Pfizer, Novartis lead $2 billion spending spree on gene therapy production

Eleven drugmakers led by Pfizer and Novartis have set aside a combined $2 billion to invest in gene therapy manufacturing since 2018, according to a Reuters analysis, in a drive to better control production of the world's priciest medicines.

The full scope of Novartis' (NOVN.S) $500 million plan, revealed to Reuters in an interview with the company's gene therapy chief, has not been previously disclosed. It is second only to Pfizer (PFE.N), which has allocated $600 million to build its own gene therapy manufacturing plants, according to filings and interviews with industry executives.

Gene therapies aim to correct certain diseases by replacing the missing or mutated version of a gene found in a patient's cells with healthy copies. With the potential to cure devastating illnesses in a single dose, drugmakers say they justify prices well above $1 million per patient.

But the treatments are also extremely complex to make, involving the cultivation of living material, and still pose a risk of serious side effects.

Drugmakers say building their own manufacturing plants is a response to rising costs and delays associated with relying on third-party contract manufacturers, which are also expanding to capitalize on demand.

They say owning their own facilities helps safeguard proprietary production methods and more effectively address any concerns raised by the U.S. Food and Drug Administration (FDA), which is keeping a close eye on manufacturing standards.

"There's so little capacity and capability at contract manufacturers for the novel gene therapy processes being developed by companies," said David Lennon, president of AveXis, Novartis's gene therapy division. "We need internal manufacturing capabilities in the long term."

The approach is not without risks.

Bob Smith, senior vice president of Pfizer's global gene therapy business, acknowledged drugmakers take a "leap of faith" when they make big capital investment outlays for treatments before they have been approved or, in some cases, even produced data demonstrating a benefit.

PUSHING THE LIMITS

The rewards are potentially great, however.

Gene therapy is one of the hottest areas of drug research and, given the life-changing possibilities, the FDA is helping to speed treatments to market.

It has approved two so far, including Novartis's Zolgensma treatment for a rare muscular disorder priced at $2 million, and expects 40 new gene therapies to reach the U.S. market by 2022.

There are currently several hundred under development by around 30 drugmakers for conditions from hemophilia to Duchenne muscular dystrophy and sickle cell anemia. The proliferation of these treatments is pushing the limits of the industry's existing manufacturing capacity.

Developers of gene therapies that need to outsource manufacturing face wait times of about 18 months to get a production slot, company executives told Reuters.

They are also charged fees to reserve space that run into millions of dollars, more than double the cost of a few years ago, according to gene therapy developer RegenxBio.

As a result, companies including bluebird bio (BLUE.O), PTC Therapeutics (PTCT.O) and Krystal Biotech (KRYS.O) are also investing in gene therapy manufacturing, according to a Reuters analysis of public filings and executive interviews.

They follow Biomarin Pharmaceutical Inc (BMRN.O), developer of a gene therapy for hemophilia, which constructed one of the industry's largest manufacturing facilities in 2017.

REGULATORY SCRUTINY

The FDA is keeping a close eye on standards.

This comes amid the agency's disclosure in August that it is investigating alleged data manipulation by former executives at Novartis' AveXis unit.

AveXis had switched its method for measuring Zolgensma's potency in animal studies. When results using the new method didn't meet expectations, the executives allegedly altered the data to cover it up, the FDA and Novartis have said.

One of the former executives, Brian Kaspar, denied wrongdoing in a statement to Reuters. Another, his brother Allan Kaspar, could not be reached for comment.

Novartis and the FDA say human clinical trials, which found Zolgensma effective in treating the most severe form of spinal muscular atrophy in infants, were not affected. Novartis also says its investments in gene therapy production started long before it became aware of the data manipulation allegations.

But the scandal has highlighted the importance of having a consistent manufacturing process for gene therapies, industry executives say.

According to four of them, the FDA has stressed in recent meetings the need for continuity in production processes all the way from the development of a drug to its commercialization.

By bringing production in-house, drugmakers may avoid pitfalls such as the need to switch to a larger facility if contract manufacturers' capacity proves limited, executives say.

The FDA is finalizing new guidelines for gene therapy manufacturing, expected at the end of the year.

"Manufacturing consistency is always a major concern for the agency," FDA spokeswoman Stephanie Caccomo told Reuters.

Highlighting the pressures on the industry, Sarepta Therapeutics (SRPT.O), which largely outsources manufacturing, delayed a clinical trial of its Duchenne treatment in August, telling investors it wanted to avoid any questions from regulators about consistency in producing its therapy at commercial scale.

ENOUGH GROWTH FOR ALL?

"Between the trade secrets, the cost schedules and the time lag, it makes a whole lot of sense, if you can do it, to build out your own facilities and more and more gene therapy companies have started to do that," said Krish Krishnan, chief executive of Krystal Biotech Inc.

Krystal, which is developing therapies for rare skin diseases, has built one manufacturing facility and plans to invest more than $50 million in a new one it will start constructing in December.

MeiraGTx (MGTX.O), which focuses on gene therapies for eye conditions, estimates it is currently spending roughly $25 million a year on manufacturing, including process development.

Despite such moves, however, contract manufacturers like Lonza (LONN.S) and Thermo Fisher (TMO.N) are confident their businesses will continue to grow due to the strength of demand.

Thermo Fisher has told investors its Brammer gene therapy manufacturing division, acquired in May, could soon earn $500 million in revenue a year, double its projected 2019 earnings.

Lonza CEO Marc Funk is also optimistic.

"Demand in gene therapy has increased," he said in an interview. "We believe this is going to continue in the coming years."