Understanding the Gene Therapy Market Today

Understanding the Gene Therapy Market Today February 2017 Author: Richard Tinsley, Strategy Partner C International

Contents A Case Study Utilizing Gene Therapy to Correct Genetic Vision Problem 1 Learning from History 2 Classifying Gene-Based Technology 3 Gene-Based Therapeutic Technologies 5 Building Better Vehicles 6 Elements of Success 7 First Mover Advantage 7 Public Private Partnerships 7 The Road Ahead 9 Value Proposition 9 Market Size 9 Commercialization 9 Access/Adoption 10 Capital Funding 10

A Case Study Utilizing Gene Therapy to Correct Genetic Vision Problem Siblings Caroline and Cole Carper had slowly been going blind since birth. Both children were born with a rare genetic disease that causes defects the retina, the part of the eye that detects lights and color. The siblings had to learn to read braille and were attending a school for the blind before they enrolled in a gene therapy clinical trial. The experimental treatment, developed by Spark Therapeutics, Philadelphia, PA., would change their lives. Two years after the children received retinal injections of modified viruses carrying genes designed to correct their genetic defect, their vision had improved markedly. But the treatment that preserved the vision of two small children who would otherwise almost certainly have gone blind also marks a larger milestone for the nascent field of gene therapy. The experimental treatment of 31 patients was the first successful randomized, controlled Phase III trial ever completed in gene therapy. The company plans an imminent FDA Biologics License Application (BLA). If approved, it could become the first of an eventual cavalcade of gene-based therapies approved for sale in the US. Spark is one of several companies developing gene-based treatment for vision loss in the US and Europe. RetroSense Therapeutics, a subsidiary of Allergan based in Ann Arbor, MI., is focused on gene-based therapy to restore vision in patients with retinitis pigmentosa and advanced dry age-related macular degeneration. Their proprietary technology, now in Phase I/II clinical trials, uses optogenetics, which aims to restore light sensitivity to damaged cells in the retina. As the number of gene therapy clinical trials reporting positive results increases, it s becoming clear that gene therapy is moving toward commercialization. Now a part of the portfolio mix for many of the biggest companies in the biopharmaceutical arena, gene therapy is suddenly a hot investment sector. The focused gene therapy sector including companies like Spark now has a cumulative market cap in the neighborhood of $10 billion dollars. As companies seek to commercialize gene-based therapies, it is instructive to remember that gene therapy has not followed a linear trajectory, nor will its commercial pathway be straightforward either. 1

Learning from History Gene therapy appeared destined for great things in the early 1990s, with more than 100 gene-based clinical trials planned or underway in 1999, before the tragic death of a clinical trial participant cast a pall on the entire nascent gene therapy industry. Jesse Gelsinger s death mere days after receiving an injection meant to correct an inherited liver condition forced a reevaluation of the technology s safety. The corrective gene given to Mr. Gelsinger was not the problem instead the delivery vehicle, a version of the common cold virus, triggered a massive reaction in his immune system that overwhelmed his body and led ultimately to brain death. Since these heady early days, gene-based therapy has developed along a more deliberate path. There have been marked improvements in vectors and techniques that show none of the devastating side effects seen in earlier years. Finally, gene-based therapies seem poised to deliver on their early promise. Nonetheless, it s important to remember that the vast majority of gene therapy-based treatments are in the very early phases of clinical development, with only a few in late stage trials. Phases of Gene Therapy Clinical Trials (July 2015) 1283 Phase I Phase I/II Phase II Phase II/III Phase III Phase IV 446 373 23 79 2 Source: Journal of Gene Medicine, 2015; Gene Therapy Market, 2015-2016, RxC Research 2

Classifying Gene-Based Technology Definitions of what constitutes gene therapy vary, and even federal science and regulatory agencies can t agree on a common definition. People often use the terms cutting and pasting genes borrowed from word processing terminology to visualize gene therapy. This simplistic characterization can lead to the misunderstanding that gene therapy involves cutting out a defective or malfunctioning gene and inserting a new, functional copy in its place. Today, gene-based therapy comprises a range of applications and tools that provide much more precise control than earlier technology. New gene manipulation tools have proliferated. Understanding the differences between technologies is essential to accurately evaluating their potential. No biotech investor would compare a company developing a diabetes drug with one developing a surgical implant head to head because the underlying technology and potential market are not comparable. Similarly, it s important to understand how gene-based technologies differ and what position they are likely to fill within the healthcare marketplace. Some gene-base technologies may be one-shot treatments comparable to surgeries, while others will require ongoing periodic treatment. Nonetheless, the umbrella term gene therapy is often used to cover a plethora of related technologies developing in parallel. These technologies, at different stages of maturity, are not equivalent. 3

4 Understanding the Gene Therapy Market Today Classifications of Gene Therapy Gene Replacement Gene Silencing Gene Editing (TALEN/CRISPR) Stem Cell Delivery Diagnostics This technique may allow doctors to treat a disorder by inserting a gene into a patient s cells instead of using drugs or surgery to improve function. Researchers are testing several approaches to gene replacement therapy. For instance, a loss of gene function may cause a disease, and this loss can be replaced by adding a normal copy of the gene to a cell. A broad number of therapies are being investigated in the clinic for application in both monogenic disorders, and somatic cell diseases such as cancer. A therapy is currently on the market in Europe that replaces the lost function in disease patients of an enzyme that breaks down lipid in the body. An approach used to inhibit gene expression in a cell. Gene silencing can occur during either transcription or translation and is often used in research to test the function of a gene in a cell by using silencing RNA (sirna) and short hairpin RNA (shrna) sequences to block gene function. A number of therapies representing this approach are being tested in the clinic, and one is currently on the market in the US for treating patients with a rare cholesterol disorders. Gene editing is a potential approach to alter the human genome to treat genetic diseases, viral diseases, and cancer. While still years from being used in medicine, several exciting advances have been made. TALENs: Transcription Activator-Like Effector Nucleases are restriction enzymes that can be engineered to target, cut and modify specific sequences of DNA. CRISPR-Cas9: A recent breakthrough technology is the combination of short bar-code sequences (Clustered Regularly Interspaced Short Palindromic Repeats) with a nuclease (Cas9). Together with a guide RNA to target editing to the correct gene sequence, extremely precise changes in a gene can be achieved. Current efforts to design gene replacement therapies that can be delivered to patients include Hematopoietic Stem Cell (HSC) and induced Pluripotent Stem Cell (ipsc) approaches. HSC s are bone marrow derived progenitor cells that give rise to cells of different types. Most common therapy applications are in the areas of blood and immune system disorders. ipsc s are cells that have been de-differentiated from, for example, skin cells. The ipsc can then be differentiated into a cell of a given type. Molecular Diagnostics drives the aforementioned therapeutic approaches, which aim to capitalize on newfound abilities to broadly and rapidly identify genetic defects that are disease causative. The advancement of Next-Generation Sequencing (NGS) technologies has driven down the cost of whole genome sequencing, and allows deep sequencing of targeted areas of the genome. A personalized medicine approach that identifies therapy options is gaining rapid acceptance as Centers for molecular diagnosis become widespread, and the informatics to support diagnostic analysis is developed.

Gene-Based Therapeutic Technologies For instance, while there is justified enthusiasm surrounding the potential of CRISPR, ZNF and TALEN technologies, these promising platforms, which fall within the broad category of gene editing, are in the early stages of development. Further, they are currently the subject of patent litigation and there are many questions of safety and efficacy in humans still to be addressed. In contrast, the two most mature technologies, gene replacement for single-gene disorders and gene silencing, in which defective genes are turned off, are both poised for near-term market entry. But while the media frequently focuses only on the rare inherited genetic defects (as in the story of Caroline and Cole Carper), the vast majority of gene-based treatments are directed toward much more common and devastating diseases, with almost two-thirds targeting cancer. Indications of Gene Therapy Clinical Trials (2015) Infectious Diseases 8% Others 11% Cardiovascular Diseases 8% Cancers 64% Monogenic Diseases 9% Source: Journal of Gene Medicine, 2015; Gene Therapy Market, 2015-2016, RxC Research 5

Building Better Vehicles If gene therapy were limited to correcting rare single gene defects, it would realize only a fraction of the potential opportunity. Many companies in the gene therapy space are developing robust delivery vehicles with the expectation that once the technology has been proved safe in a proof-of-concept with a single gene disorder, the platform can then be used to launch the company into much larger market segments, including cancer. Companies are now applying decades of research to understand what makes cancer cells different and targeting those differences. Using next-generation gene delivery vehicles, they are delivering genetic payloads that target unique features of cancer cells that normal cells lack. Oncolytic viruses are successfully targeting and destroy tumor cells. Gene therapy is being combined with immunotherapy to target cancer cells and enlist the patient s immune system to kill them. Two of three advanced chronic lymphocytic leukemia patients treated with the experimental protocol were healthy more than two years after their treatment, with the engineered cells helping keep them in remission. The reports, in 2011 and 2012, represented the first successful use of gene transfer therapy to turn the body s own immune cells into powerful agents targeting cancer cells. This and other similar successes helped fuel the current abundance of gene therapy treatments for cancer. 6

Elements of Success First Mover Advantage For potentially curative gene therapy being first-to-market is critical to tap unmet need, according to Sean Ainsworth, CEO of RetroSense. The first mover advantage is hugely meaningful, he says. Latecomers will find a much smaller market because the population is only new cases, which in a rare disease is a very small market. Case in point, bluebird bio, Inc., a publicly traded clinical-stage company is developing gene therapy for genetic diseases, with T cell-based immunotherapies for cancer in its pipeline. bluebird s Star beam Study, a global, multi-center study, is assessing the efficacy and safety of an investigational gene therapy in boys with cerebral adrenoleukodystrophy (CALD), also known as Lorenzo s Oil disease, a rare and fatal inherited single gene neurodegenerative disease. The Phase 2/3 study is evaluating a lentivirus vector delivering engineered bone marrow cells in which a normal copy of a gene is inserted. In addition, bluebird bio has diversified its portfolio to include applications of its vector to beta-thalassemia and sickle cell disease, as well as investing in downstream gene editing technologies. Public Private Partnerships Despite significant private capital investment, gene therapy remains at this point centered in academic medical centers, which will likely play a central role in gene therapy delivery, at least in the short-term. Public-private partnerships have been the critical catalyst to pull together alliances that advance gene therapy approaches. Properly structured pharmaceutical public-private partnerships between academic researchers and for-profit firms can stimulate innovation, spur growth, and enhance 7

8 Understanding the Gene Therapy Market Today value by bridging the valley of death between academic discoveries in university laboratories and the commercialization of a promising therapy. For instance, Glaxo Smith-Kline is now treating children with inherited immune system deficiency (ADA-SCID), with Strimvelis technology acquired from Ospedale San Raffaele (OSR) and Fondazione Telethon (Telethon), a big funder of gene therapy investigation in Europe. Its platform is expected to provide a launch pad for applications aimed at much more common diseases. Developing and cultivating strategic partnerships with academic medical centers likely to have the infrastructure to deliver these experimental treatments could be critical to moving treatments into clinical trials. In the realm of gene silencing, small RNA technology amenable to chemical modification of the oligonucleotide backbone provides another promising avenue for genebased treatment. This to me, says Mark Scheideler, PhD, Founder of HumanFirst Therapeutics LLC, represents a next-gen in the industry of small molecule synthesis that s been traditionally done. It s a pretty mature technology that s got a big pipeline coming along.

The Road Ahead Companies developing gene therapy products are entering uncharted waters in terms of intellectual property protection, regulatory climate, production, distribution, and freedom to operate. Just as the science of genetic therapy is complex and daunting, so too are the commercial issues. Any company developing a genetic therapy product needs to understand and address these critical issues: Value Proposition What is the target value proposition (TVP) of a given technology? How will you determine price? Market Size What is the potential size of the patient opportunity? Who is the competition and are you likely to be first to market? Commercialization Can your company commercialize alone or do you need a larger partner? Are you building a platform to launch a robust product pipeline? How do academic or other public partnerships create or limit the commercial opportunity? 9

10 Understanding the Gene Therapy Market Today Access/Adoption How will you gain access through payers? Will you pursue innovative pricing strategies? What is your distribution model and how will patients get treatment? Who will be the early adopters and what are the adoption hurdles across HCP segments? Capital Funding Who owns the intellectual property rights? Do you have freedom to operate and a clear path to market? What competing technologies or commercialization challenges affect your ability to raise capital or move forward with development and commercialization?

C International About RxC International: RxC International is a premier life sciences management consulting firm. RxC collaborates with clients to identify and develop growth opportunities. The firm leverages consulting partners and executives to combine strategic and operational expertise to bring multiple perspectives to every engagement. The firm has deep expertise in corporate strategy, new product planning and commercial excellence. Clients include leading pharmaceutical, biotechnology, and medical technology companies around the world. The firm also supports private equity and venture capital firms on strategic transactions. The firm s corporate headquarters is located in Morristown, New Jersey, and it has offices in Massachusetts and California. Additional information about RxC International can be found at www.rxcinternational.com. Contacts: Info@RxCInternational.com; www.rxcinternational.com Richard Tinsley rtinsley@rxcinternational.com