Are ministers right to back gene therapy?

It isn’t for government to ‘pick winners’, according to the ruling philosophy of Conservative industrial policy over the past three decades. Yet ministers have made an exception in the field of gene therapy. Three years ago, the government’s Life Sciences: Industrial Strategy identified it as an area in which public investment might reap rich rewards for UK plc. This summer, No. 10 announced an additional £100 million to its Cell and Gene Therapy Catapult — a state-backed research resource which since 2012 has spent £2.5 billion backing private companies. As well as providing research support, it also offers practical help to scientists who want to commercialise their ideas.

The government has also set up four advanced therapy treatment centres to help introduce gene therapy into the NHS. The fruits of this investment are to be seen in 127 trials of genetic treatments currently under way — just over one in four advanced therapy companies in Europe operating in the UK. Of these, 28 are in Phase III, with patients receiving experimental treatment. Among those most advanced are treatments for melanoma, acute myocardial infarction (a form of heart disease) and cartilage defects in the knee. Those in Phase I and II trials include treatments for multiple sclerosis, Parkinson’s, Huntington’s, lung cancer and stroke. Britain’s gene therapy industry has doubled in two years and now employs 3,000 people.

So, is the government right to back gene therapy as the next ‘moonshot technology’ — a popular phrase these days for medical advancements that have the potential to transform life as we know it? There is plenty of private money being invested in the sector. In the US, more than 30 novel biotech companies have debuted on the Stock Exchange in the past year — raising more than $6 billion. Given that only covers companies advanced enough to go public, it’s probably a fraction of the total money being invested. Just last month, Seattle-based Sana Biotechnology, which wants to use engineered cells to solve the underlying disease causes, raised some $700 million from private investors.

Things are speeding up on this side of the Atlantic too. This summer alone, UK biotech firms reportedly raised more than £1 billion in the sector’s best quarter on record. Many of those benefiting are ambitious start-ups. They include Ori Biotech, a gene therapy company based in London and New Jersey, which raised more than £23 million in its first round of capital fundraising. Biotech and Bit Bio, a private gene therapy venture emanating from Cambridge University, raised £32 million in June.

Established companies are on the rise too. Shares in Farnham-based Bioventix, which is trying to use cloned cells to detect cancer, have risen 30 per cent this year; a strong showing even for a sector boosted by the novel coronavirus. With a market cap of £200 million, it’s still small fry by FTSE standards — but shares have doubled in value eight times since its IPO in 2014.

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Before would-be investors get too excited, it needs stating that genomics and novel biotech companies are an even higher-stakes version of a typical pharmaceutical start-up. Genomics companies are only as strong as the idea behind them. If that idea fails to germinate, the company will likely fail entirely.

Once they’re up and running, biotech companies are subject to the stop-and-start of regulatory approval. Decisions from the US FDA or the European Medicines Agency to permit or suspend clinical trials will understandably weigh heavily on a stock’s price.

Then there are the other well-rehearsed perils of investing in pharmaceuticals: the long lead-in times; the all-or-nothing competition between companies working on similar treatments; the reputational risks if things go wrong; and the fact many businesses will run at a loss for years on end. Ongoing research and development costs will likely require further share offerings — which means that investors’ existing shares will be diluted.

For those companies that make it to market, returns can be stupendous. A successful new treatment might become a multi-billion-dollar enterprise in its own right — as was the case with Alexion, a US-listed company that developed a revolutionary treatment to prevent various blood diseases — or find itself subject to a lucrative takeover from an established pharma company.

So if you’ve got the stomach for the risk, how can you invest in gene therapy? As with any start-up, everyday investors are unlikely to be offered the chance to invest directly in new companies. Many of these will begin life within the scientific research community, funded largely by specialist grants. Where commercial investment does occur, this is often in the form of seed-funding from pharmaceutical companies.

In recent years, the likes of Bayer, Pfizer, Novartis and Gilead Life Sciences have poured hundreds of millions of dollars into gene ventures — often with the proviso that they will receive preferential access to intellectual property and outcomes from initial trials. The German giant Boehringer Ingelheim, the world’s largest fully private pharma company, has a €250 million venture fund for that purpose. Once projects have reached a suitably advanced stage — and assuming they haven’t been snapped up by big pharma — they may well fundraise privately, typically from specialist funds with a track record in the sector.

These funds could be private venture capital firms (likely only open to serious investors) or publicly traded funds (which are traded on the Stock Exchange to retail investors). The latter often cater for retail investors who are curious about a sector — curious enough, that is, to allocate part of their diversified portfolio to it — but are keen to avoid the ‘Wild West’ of investing directly. Polar Capital Biotechnology is a London-based fund that invests in advanced biotech companies, including higher-risk options like genomics. Over the past five years, the fund has delivered an impressive 145 per cent return — making £10,000 invested in 2015 worth around £24,000.

Even so, the fund’s manager, David Pinniger, is keen to stress that the sector remains fraught with risk. ‘As hugely exciting as these technologies are, many of the companies using them have very high technology, operational and financial risk profiles,’ he says. He also suspects that investor excitement has led to many companies being overvalued. ‘The competitive intensity in this area is very high given the generous capital markets environment of recent years. Correctly identifying the long-term winners is fraught with difficulty — and our view is that expertise and experience will likely be required for good returns on investment.’

Whatever the near future holds for genomics, it’s a safe bet that investment interest won’t be going away soon — not least thanks to governments doing their bit to boost the sector. Keen to cement its status as a market leader, the US has moved to expedite drug and treatment approvals, with a record number of novel treatments approved by the FDA in the past three years. One market report predicts the gene-therapy market will double in the next seven years.

If UK investment produces a Microsoft of the genetics world, the principle about not picking winners might have to be revised.