CART hype departs from reality

Any biotech investor who has still not cottoned on to the craze that is CART therapy must have spent the past month living in a cave and thus overlooked the flotations of Bellicum Pharmaceuticals and Juno Therapeutics.

The promise is huge, and CART therapy could amount to a revolution – that much is clear. But when on the back of early data investors value Juno and Kite Pharma at $3.0bn and $2.2bn respectively it is clear that important risks are being ignored as the market steadfastly refuses to learn the lessons of the biotech boom and bust of 1999/2000.

The numbers speak for themselves. Bellicum had initially sought to raise $115m, but priced above its range to bring in $140m; the stock ended Thursday, the first day’s trading, up 26%. On Friday Juno went one better, ending its first day’s trading 46% over the float price.

Both IPOs were heavily oversubscribed, and Juno’s had been upsized as well as being priced above the indicative range to bring in $265m. Earlier, Kite Pharma, which floated in June, upsized and priced at par a secondary offering to raise $189m; Juno had already completed a $134m private round this year.

Bear case

The vast amounts of cash being thrown at CART (chimaeric antigen receptor T-cell) therapy companies have been driven by data presented at this month’s ASH meeting (ASH – Novartis, Juno, June and Rosenberg steal the T-cell show, December 9, 2014).

Given the hype it is well worth doing a reality check of the risks, which at the current valuations of Kite and Juno could have a serious effect if they should come to pass. For a start, no one is quite sure where the intellectual property behind CARTs lies. 

This is because the commercial advances have come only with the latest receptor constructs – academics had actually been working on CARTs for decades, sharing much of the work among themselves. Juno has spent considerable energy, and millions of dollars, suing the University of Pennsylvania, whose deal with Novartis completes a trio of the most advanced CART projects.

Another major overhang over CART therapy is safety – in particular cytokine release and neurotoxicity – notwithstanding doctors’ assurances at ASH that these are now manageable. Earlier this year Juno was forced to halt a study after patient deaths, and recurrence of toxicity could seriously dent confidence.

There are some who suggest that no CART therapy will be approved without an off “suicide switch” that can be activated to kill all of a patient's CARTs in the event of toxicity. Bellicum seems to be the most advanced in developing CART switches – both on and off.

Its technology uses infusion of rimiducid (AP1903), a molecule licensed from Ariad Pharmaceuticals, to activate caspase signalling. Unsurprisingly, Juno is also working on a “suicide switch”, involving the expression of an inactivated EGF receptor that can be triggered with Erbitux.

Juno is less advanced in this technology than Bellicum, though in overall CART development Bellicum trails Novartis, Kite and Juno.

Follow the money

Juno investors would also do well to track the IPO proceeds carefully and consider the amounts of options granted to management, some of whom were behind the cell therapy play Dendreon, which recently collapsed under its debts.

Opus Bio, from which Juno recently appeared to license a CD22 CART, is due another $20m plus options, and Juno's IPO document also revealed that the above deal relied on additional technology being licensed from the NIH. As if further muddying of the IP waters were needed, the NIH is already using this CD22 CART in studies of Kite’s KTE-C19.

Juno also seems to be pre-empting shareholder litigation, employing a restrictive “fee-shifting” bylaw to deter dissident investors. And its IPO was also noteworthy for further possible earnouts to academics: $375m to the Fred Hutchinson centre and $150m to Memorial Sloan Kettering.

However unrealistic the triggering share price thresholds are, their presence indicates how much potential there is for Juno’s exuberant investors to be diluted. At $3bn of market cap it seems that many of these red flags are being ignored.

And what about the cost of CART therapy? Already we know that millions have been spent on R&D of CART projects in the limited numbers of subjects where they have been tested, and the per-patient cost of an autologous, tailored cell therapy is likely to run into hundreds of thousands of dollars – even before a potential stem cell transplant is factored in.

While patient-specific cell therapies represent the cutting edge of research, their economic proposition might ultimately be limited. Anyone wanting to bet on this scenario could do worse than look at Cellectis, which with Pfizer is working on an allogeneic CART. Though this has not yet even entered the clinic, the potential for cost savings is clear.

Indeed, the expense of CART therapies is perhaps the single biggest elephant in the room. Given the upheaval witnessed in the hepatitis C space today, the presence of at least three players neck and neck in the CART race raises the possibility of an even more vicious price war.

With many biotechs selling off today the obvious question is whether we have already reached peak CART.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com or follow @JacobEPVantage on Twitter

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