On a recent episode of GEN Live—GEN’s monthly live discussion forum—GEN editors John Sterling and Alex Philippidis interviewed Oppenheimer analyst Leland Gershell, MD, PhD, who shared some fascinating insights regarding current trends facing the biopharma industry.
Despite the COVID-19 pandemic, 2020 has proven (so far) to be a successful year for many biotech and pharma companies, fueled by the scramble to develop drugs and vaccines for COVID-19. This has resulted in strong activity in IPOs and M&As. Share prices for three ETFs in the sector have risen over the past six months as much as 60%. Of course, the looming U.S. presidential election presents a potential challenge to the health of the markets in the near term.
Gershell covers a variety of public company stocks, from traditional small molecule drugs to biologics, gene therapies and newer micro RNA approaches. These technologies are being applied to cancer, inflammatory disease, and rare genetic diseases.
Gershell trained as a PhD in chemistry and an MD. After his first year of clinical training in New York, he jumped into the business world. His financial career began on the sell side as well as the buy side at an institutional healthcare fund. He also served as chief financial officer at two public companies over a period of six years.
Below are highlights of Gershell’s conversation with GEN’s chief editor, John Sterling, and senior news editor, Alex Philippidis. (The interview has been lightly edited for length and clarity.)
GEN Edge: Leland, what made you take the leap from your medical background to the business side?
Leland Gershell: It’s a less traditional career pathway, although we see more and more people who are technical experts in medicine and science going into equity research. So, for me, it came at a time when we were in the height of the Human Genome Project going on in the late ‘90s.
By virtue of that, the markets were pretty hopped up on companies in the biotech sector, valuations were going up, and there was a lot of media interest. I was in my MD, PhD training at Columbia University and started to think about what I really wanted to do. I began thinking about things a bit differently than the traditional academic or medical practice direction.
At the same time, I was also doing a research project in cancer as part of my PhD. It just so happened that we had a collaboration with Memorial Sloan Kettering. We were working on potential drugs for a new mechanism that was just becoming understood at that time. Seeing that come through from bench to at least clinical trial, if not bedside, was interesting—to be in the innovation drug development game versus writing grants and doing basic science. I really valued developing new products for human health. A university isn’t as well set up to do that as companies are.
GEN Edge: What’s your take on the state of biopharma now as we’re in the fourth quarter of 2020?
Gershell: We’ve certainly come a long way. We’re finally seeing some of the real rocket science, like gene therapy technologies come to fruition. We were set back greatly by the deaths that occurred [two decades ago] with gene therapy. That put a nuclear freeze on development in that area for several years. But as we got better about doing things more safely, gene therapy is now the platform for a number of new drugs that are coming through. In terms of the technology, we’ve seen tremendous advancement.
We’ve also seen greater acceptance of biotech as a category of drugs from when the only drugs were just the EPOs [erythropoietin] and so forth from Amgen. Now there’s such a variety of highly targeted cancer drugs and other types. I also think the financing environment has done pretty well.
We were in obviously a very heavy financing time during that that late ‘90s, 2000s period. Then the markets were in a bit of a lull and then kind of up and down. The last year or so, we’ve been in very good markets, notwithstanding COVID-19. Nonetheless, I think the environment now for small companies to fund their campaigns couldn’t be better.
GEN Edge: How has drug and vaccine development for COVID-19 impacted the broader biopharma industry?
Gershell: Pretty much anybody who’s in the business of developing a drug is going to be running clinical trials. Clinical trials are the prime area that have been slowed down or in some cases stopped because of COVID-19.
As the pandemic was fully recognized in the late winter/early spring, a number of trials just had to be slowed down or put on hold. We also had some international issues where these trials are done in different countries. Certain countries couldn’t enroll patients because they had certain policies that wouldn’t allow the trials to proceed. If you look at the different activities that companies are engaged in—preclinical lab research, clinical trials, commercial—clinical trials were hit the most.
From my experience, companies have been pretty good about actually putting their lab staff on a shift schedule where they can socially distance in the laboratory environment and have people come in at different times to maintain requirements.
A lot of the work that goes on these days in drug development is already virtual. First, many of the smaller companies are often working in a semi-virtual mode already, because people who are the best at what they do aren’t always in the same place, even if you’re in Boston or the Bay Area. These people can be all over the country and you’re already doing Zoom calls—everything is functioning that way to begin with.
There was obviously a drop off in drug sales for many medications. It was hard for people to go to their pharmacy or to get their prescriptions written, so that impacted the financial side for many companies, particularly in Q2–Q3. As we get into the last part of this year that should more or less be normalized.
GEN Edge: What do you foresee in terms of ultimate adoption of these newer technologies? And how do you think they are going to change the medical therapeutic landscape when they are implemented more broadly?
Gershell: I think the promise is very high and has been for a long time. We’re finally seeing the rubber meet the road. Particularly for the types of disorders where you have a missing enzyme or missing gene. You can now insert that [healthy] gene into the patient. That’s the lowest hanging fruit we’re going to see. So any disorders that can be defined in that way would be primary targets for gene therapy. For example in hemophilia, where people are lacking a certain clotting factor in their blood, if you can restore that factor, they can begin to clot normally.
When you talk about complex disorders that are less well defined mechanistically and may have more than one causative gene, that’s going to be less penetrable or in many cases impenetrable. The major barrier for gene therapy to begin with was the safety issue, because after Jesse Gelsinger’s death [in 1999], that case really scared everyone off. Once we changed the platform and figured out how to deliver gene therapy safely, that now provides a landscape for multiple different gene therapies to come to market. It’s just a matter of funding those campaigns and getting the clinical efficacy, more than the safety at this point.
GEN Edge: CRISPR, gene editing, and gene therapy—where do you see all of that going?
Gershell: CRISPR is very powerful and still relatively early. I think there’s also tremendous promise. We’re going to have probably more that we can do with CRISPR than perhaps with gene therapy because you can actually make edits to an incorrect DNA sequence.
I’ve learned at the school of hard knocks as an analyst that you have to temper your excitement until you get further along in the clinical development. Things come up and there are surprises. I’m not saying that we’re going to have problems with CRISPR, but one needs to be a little bit cautious and we need to have more experience in humans to feel comfortable that CRISPR is really going to pan out. But there’s more we can do with CRISPR than with just normal gene therapy.
GEN Edge: Biotech companies are allocating resources to new diagnostics, therapeutics, and vaccines targeting COVID-19. How does this not hinder some of their other product development activities and other areas?
Gershell: In most cases, companies have suffered from logistical issues more than anything else, getting hold of supplies from other countries. There’s been a slowdown in things coming from China. For companies that depend on a supply chain, there’s been an impact.
Companies might see an opportunity to develop a drug that they already have in the pipeline for something that is COVID-related, not so much the antiviral approach but more the anti-inflammatory. It’s one thing to fight the virus itself. But if you can go after the inflammation and reduce the acute respiratory distress syndrome (ARDS), you can have potentially better outcomes.
For these patients, you’re allowing the patient to survive so they can clear the virus and be able to go home and resume being a normally functioning person.
GEN Edge: Recently Johnson & Johnson and Eli Lilly paused late-stage COVID vaccine trials. How much does this raise questions for investors as to the development of these treatments?
Gershell: Everyone takes notice of these kinds of issues. Given the magnitude of this public health problem and the concern that people have with what happens when you try to rush something to market, you’re likely to hit a tree or two along the way. It’s a reminder that we need to be careful, and you can’t just throw caution to the wind. Despite that, if you consider the number of people who’ve succumbed and the number of people who could be infected, in general, we find comfort in knowing that vaccines are pretty safe.
There are vaccines that we’ve had for many years, such as hepatitis B and the flu shot, that can be given safely. From that background, we’re in good standing. But I want to emphasize that moving too quickly may end up with something that could be more harmful than you would like. It’s going to be given to mostly healthy people looking to prevent something versus creating something, which could have dire consequences.
GEN Edge: These pauses come at a time when development of drugs and vaccines for COVID-19 has progressed from preclinical to late stage in just a matter of months. How permanent of a change do you think this acceleration is going to be? Are the days of 10- to 12-year development timeframes history?
Gershell: The 10- to 12-year number is often talked about, but in the case of vaccines, due to the nature of the way vaccines are made—it’s a tried and true process. Hopefully, we are successful there. But, there’s a difference between trying to recognize a surface antigen using an immune approach versus trying to design a very specific molecule that can interfere with a very specific enzyme or surface receptor in a disease. It’s less of a bar to get to the vaccine than it is to design new drugs for diseases, especially if you’re starting from scratch.
I think that it’s still going to be a relatively long process compared to any other product. The technologies for developing drugs continue to improve. So, in certain cases, those timelines and costs can be shortened.
The one thing that COVID-19 brings to the forefront is the value of repurposing. We can look back and find molecules that can be applied that don’t have to be created from scratch. People are becoming more comfortable with the concept of repurposing pharma, and this will probably be more dominant as we go forward.
GEN Edge: Is an emphasis on repurchasing more of a result of remdesivir progressing as far as it has—originally an Ebola antiviral?
Gershell: If we see results pan out with some of the anti-inflammatory campaigns, those could be further data points that would be supportive. But absolutely, if you can take an antiviral that’s useful for a particular type of virus and then use it constructively in a different type, and you have the safety and enough efficacy data and it’s at least somewhat helpful to the patient, then that’s only going to foster others to look for other opportunities.
GEN Edge: Leading candidates in COVID-19 have either been vaccines or antibody therapies such as Regeneron and Lily’s. Can we expect to see other categories emerge over time?
Gershell: We have a few different categories. We also have convalescent plasma which is not really itself a drug. It’s taken by purifying donated plasma from people who’ve been infected and who have since recovered. It’s like giving somebody else an immune system component. We have vaccines, antibodies, small molecules, antivirals, and anti-inflammatory. That pretty much captures the different classes of drugs that you would see as being most likely to be a benefit in COVID-19.