For the last two years, Japan has been at the forefront of accelerated approval for regenerative medicine products and has seen lots of licensing and contract manufacturing deals and M&A activity. Tokyo-based Colin Lee Novick, managing director of CJ PARTNERS, surveys the landscape, discussing recent tie-ups, the effects of the recently passed 21st Century Cures Act in the U.S., and what may lie ahead.
Some interview highlights are below. The original link and full transcript are available from The Life Sciences Report website.
The Life Sciences Report: Colin, it's been two years since Japan revised the Pharmaceutical Affairs Act, which allows for conditional approval of regenerative medicine products after Phase 1 or 2 studies. Can you tell us a little bit about how this has transformed regenerative medicine in Japan?
Colin Lee Novick: The revised Pharmaceutical Affairs Act, which is referred to as the PMD Act for short, created an entirely new pharmaceutical subcategory called regenerative medicine products; a term which encompasses cell therapies, gene therapies and tissue-engineered products in Japan.
If a company's product can be classified as a regenerative medicine product, it can potentially qualify for conditional approval; a system whereby the company can receive up to seven years of conditional approved sales and manufacturing of the product after early-stage trials that prove the safety and provide probable efficacy, as long it can also be classified as a cellular heterogeneous product. The last portion is an oft-forgotten but important part of the revised law. Also important is the 70% government reimbursement for therapies that have been approved, conditionally or otherwise.
That blew open a route to market that hadn't really existed anywhere in the world. If you talk to the Pharmaceuticals and Medical Devices Agency (PMDA), the U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMA), they'll all be very diplomatic about saying how each jurisdiction already has their own version of conditional approval; it's just whether or not it's phrased that way. For instance, they will point out that in the U.S. they already have fast-track designation and that this is, in a way, analogous to Japan's conditional approval.
However, in my opinion, the Japanese conditional approval is much more of a transformational change. In Japan they highlight the fact that the new route to approval is for regenerative medicine. Regenerative medicine encompasses three types of products: cellular therapies, gene therapies and tissue engineering.
Japan was able to take the market by storm through providing an easier-to-understand regenerative medicine pathway to market than Europe, which actually had passed an advanced therapy medicinal products (ATMP) European Commission law much earlier than Japan. Unfortunately, the European route was convoluted and it was difficult to follow for those who were not already well acquainted with Europe. All of a sudden Japan, which, on a countrywide basis, is the second largest pharmaceutical market on the face of the planet, had the government's and regulators' backing, pushing to get the country to the forefront of the regenerative medicine space. It propelled Japan as a focal point for the development of clinical trials and regenerative medicine.
It's been a boon for the industry. There have been many deals, both domestic and nondomestic, focusing on Japan.
TLSR: Before we get to those deals, could you talk a little bit about what's going on in the United States? Has the 21st Century Cures Act passed in December made things easier for U.S. regenerative medicine companies?
CN: Let me start by providing a little more background. As I mentioned earlier, of the three major pharmaceutical jurisdictions on the global pharmaceutical market, the U.S., Europe and Japan, Europe moved first, in 2007, in setting up a regulatory pathway and a law that has a subsection for regenerative medicine. The regulation provided a detailed explanation as to what falls under the advanced therapy medicinal products (ATMP) category: tissue-engineered products, somatic cell therapy medicinal products and gene therapy medicinal products.
While this regulation did have a galvanizing effect on cell therapy and gene therapy development and European countries did start off a little bit faster than the U.S. and Japan, the law was also difficult to understand. So it kick-started it, but then it kind of stuttered a little bit.
Then Japan passed its laws and mimicked the actual product characterization as tissue engineering, cell therapies and gene therapies, and added its own little flavor by providing a relatively easier-to-understand route to market called conditional approval. All of a sudden, Japan was able to steal some of Europe's thunder.
The U.S., on the other hand, for a long time has been in a situation whereby, at least regulatorily speaking, it was considered to be well behind Europe and especially far behind Japan; oddly it found itself in a position that it had never really been in heretofore. The U.S. had always been a regulatory leader.
In the 21st Century Cures Act, Section 3033 is the Accelerated Approval for Regenerative Medicine Advanced Therapies. So the U.S. now has, just like Japan, an accelerated approval process for regenerative medicine.
But unlike Japan, where a company can potentially pursue an accelerated approval for anything as long as it can prove that the product is safe, has probable efficacy and is cellular heterogeneous, regenerative advanced therapy in the U.S. needs to "facilitate an efficient development program and expedite review of such drug. A drug is eligible for designation as a regenerative advanced therapy under this subsection A) if the drug is a regenerative medicine therapy, B) if the drug is intended to treat, modify, reverse or cure a serious or life-threatening disease or condition." That's the big difference: It has to be serious or life threatening.
Developing some sort of musculoskeletal or dermatological product will help a lot of people, but it's not going to be accelerated. If you have rheumatoid arthritis (RA), the biologics right now work for that, and it's not a life threatening condition. So you're probably not going to get the accelerated designation. If a company is developing, for instance, a congenital heart failure (CHF) product or an acute myocardial infarction product for diseases with high mortality rates, these can get the designation.
From a Japan and a Europe perspective, the 21st Century Cures Act hasn't really affected the market yet. It's too early. There hasn't been a significant moving away from Japan now that the U.S. has this new system.
TLSR: Would you talk about what is actually happening in Japan—mergers, licensing deals, contract manufacturing tie-ups, etc.?
CN: We can classify the types of deals in Japan into three major categories. The first category is cellular manufacturing deals or contract manufacturing organization (CMO) deals. These are categorized by some of the major players in cellular manufacturing teaming up with some major Japanese corporate conglomerates that are looking to pivot into pharmaceutical manufacturing.
Very recently, a third behemoth showed up on the scene for CMOs, and that is a deal between an Australian biotech called Regeneus Ltd. (RGS:ASX) and a very large Japanese corporate conglomerate called Asahi Glass Co. Ltd. (5201:TYO) (AGC). Now, the name doesn't really spell it out for you, but AGC is Japan's largest biologics CMO. AGC is basically saying it would like to expand its CMO offerings from a simple biologics manufacturing capacity to regenerative medicine.
AGC, over just the last six months, has acquired a German biologic CMO called Biomeva GmbH and a very large Danish CMO that does monoclonal antibodies called CMC Biologics A/S. It followed that up very quickly with this deal with Regeneus.
The Regeneus deal, compared to the CMC one, is small, but for a company of Asahi Glass' caliber to come out and say, "We're going to enter into the regenerative medicine space now," is highly indicative of the potential seen by the firm in the space. Also it highlights that when one looks to Japan, the usual suspects that are the pharmaceutical companies are not the only places to look; that's one thing that Regeneus was able to do.
TLSR: Could you tell us about the Regeneus deal?
CN: Regeneus is developing a number of products, and one of its lead product platforms is called Progenza. It's an allogeneic mesenchymal stem cell product platform that has a patented differentiating factor from its competitors by adding back in the secretions, the anti-inflammatory cytokine and chemokine and growth factors that the cells secrete just by being wherever they happen to be.
By adding these back into the Progenza cells and then freezing them down, the secretions help the cell functionality. A Phase 1 clinical trial is currently being conducted. The hypothesis is that the secretions help the product be even more efficacious. Of course, it also helps that Regeneus has a patented process of combining cell secretions with their cells.
Rights to any product in any jurisdiction are divided into three subcategories—the rights to manufacture the product, the rights to develop the product and the rights to sell the product. Generally companies will license all three out in to a single company, or a company will retain the manufacturing rights and license out the development and marketing rights.
Regeneus licensed to AGC the right to manufacture Progenza for Japan; for that, AGC is paying US$5.5M up front and an additional US$11M in specified milestones, one or two of which will likely come within 12 to 18 months.
Another part of this deal that Regeneus and Asahi Glass signed was the formation of a subsidiary, 50% owned by each of the companies. This company will allow both involved companies to have a say in who the marketing partner for Progenza will be in Japan.
Asahi Glass and Regeneus will now cooperate to find a pharmaceutical partner in Japan to sublicense out the marketing and development rights for Progenza in Japan. Regeneus now has a very large Japanese company that is well known by Japanese pharmaceutical companies because they outsource to AGC on a regular basis. So Japanese pharma companies will be able to deal with Regeneus alongside a face that they recognize. This should help immensely in further negotiations with potential marketing partners.
This is a nicely designed deal. Regeneus gets the upfront payments and the milestone payments from AGC, but it also gets a portion of subsequent milestone payments and upfront payments from any pharmaceutical company that it teams up with for the commercialization rights. And the pharmaceutical company gets the added benefit and reassurance that its product is going to be manufactured by a Japanese company that the PMDA, the regulator of Japan, is very used to. So keep an eye out for Regeneus over the next 12 to 18 months for assigning a marketing partner.
I should add that last year AGC announced its midterm growth strategy called Vision 2025. Within that, AGC designated the life sciences sector as a strategic growth business. It said that within the next five years it has a budget of 1.3 trillion Japanese yen (1.3T JPY) that it has set aside to grow these strategic businesses; that figure is divided into 1T JPY for investments and R&D and 300B JPY for mergers and acquisitions (M&A). So for the M&A portion, it has already done the CMC Biologics and the Biomeva acquisitions. The Regeneus play was part of that 1T for investments and R&D.
I think it's good for the industry that Japan now has AGC, Hitachi and Nikon, which are three corporate behemoths in Japan, all saying, "We're going to get involved in this industry." Each one offers a slightly different value proposition. Hitachi and Nikon have Lonza and PCT, which are experienced in cellular therapies, backing them up, and that's how they are going to ramp up the learning curve. AGC knows how to do contract manufacturing with biologics. It needs to modify this knowhow to cellular manufacturing.
TLSR: Do you think we're going to see a lot more of licensing deals, buyouts and CMOs, or have we reached a plateau?
CN: I think CMOs are probably plateauing. Any new CMO is going to have to realize that it's coming up against Nikon, Hitachi and Asahi Glass. That's a lot of capital for other companies to compete with. These companies can throw up a new manufacturing plant very quickly.
Smaller players will be coming online. Off the top of my head, I know around 10 players that are already there. But the big three are probably going to start cornering the market at some point.
For licensing deals, I think that there definitely are a lot more deals lying in wait, starting with the Regeneus deal.
TLSR: Before you go, any parting thoughts?
CN: If you're on the investor side and you're wondering what sort of a company would be worthwhile investing in the long term, a strong Japan story is a positive. Japan has the most well-defined regulatory system and the easiest to understand regulatory pathway. If you're a biotech and you're not already looking toward Japan, you're missing a golden opportunity.
I want to highlight that, at least for now, the larger Japanese pharmaceutical companies seem to be leaning toward allogeneic therapies. There seems to be preference toward platform technologies, so not a single indication but some sort of technology that enables the company to go in multiple directions should one direction happen to fail.
And then finally—I cannot stress this enough—deals in Japan take longer than they do in the U.S. It's not going to happen overnight unless you are very lucky.
TLSR: Thank you, Colin, for your insights.