Small-Cap Biotechs Developing Novel Gene Therapies Could Become Targets of Big Pharma

The acquisition of Kite Pharmaceuticals by Gilead and Juno Therapeutics by Celgene may lead to more acquisitions of CAR-T gene therapy companies

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Jun 20, 2018
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Gilead Sciences' (GILD, Financial) $12 billion purchase of Kite Pharmaceuticals last October may have put a bullseye on several small-cap biotechs developing a new type of gene therapy to treat cancer.Ă‚

Members of big pharma may see an acquisition as the fastest route to gain entry into a novel cancer approach known as chimeric antigen receptor cell therapy, or CAR-T. Simply put, the treatment involves removing immune cells from a patient and arming them with new proteins that allow them to recognize cancer. They are then returned to the patient in large numbers.

Last year, CAR-T cell therapy was recognized as the “advance of the year” in the American Society of Clinical Oncology Clinical Annual Report for its demonstrated benefits in certain blood cancers and its potential in many other tumor types. At this year’s ASCO annual meeting, the interest in CAR-T cell therapy remained strong with the availability of more data for approved and investigational therapies.

CAR T-cells have performed well in clinical trials for treating both pediatric and adult leukemia and also certain types of lymphoma. The hope is that they may be able to replace traditional and toxic ways to treat these and other diseases.

Two CAR-T drugs are already available. Novartis (NVS, Financial) was the first to market with Kymriah. It is a one-time treatment for B-cell acute lymphoblastic leukemia. Kymriah has shown a more than 80% remission rate after three months in clinical trials with patients that do not respond to standard treatments.

The second approved CAR-T therapy is the Gilead-Kite product Yescarta. It induced remission in 72% of patients with another form of blood cancer called aggressive B-cell non-Hodgkin lymphoma.

A number of other companies are testing CAR-T therapies in clinical trials. Among them is Celgene (CELG, Financial), which demonstrated its enthusiasm by paying $9 billion for Juno Therapeutics to gain full global rights to a potential blockbuster currently in pivotal trials.

Celgene expects the therapy to be approved in the U.S. by 2019 and said sales will peak at $3 billion beyond 2020. The takeover will allow Celgene to become a leader in the CAR-T area of cancer research, including the potential for the treatment of solid tumors, for which there are no current such therapies on the market, Celgene CEO Mark Alles said in a conference call.

“We want to leapfrog from participating in CAR-T to shaping CAR-T,” he said. “The Juno combination of scientists’ technology, with our interest and our approach to solid tumor drug development, really gives us a chance to be at the forefront of shaping how CAR-T therapy ends up treating solid tumors."

Jeffries analyst Michael Yee said Celgene’s huge investment in Juno means the company is betting a ton on the future of cell therapy. Nevertheless,Yee, who advises buying Celgene stock, cautioned the transaction “could be seen as expensive until they show that this brings something else to the table.”

The stiff premium Celgene paid for Juno illustrates the potential for investors to earn a huge payoff if they can identify the next objects of big pharma’s affection.

Among the companies running clinical trials with CAR-T therapies are Mustang Bio (MBIO, Financial) in the U.S. and Celyad (CYAD, Financial) in Belgium.

CAR-T therapy is not without its issues. While most patients have a mild reaction, sometimes the effect can be severe or life-threatening. In fact, nearly half the patients in the Kymriah trials suffered a strong side effect. In the Yescarta trial, three deaths were linked to the therapy.

Despite these problems, some argue the CAR-T therapy is worth the risk when a patient does not respond to any other available treatments. And some players are already developing improved CAR-T cells that are safer for patients, according to the website Labiotech.

One of them is the French company Cellectis (CLLS, Financial). Its CAR-T therapy has been licensed to Servier and Pfizer (PFE, Financial) and includes a switch control system that only activates the engineered T cells when the patient is given the drug rapamycin. Bellicum Pharmaceuticals (BLCM, Financial) in the U.S. is working on a similar technology called GoCar-T that requires the drug rimiducid for CAR-T cell activation.