Regenerative medicine – “the process of creating living, functional tissues to repair or replace tissue or organ function lost due to age, disease, damage, or congenital defects” (NIH) has the potential to fundamentally change how we treat patients, moving from “patching” to actually repairing. While the promise of regenerative medicine is obvious, we are still years away from impacting patients.
Why? Well, just as Rome wasn’t built in a day, transforming disease therapy through regenerative medicine isn’t exactly the same as launching the iPhone to consumers. As with earlier-generation biotherapeutics like monoclonal antibodies (mAbs), regenerative therapeutics have long development timelines and numerous uncertainties, from clinical safety and efficacy to questions about reimbursement – and the field has unique challenges on top of that, as summarized by Athersys CEO Gil van Bokkelen. How do companies in this space survive the long haul?
One day you’re in, the next day you’re out
“Don’t run out of cash”: regenerative medicine companies aren’t spared this axiom. Some benefited from the initial sizzle surrounding stem cell technologies, and garnered pharma deals or were acquired outright. But, as with other novel approaches such as RNA interference (RNAi), pharma’s ardor cooled when there were inevitable setbacks and failures. In the past months, Shire offloaded Advanced BioHealing, and Sanofi parted ways with regenmed company Osiris (Osiris in turn dumped its stem cell platform last fall). Geron, after mothballing its embryonic stem cell platform in order to focus on cancer therapeutics, ended up selling it to BioTime late last year.
With the rose-colored glasses off, regenerative medicine companies need to rely on more than flash to raise money and stay alive. Several pure-play therapeutics companies have successfully raised funds from institutional investors – Juventas Therapeutics, for example, raised $22M in their B round in 2012, and Allocure raised $25M that same year. But others have opted for alternative business models.
Managing risk I: Sticking with the tried-and-true
The same cell-based platform technology that can be used to create regenerative therapeutics can also be used as a tool for drug discovery. In this approach, stem cells – for example, cancer stem cells – are used to identify novel proteins, which then drive the development of small molecules (in the case of Verastem), mAbs (Oncomed), or other biomolecules (Stemline Therapeutics) – in other words, well-validated, familiar therapeutic approaches. Judging by Oncomed’s spectacular 2013 IPO and a very large deal with Celgene last December, this strategy is an attractive model to investors. Similarly, iPierian – formed in a 2009 merger of Pierian and iZumi Bio – initially aimed to develop iPS-based therapeutics but then pivoted to prioritizing using iPS cells as a tool for the development of more conventional mAb therapies.
Managing risk II: Integrated business models
To help achieve financial sustainability, some companies have adopted a hybrid model in which income from research tools and services supports the company as it develops therapeutics in parallel. NeoStem, for example, has an integrated business model with a revenue-generating contract development and manufacturing subsidiary organization coupled with a proprietary cell-based therapeutics portfolio. Therapeutics development is also supported by funds generated by a recent $40M public offering.
Avoiding the pitfalls of therapeutics
Abandoning the pursuit of therapeutics altogether, other companies focus on productizing stem cell technology to generate revenues by selling them as research tools to third-party pharma customers and the like. With a shorter time to market and lower cost of development, this model represents a quicker path to revenue. One example is Madison, WI-based Cellular Dynamics (CDI), which sells off-the-shelf as well as donor-derived iPS cells for research purposes. Although the most recent financial data indicate that CDI is still operating at a loss, its revenue is increasing rapidly, due to its prominence in this field that was driven by aggressive growth with the strong financial support – to the tune of $130M – from private funders. The company went public last July.
The bigger picture
While there is certainly room (and need) for all manner of cell technology applications, we are concerned that the risk-averse attitude of big pharma and traditional investors will continue to favor funneling innovation, expertise, and cash into tool-based applications at the expense of developing groundbreaking new therapies that will revolutionize medicine.
There is an opportunity cost for choosing the less risky path, not only to the companies and their investors, but to patients as well. The regenerative medicine industry has already been saddled with delays imposed by an adverse funding and regulatory environment. Non-profits, foundations and other alternative sources of funding outlined in an article we recently published in Nature Biotechnology are providing some capital for these novel therapies. In particular, CIRM (California Institute for Regenerative Medicine) has pushed the field from basic research to a push for clinically available therapies. But more is needed to push this industry toward the tipping point. We hope that bold investors and smart innovators will not hesitate take a page from Robert Frost, who wrote:
Two roads diverged in a wood and I –
I took the one less traveled by,
And that has made all the difference.