Despite optimism for a stronger investment climate this year, many of the hurdles that faced young biotechnology companies in late 2022 have endured through 2023.

Initial public offerings for drugmakers have remained slow, with only 18 biotechs making their public debut. Private financing rounds are taking longer to close for some, while other face a “Series A cliff” as they go back to investors for more money.

Biotech executives and analysts weighed in during a pair of panels hosted by BioPharma Dive Oct. 25 on the current market and the lessons startups can draw.

‘Data is king’

The IPO slowdown has made it harder for younger startups to make a quick jump to public markets. Companies that are further along or have drugs in clinical testing have a better chance, according to Jordan Saxe, senior managing director at Nasdaq.

“I would say it's more about the stage of the company with respect to an IPO,” said Saxe. “Companies are more mature, they have quality management teams, but they also have very important data points or data readout coming up once they're public.”

In the past, the market was more receptive to innovative, early-stage companies. But now, the pendulum is swinging back, said Kevin Eisele, a managing director at investment bank William Blair.

“For new companies, you want to grow into the valuation and let the data speak for itself,” Eisele said. “Data is king and it's something that is really standing true in this market.”

But, as if often the case in biotech, that’s not always an easy task. Acelyrin, which raised $540 million in a rare IPO success this May, lost more than half of its market value in September when it disclosed negative data for its lead drug.

New hotspots

Companies must also decide which assets are worth dedicating resources toward.

Dee Datta, the co-founder and CEO of Switch Therapeutics, said some companies need to be more disciplined when it comes to research and development. “Not every new innovation can become a startup company, and neither can each new innovation become a product,” she said.

Edward Kaye, CEO of Stoke Therapeutics, offered a similar view, noting how that, even during a tough year, investors still have significant funds to deploy.

“In this circumstance, there's a lot of capital, people have money, but they're putting it in, I would say, the wrong places,” said Edward Kaye, CEO of Stoke Therapeutics.

Biotech research labs are always churning out new drugs. But recently a few types of treatments have drawn more attention from investors.

Diabetes and weight loss treatments like Novo Nordisk’s Ozempic and Eli Lilly’s Mounjaro are bringing in billions of dollars in sales, spurring a wave of would-be competitors. Meanwhile, new kinds of autoimmune disease drugs are being looked to as successors to current blockbusters, and complex cancer treatments like radiopharmaceuticals and antibody-drug conjugates are newly in vogue.

Riding out the cycle

In 2020 and early 2021, the success of Moderna and BioNTech in developing highly effective vaccines for COVID-19 drove a surge of investment from all corners of the market into biotech. That’s no longer the case, panelists said.

“Right now, it still remains a market, at least on the IPO side from a demand perspective, that's very much driven by the specialist investors,” Eisele said. “While the generalists have been increasingly more active, it's still very much of a market that's driven by those special healthcare specialists, investors.”

Private companies should be aware of this dynamic and plan accordingly, executives said.

Biotechs must also learn to be honest with their investors, said Andrew Gengos, the chief financial officer and chief business officer at Athira Pharma. It is better to “under-promise and over-deliver,” he said, and make sure data is clean and concise to relay how the science works.

Panelists also said companies need to be more disciplined with their financing and learn to be nimble when market down swings occur.

Still, many are hopeful the next year could see a different market for biotech.

“Markets are cyclical,” Datta said. “We find ourselves in this particular cycle now. I's not going to be forever.”

Editor’s note: BioPharma Dive hosted the panel discussion live on Oct. 25, 2023.You can register to watch a replay here.

Cancer drug startup CG Oncology ticks many of the criteria biotechnology companies need to pull off an initial public offering in today’s market.

Its lead drug candidate is in a Phase 3 trial, as well as a mid-stage study together with the Merck & Co. immunotherapy Keytruda, for a stubborn form of bladder cancer. Through the end of last year, the Irvine, California-based company had raised more than $200 million in private financing.

But instead of picking out a stock ticker, CG Oncology announced in early August that it put together a $105 million Series F fundraising. Co-led by investors Foresite Capital and TCGX, this will be a “crossover” round designed to bridge the company through to an IPO.

“Because the IPO market is so much more difficult, you really need to see this broad support before,” said Michael Rome, a managing director at Foresite.

The round has made CG an outlier in the toughest financing climate young biotech companies have faced in years. Once common for startups attempting to go public, crossover rounds have become a rarer occurrence during the current shaky market.

According to a mid-year report published by Silicon Valley Bank, the total number of crossover rounds plummeted from 108 in 2021 to 33 last year. That number could fall further in 2023, as only 11 were reported between January and June. (The data are now housed under the healthcare practice of First Citizens Bank, which acquired SVB’s U.S. assets following the bank’s March collapse.)

The scarcity of crossover funds has caused a chain reaction in the way biotech startups are built and funded.

In the years leading up to the market slowdown, crossover investors often led Series A or B rounds, setting young biotechs up with “a big cash pile” to help them go public, said Jon Norris, a managing director at HSBC’s new innovation banking division.

That, in turn, led to a record run for biotech IPOs that peaked in 2021, when 104 companies went public, according to BioPharma Dive data. About three-fifths of the biotechs that went public that year were in preclinical or Phase 1 testing, highlighting the fast path crossovers paved to Wall Street.

A market correction followed. Stock prices deflated, depressing the value of many of those companies to less than their offering prices. IPOs became harder to complete, and are now more often done by companies further along in their development journeys. Crossover investors, which fund private as well as publicly traded companies, retreated from riskier biotech startups.

“The standard has changed from 2020,” said Chris Bardon, co-managing partner at MPM BioImpact. “You can’t be a big platform [company] six years from the clinic. Two clinical-stage assets are back in, because ultimately, they’re what goes on to be approved and bring in revenue.”

Venture capitalists have had to pick up the slack. A recent report from HSBC found that venture firms led 9 of the largest 12 funding rounds between January and June, a job crossovers might have handled until recently. Only one of the 44 private biotech companies that raised crossover rounds since the beginning of 2022 have since priced a public offering, SVB reported.

By SVB’s definition, Acelyrin and Structure Therapeutics, two of the largest biotech IPOs to date in 2023, did not raise crossover rounds.

Acelyrin’s $300 million Series C round didn’t include a top crossover investor, said Jackie Spencer, head of relationship management for SVB’s life sciences and healthcare practice. Structure’s 2022 raise was a top-off of its 2021 Series B round.

The shift in funding has been felt by biotech startups. Early-stage funding is on pace to fall by 55% versus two years ago, according to HSBC. Venture firms are now more focused on helping their existing portfolio companies survive or investing in safer bets. That’s led companies that may have gone public in friendlier times to stay private for longer so they can make more progress.

It’s also created a backlog of potential IPO candidates. HSBC counted nearly 150 companies that had raised rounds worth at least $40 million while remaining private.

The startups trying to make do privately are facing tighter budgets. Venture firms are making smaller investments overall and they’re more likely to dole out funds in tranches to ensure a drug stays on its development track, Norris said.

And to keep afloat companies that haven’t yet produced compelling clinical data, investors are funding insider rounds and encouraging cost-cutting measures to stretch capital further.

“If you can wait to go public, you will wait,” SVB’s Spencer said, of the current climate for companies.

One way some companies are getting around the IPO logjam is by entering reverse mergers — combining with already-public companies that may be down on their luck but hold valuable slots on stock market exchanges.

There are positive signs, too. Nine of the 14 companies that completed IPOs thrugh mid-August are trading close to, or above, their debut public share prices, according to BioPharma Dive data. And three of the biotechs that went public in July raised at least $80 million, signaling some degree of investor demand.

“It's just been difficult for companies to get out into the market,” Spencer said. “They really want to wait to refine that story and their capital structure before entering the public markets.”

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Early investment in biotechnology startups is on pace in 2023 to fall 40% compared to last year and by 55% versus two years ago, according to a report published in late July by HSBC’s new innovation banking division.

The report, a bi-annual temperature taker co-authored by former Silicon Valley Bank managing director Jon Norris, showed overall venture activity slowed as well. Companies with broad drugmaking “platforms” have been hit hard, with the total number of investments on pace to fall by more than half compared to the last three years.

Blockbuster Series A rounds for just-launched companies — defined as those raising $150 million or more — are increasingly rare, said Norris, who joined HSBC as a managing director in April.

Investors are much more cautious about the biotechs they back than they were during the sector’s peak a few years ago.

Gone are the days when biotechs could easily raise cash and quickly pivot to public markets before starting a clinical trial. Venture firms are now more focused on helping their existing portfolio companies survive in the tough financing environment. When they do back new companies, they are looking for safer bets and experienced teams.

"A brand-new modality with commercialization risks is really difficult," Norris said in an interview. "If it's a known target that's super early-stage, that's OK. At least you don't have both parts of the equation being at risk."

HSBC’s data show that, in the first half of 2023, investors put $2 billion into 81 seed and Series A deals for biotech companies, pacing well below each of the last three years. Venture investment across the sector totaled $10.6 billion over 320 deals, numbers that are also lower than recent levels.

Arch Venture Partners was the most active venture firm in the first half of 2023, participating in seven deals, followed by RA Capital and Sofinnova Partners, according to the report.

The report is the first of its kind issued by HSBC Innovation Banking, the startup-focused department of the financial services giant, which absorbed the U.K. practice of Silicon Valley Bank following its collapse in March. (First Citizens Bank, which bought most of SVB’s assets, has since sued HSBC, claiming it poached more than 40 bankers.)

Among the report’s other findings: While the most money went to cancer biotechs and platform companies, the amounts for each category fell and startups were also more advanced. Most oncology deals were Series B rounds or later, and 12 of the 20 largest involved companies already in the clinic.

Notably, the three companies securing the largest rounds in the first half of 2023 — ElevateBio, ReNAgade Therapeutics and Metagenomi — are involved in cell and gene therapy, a field in which many publicly traded companies are struggling to survive.

“Crossover” rounds, or private financings that help lay the foundation for an IPO, have also shrunk in size and valuation from their highs in 2021. Those investors are now more focused on public companies, leaving venture firms to pick up the slack. According to the report, venture firms led nine of the 12 largest funding rounds between January and June, a job crossovers usually handled in previous years.

“Back in the blockbuster days, some of those companies were going public after [Series A rounds],” Norris said. “They were fully funded with the crossovers already in there.”

Norris expects IPO activity and M&A deals with large pharmaceutical firms to pick up in the second half of the year. But many startups looking for additional private funding will likely struggle, especially those without clinical data.

“For the majority of companies looking to finance, it's going to be a tough road,” Norris said.

OrbiMed, a New York-based life sciences investment firm, in October raised more than $4.3 billion in new funding.

The money will be spread across three funds, with $1.865 billion dedicated to OrbiMed Private Investments IX, $1.71 billion to OrbiMed Royalty and Credit Opportunities IV and $751 million to OrbiMed Asia Partners V, a spokesperson said.

Founded in 1989, the investment firm had made a name for itself as one of the biggest investors in biotechnology, medtech and healthcare companies. Since its founding, the firm has expanded its reach globally, with offices in China, Israel, London and Hong Kong.

To date, OrbiMed has invested in almost 200 startups, including recent investments in biotechs like Star Therapeutics, Upstream Bio and Rampart Bio, a company that launched Tuesday.

The fresh funding will allow OrbiMed to continue to back new companies across life sciences. Investors contributing to the raise included medical institutions, university endowments, foundations, pension funds and sovereign wealth funds, OrbiMed said.

“OrbiMed is deeply appreciative of the continued support we’ve received from many long-standing partners who’ve invested in these funds,” said Carter Neild, a managing partner of OrbiMed, in a statement.

The multibillion-dollar investment is a positive sign for a biotech sector still looking to shake off a down market. While venture companies like OrbiMed have remained active in backing new startups, established biotechs have had a harder time raising funds and face a harder path to initial stock offerings.

Meanwhile, over 100 drug companies, both public and private, have laid off staff so far this year, many in an effort to preserve cash. Others have put off going public, or looked to other opportunities like out-licensing or reverse mergers.

In addition to private equity investments, OrbiMed also offers companies non-dilutive capital via its royalty and credit programs.

A research paper published a decade ago touched off a biomedical revolution that has made careers, spawned companies and drawn billions of dollars of investment. By the end of the year, the gene editing technology that paper described could win Food and Drug Administration approval as part of a powerful new treatment for sickle cell disease.

Now Nobel Prize-winning science, CRISPR gene editing is at the heart of the biotechnology industry’s latest Big Bang. It’s adaptable and efficient, putting the precise alteration of DNA within easy reach of academic scientists and drug startups alike.

Since 2012, when research by Jennifer Doudna and Emmanuelle Charpentier was published in Science, more than a dozen biotech companies have sprung forward to capitalize on the possibilities they and other scientists unlocked.

This new generation has joined early adopters CRISPR Therapeutics, Editas Medicine and Intellia Therapeutics, offering various twists and tweaks to improve on the original CRISPR technology. They’re also taking aim at a wider array of illnesses, from ALS to heart disease.

Many are led by or employ scientists and post-doctoral students trained in the laboratories of the University of California, Berkeley and the Broad Institute of MIT and Harvard, the academic institutions most closely linked to CRISPR gene editing research.

The research diaspora mirrors a broader trend in the life sciences. According to Feng Zhang, a member of the Broad and a pioneering CRISPR expert, the lines between academia and industry are “blending” more than before.

“The door is open in both directions,” Zhang said. “We need the flow of talent to be as porous as possible” to speed CRISPR research.

And, as happened with new drugmaking technologies before CRISPR, large pharmaceutical companies have moved in, placing bets on the technology’s potential.

“Large pharma is recognizing that this has the potential to be the future of medicine,” said Benjamin Oakes, co-founder and CEO of Scribe Therapeutics, an early-stage CRISPR drug developer now working with Eli Lilly and Sanofi.

The first glimpse of that future could come in early December, when the FDA is set to decide on approval of that sickle cell treatment, known as exa-cel and developed by CRISPR Therapeutics and Vertex Pharmaceuticals.

A biotech foundation

Often likened to a pair of genetic scissors, CRISPR editing at its simplest involves just a few specialized components. A strip of engineered RNA acts as a guide, shepherding the editing machinery to a corresponding stretch of DNA in a cell. If the sequences match, an enzyme called Cas9 will cut through the DNA double helix at that precise spot.

When this happens, the cell moves to repair the double-stranded DNA break. The process can inactivate the gene in question — useful for treating diseases caused by harmful protein production. Researchers can also take advantage of the cut made by Cas9 to correct the target gene or insert a new one by pairing the editing complex with a DNA template.

Exa-cel, Vertex and CRISPR Therapeutics’ drug, relies on the former approach. A patient’s own stem cells are collected and isolated in a laboratory, where CRISPR/Cas9 is used to cut a particular section of a gene called BCL11A.

This disruption causes the cells, once reinfused back into the patient, to produce high levels of fetal hemoglobin, an oxygen-carrying protein which the body stops making soon after infancy. High levels of fetal hemoglobin are thought to counteract the red blood cell sickling that’s characteristic of the disease and the cause of its symptoms.

Before CRISPR, gene editing was limited to older technologies like zinc finger nucleases, and transcription activator-like effector proteins, or TALENs.

Zinc finger nucleases are enzymes that also can cut specific gene sequences, while TALEN-based editing uses the eponymous protein to do the job. But both are expensive and time-consuming to produce and lack CRISPR’s specificity.

“The CRISPR revolution came around at the right time,” said Mitch Finer, CEO of Life Edit Therapeutics and former chief scientific officer of Bluebird bio, which has developed a rival sickle cell treatment to exa-cel. “It’s one protein, and all you have to do is change up the guide RNA. That’s what was so attractive.”

Doudna and Charpentier’s paper, as well as research by Zhang and others, led to the quick formation of a trio of companies focused on turning CRISPR science into new medicines.

Charpentier launched CRISPR Therapeutics in 2013 with Shaun Foy, a venture capitalist, and Rodger Novak, who had been an executive at Sanofi. Around the same time, Doudna joined other leading scientists in the field, including Zhang, George Church, David Liu and Keith Joung, to introduce Editas Medicine.

But Doudna quit Editas in 2014 as the co-founders tussled over who owned the intellectual property for CRISPR/Cas9. She later co-founded Intellia Therapeutics, working with Atlas Venture and Caribou Biosciences, a company she had launched several years prior.

According to Novak, academic innovation provided the necessary spark to start biotech’s CRISPR revolution, particularly as it came alongside the emergence of other technologies like messenger RNA and cheaper gene sequencing.

“Technology wise, around that time, there was some light on the horizon and things came together relatively nicely,” he told BioPharma Dive in a recent interview.

CRISPR Therapeutics, Intellia and Editas drove the translation of CRISPR into the clinic, achieving some of the field’s firsts. Exa-cel, for instance, became the first medicine made with the technology to be tested in humans in a biotech trial. And in 2021, Intellia proved CRISPR could work “in vivo,” or directly inside the body rather than via extracted cells.

But they also hit difficulties, too. Progress was greatest in rare diseases of the eye and blood, areas of the body that are relatively easier to reach — shaping which conditions the companies aimed for first. CRISPR/Cas9, with its proclivity to cut through both strands of DNA, also isn’t the best tool to address every kind of genetic mutation, spurring research into other approaches.

New directions

As gene editing research advanced, scientists unearthed different techniques for editing DNA as well as other CRISPR-associated enzymes to do the job.

Their discoveries led to a stream of academic literature on how CRISPR could be improved and made more precise. Zhang and researchers working with him at the Broad studied Cas12 and Cas13. Joung, at his lab at Massachusetts General Hospital, engineered CRISPR/Cas9 systems to better avoid off-target effects. Liu and his team published in 2016 and 2019, respectively, landmark papers on base and prime editing, which offered ways to edit single nucleotides without cutting both DNA strands.

“We now have at our disposal more capabilities, so that we can pick the best one for the disease we're trying to treat,” Zhang said.

He likened the advancements to a bigger toolbox, containing just the right equipment for specific jobs. “If your house didn't have water, there’s a problem with the pipe, and instead of fixing the pipe you get water from somewhere else — that’s the approach that's taken with current sickle cell disease treatments,” Zhang said, referring to exa-cel and Bluebird’s treatment, which uses an engineered virus to add a new gene to patient stem cells.

“With more tools in the toolbox, we'll have a better chance of being able to fix the pipe,” Zhang added.

The discoveries led to new companies, like Beam Therapeutics, which was founded by Liu, Zhang and Joung to develop base editing into medicines. A group of venture investors and life sciences researchers including Joung started Verve Therapeutics in 2018. And Liu later co-founded Prime Medicine around prime editing.

These companies, and others, were launched even as legal battles continued between the Broad and Berkeley over rights to the original CRISPR invention. (Federal patent officials issued a ruling in 2022 determining the legal rights to the foundational technology belong to the Broad.)

The Broad has said it believes in “open access” to CRISPR research. Since 2014, the institution has granted licenses to companies and scientists looking to build on the existing technology.

An expanding group of venture firms, including Arch Venture Partners, F-Prime Capital, GV, Atlas Venture and Newpath Partners, has emerged as common backers of this second generation of CRISPR companies.

The value of private financings also swelled. Early on, CRISPR-focused biotechs raised between $15 million and $43 million in their initial Series A rounds. Their successors often raised much more: Prime Medicine emerged from stealth in 2021 with $315 million in hand from its Series A and B rounds, for instance.

The influx of money helped fund grand ambitions and broad development goals. “I certainly would love to become the next Vertex or Biogen,” Keith Gottesdiener, then the CEO of Prime Medicine, said in a 2021 interview with BioPharma Dive.

Some of these later companies also benefited from going public during a peak in biotech valuations. Beam went out in 2020, followed by Verve in 2021, when it hit Wall Street with one of the year’s largest IPOs. Even in 2022, when the sector was experiencing the beginnings of a funding drought, Prime Medicine was able to pull off an IPO.

Still, these companies haven’t gotten far in the pursuit of treating people. Beam began testing a “first-of-its-kind” gene editing medicine for cancer in September, the first time a base editing medicine has entered human trials.

An expanding ecosystem

CRISPR is now no longer the domain of just a handful of biotechs. A larger ecosystem exists, as more gene editing startups have continued to crop up.

These companies are working with other CRISPR enzymes, such as Cas12, Cas13, Cas14 and CasΦ, and aim to sidestep problems like delivery and off-target editing. (Older gene editing companies, like Editas, Caribou and Beam, are also experimenting with new enzymes, too.)

This fresh slate of Cas molecules has emerged along with a new generation of scientists. Researchers who completed their PhDs and post-doctoral fellowships under gene editing pioneers like Doudna, Zhang and Liu are launching companies of their own.

“Abandoning false modesty, we're UC Berkeley,” said Fyodor Urnov, a professor of molecular and cell biology at UC Berkeley and an expert in genetic medicine. “We're the best public research university in the world. It's an elite training school.”

For example, Janice Chen and Lucas Harrington, two Berkeley researchers who worked with Doudna on a 2018 paper detailing Cas12, founded Mammoth Biosciences with her and a Stanford University colleague, Trevor Martin. Based in the San Francisco Bay Area, Mammoth is now working with both Cas14 and CasΦ proteins, which are smaller than the original enzyme.

“We’re still developing tools to understand what are high standard edits, or what are other off-target edits,” said Chen, now Mammoth’s chief technology officer. “The technology is advancing, but then also the tools to understand the safety profile.”

In its early days, Mammoth focused on both diagnostics and medicines, believing CRISPR could improve upon existing methods in identifying cancer targets or viral infections. The biotech partnered with Vertex in 2021, and Bayer a year later. It has since trimmed back its diagnostics work.

Like Zhang, Mammoth’s founders see the latest iterations of CRISPR as a toolkit.

“We want to have the right technology available for the disease so we can be driven by the science and the disease biology,” Martin said. Then, “it’s not that we have a hammer, so everything has to look like a nail. We can choose the right technology for the disease, rather than having to fit everything into a certain box.”

Doudna is also associated with other biotechs such as Scribe Therapeutics, which she co-founded with Oakes, one of her former students. Oakes, who once studied zinc finger nucleases, came to Berkeley in 2013 after the publication of that first CRISPR/Cas9 paper by Doudna and Charpentier.

“That problem that we were brute force working to solve was solved in a much more elegant way,” said the Scribe CEO, who co-authored a paper on CRISPR/CasX in 2019.

The backing of young researchers by scientists at Berkeley and the Broad has helped along the evolution of new CRISPR-based technologies. So, too, has the technology’s spread throughout the scientific community, despite the legal battling over CRISPR patents between Berkeley and the Broad.

“Licensing the technology, on a non-exclusive basis for different areas, has been really, really good,” said Zhang, of the Broad. “It’s accelerated research and application development.”

Setbacks and public sentiment

The rapid growth of the gene editing sector has come with its share of research stops and starts.

As the initial companies raced to begin clinical trials, federal regulators in the U.S. proceeded more warily. In 2018, the FDA paused Vertex and CRISPR Therapeutics’ plans to start their first study of exa-cel. Editas also ran into delays when the FDA imposed a partial clinical hold for its sickle cell disease therapy in 2021.

Both Beam and Verve had similar problems as they tried to advance their base editing programs into clinical testing, receiving clinical hold orders from the FDA last summer and fall.

The temporary pauses reflected regulatory caution on the safety of CRISPR gene editing and its use in humans. In particular, the FDA appears to be closely watching tests of in vivo CRISPR medicines for any signs CRISPR changes could be inadvertently made to sperm or egg cells  — so-called germline edits.

“Our view is that this is the FDA taking a very considered view of the space,” said Intellia CEO John Leonard in response to questions on an August call about a recent request made by the agency.

Intellia conducted testing of its first in vivo candidate outside of the U.S., and recently scrapped plans to include U.S. patients in testing of its second following the FDA’s ask. The company intends to open up U.S. trial sites as part of late-stage studies it’s now preparing.

Other safety concerns have cropped up too, such as with Graphite Bio’s sickle cell treatment nula-cel, which the company stopped testing after reporting a serious side effect.

In most cases, though, the FDA has lifted the holds it’s imposed, allowing testing to advance and paving the way for the agency’s current review of exa-cel.

That looming approval decision will again put CRISPR gene editing squarely in the public eye. While biotechs are using the technology to treat diseases solely via edits to somatic cells, the field is still shadowed by the actions of Chinese scientist He Jiankui. In 2018, He stunned the scientific world by announcing he had edited a pair of embryos that were implanted and brought to term, sparking condemnation and renewed calls to restrict germline editing.

Even before the controversy, the Broad had put in place safeguards against experiments like He’s. Now, the institution maintains “any human clinical use must be consistent with all laws and regulations,” and does not license their technology for editing human egg and sperm cells.

Looking ahead

Even as a down biotech market has stressed young drugmakers, gene editing companies continue to draw investment.

Prime’s IPO, for example, raised $175 million last October — a rare IPO success in a down year. New gene editing companies continue to emerge, too, such as Tome Biosciences and Tune Therapeutics.

Others, meanwhile, are applying CRISPR principles in different ways. Boston-based Chroma Medicine, which raised $135 million in venture funding this March, is crafting drugs to alter the epigenome.

From an R&D perspective, researchers in the field hope to make advances in several areas. First, prove that CRISPR-based gene editing can work in a wider variety of diseases. Many of the initial programs are for eye-related conditions, sickle cell disease or beta thalassemia, but there are many other possible targets, said Urnov, who co-founded Tune and consults with Vertex.

Second, delivery remains a challenge. Current genetic medicines can readily reach those parts of the body that are easily accessible, such as the eye, blood or liver. As a result, diseases affecting other tissues, like the muscle and brain, remain challenging to treat, even if the genetic errors causing them are well understood.

And there are still concerns about the possibility of off-target edits with CRISPR-based therapies. The FDA’s ongoing review of Vertex and CRISPR Therapeutics’ medicine could give a window into the agency’s comfort with this risk.

From an industry perspective, commercialization of genetic medicines remains a question mark. While they promise dramatic benefits, their high price tags and complex manufacturing could present marketing hurdles. Outside of Novartis’ spinal muscular atrophy drug Zolgensma, sales of the gene replacement therapies approved to date have not taken off.

“The for-profit sector really understands how to commercialize medicines where you put the patient on a lifetime of treatment,” said Urnov. With gene therapy, most patients will likely receive treatment once.

“At the end of day, patients aren't going to care about the modality,” Chen said. “They just want to know: is it safe and does it work? That's the ultimate end goal.”

Ned Pagliarulo contributed reporting.

Before Ketan Patel was a partner at F-Prime Capital, one of the biotechnology sector’s most well-known investment firms, he was an aspiring doctor. 

Like other life sciences investors with a medical background, Patel is well familiar with the myriad diseases that ravage the human body, and the lack of drugs available to treat some of them. 

Patel’s training in internal medicine imbued him with a drive to help. His curiosity about drug development led him to realize there were ways to help patients outside of a physician’s office. After dabbling in pharmaceutical consulting, he was contacted in 2007 by a headhunter looking for people to join a venture firm affiliated with the parent company of financial services giant Fidelity Investments.

Patel has been a part of that firm, first known as Fidelity Biosciences and now F-Prime, ever since. Over that time, he’s invested in and sat on the boards of more than a dozen drug companies and medical device makers. Some of his firm’s investments, like Beam Therapeutics, Aclaris Therapeutics and Prime Medicine, are publicly traded. Others, like Ivenix and Vicept Therapeutics, were bought by larger companies.  

“This job is a dream job,” Patel said in an interview with BioPharma Dive. “You’re meeting different companies and people of diverse backgrounds. They're people who are thinking out of the box, who want to bring medicine and drug discovery forward. You're always learning something new from experts in their field. What's not to love about that?”

BioPharma Dive spoke with Patel about his experience finding and creating new biotech companies. This conversation has been lightly edited and condensed for clarity.

BIOPHARMA DIVE: How do you know when to invest in a company?

KETAN PATEL: Some of it just happens to be timing. Most of what we're doing – probably more than 75% – is Series A and seed company formation. We try to spend time looking at really high-level unmet needs. What therapeutic areas are they and how do we work backwards from that? 

The other ways are technology-based. Some of the really early investments we made in gene editing with Beam and Prime Medicine, those were really technology-driven. CRISPR has brought a change to drug discovery and development. There was a next-step function on top of that with gene editing. Those investments were driven by the science.

F-Prime made a number of significant investments over the past year despite a downturn in the sector. How did you go about navigating that environment?

2020 and 2021 were very different from 2022, and even the beginning of the first half of 2023. But the fundamentals in life sciences haven't changed. The capital environment has changed to a certain extent. 

There's still a lot of unmet need out there, really common diseases and rare, genetically driven diseases. The way we look at it is, if you can get drugs that address some of these diseases, at the end of the day, everything will work out from the investment perspective, as long as you take the right steps. 

Historically, we've done early-stage investing and we like taking things from academic institutions and helping drive them. But if it takes a long time, you always have to be thinking about when the next window is.

We’re looking at it as, in the next two to three years, the window will get juicy again. You can raise capital and the companies that you're building today can get to the point where they’ll need a lot more because they'll be in late-stage clinical [trials]. 

You mentioned working with academic labs to advance their research. Why invest in them instead of more experienced biotech company creators?

Because it takes so long to get through a regulatory process, [biotech] has almost had  “reverse ageism,” where it's [the] older, the better because you have a lot of experience. You've been through maybe one or two drug discovery cycles. 

In the last seven years or so, the capital markets were really accommodating. We saw a lot of novel technologies coming out of labs, with first-time entrepreneurs. At the end of the day, those entrepreneurs are often the postdocs in the labs where the technology was discovered. Who knows it better than some of those folks?

We have started companies behind first-time entrepreneurs. There is a lot more that goes into building the company over time. It does require having a lot of support [from] people who are not necessarily first timers in the drug discovery business. [But] there aren’t enough entrepreneurs out there to go after unless you start chasing first-time entrepreneurs as well.

Within drug [development], there are really different skill sets, from clinical development, to preclinical development, regulatory and manufacturing. When we’ve got a brilliant postdoc coming out of the lab, the first thing we tell them is to put together a team that hits those pieces. That's the most important thing, because those are the people that are going to help you get from point A to a drug. 

Many of your portfolio companies are based outside of the prominent biotech hubs in Boston, San Diego and San Francisco. Why?

We’ve had a relationship with a venture fund called Eight Roads, a group that has Fidelity as their main limited partner. They've always been focused outside of the U.S., and have, over time, done quite a bit of healthcare and life sciences [investing]. We had boots on the ground and people that were like-minded with us. What we don't believe in is trying to invest from afar without a local presence, it's really hard to do.

The more we did, the more we learned that innovation is truly global. Historically, the belief has been that innovation, at least in our space, comes from Boston, San Francisco, North Carolina, some San Diego, for a while Minneapolis. I think that’s true without a doubt, but the academic institutions, especially in China, are rapidly developing and catching up. A lot of folks who did their PhDs and postdocs in labs in the U.S. or London have now gone back and are academics there, so we're seeing innovation come from everywhere. 

A great example is a biologics company called Innovent, which we started in our offices here [in the U.S.] It’s a public company now, and has multiple drugs approved – they have China's first or second PD-1 [inhibitor].

We continue to look at the U.S. and Europe as hubs for life sciences. Then there's the emerging markets, which are primarily China and India for us. We look at Japan as well, even though it’s not an emerging market. It's emerging in that it's starting to develop less of a big pharma and more of a biotech culture.

Kevin Parker is an expert in genomics, immuno-oncology and computational biology. A Ph.D. scientist from Stanford University, he has helped author research in prestigious journals like Science, Nature Medicine and Cell.

But two years ago, when Parker was working with colleagues on an idea for a new biotechnology company, he found himself in unfamiliar territory. Skilled at navigating thorny scientific challenges, Parker was stumped by the process of building a startup.

“The logistics of getting a company started — incorporating it, getting all the legal affairs in place, getting a bank account set up, getting health insurance, like the very nitty gritty of it … there’s no book on how to do that,” said Parker.

Launching a biotech wasn’t always on his radar. The head of his laboratory, physician-scientist Howard Chang, encouraged students to explore many career paths — even ones in industry, spurring Parker to take an internship at drug startup Maze Therapeutics. There, he got a glimpse of academia’s constraints.

“It’s really focused on analyzing data, publishing it and moving onto the next one, while the industry is focused on translating those ideas into how it impacts a person,” said Parker, who in 2020 founded cancer drugmaker Cartography Biosciences.

Making the jump between fields wasn’t easy, however, and he considers himself fortunate to have done it successfully. A new generation of biotech leaders, Parker among them, hopes to make that transition easier, filling in for future entrepreneurs the gaps where they felt lost. Frustrated with how drug startups are usually formed, they are not only creating their own, but building a new kind of community, too.

“There is a wellspring of grassroots energy. They’re taking all the knowledge accumulated and spreading it,” said Tony Kulesa, a principal at venture firm Pillar VC who has become a prominent voice in this loose collection of executives, scientists and students.

To Kulesa, Parker and others like them, the moneyed venture capital firms that incubate most new biotechs aren't forming startups quickly enough to harness that energy, leaving many aspiring entrepreneurs without a path forward.

Some also say traditional investors are too focused on their own formulas and objectives to give room to unorthodox ideas. Often, venture investors will install an executive or seasoned entrepreneur in new drug companies they’ve started around already-vetted research. “For an investment firm, the product is the company,” said Roivant Sciences CEO Matt Gline in a recent interview with BioPharma Dive.

To be sure, the VC model has produced many successful biotechs as well as new medicines. "How these companies are created has been turned cookie cutter at least in some shops," said Maha Katabi, a general partner at Sofinnova Investments, "but it's certainly not the reality of the vast majority of how this industry has developed."

Some entrepreneurs argue, though, that researchers with great ideas who want to retain control can be shut out. Using terms like “founder-led biotech” and “techbio,” this new generation sees themselves growing a movement to encourage and support more academics launching drug companies. In the process, they hope to broaden the industry’s borders beyond its well-trodden hubs of Boston, San Francisco and San Diego.

An open-source approach

The growth of this community was on display last fall, when hundreds of scientists and entrepreneurs attended a virtual event dubbed the “Founder-led Biotech Summit.” Among the sessions were panels such as “New Funding and Organizational Models” and “Pathways to Entrepreneurship.”

It was the second time the event had been held, said Kulesa, who started the summit through Pillar VC, a firm that provides startups with seed capital. More than 3,500 people registered for the summit, which also included sessions on areas that receive relatively less venture investment like reproductive health.

Attendees described how they stumbled onto the idea of launching their own companies partway through their forays in academia. “You just came to class and were like, ‘I just started a company,’” Kulesa joked with former Massachusetts Institute of Technology classmate and Amber Bio founder Jacob Borrajo, during one of the summit’s sessions. “And I was like, ‘You can do that? That’s wild.’”

For many, the draw of this community appears to be its boundlessness. Rather than growing out of prestigious universities and labs in Boston and San Francisco, the founder-led biotech network has been built on Zooms, virtual events and Twitter. The aim is to help people from all over connect with like-minded entrepreneurs and investors.

“There’s a lot of great science and a lot of latent demand from people that previously weren’t a part of the networks and culture of startups, and are now trying to enter that,” Kulesa said.

Take San Antonio, Texas-based biotech entrepreneur Guillermo Vela. A former Johns Hopkins University cancer and stem cell researcher, Vela returned to his home state to pursue a startup career. Building his cancer drug discovery company, NeuScience, involved many cold calls and emails. The executives and investors who answered often connected Vela with others in the industry.

Having received a helping hand, Vela is now active on social media and other forums, trying to pass along knowledge and “demystify” the company creation process.

“There’s no denying this is a sector where you do have to have some experience, and there’s a lot of know-how you can only gain through the years,” he said. “But there’s a lot of secret sauce, secret knowledge that isn’t published because there’s no real, good mechanism.”

Groups like Alix Ventures’ BIOS community and Nucleate, a mentorship community for researchers, college students and entrepreneurs, are trying to share some of that know-how.

Nucleate has even gained the attention of established drugmakers, including Genentech and Alnylam Pharmaceuticals, the latter of which in July announced a partnership with the graduate student-led group. And Nucleate, which is in part run by one of Kulesa’s colleagues, Michael Retchin, has also created a venture fellowship with support from Pillar VC. 

From Retchin’s perspective, Nucleate’s objective isn’t to “staple a term sheet to every Ph.D. and say ‘go.’” Nor is it to criticize biotech investors for how they operate because, in his view, a wider range of ideas has been getting funded recently.

Instead, he wants to see founders who have previously launched successful companies or taken a drug to market play a more active role in mentoring up-and-coming leaders. “Bringing in more people and giving them excellent advice, rigorous thinking and processes from these veterans can solve a lot of problems,” Retchin said.

A ‘tricky business’

Yet trusting a biotech newcomer with a startup can add risk to an already fraught endeavor. Though some of the industry's most successful companies, such as Genentech and Regeneron, blossomed under young founders, more often investors call on trusted executives or surround an industry outsider with veteran help.

“It's really important to keep in mind that drug development is a tricky business and it's a long path that requires both an experienced management team and experienced investors,” said Sofinnova’s Katabi.

Successful biotech companies typically spend many years and hundreds of millions of dollars to bring a new medicine to market. Each step of the journey involves different types of expertise, from discovering a medicine to designing clinical trials and working with regulators.

Founders who have previously built startups or worked as biotech executives can be better prepared to raise funds, execute on a business plan and pilot a company through ups and downs. Even business-savvy scientific founders might need experienced people on their management teams to help navigate drug development.

“There’s very little that happens in a vacuum in biotech,” Katabi said. “It’s really putting these two minds together and experienced investors around the table that create these ultimate biotech successes.”

Those successes include many drugmakers that emerged from the established venture capital ecosystem. Alnylam, now the industry’s largest developer of so-called RNA interference medicines, was once a startup formed by Atlas Venture, Arch Venture Partners and a few other firms. COVID-19 vaccine developer Moderna was built by Flagship Pioneering and privately funded for years before it became a household name.

Other companies that have brought medicines to market in recent years or soon could, like Bluebird bio, CRISPR Therapeutics and Sage Therapeutics, were also either incubated within or closely ushered along by blue-chip biotech investors.

There are also biotech veterans who argue for patience. The next generation of leaders has to learn the ropes first — whether that means spending years working at a pharmaceutical giant or at other startups — before expecting an idea to land with investors.

“This is not a business where impatience serves you, because it’s so heavily regulated,” said Jeff Jonas, the CEO of biotech incubator Abio-X and a veteran drug developer who previously ran Sage. “There’s so many rules and regulations about how to do stuff. You can’t be impatient. You can be urgent, but you have to always be willing to learn.”

Still, young founders see other ways to accumulate industry know-how, such as via an experienced board of directors, and are eager to forge their own path.

A decade ago, Armon Sharei was completing his Ph.D. at MIT when he began searching for a way to apply his research to drug discovery. He connected with one investor who was interested but skeptical Sharei’s idea could be the foundation of a full-fledged company. Others told him not to bother, while venture capital firms were hesitant about his lack of experience.

Sharei continued building his startup, later named SQZ Biotech. The company entered MassChallenge in 2014 and took home the $100,000 grand prize. More importantly in Sharei’s view, it was where he met Amy Schulman, an investor at Polaris Partners.

Schulman mentored Sharei as he completed his postdoctoral fellowship, advising SQZ and later becoming its executive chair. Having her name attached to the company seemed to ease investor concerns about having a young scientist running it.

“She helped get Polaris on board to lead the initial financing,” Sharei said. “Through her time on the board, it was like, ‘OK, we have the faith you won’t screw it up.’”

Still, things don’t always work out. Though SQZ went public in 2020, peaking at $32 per share that fall, its stock has lost nearly all its value since. Citing “differences in company strategy,” Sharei parted ways with SQZ in November 2022, when it announced a restructuring.

Room for both?

The growth of the founder-led movement suggests an appetite for new biotech career paths and a more open approach to company creation.

Yet Julia Moore, a co-founder and managing partner at Breakout Ventures, which invests in early-stage biotech and medical technology companies, believes there’s a place for both traditional venture-backed as well as founder-led startups.

“When you’re doing something that doesn’t follow an existing playbook and it takes the passion of someone whose baby this is, that can be a really strong recipe for success and focus,” Moore said.

Greater collaboration with a new generation of entrepreneurs could lead to biotech companies that look a bit different. And it could mean more drugs get developed for diseases that have been historically neglected.

Amylyx Pharmaceuticals, for instance, was founded by a pair of Brown University undergraduates, Justin Klee and Josh Cohen, who remained at the helm of the company through Food and Drug Administration approval of its ALS drug Relyvrio.

Stories like Amylyx’s are still the exception rather than the norm, though. It’s rare that a pair of students with no company creation expertise develop a drug and bring it to market. Amylyx’s success isn’t necessarily a model that can be readily replicated, either.

Still, industry veterans can do more to help, some founders say. “There’s a supply and demand issue,” Sharei said, with far more would-be entrepreneurs than industry mentors to guide them.

A few initiatives from larger venture firms do exist to bring more academics into the world of biotech company creation. Sofinnova has a program to introduce graduate students to biotech investing, where the firm’s higher-ups give lessons on business development and clinical trials. Foresite Capital offers a fellowship in tandem with its incubator, Foresite Labs, teaching academics about venture investing and company creation.

Other programs start even earlier, such as Project Onramp, a Boston biotech internship program funded in part by Third Rock Ventures that recruits college students from low-income backgrounds.

Having a greater number of entrepreneurs compete for investor dollars, Kulesa argues, should bring forward more diverse ideas to complement those backed by traditional venture investors.

Ultimately, though, the measure of success in biotech is the development of new medicines that help patients. Starting and funding new drugmakers is just the first step in a yearslong journey, and how much of an impact the founder-led movement can have is very much an open question.

“Time will have to tell, right?” Kulesa said.

Ben Fidler contributed reporting.

When the Food and Drug Administration approved a new prostate cancer drug last year, it validated a bet made by Novartis to acquire the drug’s maker, Endocyte. The decision was also another step forward for a long-studied research field that appears to finally be coming of age.

The medicine, Pluvicto, is known as a “radiopharmaceutical.” Unlike the small molecule or biologic medicines drugmakers use to flip cellular switches on or off, radiopharmaceuticals are designed to precisely deliver radioactive material into the body. The result is a targeted punch of radiation that can knock out tumors in a way other drugs can’t.

However, since Pluvicto’s approval, Novartis has struggled to meet demand, highlighting one of the many issues that has slowed development of radiopharmaceuticals. They’re difficult to produce, distribute and administer. The earliest examples never lived up to commercial expectations, hamstrung by manufacturing problems, competition, high costs and safety concerns. GSK stopped making one, known as Bexxar, in 2014. Another, named Zevalin and originally developed by Idec Pharmaceuticals, never became a big seller.

A group of companies, from biotechnology startups to pharmaceutical giants, think they’ve solved these problems. Borrowing from progress in another cancer drug field, they’re leaning on technical advancements that have enabled researchers to design medicines capable of safely delivering a radioisotope to just the right spot.

Novartis is the most invested, having spent $6 billion on acquisitions of Endocyte and Advanced Accelerator Applications. Right alongside Novartis is Bayer, which has also brought a radiopharmaceutical to market and is testing others.

Behind them are a handful of publicly traded companies and at least a dozen biotech startups, making radiopharmaceuticals a hotly competitive area of drug research. Here’s where things stand:

What are radiopharmaceuticals, and how do they work?

Born shortly after the discovery of the X-ray, radiation therapy has more than a century of history in cancer treatment. It’s a way of using high-energy particles or waves to damage the DNA of cancer cells, preventing division and growth.

Along with surgery, radiation therapy is a mainstay of cancer care, used to treat or prevent the recurrence of tumors in more than half of people with the disease, according to the American Cancer Society.

But radiation therapy is a blunt force. Rays beamed from outside the body can damage healthy tissue, while a more targeted, inside-the-body approach is costly and complex.

By comparison, radiopharmaceuticals can deliver the destructive power of radiation directly into tumors. They are akin to microscopic smart bombs — radioactive material guided by a molecular courier to cells with specific protein flags.

With Novartis’ drug Pluvicto, a radioisotope known as lutetium is chemically fused to a small molecule that binds to PSMA, a protein overexpressed in most prostate cancers. Novartis’ other radiopharmaceutical, Lutathera, delivers radioactive lutetium to SSTR, a target found on certain neuroendocrine tumors.

The drugs are complex, made of hand-picked parts. Different radioactive materials may weigh more or less, last longer or pack a bigger punch. Some radiopharmaceuticals may require a “chelator,” a molecule that keeps the radioactive material intact as it’s carried through the body.

Drugmakers also have to design chemical “linkers” that hold their therapies together, but don’t stick around too long after reaching their target. A molecular guide that seeks out malignant cells is another necessary component.

Once designed, radiopharmaceuticals are tricky to produce at scale. Supplies of radioactive materials are limited, and their transport is controlled. The drugs must be made and delivered quickly, before the radioactive components decay too much.

Why are radiopharmaceuticals a hot area of investment?

Interest in radiopharmaceuticals mirrors the ascent of another class of targeted cancer medicines, known as antibody-drug conjugates, or ADCs.

Like radiopharmaceuticals, ADCs deliver a toxic substance, usually a chemical, directly to a tumor. After years of slow progress, they’ve undergone a renaissance catalyzed by technical advances, regulatory approvals and interest from large drugmakers. Venture investors are in turn backing new startups.

Radiopharmaceuticals are now in the spotlight, too. Despite the poor sales of the field’s first medicines, newer drugs are performing better. Studies supporting some, like Pluvicto, have shown radiopharmaceutical drugs can extend survival and, in some cases, outperform other types of treatments.

Radiopharmaceutical drugs are “now being recognized as an effective, safe, and economically and logistically viable treatment modality,” wrote physicians from Johns Hopkins University School of Medicine and Memorial Sloan Kettering Cancer Center, in a 2020 article in Nature Reviews Drug Discovery.

As is often the case, large pharma investment is sparking a chain reaction of activity. Novartis’ acquisitions of Advanced Accelerator and Endocyte yielded Lutathera and Pluvicto, which, despite production challenges, are seeing strong demand. Bayer reached close to $500 million in peak yearly sales with its radiopharmaceutical Xofigo; it’s now working on newer medicines and, in 2021, acquired two startups.

Diagnostics company Lantheus Holdings bought the maker of Azedra, another radiopharmaceutical recently approved by the FDA for rare neuroendocrine tumors.

Those deals, along with radiochemistry advances and a “greater ability to innovate in ‘complex’ therapeutic modalities,” have spurred a wave of investments in new radiopharmaceutical companies, wrote Faisal Khurshid, an analyst with Leerink Partners, in a report last year.

Some, like the publicly traded biotech Fusion Pharmaceuticals and startup RayzeBio, are going after the same targets as Pluvicto and Lutathera, but with different radioactive components or guiding molecules.

Others are pursuing different cancer-associated proteins. The startup Abdera Therapeutics has a program in development aimed at DLL3, a long-studied target in a tough-to-treat form of lung cancer. Belgian biotech Precirix is evaluating a radiopharmaceutical for tumors driven to growth by HER2, a well-known cancer gene.

Which companies are working on it, and who is backing them?

More than a dozen radiopharmaceutical startups have launched in recent years. Many have pulled in sizable funding rounds, sometimes with overlapping investor groups.

In April, Abdera debuted with $142 million in funding and backers led by venBio and Versant Ventures. Those two investors also launched RayzeBio, which has raised $418 million since its start, making it one of the field’s most well-funded companies.

Convergent Therapeutics launched in May with $90 million from RA Capital Management and OrbiMed. RA Capital also helped incubate Mariana Oncology alongside Atlas Venture and Access Biotechnology.

Aktis Oncology has secured $161 million in funding from Novartis, Merck & Co. and Bristol Myers Squibb, among others, since arriving in 2021.

Precirix is backed by Forbion and Jeito Capital and has raised 117 million euros since 2018. Germany-based Isotope Technologies Munich, or ITM, in June secured 255 million euros in a large funding round for a European biotech.

Artbio debuted in June with seed funding from Omega Funds and F-Prime Capital. It’s run by Emanuele Ostuni, the former head of Novartis Oncology’s cell and gene therapy operations in Europe, and was founded by the inventors of Xofigo.

Other firms in the mix include France’s Atonco Pharma, Australia’s GlyTherix, China-based Ablaze Pharmaceuticals, University of Connecticut spinout Nami Therapeutics and Boston-based Ratio Therapeutics.

These young companies join a handful of publicly traded biotechs, like Fusion, Plus Therapeutics and Point Biopharma, as well as initiatives started by diagnostics firms or suppliers of nuclear material.

How far along are these new companies?

Unlike other hotspots of startup activity, radiopharmaceutical developers are, in many cases, already deep into clinical development.

Several companies are testing drugs that, like Lutathera, target tumors expressing the protein SSTR. RayzeBio began a Phase 3 trial in May, while ITM is further along in its late-stage program. Molecular Targeting Technologies, Arecium Therapeutics and Orano Med also have SSTR-targeting medicines in human trials.

A group of developers are following in Pluvicto’s footsteps with drugs aimed at cells expressing PSMA. Curium Pharma has a Phase 3 study underway in prostate cancer. Point and partner Lantheus are expecting late-stage results later this year. Medicines from Fusion, Convergent and Advancell are in earlier stages.

ArtBio’s lead program is also for prostate cancer and has entered human trials. It uses a radioactive isotope called Pb212 that the startup claims has an “ideal clinical profile.” Advancell and Orano Med use Pb212 as well.

Other companies are earlier in their journeys. Aktis, for example, hasn’t disclosed a lead program. But it has revealed the radioactive material, Actinium-225, it intends to deliver with drugs. Abdera plans to ask regulators next year to begin its first trial.

Developing a new drug is a long, expensive process that comes with a high risk of failure, often because would-be medicines are unsafe or ineffective.

For companies specializing in cell or gene therapies, an equally pressing concern is figuring out how to reliably make their products. Unlike small molecule or antibody drugs, genetic medicines typically involve a variety of specialized parts woven together through a complex process.

"Ex vivo," or outside-the-body, treatments can involve a multi-week process for collecting, multiplying and modifying a patient's cells in a laboratory. Even the simpler "in vivo" therapies have multiple pieces, including engineered viruses and synthetic genetic material, that are challenging to produce at scale.

The approvals of a dozen cell- and gene-based medicines for cancer and inherited diseases in recent years has given young drugmakers a path to pursue. But most of those approvals were won by large pharmaceutical or biotechnology companies that invested heavily in manufacturing. Startups, by contrast, don't yet have that luxury.

Still, cell and gene therapy research is booming. More than 2,200 clinical trials testing these types of treatments were ongoing globally as of last year, according to the Alliance for Regenerative Medicine. The surge has often outstripped the capacity of large contract manufacturers, leaving startups facing waitlists that can stretch one to two years.

A growing group of new manufacturers aim to help. Since 2017, at least half a dozen companies have launched with plans to ease the "bottlenecks" slowing down aspiring cell and gene therapy developers. Many have been started by veterans of the young field and gotten the backing of top venture firms. Here's what they aim to accomplish and how their work is progressing:

What are the main bottlenecks in cell and gene therapy manufacturing?

Cell and gene therapies involve materials that aren't used in many of the other products the pharma industry is well-versed in producing.

Scientists design synthetic genetic material to deliver into patients, either via their own cells, benign viruses known as vectors or specially made bubbles of fat. Constructing these treatments is tricky even in a research setting, where small amounts of such material might be required for early experiments. But it's much harder for companies running clinical trials, or preparing for mass production.

Manufacturing delays can wreak havoc on young companies, causing them to miss milestones that could endanger future funding. Established gene therapy biotechs like UniQure or BioMarin Pharmaceuticals have spent years and millions of dollars to build their own plants. But startups and academic labs — where a number of the approved cell and gene therapies originated — can’t afford that.

“Academics have truly cutting-edge research, and I have been blown away by some of the creative ideas, novel modalities and breakthrough innovations that came about,” said Ran Zheng, the CEO of Landmark Bio, a Massachusetts-based company that caters to cell and gene therapy developers. “But that information needs to be translated into therapeutics, and this is the biggest, and probably the first, hurdle [startups] have to overcome.”

Turning to contract manufacturers like Thermo Fisher and Catalent can be a solution, but brings problems of its own. Transferring technology from a small lab to a larger organization can be arduous and require troubleshooting for glitches that arise in the process.

Big CDMOs may also prioritize more lucrative work with larger biotech and pharmaceutical firms. And they're struggling to meet the surging demand for cell and gene therapy manufacturing tools themselves.

Building up capabilities internally can be costly for startups. Viral vectors, for instance, are expensive to make and handle.

“You often see companies trying to own their own manufacturing and unfortunately, in this environment, if the product’s not successful, that's a heavy capital and operating expense to carry,” said Mike Paglia, a senior executive with ElevateBio, a richly funded startup that helps manufacture cell and gene therapies.

How are these startups trying to change that?

Rather than compete directly with larger CDMOs, some manufacturing startups aim to provide a more cost-efficient path for companies to develop in-house production capabilities. To appeal to younger biotechs that may need them, they are building relationships earlier and providing more services to attract first-time founders and small teams.

Many of these conversations take place long before an application to begin human testing, so these smaller manufacturers work to teach startups about raw material control strategies and set realistic timelines to gather early clinical data.

“Traditional CDMOs are like a kitchen, you'll give them a recipe and they make an entree,” said Zheng, who previously worked in manufacturing and operations at Orchard Therapeutics and Amgen. “That’s all they do. We're not like a kitchen where you just simply state the recipe. We actually ask our clients what ideas they have and we develop the recipe with them.”

Some clients start from near the beginning, working with these newer manufacturers from the moment they identify a lead candidate.

ElevateBio and Landmark Bio both help startups with laboratory studies to ensure that, down the line, they’re familiar with how to transfer their drugmaking technology to the companies that might eventually produce their therapies.

Paglia, who previously worked at Bluebird bio, said the biggest hurdle for him and his former colleagues was transferring their technology to contract manufacturers.

“Whether it was manufacturing our lentiviral vectors or cell therapy products, it took tremendous amounts of oversight to get those processes right because of the infancy of the industry,” he said.

Still, outsourcing to a dedicated manufacturer can save biotechs millions of dollars in the long term, Paglia said, allowing them to put that money toward additional clinical studies. That has meant steady demand for CDMOs, and created business for new startups trying to help.

Manufacturing startups have also attracted academics and nonprofits that struggled to get time with larger CDMOs. Landmark has worked with researchers who have received National Institutes of Health grants, for example.

Ultimately, improving manufacturing might give companies an opportunity to rethink how they price cell and gene therapies, which are some of the costliest medicines to make. The few companies that have reached market have noted these high costs in setting price tags that range from hundreds of thousands to millions of dollars.

Who are the startups in the space?

At least six biotech startups have launched since 2017 to address shortfalls in cell and gene therapy manufacturing.

The most richly funded, ElevateBio, has raised about $1.3 billion since it began working with drugmakers. It’s also spun out its own biotech startup with Boston Children’s Hospital to develop more convenient alternatives to current cancer cell therapies.

More recently, Ascend Cell & Gene Therapies in the U.K. emerged from stealth armed with $130 million in funding and led by industry veterans. It’s focused on adeno-associated viruses, a heavily used type of viral vector, and has acquired some of its capacity and technology from the struggling Freeline Therapeutics.

“AAV manufacturing is complex and needs teams that show real expertise and ownership,” said one of Ascend’s founding investors, Tim Funnell of Monograph Capital, in a statement on the company’s launch. “This led many advanced modality biotech developers to build their own internal CMC capabilities. However, these companies are now finding it difficult to sustain and fully utilize their facilities.”

There are smaller ventures, too. A pair of University of Pennsylvania researchers who worked on the cell therapy Kymriah and the gene therapies Zolgensma and Luxturna launched VintaBio in April. Months before in January, biotech startup creator Versant Ventures debuted Vector BioMed to help supply startups with the "lentiviral" vectors often used in ex vivo treatments.

What’s the status of their work?

With demand for more CDMOs at an all-time high, these startups are partnering with drugmakers straight out of the gate. Though many rely on capital infusions from venture firms, they also can generate cash from their work early on, bringing returns to investors well before a typical biotech might.

Landmark Bio had its first customer “even before we put a sign on the door,” Zheng said in October. In early June, it announced a partnership with InnDura, a new biotech company focused on “natural killer” cell research.

ElevateBio, having been around for some years, boasts a larger client list, noting in a May fundraising announcement that it added more than 15 new biopharmaceutical partners over the past year. Its subsidiary Life Edit Therapeutics is collaborating with large drugmakers like Novo Nordisk and Moderna.

VintaBio has a 22,500-square-foot facility in Philadelphia that’s now open for business, while Vector BioMed is working out of Gaithersburg, Maryland.

Shape Therapeutics is somewhat different, as it’s working on its own research, too. But it has also hinted at playing a manufacturing role, developing a new kind of cell line for producing adeno-associated viruses and indicating plans to build a factory where other companies can make their therapies.

Stationed on the perimeter of cells, the proteins are akin to a neighborhood watchdog. Called G protein-coupled receptors, or GPCRs for short, they handle many of the signals that pass through the cell’s membrane.

Unsurprisingly given their important role, they’re one of the top targets in the drugmaking playbook. According to one estimate, a third of medicines approved by the Food and Drug Administration through 2017 targeted a GPCR in some fashion.

GPCRs were first uncovered in the 1970s by Robert Lefkowitz, a Duke University and Howard Hughes Medical Institute researcher. At the time, GPCRs were a mystery to scientists, who had no way to see their structures.

A series of breakthroughs culminated in the early 2010s, when Lefkowitz and Stanford University scientist Brian Kobilka published research on the structure and function of GPCRs, winning the 2012 Nobel Prize in Chemistry for their efforts.

Their work provided “tremendously detailed” information about how those proteins behave, said Kenneth Jacobson, a senior investigator at the National Institute of Diabetes and Digestive and Kidney Diseases. “As a chemist, that's extremely helpful for searching for new compounds” that can impact GPCRs.

Scientists also now know the receptors can signal via multiple pathways, Jacobson added. That means researchers can hunt for more selective molecules, potentially avoiding off-target effects.

Young biotechnology companies have sensed an opportunity, which is why several startups have formed in recent years hoping to develop better GPCR drugs. Here's where they stand.

What are GPCR-targeting drugs, and how do they work?

GPCR-targeting drugs have a broad variety of potential applications, from possible uses treating cancer to managing diabetes and obesity. ​​In cancer, for instance, the receptors can control tumor growth and spread through activating certain cell functions.

Currently available drugs aimed at GPCRs include antihistamines and opioid agonists. Other examples include the diabetes drug Victoza and the multiple sclerosis treatment Gilenya.

While hundreds of GPCR-targeting medicines are approved, they generally are aimed at a small number of specific GPCRs — leaving room for scientists or drugmakers who want to try elsewhere.

“Most of the success has been around a relatively small number of these GPCRs,” said Jeff Finer, the CEO of Septerna, a startup co-founded by Lefkowitz that’s developing drugs to target the proteins. “There's hundreds more that could be potential therapeutic opportunities.”

For years, though, researchers have struggled to isolate GPCRs, making it harder to design drugs. The methods used to remove the proteins from their surrounding cellular membranes can also inadvertently destroy them. GPCRs are not made in very large quantities by the body, either, upping the challenge.

As a result, pharmaceutical companies researching how to drug the receptors frequently came up short, challenged by both mapping the proteins and by side effects that emerged during clinical trials.

Now, biotechs are trying to develop technologies that allow them to squeeze GPCRs out of their cells more easily, so they can identify possible drug compounds that can attach themselves to the receptors.

What are startups developing GPCR drugs doing differently now?

Drugmakers’ past challenges going after GPCRs has left opportunities for others. Newly formed startups aim to explore areas that were previously ignored or bypassed because they were considered harder to reach.

“An undruggable target could include orphan receptors, olfactory receptors or receptors that might have drugs, but the drugs have too many side effects,” Jacobson said.

Some GPCRs, meanwhile, aren’t as easily reached with small molecules, historically researchers’ go-to tool. Those tough targets often have large "ligands," or signaling molecules, according to Alise Reicin, CEO of Tectonic Therapeutic, a company developing biologic drugs against GPCR targets. “You don’t get enough real estate with a small molecule,” she said.

And biotechs are going after different parts of the receptors, too, buoyed by advancements in protein engineering. Many existing GPCR-targeting drugs look for where ligands bind to a receptor's active site. Developers of the next generation of these drugs are eyeing other nooks and crannies to bind to the protein.

Structure-guided drug discovery, meanwhile, could further optimize the types of medicines developed.

Which companies are developing GPCRs?

Earlier this year, Structure Therapeutics went public with the ticker symbol ‘GPCR,’ advertising its focus in a sign readily recognizable to investors on Wall Street. The $161 million it raised represented one of the largest initial public offerings in biotech over the past twelve months.

Structure is not the only emerging biotech laying claim to new frontiers in the GPCR space, though. Septerna, funded by major biotech investors such as Third Rock Ventures and Samsara BioCapital, launched last year with a $100 million Series A round.

Escient Pharmaceuticals is among the most richly funded, with around $238 million raised in private financing since its launch in 2018.

Structure, Escient and Septerna are joined by nearly half a dozen others that have launched in recent years, raising roughly $900 million combined.

What is the status of these newer drugs?

Structure has two GPCR drugs in Phase 1 clinical trials: one for diabetes and obesity, the other for a couple of disorders affecting the lung and heart.

Escient has put one of its drug candidates, dubbed EP547, into early-stage clinical testing in conditions associated with end-stage kidney disease and liver diseases.

Pharma companies are buying into others, injecting cash into drug development plans. Last week, Belgium-based Confo Therapeutics announced a licensing deal with Eli Lilly, securing $40 million upfront in exchange for Lilly gaining rights to CFTX-1554, a non-opioid painkiller in a Phase 1 trial.

Merck and Co. is collaborating with Teon Therapeutics, while Lilly and Japanese pharma Sosei Heptares announced a deal in December to develop GPCR-targeting drugs.

AbbVie did the same with Sosei in August and also acquired a GPCR drug startup, DJS Antibodies, in October. Johnson & Johnson is developing a GPCR drug candidate for multiple myeloma.