By Ben Hirschler
LONDON (Reuters) - After 20 years of losses, gene therapy specialist Oxford BioMedica is at last close to achieving its first profit thanks to the success of Novartis with a pioneering cancer treatment.
As manufacturer of the virus-based gene delivery system central to the Novartis therapy, which re-engineers a patient's immune cells to attack cancer, the small British company will receive a modest slice of the revenue once the new drug is approved.
The payout will hardly make a dent in returns for Swiss drugs giant Novartis, but the 65-75 million pounds ($83-96 million) a year that Jefferies analysts predict Oxford Bio will earn should put it on a path to sustainable profitability.
U.S. regulators are expected to clear Novartis's CTL019, or tisagenlecleucel, for sale by the end of September, which would be the first approval of such a gene-modified drug.
For Oxford Bio, which listed in London in 1996 after being spun out of research at the University of Oxford, it has been a long haul marked by drug setbacks and funding challenges.
"It's a survival story. There have been bad times but we can see a very bright future," Chief Executive John Dawson told Reuters. "We're in a good place now."
The company's slow road to profit mirrors the waxing and waning of the gene therapy field over two decades as progress in fixing faulty DNA has been held up by technical problems and safety concerns. Now, finally, those hurdles are being cleared and Oxford Bio is set to be a supply chain winner.
The company is already earning revenue from manufacturing for Novartis and its earnings before interest, depreciation and amortization were actually positive in the first half of 2017, though interest charges still pushed the group to a loss.
Consensus analyst forecasts point to full-year net profit from 2019, by which time CTL019 is likely to be established for the bigger market of treating certain lymphomas, in addition to initial use in acute lymphoblastic leukemia.
Oxford Bio, which will receive royalties on sales as well as manufacturing fees, is now looking to leverage its successful partnership with Novartis to sign more supply deals.
"The phones are very busy from other companies who would like to work with us," Dawson said. "I believe we will sign further deals in 2017 and 2018."
One lure for partners is the progress Oxford Bio has made recently in production costs, achieving a tenfold reduction by using new bioreactors.
After a long period in the doldrums, shares in the group are up 112 percent this year, buoyed by rising optimism for CTL019, which represents the first in a new class of medicines known as CAR-T, or chimeric antigen receptor T-cell therapy.
But with a market value of a little less than $350 million, Oxford Bio remains a relative minnow compared with Bluebird Bio, a U.S. rival that uses the same lentiviral gene delivery technology and is worth $4.4 billion.
That partly reflects lower valuations for biotechnology in Europe, Dawson says, but it is also a function of the fact that the big money in gene therapy will be made by companies that own the drugs rather than those that simply help to make them.
Last September Dawson made the difficult decision to shore up Oxford Bio's finances by pausing much of the development work on its proprietary gene therapy pipeline while it seeks funding partners.
But he is optimistic that these projects -- including a Parkinson's disease drug ready to start clinical trials next year -- will move forward with backing from big pharma or venture capital groups excited by the gene therapy renaissance.
"There's upside in our share price to come."
($1 = 0.7811 pounds)
(Reporting by Ben Hirschler; Editing by David Goodman)