Time To Strike On Regenerative Medicine/Stem Cell Companies?

As the hype that accompanied the revelation of regenerative medicine recedes, biotechs that survived the transition from science experiment to market-focused company have now settled into the same realities that face the rest of the industry in terms of making the case for reimbursement and preparing for regulatory scrutiny, not to mention the exit question.

And though the business model in some cases remains a little fuzzy – there is still no strong way of monetizing autologous therapies, which, like bone-marrow transplants, are essentially hospital-based – exit by acquisition is getting to be a real possibility as pharma leans toward adopting the same strategy it eventually employed in order to gain biotech capabilities.

“If you are not … thinking about the cloud of opportunities to access, you will be left behind,” said J&J’s Neil.

Under a cloud of ethical fears, the biotechnology industry, then called genetic engineering, came into existence in the early 1970s, but small-molecule-oriented big pharma viewed the possibilities for the incredibly complex biotech processes with skepticism at best until data began to accrue and a handful of biologic medicines had been approved in the late 1980s. Still, pharma remained distant, forming a smattering of alliances, among them the 1999 Roche/Genentech tie-up, until it became apparent that biotechnology could be an answer to both scientific challenges and dwindling pipelines.

Because the technology and expertise required were largely alien to pharma, companies turned to collaboration and acquisition to keep pace with industry peers in the now burgeoning field, and a flurry of high-profile deals in the 2006-2007 timeframe created exit opportunities for biotechs and their venture backers (Also see "Big Pharma's Leap into Biologics: Bridging both Scientific and Cultural Gaps" - In Vivo, 1 Oct, 2007.).

Enter cell therapies/regenerative medicine, also born under an ethical cloud and also viewed largely as a science experiment after academic researchers proved cell lines could be derived from embryonic stem cells in 1998. Federal policy regarding embryonic cells drove companies to focus on adult stem cells and then to devise induced pluripotent stem cells, while some stuck with the available ESC lines, and now therapies and tools are emerging from all of those and more, and regenerative medicine/stem cell companies are an emergent industry just as pharma is experiencing another productivity drought (Also see "The Future of the Stem Cell Market" - Medtech Insight, 1 May, 2010.).

An example of the churning that has begun in the sector is an acquisition announced Sept. 15 in which French genome company Cellectis SA is buying the leading Swedish human embryonic stem cell firm Cellartis AB in order to produce a global leader in stem cell technologies for use as research tools and in development of therapeutic products (Also see "France's Cellectis To Acquire Cellartis To Produce A Leader In Stem Cell Technologies" - Pink Sheet, 16 Sep, 2011.).

Among Cellectis’ global holdings is a facility in Cambridge, Mass., the cradle of biotechnology. Cellartis forged an agreement with AstraZeneca plc in 2009 around using its technology for predictive toxicology and is in a collaboration with Novo Nordisk A/S and academic collaborators on a potential stem cell approach to diabetes.

Regenerative medicine is still not as mature as other disciplines, but “there is real revenue there. There are real companies,” Garry Neil, head of Johnson & Johnson’s Corporate Office of Science and Technology, said during a panel discussion Sept. 9 at the BioPharm America conference in Boston.

“We see this as an emergence opportunity” with innovations coming, for example, in new pipelines for targeting delivery, drugs to induce in vivo differentiation or cell therapy or biomaterials for scaffolds, Neil said.

The risk profile for most technologies in the field is really not the issue in J&J’s investment decisions, Neil said. “It’s pretty acceptable when you think about the upside potential.” For J&J, an early supporter of regenerative medicine, it’s more about sharp focus and the best use of capital in a milestone-driven way to get to a point where it continues to make sense to invest.

Neil predicted initial successes in the field likely will be cell therapies in areas like the eye and diabetes, where the clinical endpoints are easy to measure and the models are simple, but he pointed to unmet need in areas like stroke and the central nervous system that are inviting targets. Eventually, he foresees more success in manipulating endogenous cells.

Currently, more than 250 clinical trials in regenerative medicine are ongoing, including 37 Phase III trials. And, the industry can no longer do contemporary discovery research without induced pluripotent stem cell capabilities, Neil noted. “There is a market there.”

“If you are not integrated into this community, making investments, thinking about your portfolio, thinking about the cloud of opportunities to access, you will be left behind,” Neil said.

Following The MAb Track With New Issues

Until recently, for regenerative medicine, the oft-referenced valley of death experienced by cash-thirsty biotechs was more like “the plain of death,” quipped Matthew Vincent, director of business development at Advanced Cell Technology, Inc. (Also see "Despite Advances, Regenerative Medicine Faces Funding Crisis" - Scrip, 1 Feb, 2010.).

Cell therapies are following the biotech track to market adoption, but with a contemporary set of market pressures, Vincent said. “Treating symptoms is no longer tractable”; the health care environment requires that therapies be curative rather than managing disease. As well, the aging population is looking to stem cells for cures, he said.

Still, while cell therapy reimbursement in 2010 was in the $200 million to $500 million range, it is projected to be $8 billion by 2017, making it an exciting time for start-ups in the field as well as for potential partners.

ACT, in Marlborough, Mass., is testing retinal pigment epithelial cells derived from embryonic stem cells in a Phase I/II program that consists of two trials, one in Stargardt’s macular dystrophy, an orphan disease that causes juvenile macular degeneration, and the other in dry age-related macular degeneration, in which RPE cells atrophy. Both conditions are currently untreatable.

The choice to work in the eye was a calculated one, Vincent explained. The therapy ACT is testing is allogeneic – meaning the cells come from a donated source as opposed to personalized, or autologous, therapies – which is good for eventual marketing because it can be used “off the shelf,” but putting anonymous cells into a patient’s body is risky because of immune rejection. The eye is an ideal testing ground because it is generally immune privileged, meaning introducing foreign cells there shouldn’t induce an immune response.

The RPE cells are also fully differentiated, which addresses regulatory concerns regarding contamination with undifferentiated cells, or worse, pluripotent cells capable of migrating to other parts of the body and growing tumors, he explained.

FDA receives at least 50 new IND applications for cell therapies a year, with approximately 4% put on clinical hold, primarily because of inadequate descriptions of manufacturing, including testing (Also see "Stem Cell Therapies Walk A Risky Regulatory Road" - Pink Sheet, 1 Jun, 2010.).

From Science Experiment To Partnering Op

Members of the panel, convened to discuss the road to commercialization for regenerative medicine, said they saw FDA’s 2009 approval of Geron Corp.’s IND for an oligodendrocyte stem cell therapy as a real turning point for the field.

The therapy, OPC1, also derived from embryonic cells, is being tested in spinal cord injury, another tissue site with a favorable immune environment. The first stem cell therapy to enter the clinic in the U.S., OPC1 was subjected to two clinical holds, one to allay FDA concerns regarding the kind of migratory cell worries Vincent spoke of, before the first patient was dosed in October 2010 (“Geron Aims For Fall Return To The Clinic,” Pharmaceutical Approvals Monthly, June 2010).

A month later, U.K. stem cell company ReNeuron Group plc, announced it had been cleared in the U.K. to begin what it termed the world’s first trial of a neural cell therapy in stroke .

The first patients in the ACT program were dosed in July at the University of California, Los Angeles’ Jules Stein Eye Institute.

But while having stem cell therapies in the clinic is affirming for the field at large, the news that really inspired regenerative medicine companies was Shire plc’s $750 million acquisition in May of Advanced BioHealing Inc., which manufactures Dermagraft, a skin substitute made of living cells (Also see "Advanced BioHealing To Bring Regeneration To Shire" - Pink Sheet, 23 May, 2011.).

That acquisition “was a big event for the field of regenerative medicine,” said Geoff McKay, president and CEO of the wound repair company Organogenesis Inc., based in Canton, Mass. Organogenesis, which suffered missteps after it was spun out of MIT, has since righted itself and now has two products on the market.

Additionally, Shire’s stated goal to build a regenerative medicine franchise around Advanced BioHealing may signal that perhaps specialty pharma is the industry segment that can best see the advantage of investing in regenerative medicine, McKay said. Indeed, Shire CEO Angus Russell has declared the therapeutic space a strategic one for the company (Also see "Cell-Therapy Deals A "Strategic Priority" For Shire" - Pink Sheet, 9 Aug, 2011.).

“There is too much of a tendency to think these products will sell themselves to partners,” ACT’s Vincent cautioned.

Whether specialty pharma or traditional pharma is the prospective partner, the panelists agreed interest in the field is growing. While big pharma used to send a junior employee to regenerative medicine meetings to look around and report, business development executives are now attending, and in some cases they are the ones requesting meetings, Vincent noted. Still, he said, pharma is waiting for data.

In the meantime, especially in such an untried field, “you’ve got to de-risk” and be able to have conversations with potential partners, Vincent said.

Reimbursement Is More Than A Check Mark

Both Vincent and McKay advised companies to address reimbursement and regulatory matters throroughly from the very beginning regardless of their partnering plans. Planning for the end should start from the get-go.

“There is too much of a tendancy to think the products will sell themselves to partners, investors, physicians,” said Vincent. “You have to start thinking about things like scalability of the manufacturng process, the size of the market.”

While partnering is always in the forefront, ACT considered it essential to put together its own team “to manage the regulatory process worldwide, including clinical endpoints, particularly in dry AMD – a place where others have hit the wall,” Vincent said.

In addition, he said, the orphan designation might put the product in a position to move faster through the process, the trials are smaller and there is the possibility of a compassionate use program in Europe – strategies any market-minded biotech might employ.

“Reimbursement isn’t a check mark, it’s a department that has to be resourced,” added McKay. “It’s an enormous challenge, but you can’t go halfway.”

J&J’s Neil agreed. “There is a willingness [among payers] to reward innovation and patient benefit, but it’s easy to overestimate reimburseent rates,” he said.

Organogenesis has one foot in devices and one in pharma, and while unique skill sets are required when dealing with devices and pharmaceuticals on many regulatory levels, “I would argue that reimbursement is one of the rare skill sets that isn’t distinct,” McKay stressed.

Further, the health economics justifications for regenerative products are not different from those for conventional devices and biologics, he reasoned. CMS classifies the products as biologics through Part B, and in all cases “the challenges of achieving a product code and a procedure code are formidable and require a huge amount of resource.”

Organogenesis has an “enormous” reimbursement team deployed across the country, as well as a reimbursement hotline team inside, McKay said. In addition, the company has a health policy infrastructure at the state and federal levels – with Republicans and Democrats.

By Shirley Haley