the influx of investment into the sector has noticeably decreased. The pressing question is whether investors have completely lost interest in CGTs and can the industry regain its former appeal.
This is a big and complex question but, in the following blog post, I’ll expand on a few things that come to mind. First, to set the scene, we must zoom out and consider the broader macroeconomic environment before delving into the specifics of CGTs.
The Macroeconomic Landscape
Increasing inflation and high cost of capital
One of the primary factors influencing venture capital flows is the macroeconomic environment. In recent years, rising inflation has prompted central banks to increase interest rates, leading to a higher cost of capital. This directly impacts venture capital firms, as higher borrowing costs mean that returns on investments must be greater to justify the risks. As a result, there’s less capital available for high-risk, high-reward sectors like biotech, including regenerative medicine.
Reduced IPO activity
A robust initial public offering (IPO) market provides a crucial exit strategy for venture capitalists, enabling them to realize returns on their investments. However, with the current economic uncertainties, IPO activities have slowed significantly. This reduction in exit opportunities makes venture capitalists more cautious about investing in new ventures, particularly in capital-intensive fields like CGTs.
Sector-wide impact
These challenges aren’t unique to CGT. The entire biotechnology sector, along with many other high-tech industries, is experiencing similar investment slowdowns. The high cost of capital and uncertain exit opportunities are universal challenges in today’s economic climate.
CGT Financing
The downfall of CGT
CGT has seen a more severe decline in investment compared to many other biotech areas. Given the increased cost of capital, it’s no surprise that investors are hesitant to fund such a high-risk field, especially one that is still young and evolving. But with that in mind, what tangible things make it “high-risk,” and why isn’t everyone pouring money into this cool, new, and paradigm-shifting type of therapy? I believe this is due to two main reasons: high manufacturing costs and commercial hurdles.
Choice of indication, manufacturing costs and allogeneic strides
A few years ago, I was involved in in-licensing a gene therapy. It quickly became apparent that some of the programs we were offered lacked commercial promise. Many assets were developed for ultra-rare indications, leading to enormous development and manufacturing costs with low returns. Perhaps the industry pursued these non-feasible programs due to optimism about lowering costs, higher willingness to pay, and a significant influx of capital.
Learning from past mistakes is crucial. We need to rethink our strategies around indication selection, deciding early on if a therapy is commercially viable. If it’s not, other pathways like Hospital Exemption under the European ATMP regulation might be more appropriate. If we continue to push the boundaries without a solid commercial strategy, we risk losing investor trust.
Despite these challenges, I still believe CGT has a promising future. The most important breakthrough we can achieve is solving the “holy grail” of allogeneic CGTs. Allogeneic therapies could lower manufacturing costs, target new indications, and overcome some commercial hurdles. While many hopes are pinned on induced pluripotent stem cells (iPSCs), other solutions also hold promise.
Commercial hurdles and competition among enabling technology
Market access and drug shortages have been significant issues for CGTs, even with highly efficacious therapies. To expand access, we need to move away from complex autologous logistics and manufacturing. However, there are also ways to reduce autologous manufacturing costs such as the use of automatization, closed production processes, and efficient out-scaling, which is an area that has seen impressive development in recent years.
A major cost driver is the cost of equipment, kits and media. For these expenses to decrease, we need a critical mass of CGT companies using the current technologies. As more companies enter the market as enabling tech providers, competition will drive prices down. But to achieve this, investors must think long-term and endure the current high costs, and the CGT community must innovate to find new ways of reducing expenses.
Conclusion: Are we awaiting another perfect storm?
If you’ve read this far, you understand that many conditions must align for CGT to regain its former investment activity. But do I believe another perfect storm is possible? Absolutely. We are on the right track with necessary technological advances that could unlock tremendous potential. But at the same time, the macro economy will always be a main denominator for capital influx so there is only so much the CGT community can do about it.
In the meantime, there are several actions we can take to regain investor trust. We must contribute to smart and healthy investments, avoiding the trap of overpromising and underdelivering. Investors and CGT professionals alike should engage in mutual education. As a CGT professional, offer your time. As an investor, ask for help. In the end, we all stand to gain. As a public-private organization, we (CCRM Nordic) aims to bridge the gap by helping companies make smart decisions, optimize manufacturing and CMC strategies, and support investors by highlighting key risks and ways to mitigate them.
While investors may have become more cautious, the potential for CGTs remains immense. With the right technological advancements, favourable market conditions, and effective promotion, the sector is well-positioned to regain its investment appeal. The appetite for CGT hasn’t disappeared; investors have simply become more discerning, and so must we.
Be sure to check out other perspectives on this topic as part of Signal’s eighth annual blog carnival. You can explore the full collection of posts by clicking here.
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