A biotech slump is emptying labs and threatening research on new drugs
Sangamo Therapeutics Inc.’s cost-cutting measures impacted more than just the approximately 162 U.S. workers who lost their jobs this month. It’s also a setback for Jerry Walter, who has lost five family members and has kidney, lung, hearing, and heart damage as a result of a rare disease.
Sangamo halted research on an experimental gene therapy — potentially a cure — for Fabry disease, citing the “challenging economic environment” that is sending shockwaves through the biotech industry. Walter, a 69-year-old retired United States Army colonel who has already had a heart transplant due to the inherited enzyme deficiency, said it’s disheartening to see work on yet another potential new medicine halted.
“The promise of a better treatment keeps getting pushed down the road,” he told reporters.
According to a spokesperson, Sangamo will complete a current Fabry trial as planned and is looking for funding or a partner to help move its studies to the final stage. However, it has been another bleak year for biotech companies, as a closely watched stock index known as the XBI has just passed 1,000 days since its peak in early 2021. According to Stifel analysts, the number of companies exploring strategic options — typically a sign of desperation — has reached a new high.
“Nobody knows where the bottom of this is,” said Bloomberg Intelligence analyst Sam Fazeli.
Money for research is becoming increasingly scarce: According to Stifel analysts, new flows into biotech venture funds are expected to fall to $23 billion this year from around $31 billion in 2021. Rising interest rates, threats to new drug prices, and a post-pandemic slump have forced biotechs to cut back on R&D.
According to Evaluate Pharma, global pharma R&D spending fell 2.2% last year to $244 billion, the first drop in a decade, and slowed growth is expected in the coming years. According to the PhRMA industry group, this was only the fourth such drop in nearly four decades.
The industry has seen “serious slimming down of pipelines at the small end,” according to Evaluate’s August report.
Crucial work
Big drugmakers have increasingly moved into areas that were previously the domain of biotech, such as cancer and rare diseases, in search of profits from drugs that aren’t easily replaced by competitors. Sanofi, a French pharmaceutical company, is increasing R&D spending, while Eli Lilly & Co., a maker of blockbuster weight-loss drugs, has increased its R&D budget by $600 million this year.
However, the industry’s behemoths cannot replace the critical work done by smaller biotech firms, according to Derek Lowe, a long-time drug researcher who writes the industry blog “In the Pipeline.” In many cases, biotech firms handle risky early-stage research that large pharmaceutical companies may invest in if it shows promise.
Biotech firms frequently take on “out there” challenges, according to Lowe. “Let the small companies take a crack at it and see how it goes,” big manufacturers say.
The pandemic zeal that drove COVID-19 shot-maker Moderna Inc.’s 12-month trailing price as high as 188 times diluted earnings per share from continuing operations in June 2021 is long gone. Now, the company is expected to report losses on an adjusted basis over the next year, and more than half of the analysts covering it do not advise investors to buy shares.
According to Fazeli, an industry slowdown was unavoidable. Firms’ strategies are changing in response. Small biotechs are avoiding long shots in order to focus on sure bets that are more likely to generate revenue soon or attract a deal with a larger drug company, according to John LaMattina, a former head of R&D at Pfizer Inc.
That means less innovation in the industry that gave birth to COVID-19 shots, life-saving gene therapies, and other treatments for diseases that were once fatal. Among them is Merck & Co.’s Keytruda, which was developed nearly two decades ago at the biotech firm Organon & Co. Today, the drug has treated over 1 million patients with more than 20 different cancers, with sales of $21 billion last year.
Medicine paucity
“The concern is that there will be a scarcity of innovative medicines in three or four years,” said Jeff Jonas, former CEO of the biotech company Sage Therapeutics Inc. “There is potential for the early ecosystem to suffer.”
The impact is being felt by companies such as Charles River Laboratories International Inc., which conducts early safety research on rats prior to human testing. In the last three years, the company has been involved in the research of more than 80% of all FDA-approved drugs in the United States.
According to Jim Foster, chief executive officer of Charles River, biotech companies that once investigated four or five products at a time now only have enough funding for two. As a result, organic revenue is expected to grow by about 6% this year, roughly half of what it was in 2022.
“People are reprioritizing, being more judicious,” Foster explained in an interview. “We are a canary in the coal mine.”
According to Colliers International, lab space vacancies in Boston’s biotech industry hub have reached a 10-year high. For the first time, approximately 5 million square feet of space is available for sale, up from 300,000 two years ago.
IRA fears
According to Lowe, a pharma blogger, biotech’s woes could be a problem for big drugmakers: a smaller crop of candidates for big drug companies to buy later on. These pharmaceutical companies require new products to compensate for older ones that will face competition when their exclusivity expires.
Under President Joe Biden’s signature legislation, the Inflation Reduction Act, aging drugs are also eligible for Medicare price negotiations. Drug companies have stated that the law effectively shortens the most profitable period for their products, and that some early development programs will have to be sacrificed.
Walter, the former colonel who founded the National Fabry Disease Foundation, is not happy about any of this. The Hillsborough, North Carolina, resident sits for three hours twice a month to receive enzyme replacement via IV.
Sangamo was working on a one-time treatment aimed at correcting the gene flaw that causes Fabry disease, which would eliminate the need for the twice-monthly infusions. Those who received it as part of a trial “continue to report improvements in their quality of life,” according to the company.
“We believe this is an important potential medicine and are doing everything in our power to still get this to patients in need,” said a Sangamo spokesperson in an email.
Walter believes that if work on the treatment had continued, it could have been “revolutionary,” and he hopes that Sangamo can resolve its funding issues.
