Receipt of ‘orphan drug’ designation for company’s CAR-T cancer drug in the U.S. will bring financial incentives, but also underscores drug’s limited market potential

Key takeaways

  • Gracell Bio stands to benefit from tax credits and marketing exclusivity following receipt of ‘orphan drug’ status for its CAR-T cancer treatment
  • Analysts see profitability several years away as competition heats up for treatment of relatively low-occurring cancer

By Richard Barbarosa

Gracell Biotechnologies Inc. (Nasdaq:GRCL), a Chinese company developing rapid cell therapy treatments for rare cancers, has created fits of both high hopes and angst among investors this past week. The big hopes center on news that its most promising pipeline product has been granted marketing exclusivity and tax credits. But the reality is that its target patient group is relatively small.

The Shanghai-based company’s American depository shares (ADSs) have tumbled as much as 50% since Nov. 17 to touch an all-time low of $5.86 on Monday after its $240 million listing in January. Curiously, the plunge came just days after Gracell announced its FasTCAR next-day manufacturing technology platform, GC012F, had been granted “orphan drug designation” for the treatment of multiple myeloma by the U.S. Food and Drug Administration (FDA).

That designation qualifies the developer for incentives, including up to seven years of market exclusivity upon regulatory approval, tax credits of up to 25% on clinical trial costs and reduced or exemption from prescription drug user fees. The designation is only given to treatments for rare diseases, which in the U.S. are considered those affecting 200,000 people or less.

Due to the high costs of R&D required to meet safety and efficacy standards for FDA approval, prior to the introduction of this policy in 1983, drug companies overwhelmingly focused on common diseases. That meant treatments of rare diseases with small patient populations were neglected, usually deemed too risky and likely to result in a commercial loss, according to a 2021 report commissioned by National Organization for Rare Disorders.

Gracell’s combination of “good news/bad news” may have set off the investor angst this week, leading to a 34% drop to the record low the day after the announcement. Gracell itself pointed out that while multiple myeloma is the third most common type of blood cancer in the U.S., only about 160,000 patients are diagnosed with it globally every year, including just over an expected 32,000 in the U.S. in 2020.

That compares with 1.8 million new cases of all cancers estimated to be diagnosed in the U.S. last year, with breast, lung and prostate cancer among the most prevalent, according to the National Cancer Institute.

Founded just four years ago and with no product yet on the market, Gracell has yet to generate revenues, let alone turn a profit. Its losses have been expanding annually, ballooning from 73 million yuan ($11.4 million) in 2018 to 275 million yuan last year. It’s currently spending cash raised from the IPO and three preceding funding rounds whose contributors included heavyweights like Wellington Management Co., OrbiMed, 5Y Capital, Temasek and Lilly Asia.

The recent selloff has left the stock now trading 63% below its IPO price of $19, leading some to say the shares look undervalued.

Three analysts polled by the equity information site Simply Wall Street are forecasting the company will move into the black in 2025 with a 1.28 billion yuan profit. And the average target price among three analysts polled by Yahoo Finance is $33.33, with estimates ranging from $27 to $40 – four to five times higher than Wednesday’s close of $7.09.

The “oversold” sentiment may have helped to spark an intraday 85% rebound on Tuesday, when members of Gracell’s senior management team, including CEO Dr. Cao Wei, who also uses the name William, and Chief Medical Officer Dr. Martina A. Sersch, announced their intention to use personal funds to purchase up to $2 million of the company’s ADSs within the next three months on the open market.

Expecting Quick Approval

Senior managements’ confidence appears to be based on expectation for the quick approval of FasTCAR, Gracell’s leading CAR-T immunotherapy candidate, that collects and uses the patients’ own immune cells to fight cancer.

CAR-T therapies fight cancer using the body’s own T cells, which guide a person’s immune response and kill cells infected by pathogens. This requires drawing blood from patients and separating out the T cells, which are then genetically engineered to produce receptors on their surface called chimeric antigen receptors, or CARs, according to the National Cancer Institute.

Those receptors allow the T cells to recognize and attach to a specific protein, or antigen, on tumor cells. The final step is injecting the CAR-T cells back into the patient, where they multiply, recognize and kill the cancer cells.

Gracell is banking in part on the shorter time needed for its treatments to give it an edge over rivals with similar products. The typical process of engineering CAR-T cells and administering them back into patients takes two to six weeks. But Gracell claims it can reduce this to between just 22 and 36 hours using its proprietary technology.

The company expects to file investigational new drug applications in China and the U.S. in the first half of next year for FasTCAR’s potential treatment of relapsed or refractory multiple myeloma, which occurs when patients being treated for the disease don’t respond to treatment or their condition even gets worse. Approval would allow the company to begin human trials.

Gracell is also working on submitting similar applications for another CAR-T therapy, TruUCAR, which is designed to be an “off the shelf” treatment that uses T cells from healthy donors, sometime in 2022.

The global CAR T-cell therapy market is projected to grow from $1.1 billion is sales in 2020 to $21.8 billion by 2031, representing a compound annual growth rate of 30.6%, according to Transparency Market Research. That rapid growth will be driven in part by therapies designed to treat hematological malignancies, such as multiple myeloma, the report said.

While a wide swathe of global pharmaceutical giants are investing in CAR-T technology or partnering with other startups, including Pfizer (NYSE:PFE) and AbbVie (NYSE: ABBV), the list is shorter for more immediate competitors with Gracell in treating multiple myeloma.

Those include bluebird bio Inc. (Nasdaq:BLUE) with a market value of $754 million, and Nanjing-based Legend Biotech Corp. (Nasdaq: LEGN), which at an $8 billion market cap dwarfs both bluebird and Gracell’s latest market value of $479 million.

Gracell signed a deal with Swiss multinational chemicals and biotechnology company Lonza Group to manufacture FasTCAR product candidates in the U.S. in March. By comparison, both Legend Bio and bluebird have partnered with better known industry behemoths to develop their CAR-T candidates.

Legend previously signed a $350 million deal with Johnson & Johnson-owned (JNJ.US) Janssen Biotech to develop and commercialize CAR-T treatments for multiple myeloma. Bluebird has partnered with Bristol-Myers Squibb (BMY.US) unit Celgene Corp., which already has more traditional treatments for the disease, for the same purpose.

Gracell is ranked in between those two in terms of price-to-book (P/B) ratios. Its current P/B of 1.7 is roughly twice the 0.86 for bluebird, but is just a fraction of the sky-high 34 for Legend Biotech.  

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