Despite the cell and gene therapy (CGT) space experiencing a notable funding slump, some investors were encouraged over the past few months to reexamine this trend.
ArsenalBio’s September 2024 $325M Series C announcement had some hoping for a new influx of investments similar to those in 2020 and 2021. However, broader trends in the industry are likely to overpower any spillover effects from this isolated announcement.
The notable overall decline in CGT funding since 2020 is front and center. Investment in the space has fallen precipitously and is down more than 50% in the past three years. Alongside a retooling of finite R&D budgets by many pharma companies, all signs indicate that a slowdown is still imminent.
To move forward, pharma companies and biotechs must employ a combination of smart innovation and enhanced deal-making.
Why CGT development has plateaued
In the 2010s, the prominence of CGT in the drug pipeline accelerated tremendously. By the end of the decade, about 16% of the total pipeline, or every 1 in 6 drugs introduced, was a CGT. However, the renaissance of other modalities, including ADCs, RNA, and bispecific antibodies, has since upended the landscape.
These often-competing drug classes have dominated the headlines in recent years with a string of clinical successes and impressive revenue forecasts. In contrast, cell and gene therapies have faced persistent regulatory setbacks and commercial challenges. At face value, $6 billion in CGT sales in 2023 does show some degree of adoption in the market, although this figure represented just 0.6% of total industry revenues. Crucially, this is also just a small fraction of the R&D expenditures needed to develop these therapies over the past decade.
With questions remaining as to whether drugmakers can improve margins — even as treatments become more commonplace — investors have pulled back, leaving some VC-backed CGT biotechs struggling. Contrasting the fortunes of other hot drug classes, it is possible that CGTs may have reached their apex. So, where do they go next?
The importance of deal-making in CGT’s next act
As the oncology space continues to rake in R&D spending on new technologies, the CGT space may comparatively languish, failing to regain the same level of VC interest or investment as in peak years.
However, the space may have a second chance to thrive through an uptick in deal-making. In 2023, pharma companies spent a record $300 billion on R&D budgets, a 50% increase from the pre-pandemic era.
As COVID revenues fell away, this represents an impressive 30% of total industry revenues. However, as profit warnings from CDMOs are already beginning to indicate, these funding levels are unsustainable long term. With the R&D spending ratio expected to moderate to 22% by the end of the decade, drugmakers must look elsewhere to sustain their bottom lines as they confront a well-publicized patent cliff.
It’s highly probable that licensing and M&A activity with CGT biotechs will increase. Rather than expending years and billions of dollars to develop entirely new treatments in-house, pharma companies may look to partner with life science companies already experienced in this space.
Evidence of an uptick emerging
Since 2022, pharma companies have inked 246 partnership deals focusing on cell and gene therapy programs and platforms, indicating the appeal of this route to both pharma and life science companies.
One particularly lucrative example of this is Novo’s $1.92bn partnership with Life Edit Therapeutics last year to develop base-editing therapies against certain targets. Suppressed valuations for CGT biotechs may also encourage acquisitions ahead of partnerships, as evidenced by the recent takeouts of Orchard Therapeutics and Decibel Therapeutics.
Particularly given the extremely high R&D costs for CGTs, increased M&A could be a salient prospect for many other budget-conscious drug manufacturers. Additionally, with the funding landscape for these treatments still relatively rocky, pharma companies may find a surprising amount of biotechs willing to come to the table.
While R&D budgets will likely continue to be strained on account of the IRA’s drug pricing measures in the U.S., standout technologies will always attract investment. Furthermore, clinical applications for CGTs shy away from the areas of large healthcare expenditure that are targeted for cuts. And despite a relatively underdeveloped market thus far, the next-wave generation of CGTs for diseases such as multiple myeloma and Duchenne muscular dystrophy carry promising commercial prospects.
Thus, larger pharma companies will place more emphasis than ever on finding new strategies to lower costs, expedite timelines, and improve success rates for developing cell and gene therapies. Succeeding in this landscape will require a new approach: one that combines smart innovation and enhanced deal-making.
