Pharmaceutical organizations looking to grow into personalized medicine are leveraging high-dollar acquisitions of cell therapy companies to quickly enter the space and meet the evolving industry trend and patient expectation for tailored, targeted therapy. Just in the past five years, leading life sciences firms have nearly doubled their investment in personalized medicine. On top of that, over the next five years, that investment is estimated to increase by 33 percent.
It’s expected that the number of acquisitions of cell therapy and emerging technology companies will continue to grow as the science progresses and FDA approvals are granted. Just in the past year, two large acquisitions have occurred with Gilead Sciences acquiring Kite Pharma and Celgene Corporation purchasing Juno Therapeutics.
It’s not just the specific treatments that a larger pharmaceutical company is acquiring. The innovation and flexibility within today’s cell therapy companies is also an attractive, and increasingly necessary, asset. In pursuing an acquisition strategy with a cell therapy company, it’s becoming clear that traditional strategies for M&A diligence and integration are not going to work. Understanding the differences between cell therapy companies and traditional pharma companies is paramount for businesses looking to add cell therapy to their portfolio.
Integrating Cell Therapy Commercial Processes
Large scale bio and pharma companies have become accustomed to inserting the acquired business’ commercial processes into their existing processes in high volumes. However, cell therapy companies were founded and operate using a patient-centric model – something that acquirers can’t simply embed into their existing operating models.
Firms acquiring cell therapy companies are also unable to utilize economies of scale as the manufacturing processes for traditional pharma companies and cell therapies are completely different. While traditional pharma companies use a make-to-stock production strategy, cell therapy companies must use a make-to-order model. The individualized nature of the treatment begets a lot size of one, a significant shift for traditional pharma requiring careful consideration to current manufacturing processes.
As cell therapy requires a complex process for collecting, processing, and injecting cellular material, there is a much more personal connection between the manufacturer, physician, and patient. For cell therapy companies, the physicians and clinics are long-term, strategic, and critical partners for the success of your treatment. Consequently, the acquiring company must understand and continue to develop clear channels of communications with the clinics and physicians. For many companies, medical science liaisons can be hired to engage with various doctors or clinics to manage the process.
The Approach to Regulations with Cell Therapy Companies
The closer integration with the patient brings other unique challenges to light for traditional pharma companies. As the cell therapy company is collecting and storing detailed, personal genetic information, HIPAA compliance will play a larger role, requiring a detailed understanding of the expectations and nuances of the law.
Further regulatory issues arise when you consider the impact of adverse event tracking. The process for pharmaceutical companies now is commonly addressed at a bulk level whereas the personalized nature of cell therapy will inherently make this process longer and more time-consuming as it must be managed individually.
Cell Therapy Pricing Models
One notable and well-documented integration challenge is the approach to pricing. Cell therapies are costly as a result of small patient populations, narrow treatment windows, and high up-front costs. Furthermore, the lack of available long-term efficacy and safety data requires cell therapy companies to employ value-based pricing rather than pricing based off historical prices.
Instead of traditional pricing models, companies should explore alternative pricing models, such as annuity payment models or pay-for-performance based models, in order to absolve concerns about costs and uncertainty of outcomes. A deep understanding of these pricing models and how to integrate them into the business’ long-term financial and revenue objectives will be critical in the commercial due diligence phase.
Partnerships in Cellular Therapy Manufacturing
Another complexity of acquiring a cell therapy company is tech transfer. Most contract manufacturing organization (CMOs) work with clinical drugs and don’t have as much expertise about cell therapy, including questions about manufacturing and scalability. This is because contract manufacturers generally operate on a high-volume, low profit margin business model, which cannot be applied to the personalized nature of cell therapy. Cell therapy is currently a relatively small market, so there are few CMOs with experience in manufacturing and releasing cell therapies. Many companies who have decided to develop cell therapies are building or acquiring their own facilities and manufacturing their products in-house.
Due Diligence Teams in Acquisitions of Cell Therapy Companies
In building the capabilities of your diligence team, it will be crucial to incorporate greater emphasis on patient operations, including billing, efficacy, complaints, and adverse effects. Furthermore, given the distinct production differences, diligence teams should now incorporate even more supply chain and manufacturing expertise to assess the current and future-state models, and subsequent integration.
Due to the more personal relation to the patient, the diligence team should also adopt a more direct-to-consumer mindset. As the manufacturer edges ever closer to the patient, an understanding of the long-term development of that relationship will be critical to continued success.
Finally, businesses need to ensure that they maintain and continue to encourage the culture of innovation that characterizes cell therapy companies. Acquirers should refrain from instituting unnecessary onerous approvals on the cell therapy companies and continue to find talent that will help uphold that innovative mindset.
The many distinctions of cell therapy and personalized medicine demands that organizations planning on merging or acquiring a cell therapy companies go into the transaction with a different mindset. The patient-centric approach, lack of economies of scale, different pricing structures, and regulatory and manufacturing models will require new skills and aptitudes of traditional commercial due diligence teams.
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Coauthor and Contributions by Thomas Wang, Janel Firestein, Traigh Groover, and Sham Karim