“We’re seeing valuations for companies take a hit, down to the point that we’re seeing multiple companies at negative enterprise value, which really is quite shocking to see,” said Nessan Bermingham, a venture capitalist and former CEO of the gene editing biotech Intellia Therapeutics.

The stock market pain is shared by companies in other sectors of the biotech industry beyond cell and gene therapy, but developers of those types of medicines appear vulnerable.

Many aren’t yet in the clinic and have yearslong research journeys ahead of them before it’s clear whether their experimental treatments are likely to work. Developing and manufacturing gene therapies is also an expensive endeavor, stressing balance sheets at a moment when new investment is harder to come by.

Moreover, a string of clinical and regulatory stumbles has sapped investors’ confidence in the ability of gene therapy companies to reliably turn cutting-edge science into approvable medicines.

“It’s not a perfect storm, but it’s a confluence of a lot of elements driving the issues we’re seeing,” said Bermingham, now an operating partner with Khosla Ventures.

A challenging environment

For Amicus Therapeutics, a small biotech that for the past three years has built a pipeline of gene therapies, the market downturn hit at an inopportune time.

Last September, in somewhat better times for biotech stocks, Amicus announced plans to spin out its gene therapy business via a merger with a blank-check company. But by February, it was forced to call off the deal, citing “unfavorable market conditions” and an “increasingly challenging environment for stand-alone gene therapy companies.”

As a result, Amicus said it would no longer advance multiple gene therapies into the clinic as intended and suspended plans to build a manufacturing plant. Thirty-five employees, or about 7% of the company, were laid off, most of whom had been involved in R&D.

Since December, Sigilon Therapeutics, Freeline Therapeutics, Gemini Therapeutics and Passage Bio have been forced to cut jobs as well. Meanwhile, Generation Bio, Avrobio, Sio Gene Therapies and Graphite Bio have reset their research, prioritizing certain experimental drugs or areas of research while stepping back from others.

“When you are in a position where you have to conserve capital, you are often going to prioritize indications where you believe have a higher probability of success as well as less competitive dynamics,” said Luca Issi, an analyst at RBC Capital Markets. “We’re going to see more of that.”

The gene therapy contraction contrasts sharply with the past several years, during which new gene therapy companies won substantial funding and outlined expansive drug development plans. Since 2018, nearly 50 biotechs working on either cell or gene therapies priced an initial public offering. About half had yet to enter clinical testing at the time of their IPO — Generation and Graphite among them.

While they weren’t alone — dozens of other biotechs outside of gene therapy did the same during the same period — those companies are now more exposed as investors adjust their expectations for gene therapy.

“We saw a lot of companies go very early on,” said Bermingham. “That’s OK when markets are really strong,” he added, but “becomes more challenging” in a downturn.

To Gbola Amusa, chief scientific officer at Chardan, the flood of preclinical companies launching IPOs in recent years has meant the average gene therapy biotech is less mature and therefore more susceptible to changing market conditions.

“A lot of the missteps and things we’re hearing, sometimes it’s because of [scientific challenges],” Amusa said. “The other times it’s because of small companies that went public maybe too soon and are basically publicly traded academic enterprises without the capabilities that we would see with bigger biotechs.”

Safety setbacks

As gene therapy companies have proliferated, so too has the number of experimental treatments entering clinical testing. According to the latest count by the Alliance for Regenerative Medicine, an industry group, there are more than 200 trials of gene therapies underway, with hundreds more in cell therapy.

One consequence of that progress is that more companies are running into problems in testing, whether due to newly uncovered safety risks or because of lower-than-expected efficacy.

Last year, Bluebird, UniQure and Allogene Therapeutics each halted studies after clinical trial participants developed cancer or, in the case of Allogene, signs of unusual DNA abnormalities. While all three companies were able to exonerate their treatments, the reports resurfaced concerns of whether gene therapy could heighten the risk of cancer.

The Food and Drug Administration has also appeared to be proceeding cautiously, even as it expects to approve more and more cell and gene therapies in the coming years. Last September, the agency convened a panel of experts to discuss one common type of gene therapy, a meeting that Bermingham said raised “orange flags” for companies in the field.

The FDA also issued more clinical holds, or regulatory suspensions, for cell and gene therapy trials in 2021 than in previous years. According to a Feb. 27 note from analysts at Jefferies, cell and gene therapy holds accounted for approximately 40% of those ordered by the regulator last year, despite representing well below that proportion of trials.

Beyond setting back individual companies, the trial halts might also be sparking broader questions about regulatory requirements and whether the field needs to do more work preclinically to assess certain risks.

On the other hand, clinical trial successes from more advanced cell and gene therapy developers could force companies earlier in testing to redraw their plans, particularly as many target some of the same rare diseases.

“I think you’re going to see some of the business models and strategies be put under pressure by data that’s come out from various groups,” said Bermingham.

While more cell and gene therapy companies might restructure as stock prices remain depressed, clinical and regulatory progress from others could restore some of the field’s attraction.

Beyond Bluebird’s two treatments now up for approval, UniQure and BioMarin Pharmaceutical are expected to soon file for approval of gene therapies for hemophilia B and A, respectively. A sickle cell treatment from CRISPR Therapeutics and Vertex Pharmaceuticals is also nearing an FDA review.

Most large pharmaceutical companies are now invested in cell and gene therapy, too, buoying the partnership and acquisition activity that investors seek when backing new startups.

“Innovation takes time,” said RBC’s Issi. “We live in a bear market and gene therapy companies, many of them have limited cash. They are thinking creatively of how to continue to innovate.”