While the cell and gene therapy (CGT) sector offers the potential for real cures versus maintenance therapy for many diseases, this new therapeutic space, characterized by its advanced technologies, faces many issues and challenges in 2023.
This is the first of several in-depth discussions of those challenges, from the viewpoint of QxP’s consultants, gained while working with a range of companies in this sector on a regular basis. Each of the articles to come will approach a major issue from a practical perspective, with the intent of describing the challenge and offering insights and suggestions for how to navigate through the issue to success.
The issue that we will deal with in this article is one that has garnered much discussion already in 2023 conferences that we have attended and will be very familiar to C-level executives in startup or smaller sponsor companies (i.e. those developing a CGT product) everywhere. It is that through our dealings with clients, sponsor companies, providers of goods and services such as Contract Development Manufacturing Organizations (CDMOs) and plasmid manufacturers, and most notably, conversations with industry-specific investors, one issue has become very clear: While there is investment money available, it is not getting to the investment targets fast enough, or at all. Perhaps most strangely, while it is easy to see how sponsor executives might be chagrined at this, the investor community are equally frustrated at the lack of (at least in their mind) well-qualified investment targets.
Parties on both sides of the funding arrangement are lamenting that while there are a great many initial conversations, characterized by cautious interest and hidden enthusiasm, potential investors and their sponsor targets are struggling to build a relationship beyond their first date.
So far, in the CGT conferences in 2023, a major topic of conversation has been that it is becoming increasingly hard to attract and secure investment money. The very large number of companies seeking investment funds, coupled with the large, but limited amount of available investment is creating a competitive environment. There is a very apparent difference between what investment targets and investors see as the key factors leading to a positive decision to invest, resulting in a paucity of well-funded programs and an increasing number of companies at, or on the edge of, financial failure.
So, while there appears to be investment money available, there is certainly no shortage of companies seeking early investment, yet rarely the two shall meet. What’s going on? Our take is that neither side is presenting a clear picture of what they both offer and need in return to make an investment deal viable. After several conversations with both sides of this situation, we see several issues that stem from the same root-level cause. A good example of just one of those problems is as follows:
Investors lack deep insight into the peculiarities of the novel C&G space.
While most investor organizations have expertise in what may now be termed “classic biopharma,” typically recombinant protein production, those same investors do not yet see how their operational expertise might transfer to CGT. Additionally, investors have not yet fully developed the expertise and experience required to assess the basic science and mode of therapeutic action of proposed C&G products. Those same investors, however, do seem to be aware of these gaps, which in turn results in more than necessary or appropriate caution on their part.
Companies seeking investment don’t tell their story effectively to potential investors.
Meanwhile, the typical investment target is a startup company, initially heavy on basic and applied scientists, who are often the people with the original idea for the product and the knowledge to make the first small quantities. They are optimistic, perhaps to a fault, and used to talking to colleagues who have the same level of knowledge. The net effect is that they might not tell the story of the basic science wholly, or effectively.
There is a near-singular focus on compelling clinical data.
So, now we have investor caution based on inadequate knowledge of the specific product, exacerbated with a missed opportunity to fill that gap. Both sides then retreat to a known fallback position, one which has always been a solid fulcrum upon which to make investment decisions – i.e., robust clinical data. While totally reasonable, this fallback strategy introduces a few problems of its own. Firstly, there is the ever-present concern about the power of data. (In this case, the term power means the degree to which the data provides certainty, and therefore reduces decision risk). Phase I trials are often small, due at least in part to the smaller populations of disease sufferers for a typical CGT product. This small size limits statistical power, by sheer basic math (we all know that larger samples sizes give more reliable data).
Startup companies often lack the deep expertise of clinical trial design and management. The obvious solution to this expertise gap is to partner with a reputable clinical research organization (CRO), but this path is expensive, and CRO capacity is limited. The result is the real concern about compliance with good clinical practice and the associated concerns about data integrity. None of this is helped by the fact that early development science often lacks the discipline in data management that we see in later stages, where sciences are more familiar with the requirements of licensure submissions. In fact, in QxP’s experience, investors cite nonspecific concerns about data integrity in the clinical space as one of the larger hurdles to overcome when assessing clinical data.
So, there is concern about the degree to which a small data set from an early trial can indicate therapeutic effectiveness and safety (i.e. the viability of the basic science). There is also concern about the credibility of those limited data.
Let’s zoom out for a moment from the topic of over-reliance on clinical data for investment decision to the bigger issue. At the highest level, this problem is one of risk management, or perhaps the lack of it in a formal sense. Investors want to inventory and quantify all risks that may impact their return, but they cannot, because they lack insight. Investment targets tend to sell their early science with overly optimistic faith that the product will be both safe and effective, without an honest assessment of where the risks might lie. There might even be a tendency to see the desire to “look down the barrel” and assess each risk as negative critique, instead of the helpful scoping and prioritization that effective risk management can provide.
Holistic Risk Management – The Big Opportunity
At QxP, we see an enormous opportunity here, to take the techniques, mindset, and objectivity that we see in GMP-style risk management and apply as early as possible to the product development process. Investors have privately told us that they do not expect an absence of risk in their investment target, but they are very afraid of undefined and therefore unmanaged risk.
So, we see formal risk management, integrated across all aspects of a business seeking investment, as the absolute best way to demonstrate credibility, competence and value. We also see that same formal process as one of the most effective ways to actively increase the probability of success, by careful and proactive management of resource, time, and expertise. Finally, a holistic and well-defined risk profile, along with decisions on management actions or acceptability of defined risks, is a huge benefit to C-level leaders as they navigate their company towards the goal of commercial success.
When we speak to clients about risk management at the holistic business level, QxP sometimes hears a response that sounds something like “that sounds difficult and like a lot of work, I just don’t think it’s worth it.” And yet, those same companies and individuals are certain of the value of their Program Management Office, who happily turn out Gantt charts with estimated probabilities of success in the single-digit percentages. The reason for this discordant behavior is perhaps best understood when we consider the emotional roller-coaster that leaders ride when engaging in risk management.
The first step of risk management is the inventory and relative quantitation of sources of risk across a wide range of perspectives, usually called risk assessment. The problem here is that this risk assessment leaves the participant dreadfully aware of all that can go wrong and despondent about the future. The result of this is that leaders experience emotional recoil and then rationalize this recoil to justify their reluctance, hence the “I just don’t think it’s worth it” response. If we stop at risk assessment, the result is anxiety and sleepless nights.
But we must trust the process and have faith. Just as all the value of a deviation investigation comes from the implementation of effective CAPA, so the defined actions to manage those assessed risks provide the scope, workplan and relative priority for leaders to communicate tactical plans to their teams. Only when we see this rational planning to manage risk, and, importantly, measurable progress in the implementation of those plans, do we experience the justified satisfaction and reward of making real progress. Bottom line, we must lean into risk management and trust that the whole process is highly beneficial.
It's worth imagining a first conversation between an investor and a startup seeking funding, when that startup has a risk management process in place. An upfront statement about the most significant risks, their relative priority at that time, the risk management action plan, status of that plan and a description of the process for managing the risks might leave the investor with improved clarity, reduced anxiety about what they don’t know and greatly increased trust in their future partner. It also leaves them with better insight and understanding of how and where they can help directly.
Risk management is not difficult, but it does need to be consistent.
Another objection to formal risk management that we hear often is that the process itself is difficult or takes too much time. While it is certainly true that some companies have gone down a rabbit hole with risk management, that need not, and should not, be the case. Formal risk management, when done well, is simple and easily understood.
The best practice methodology for risk management is adopted from FMEA technique. Specifically, the process is a holistic and integrated assessment of the expected value (i.e. statistically adjusted impact) of each risk. This is simply the product of estimated probability and estimated impact. Whereas FMEA also includes detectability, the risk management process does not, since the risks themselves are evident.
As noted above, the big challenge in implementation of such a process is consistency. This means consistency both in periodically using the process and updating the overall assessment, and consistency in definitions of probability and impact.
Common practice is to define a scale of probability that fits the company’s situation, but it might range from “expected to occur once per 5 years” to “expected to occur in the next 3 months.” This scale should be applied to all risks, regardless of type, source, or modality.
Additionally, it is common practice to estimate impact in terms of monetary loss wherever possible. This has the benefit of standardizing the impact to highly fungible units, therefore facilitating comparison of otherwise very different risks. Where reduction to monetary value is not possible, then many companies also use a scale of reputational risk. This is often used to reflect risks where dollar value is not possible to assess, but if a specific risk were to manifest, then the event might draw attention on social media or even local or national news.
Note that time delays (especially to development projects) aren’t a feature here. A time delay per se does not lend itself to relative ranking since the monetary value of a delay varies greatly. Delays off a critical path have low value, but a delay to commercialization might have value directly related to commercial sales loss for the whole duration of that delay. Hence, reduction to currency.
Within this simple framework, the most common implementation uses an approach akin to a Community of Practice. Risk managers are appointed across all major functions, armed with the standard scales. These process leaders then conduct structured meetings with colleagues to inventory all foreseeable risks.
The integration of these outcomes forms the initial risk inventory. We then take the risks with the largest expected impact (i.e. probability x impact value) and focus on these high priority items to build out risk management action plans. Just as with FMEA, we can then predict the reduction in expected risk when these actions are implemented.
This aspect of risk management, the holistic integration across multiple functions and perspectives, is what makes the process and output of risk management so attractive when viewed by investors. It establishes credibility as evidence of mature and experienced management, and it removes the fear of what is not discovered or disclosed during the due diligence process. Finally, it informs the investor on how best to maximize their return on investment by supporting risk reduction action plans.
However, to be fully effective in this manner, the risk inventory needs to include all significant risks across the company. This is why it takes a community of practice since no single person can know the risks completely and in adequate detail to conduct a proper assessment. Examples of functions and perspectives include:
- Basic science
- Development science
- Clinical management
- Data management
- Regulatory interaction
- Facilities and engineering
- Process development
- Analytical development
- Organizational growth and talent development and retention
- Legal and IP exposures
Periodic updates can then assess current risk (as modified by implemented actions) and as updated by additions or removals from the risk register. Outcomes from the process are used by executive leaders to prioritize action plans and allocate resources.
Sponsors should place their risk management plans front and center when dealing with potential investors.
It is usual for sponsor companies to focus on their basic and development science when dealing with investors. This is essential but can appear naïve and overly optimistic. To temper this reaction and to confer credibility and demonstrate transparency, sponsors should also introduce their risk management process and current plan in the same conversation. Showing self-awareness of risk, well-defined plans for mitigation and management of that risk and the consistency of process and assessment scales is a powerful way to elicit continued investment interest.
If we overcome our temptation to hide the problems, and instead acknowledge that we need investment money to manage those problems, we stand a good chance of attracting the right kind of informed, collaborative investors to jointly deliver on the tremendous promise of cell and gene therapies for patients dealing with a range of diseases.
About the Author
Mark Roache, VP of Cell and Gene Therapies for Quality Executive Partners, Inc. and President of BioQPartners Inc., has spent his entire career working in GXP with more than 30 years of industry experience, from development, through technical operations and quality management. He held the position of Chief Quality Officer for AveXis (now Novartis Gene Therapies) at the time of Zolgensma launch. He was previously Senior VP of Quality for KBI (a CDMO with cell-therapy capabilities) and has held other senior Quality roles at Novartis, Merck and Bayer. He also has extensive experience in vaccines, recombinants and aseptic processes.