Moving the Needle on Healthcare

The promise of precision medicine is beginning to bear fruit as deadly diseases are made treatable, doctors use genetic information to guide treatment decisions, and the convergence of information, communications, and biological technology reinvents the practice of medicine. The arrival of this new age of medicine has captured the imagination of investors, who are pouring record investments into these emerging areas. Privately held life-sciences companies have raised $7 billion through the first five months of 2014, representing a 36.2% increase compared to the same period last year. Investment in early-stage companies drove the increase as seed, series A and series B investment jumped 182% during the period to $2.9 billion. The surge in funding is going into innovative areas such as gene therapy, immune-oncology, and digital healthcare technologies that promise to move the needle on the delivery of care and improve outcomes for patients with once-intractable diseases.

As Big Pharma shifts its resources away from internal R&D to externalizing innovation, investors see opportunities in backing companies with cutting-edge technologies. And venture investors, boosted by liquidity from the robust capital markets, are backing startups up with adequate funding to allow them to validate their technologies rather than needing to constantly seek new capital.

Over the past year, investors have pumped more than $2 billion into gene therapy, immunotherapies, and digital-health companies, including more than $1.3 billion invested in startups and $819 million raised by nine companies through initial public offerings (see Table I). Almost every big pharmaceutical company with an oncology program is developing cancer immunotherapies, while companies focused on genetically inherited diseases are exploring gene-therapy solutions.

Investments in Gene Therapy
Venture investors and Big Pharma took notice of the potential of gene therapy after a team of researchers at the University of Pennsylvania, led by Carl June, published results of a small trial of their chimeric antigen receptor T-cell (CART) cancer-killing cell therapy in August 2011 that showed complete remission from chronic lymphocytic leukemia in three patients who no longer responded to chemotherapy.

That led to a historic partnership between Novartis and the University of Pennsylvania aimed at bringing the new personalized immunotherapy approach to patients with various forms of cancer. Novartis invested $20 million for the construction of a new research center in Philadelphia as part of the pact, and gained an exclusive worldwide license to the technology developed at Penn that uses manipulated immune-system cells to kill cancer cells. Using genetic engineering, June’s team manipulated T cells extracted from leukemia patients into recognizing and attacking leukemia cells. These altered T cells were re-injected, using a deactivated HIV-1 virus, into the patients where they proliferated until they destroyed the cancer cells.

At the time, June told reporters that multiple drug makers and many venture investors were interested in the “ultra-personalized” therapy. He chose to work with Novartis because he felt the therapy was likely to reach patients faster with an already existing company.

June isn’t the only scientist experimenting with CART therapy to attack cancer. In early December 2013, three leading cancer centers--The Fred Hutchinson Cancer Research Center, Memorial Sloan-Kettering Cancer Center, and Seattle Children’s Research Institute--joined forces to launch Juno Therapeutics in Seattle. Arch Venture Partners and Alaska Permanent Fund pledged an initial investment of $120 million, with Amazon’s Jeff Bezos and others adding another $56 million in 2014, making it perhaps the largest series A funding of a life-sciences company to date.

Juno’s cofounders include Richard Klausner, a former director of the National Cancer Institute, and Juno CEO Hans Bishop, who helped build Dendreon’s process of using a patient’s own T cells to induce an immune response in cancer. Other companies in the space include Bluebird Bio and Kite Pharma.

Investors are also launching companies developing gene therapies using adeno-associated vectors to modify genetic defects to treat otherwise irreversible conditions. In October 2013, the Children’s Hospital of Philadelphia (CHOP) committed $50 million in seed funding to launch Spark Therapeutics to advance its gene therapy clinical trials and commercialize its technology. The financing came after more than a decade of work at CHOP perfecting the necessary tools to allow routine translation of gene therapy from bench to clinic: the gene delivery vector itself, and the manufacturing of clinical-grade vector using good manufacturing practices.

Besides its agreement with CHOP, Spark is working with other academic institutions to assemble the technology, programs, and capabilities needed to deliver its first gene therapy products.  These include gene therapy to correct the gene for clotting factor IX, defective in patients with hemophilia B, for use in an early-stage clinical trial. They are also pursuing a gene therapy to correct a gene defective in one form of inherited retinal degeneration that ultimately causes irreversible blindness, for use in a late-stage trial. In late May, Spark raised another $72.8 million in a series B round from venture investors and several healthcare funds.

Researchers are also working with bacterial proteins that allow them to cut DNA in specific places to edit disease-causing genes. Cambridge, Massachusetts-based Editas Medicine launched in November with $43 million in a series A financing to translate its genome editing technology into therapeutics. Genome editing technology has come a long way, making it now possible to precisely modify almost any gene in the human body with the ability to directly turn on, turn off, or edit disease-causing genes, says the company, whose five co-founders include Harvard’s George Church, MIT’s Feng Zhang, Harvard University’s David Liu, Harvard Medical School’s Keith Joung, and the University of California, Berkeley’s Jennifer Doudna.

Further Innovative Investments
Investment is also ramping up in innovative digital technologies that aim to transform the delivery of healthcare. Three recent financings attest to what investors see as the power of technology to modify health.

Flatiron Health, a company developing an oncology platform to improve cancer care, raised $130 million in a series B financing round led by Google Ventures. Its cloud-based platform aggregates and transforms clinical and financial data from electronic medical records and billing systems in real-time, allowing the industry to have a comprehensive view of a patient’s experience in the oncology office as it happens.

NantHealth, launched by billionaire Patrick Soon-Shiong, raised $135 million from an undisclosed sovereign wealth fund in a series B financing round. NantHealth says it is in the intersection of innovation and connectivity, building a platform that will integrate data streams to allow for better healthcare delivery and outcomes.

And Proteus Digital Health, a maker of digital pills—miniature ingestible sensors that track vital signs, raised $120 million from undisclosed global institutional investors. These digital medicines integrate drugs with ingestible, wearable, mobile devices, and cloud computing in order to deliver solutions that enable patients, their families, and their doctors to make better decisions about their health.

These are a number of the innovative, precision technologies that likely will be coming onto the market over the next few years that have the capability of improving how health decisions are made, how care is delivered, and how patients are medicated, all with the potential of transforming healthcare.

About the Author

G. Steven Burrill is chief executive officer at Burrill Equities, San Francisco, CA, 415.341.3870, steve@burrillequities.com.