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 The 121-year-old Basel-based contract manufacturer (CMO) has a long
history supplying ingredients for other companies' drugs. When its
250,000-square-ft Houston plant opens on Tuesday, it will be able to
mass produce key components for emerging gene and cell therapies to
treat everything from blindness to cancer.
It will be biggest factory of its kind in the world.
As the industry grapples with a shortage of engineered viruses
needed to transport healthy gene material into the cells of sick
people, Lonza is calculating demand will remain strong, from
cash-strapped early-stage companies to more established clients
fearful of getting caught in the squeeze.
"Making the investment to build in-house is not an easy decision for
a clinical-stage company," Lonza emerging technologies head Andreas
Weiler told Reuters.
Chief Executive Richard Ridinger expects Lonza's push into cell and
gene therapy will help him lift sales by half to 7.5 billion Swiss
francs ($7.8 billion) and boost core EBITDA margins to 30 percent by
2022 from 24.8 percent last year.
The strategy is not risk-free. The use of gene-based medicine
remains in its infancy and hitting quality standards is tough. But
the Association of the British Pharmaceutical Industry estimates the
global cell and gene therapy market will be worth up to $21 billion
annually by 2025.
Pharmaceutical and biotechnology companies are racing to develop
therapies that rely on materials like those Lonza sells, for
treatments that command some of the highest prices in medicine.
Spark's <ONCE.O> blindness treatment Luxturna, approved in December,
runs at $850,000 per patient in the United States, while Swiss
drugmaker Novartis's <NOVN.S> CART-T cell therapy Kymriah, approved
for children with leukemia, costs $475,000.
At its $373,000 list price, Gilead's Yescarta for large B-cell
lymphoma seems comparatively cheap.
COSTLY BUILD
Industry figures show that other CMOs, as well as drugmakers
including Pfizer <PFE.N>, bluebird bio <BLUE.O> and BioMarin <BMRN.O>,
are pumping hundreds of millions of dollars into new facilities of
their own.
Lonza's supply-chain rivals include Brammer Bio in Cambridge, Mass.,
France's Novasep and ABL, the Netherlands' Batavia Biosciences, and
Britain's Oxford BioMedica <OXB.L>, which supplies viruses for
Novartis's Kymriah.
Access to gene therapy manufacturing is also spurring M&A. Novartis
said on Monday its $8.7 billion deal for AveXis <AVXS.O> was driven
not just by the U.S. company's potential blockbuster gene-fixing
therapy but also its newly built facilities in the Chicago suburbs.
Last year's wave of approvals prompted U.S. Food and Drug
Administration (FDA) Commissioner Scott Gottlieb to proclaim the
sector at a "turning point" after a long haul that has seen more
than 1,000 cell and gene therapy trials approved in the past decade,
according to the Journal of Gene Medicine.
One telling sign that the industry is maturing is the growing
commercial focus of trials. In Britain, 42 percent of cell-and-gene
therapy trials in 2017 were commercial, up from just a quarter in
2012, the UK group Cell and Gene Therapy Catapult said.
The downside of increased interest is an industry-wide shortage of
cell and gene therapy products, including complaints about two-year
waits for a batch of viral vectors.
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"The entire cell-based manufacturing market is currently
undersupplied," said Jens Lindqvist, an analyst at N+1 Singer in
London.
As a result, academics face challenges getting materials at prices
they can afford, said Dr. Uta Griesenbach, an Imperial College
molecular medicine professor and president of the British Society
for Gene and Cell Therapy.
"It's really an important bottleneck that needs to be addressed,"
Griesenbach said. Otherwise, she added, "the development of advanced
therapeutic medicinal products might slow down or come to a halt."
SPREADING RISK
For investors, publicly traded CMOs like Lonza or Oxford BioMedica
are vehicles to invest in the cell-and-gene therapy boom without
exposing themselves to the risk of individual drug flops.
"They aren't an all-or-nothing proposition, where a single therapy's
failure can lead to a 60 or 70 drop in a company's stock inside of a
day," said Martin Lehmann, whose Zurich-based 3V Invest Swiss Small
& Mid Cap fund owns Lonza shares.
"Your upside might be a bit less with a CMO, but because Lonza is so
broadly positioned, you are insulated from crashes."
Lonza's shares have risen 51 percent since the start of 2016,
despite a recent dip.
Even so, things can go wrong, like last year when Lonza's biotech
manufacturing facility in Walkersville, Maryland, was hit by
quality-control problems - and an FDA warning letter - that
temporarily halted some production.
Another risk is that insurers and governments may push back on gene
therapies' high prices, reducing financial returns. Spark's Luxturna
has already been caught in critics' crosshairs.
For most patients, "the cost is not in line with what's considered
cost-effective," the healthcare value advocacy group Institute for
Clinical Review said in January.
High prices mean such therapies, for now, remain largely suited for
rare diseases.
Still, Novartis research chief Jay Bradner is optimistic treatments
like his company's Kymriah will evolve from being last-ditch options
for desperate patients to more affordable weapons suited for mass
maladies.
Industrialization in manufacturing procedures "will bring a
revolution in access to these medicines", Bradner said in an
interview in January.
Lonza, which last year acquired PharmaCell, the Dutch CMO that
helped produce the viruses behind Gilead's Yescarta, is counting on
that, too. Its new Houston site is five times larger than the
group's old Texas facility, bringing clinical and commercial supply
under one roof.
"Cell and gene therapies will become mainstream," Weiler said. "We
already see this from the investments of our large pharma and
biotech customers."
(Editing by Elyse Tanouye, Ben Hirschler and Sonya Hepinstall)
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