Cell therapy has delivered impressive results for blood cancer patients. Most individuals who receive CAR-T cell therapies tend to enter remission in the first months after treatment. Some remain cancer-free for the rest of their lives.
Statistically speaking, the numbers mark a meaningful improvement from the standard of care. Commercially speaking, the results are a bit mixed.
Cell therapy manufacturing is expensive and difficult to nail down. Engineering cells is far from perfect, while determining the proper dose for each patient tends to be more art than science. That's despite tens of billions of dollars of investment over the years.
A new partnership aims to reduce the risks inherent to the class of medicines. Biosimulation leader Certara (CERT) announced a collaboration with Memorial Sloan Kettering, a leading cancer research institution, to develop new tools for improving the efficiency of CAR-T cell therapies. Can it deliver results for patients and investors?
Certara's New Partnership, Explained
Certara is a leading provider of biosimulation tools and services. Biosimulation uses computational models to discover, design, and develop drugs. For example, the company's software tools can create virtual patient populations and allow customers to conduct virtual clinical trials.
The outcomes of virtual clinical trials can help design more efficient clinical trials in the real world, optimize dosing of a new drug, and better understand side effects. Biosimulation doesn't typically replace the need to conduct clinical trials. Rather, it's similar to simulating the outcome of the Super Bowl before kickoff with the latest version of the popular Madden video game. However, the company's software has been used to skip clinical trials and safety studies altogether in select cases, saving customers millions of dollars and months of development time.
The biosimulation leader counts over 2,000 customers spread across the globe, including many of the world's leading regulatory bodies such as the U.S. Food and Drug Administration (FDA). The FDA licenses multiple software products to speak the same language as drug developers – and to ensure drug developers are properly submitting marketing applications. Not a bad niche for Certara.
The latest development seeks to develop new biosimulation tools for CAR-T cell therapies. Certara and Memorial Sloan Kettering Cancer Center will use blinded patient data to better understand real-world outcomes for immunotherapies, then attempt to develop simulations to accelerate future research.
The duo hope the two-year collaboration can help scientists take the guesswork out of determining cell therapy dosing, identifying patients who are most likely to benefit from treatment, and developing combination treatments. If successful, then Certara could have one heck of an advantage in making sense of the complexity of cell therapy, especially considering recent stumbles for CRISPR gene editing assets.
The partnership with Memorial Sloan Kettering could also boost the most important source of revenue for the biotech stock: software revenue. Certara has historically leaned on services for the bulk of its revenue. While the overall business is profitable, services revenue is accompanied by lower margins. That's because it generally requires specialized (and expensive) labor. Software revenue is accompanied by significantly higher margins because it can be placed directly in the hands of customers.
Certara expects to lean on sales of software products for 34% of total revenue in 2022, which would represent an all-time high and an increase from just 30% in 2021. If the company can ready a suite of biosimulation tools in cell therapy by the middle of the decade, then that could further shift the revenue mix in favor of software.
A Smart Move for a Premium Growth Stock
Certara isn't as sexy as some of the high-flying growth stocks out there. It aims to grow revenue at about 15% per year, which isn't an eye-popping figure. It isn't hyped to the moon, primarily because it doesn't need to rely as heavily on storytelling. And the combined market opportunities being targeted by the technology platform are worth "only" $13 billion today.
Despite all of that, investors are beginning to realize the value in the stability offered by the business. That's because Certara is delivering profitable growth. It's also generating cash from operations. That could be more valuable in a world with tightening financial conditions, as the company can self-fund growth investments.
Nonetheless, an investment in the growth stock isn't entirely risk free. Certara has been leaning more heavily on international markets for revenue growth in recent years, which could be threatened by a strong U.S. dollar in 2022. Similarly, an expanding headcount will pile on expenses and keep the company near breakeven operations, rather than allowing profits to grow in the near term.
Management thinks the investments will be well worth it in the long run. I tend to agree, which is why Certara is one of the anchor positions in my personal portfolio. But that doesn't mean investors can completely ignore the importance of valuation. Investors will get the next progress report on growth, currency headwinds, and expectations for the cell therapy partnership on the second-quarter 2022 conference call August 9.
