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.”

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.

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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.

In November 2022, a well-funded biotechnology startup called Faze Medicines abruptly shut down.

The specific reasons for Faze’s closure aren’t yet known. In a statement then, Third Rock Ventures, which led Faze’s initial $81 million funding round in 2020, said the company’s scientific progress didn’t “meet our bar for further investment.” Management recommended it close and the board agreed, the investor said.

Faze’s fate is a lesson for a promising field of drug research into “biomolecular condensates” — microscopic, fluid-like droplets found within cells that partake in an array of important functions.

Identified in 2009 in the cells of worms by researchers at the Max Planck Institute of Molecular Cell Biology and Genetics, biomolecular condensates are viewed as a source of new drug targets and an alternate way to treat a range of disorders, from neurological conditions to heart disease and cancer.

Research progress has led to the formation of at least five startups in recent years, several of which have drawn the interest of large pharmaceutical companies. Yet their work remains in early stages and, as Faze’s fall demonstrates, has significant obstacles still to overcome. Here’s where things stand:

What are biomolecular condensates, and how do they work?

Biomolecular condensates are tiny blobs inside cells that are filled with hundreds of proteins, nucleic acids and other molecules.

Under a microscope, condensates look like the shape-shifting contents of an ultra-small lava lamp. They are constantly forming, merging with one another and then, once their job is done, vanishing into the cell’s cytoplasm.

These membraneless-droplets were once ignored by scientific researchers. But they have several purposes. Condensates help organize chemical reactions within a cell. They’re involved in its response to stress as well as in its signaling mechanisms. They can speed up or slow down cellular reactions by bringing molecules together or by keeping them apart.

Since condensates’ discovery, researchers have studied them in greater depth and begun to associate malfunctions within them to disease. Genetic mutations can affect how pieces of condensates function, for instance by making them stickier and unable to dissolve as quickly as they should. Early research has tied aberrant behavior within condensates to cancer, infections and neurodegenerative conditions.

Those properties have made biomolecular condensates an intriguing area of biology for drugmakers to mine for potential therapies.

Still, there are many hurdles ahead, as a team of scientists at one condensate biotech wrote in Nature Reviews Drug Discovery in August. Researchers need to understand the structure and function of specific condensates, as well as how they form. They have to tease apart the signaling and regulatory pathways that misfire within them, figure out how to target them and prove that interfering can treat a disease.

Condensates’ shape-shifting nature, meanwhile, will make reaching them with drugs harder.

“To address each of these challenges, the drug-hunter must understand the individual components of a target condensate as well as the collective behavior of the molecular community,” the authors, who work at Dewpoint Therapeutics, wrote. “However, this remains challenging.”

What makes biomolecular condensates an intriguing drug target?

Small molecules, the chemical-based drugs that have been a mainstay of the pharmaceutical industry for nearly a century, are typically used to block a protein’s action or change how it works. These types of drugs often latch onto the nooks and crannies of a protein, like a molecular lock and key.

But that isn’t always possible. Small molecules can only currently hook onto a fraction of the proteins produced by “druggable” genes, leaving many drivers of disease beyond their reach. Companies and researchers have spent years trying to unlock more targets, with mixed results.

Homing in on condensates could be one way to expand the target universe. Rather than trying to go after a tough-to-drug protein directly, companies could indirectly change its function by using small molecules to interfere with a condensate that protein resides in.

Biotechs could try to stop a condensate from forming or, alternatively, speed up its creation. They might design a medicine to infiltrate the droplet. In their Nature paper, Dewpoint scientists described using drugs to stop a protein from entering a condensate, or forcing it out.

One example is an RNA-binding protein called TDP-43 that, when mutated, causes condensates to harden and is associated with ALS. Dewpoint is developing an ALS drug that’s meant to change the composition of condensates to release the protein.

Another company in the field, Aquinnah Pharmaceuticals, is developing drugs that affect the presence of “stress granules,” a type of condensate the body creates to repair damage but that can become sticky and harmful in neurodegenerative diseases like ALS. It’s zeroing in on stress granules related to TDP-43 as well as other targets, according to CEO Glenn Larsen.

Additionally, as condensates contain so many different molecules, affecting them as a whole could be useful in treating complex conditions, like heart disease or cancer, that can involve many factors. But that hasn’t been proven.

Which companies are working on biomolecular condensates?

With Faze’s closure, there are at least four biotech startups still developing drugs aimed at condensates.

Dewpoint officially launched in January 2019 based on the work of Anthony Hyman, the head of the team of Max Planck researchers that discovered condensates. It’s since raised $287 million in three funding rounds and struck partnerships with Bayer, Merck & Co., Pfizer and biotech Volastra Therapeutics. The company is led by Ameet Nathwani, a former Sanofi and Novartis executive.

Nereid Therapeutics debuted in November 2020 with $50 million in funding from investment firm ATP. Nereid was spun out of the research of Clifford Brangwynne, a former post-doctoral fellow in Hyman’s lab and also a pioneer in the field. (Brangwynne is now a Howard Hughes Medical Institute investigator at Princeton University.)

Transition Bio was seeded that November as well and followed up earlier this year with a $50 million Series A round. The company’s founding research comes from Harvard University professor David Weitz and University of Cambridge professor Tuomas Knowles, who developed a way to study the properties of condensates and design drugs to target them. The startup is run by Greg Miller, who previously worked at Visterra, Concert Pharmaceuticals and Genzyme.

Aquinnah has existed longer than the others, forming in 2014 around research from Ben Wolozin, a neuropharmacologist at the Boston University School of Medicine. The company has publicly disclosed just over $15 million in investments from Pfizer, AbbVie and Takeda. In February, it inked a collaboration with Roche.

Faze was backed by Third Rock and the venture arms of Novartis, Eli Lilly and AbbVie.

What is the status of the technology?

As condensates are a young field of drug research, the work remains in early stages. Some companies are still building the technologies they’ll eventually use to make drugs, while others have made their development intentions clearer.

Dewpoint appears the furthest along. The company claimed to have over 20 pipeline programs when it closed a Series C round in February, and has said it intends to get into human testing by the end of 2023. Among those prospects are treatments for ALS, an HIV drug being developed with Merck and a treatment for a neuromuscular disorder known as myotonic dystrophy type 1 that it’s working on with Pfizer.

The company is also researching with Bayer possible drugs for diseases of the heart and lungs.

Aquinnah has three programs in preclinical testing and could begin human testing in two to three years, according to CEO Larsen.

Nereid has said it plans to develop drugs for neurodegenerative diseases and certain cancers, but hasn’t disclosed any specific programs. Neither has Transition.

Before it closed, Faze was studying the role of condensates in ALS, cancer and myotonic dystrophy.