Despite challenges, ‘capital is always available for good ideas’

Listen to this article

Continued turbulence in the financial markets and headwinds from legislation aimed at capping drug costs, like the federal Inflation Reduction Act (IRA), as well as other issues have buffeted life sciences companies. But that hasn’t dampened spirits at some New Jersey enterprises.

In October 2022, publicly held global biotech Insmed Inc. of Bridgewater – which focuses on serious and rare diseases – closed on a $275 million stock offering, secured a $350 million term loan and entered into a $150 million secured royalty financing agreement. “Despite the backdrop of difficulties in the macro market, capital is always available for good ideas,” said Insmed CEO Will Lewis. “During the 11 years I’ve been with the company, we’ve gone from 30 employees to more than 800, and we see opportunities in our product pipeline that will get us through the corrections that the market is currently going through.”

He’s confident about Insmed products, like ARIKAYCE, that were included in the international treatment guidelines for nontuberculous mycobacterial (NTM) lung disease, a chronic, debilitating condition that can cause severe, permanent damage to the lungs. Evidence-based guidelines issued by the American Thoracic Society, European Respiratory Society and other organizations recommend the use of ARIKAYCE for certain classes of NTM lung disease.

Insmed also recently completed enrollment in a Phase 3 adult patient study of Brensocatib, which aims to treat bronchiectasis, a severe, chronic pulmonary disorder. “This could be a blockbuster drug, which may potentially be used to treat a range of diseases,” said Lewis. “It could make a big difference for many patients, while putting us on the map for respiratory disease treatments.”

Other life sciences companies in the state are also upbeat about long-term prospects, although they acknowledge the current market upheavals. In May, for example, Princeton-based Soligenix Inc. – a Nasdaq Stock Market-listed late clinical stage biopharmaceutical company focused on developing and commercializing products to treat rare diseases where there is an unmet medical need – closed on an $8.5 million public offering.

“This is one of the worst markets I’ve seen in 30 years, and the challenges are even more magnified for small development stage biotechs,” said Soligenix CEO Christopher Schaber. Like other companies in the biotech and biopharma space, “we need capital, since drug development has a long runway, often a decade or more, until significant revenue starts to potentially flow,” he noted. “Besides funding our ongoing development activity, we require the capital injection to remain in compliance with the Nasdaq market.”

The fact that Soligenix is a late-stage company – with a lead product that completed a successful Phase 3 study in a rare and chronic cancer – helped to attract investor funding, Schaber said. “While the overall market headwinds present are extremely difficult, they have the potential to provide some opportunities as well. For example, companies that are having difficulty raising capital to advance their programs means they may be more open to considering partnership, merger or acquisition at reasonable deal terms to advance their programs and pipelines.”

But the standard disclaimer, “past performance is not necessarily indicative of future results” certainly applies.

“Development-stage biotech companies being pre-revenue are always concerned about the potential to raise capital,” notes Schaber. “So, we must wisely manage our expenses, while strategically prioritizing our development programs with the highest likelihood of success; and we continue to pursue non-dilutive government funding; to date, we’ve received about $80 million of such non-dilutive funding. Some development-stage biotechs have been acquired, and some have downsized, but we maintain a lean structure and work with independent contractors, which has benefited us in the current market environment.”

Inbound obstacles

Still, Schaber sees some storm clouds on the horizon in the form of the IRA, which attempts to rein in medical costs by allowing Medicare to negotiate the price of some high-spend drugs. “The IRA is a concern for drug companies of all sizes and stages,” he warned. “It will substantially stifle innovation, which is never good.”

At Insmed, despite his optimism, Lewis has some concerns over political developments like the IRA, as well. “There are some good points to the IRA, like copay subsidies for low-income populations,” he noted. “But the controversial price-control provisions are a quick fix that only takes on part of the pricing issues. It’s a draconian response that could have unintended consequences. Instead, we need a holistic approach.”

Beginning this year, pharmaceutical companies will need to pay rebates to Medicare under the law if their drug prices rise faster than inflation. And starting in 2026, the federal government will be required to negotiate prices for some high-priced and high-volume drugs covered under Medicare Part B and D. According to the Pharmaceutical Research and Manufacturers of America, this will slash revenues of biopharmaceutical research companies by $455 billion over the next decade.

New beginnings

In June, NJBIZ was on the scene when Merck officially marked the opening of its reimagined Rahway campus as its new headquarters. Click here to read the story.

In early June, Merck & Co. filed a lawsuit against the U.S. government in a bid to halt the Medicare drug price negotiation provision of the IRA, Reuters reported, arguing that it violates the Fifth and First Amendments to the U.S. Constitution. The drugmaker, which recently celebrated the opening of its reimagined headquarters in Rahway, argues that the law “will force companies to sign agreements conceding that the prices are fair, which it claims is a violation of the First Amendment’s protections of free speech,” according to the report, nothing that “Merck asserts this violates the part of the Fifth Amendment that requires the government to pay just compensation for private property taken for public use.”

Groups representing the industry in New Jersey are also raising points about the IRA. BioNJ President and CEO Debbie Hart echoed concerns about the impact the law could have on development.

“In particular, the price control provision in the IRA threatens to set back advancements in medical innovation and treatment access,” she said. “One estimate shows price setting could result in 135 fewer new cancer drug approvals by 2039 and 551 fewer HIV/AIDS clinical trials over a similar time period. Other concerns include efforts to modify or diminish the accelerated approval program, the impact of pharmacy benefits managers, and the regulatory uncertainty around the FDA [U.S. Food and Drug Administration] drug approval process.”

Dean Paranicas, CEO of The HealthCare Institute of New Jersey (HINJ), also sounded the alarm about the IRA. “Medical innovation and a patient’s ability to access it are fundamental to the research-based life sciences, and life sciences companies are energized by the opportunities presented by new technologies that are accelerating the pace of discovery of breakthrough treatments and cures like never before,” he said.

According to Paranicas, the law “runs counter to recognizing the value of life sciences innovation — not only for improving patient outcomes, but also in terms of cost savings to the health care system.” Beyond that, the provisions of the IRA could also stymie investments “in an industry where research is already a high-risk endeavor, further delaying the availability of treatments and cures for patients,” he warned.

“In addition, patients’ access to their medicines often becomes entangled in the confusing web of insurance companies, pharmacy benefit managers and other middlemen on the drug’s way to the pharmacy counter. As the voice for New Jersey’s research-based biopharmaceutical and medical technology industry, HINJ’s mission is to respond to these challenges by working with policymakers and other stakeholders to cultivate an environment that encourages life sciences research, expands patient access to the fruits of that research, and promotes the societal and economic value of life sciences innovation,” Paranicas said.

Still, New Jersey’s life sciences community remains bullish, “with many new companies moving to or expanding their footprint in the state, including recent announcements by Kenvue, Accurant Biotech Inc., ITM Isotope Technologies Munich SE, Generichem and Integra Life Sciences,” according to Hart. “New Jersey’s reputation as a robust life sciences hub continues to skyrocket with the announcements of the Northeast Science and Technology Center, a new life sciences and biopharma hub, being built on the former Merck site in Kenilworth; and the second phase of the HELIX Health + Life Science Exchange — the innovation district currently under development on a 4-acre site in downtown New Brunswick.”

She added that in April, during BioNJ’s BioPartnering Conference, “more than 70 pitch presentations from innovative companies across life science, biotech, health care and digital health sectors presented their innovations to potential investors and partners,” while more than 400 partnering meetings took place between innovators for potential collaborations.

For Schaber, risks – like those posed by the IRA – have to be weighed against the potential gains.

“There are more failures than successes in drug development,” he said. “Investors are not happy when biotech stocks are down, but they generally understand the risks and the upsides. They understand that when we get a therapy approved, it will mean new ways of helping patients, advancing the field, and the potential to get their investment back along with the possibility of a good return. Biotech has never been for the faint of heart.”