Emerging biotech

After more than two years in the doldrums, initial public offerings, an important indicator of the biotechnology industry’s health, have shown signs of life. 

A run of offerings in the first six weeks of 2024, most worth around $100 million or more, has put the sector on its strongest pace since 2021. Those IPOs, combined with the recovery of biotech’s two flagship stock funds and a dealmaking surge, have given industry watchers reasons to be optimistic. 

“Some of the trends that are going on are in the right direction,” said Mike Perrone, a managing director at Baird, an investment bank. If they continue, “we can feel confident that the worst is behind us.” 

Yet it’s unclear whether that’s the case for IPOs. Since a torrid two-week stretch in late January and early February, no biotechs have priced an IPO. Offerings appear most accessible to companies with drugs in advanced testing; those earlier on still seem to be having difficulty. Some predict offerings won’t pick up until later this year or even 2025. 

“There’s still a lot of selectivity,” said Peter Maag, the CEO of Kyverna Therapeutics, which raised one of the year’s largest offerings. The market is “skewed towards late-stage, de-risked types of assets.” 

Whether it stays that way could have important consequences for how drug startups are built and financed in the near future. Here are three questions to watch:

Is the recent IPO surge a mirage? 

Through March 25, eight biotechnology companies have priced an IPO this year. They’ve raised roughly $1.2 billion combined, far more than the total at this point in each of the last two years. In 2023, four companies raised a total of $375 million, while the year before eight biotechs pulled in $675 million, according to BioPharma Dive data.

CG Oncology, Kyverna Therapeutics and ArriVent Biopharma each raised more than initially projected. Their stock prices climbed after pricing, too, a sign of public investor demand. All three currently trade well above their IPO price.

Yet, over the past two years, dry periods have typically followed spurts of IPO activity. That appears to be happening again this year. 

Industry insiders interviewed by BioPharma Dive had mixed views on whether that pattern will change. 

Kazi Helal, Pitchbook’s senior healthcare analyst, said the surge in successful offerings could convince other biotechs to capitalize on the momentum. “More people will go IPO now because there's now money, and they don't want to be the last guy when there's no money,” he said.

But others are cautious. Michael Cohen, co-leader of Brown Rudnick’s venture capital group, expects more activity in late 2024 and early next year. To his colleague Chris Jeffers, Brown Rudnick’s vice president of life sciences, the pace of offerings by April will be a better barometer of whether the IPO window is actually open. 

Economic uncertainty or swings in the broader market may also impact the pace of activity, noted Kale Frank, managing director in Silicon Valley Bank’s life science and healthcare practice. Poor performance by newly public companies could push others to adjust.

"You will see some bursts of activity," but also "some cold spells,” Frank said. 

A glut of biotechs are waiting. The current backlog of companies looking to go public is bigger "than we've ever had,” Frank said. Investors are telling a lot of those companies "to be ready and be opportunistic.”

Will the IPO market open up?

Since the start of 2023, there has been a change in the type of company that can successfully go public. 

More than half of the 28 IPOs since — and nine of the largest 10 offerings — involved companies with drugs in mid-stage testing or later, according to BioPharma Dive data. By comparison, only six companies without a drug in human trials have priced. They raised an average of about $88 million. Half pulled in less than $10 million. 

The shift reflects a move by investors to safer bets. In 2020 and 2021, a majority of the companies going public were either in preclinical or Phase 1 testing. Now, companies with early, or broad drugmaking technologies are having a tougher time. 

“People with a platform that is five years away from the clinic, that’s just not going to fly in this environment whatsoever,” Christiana Bardon, a co-managing director of MPM BioImpact, said in an interview.  

Gene editing biotech Metagenomi is one example. The company has not yet named a lead drug candidate, but does have partnerships with Ionis Pharmaceuticals and Moderna. Its efforts to go public were being watched by industry observers as a test of whether IPOs were open to earlier-stage companies, noted Tim Ehrlich, a partner at law firm Gunderson Dettmer who advises young biotechs. 

“To really see momentum, we need to see an expansion of the opportunity for companies,” he said, so startups nearing human testing also have a shot.  

Yet, Metagenomi priced at the bottom of its projected range, and has since lost a chunk of its value, adding to skepticism the IPO market will open up. “For the foreseeable future, I would expect more of the same,” Baird’s Perrone said. 

Instead, some say that preclinical companies will have to adapt to get investor attention. According to SVB’s Frank, those startups must have a “real viable path to the patient.” Many have been having conversations with their boards over the last year or two to identify drug prospects that can get them on that path, he said. 

“The patience for investors in some of these bigger stories that are going to take longer just isn’t there in the way it was a few years ago,” Frank said. 

Jeffers adds there appears to be a greater emphasis among venture firms to incubate companies in-house before bringing other investors in. Such an approach is meant to lower risk and sharpen development plans so, when those companies do move forward, they’re “really well baked,” he said. 

“The reality is, the public markets are not qualified to judge a lot of the early science that’s going on,” he said. “It’s a very difficult place to extract value.” 

Will venture funding become easier to raise?

The effects of the IPO slowdown that began in late 2021 quickly trickled down to startups and their venture backers. The road to the public markets got longer, forcing biotechs to raise more money privately and at lower valuations. Investors became more selective. 

The ensuing funding crunch caused a good number of biotechs to shut down or turn to existing investors to survive. Annual reports from Pitchbook, SVB and HSBC all show a sizable drop in venture funding totals over the last two years. 

A resurgent IPO market could change that. If IPOs are available, startups may have an easier time raising the funding that proved so elusive during the pullback. Importantly, those rounds could be raised “at parity or above” the valuations companies received in their last round, said Baird’s Perrone. 

When IPOs are moving along, “companies in the private sector have a way forward,” Pitchbook’s Helal said. That could motivate biotechs to once again pursue offerings.  

Yet some sources working on venture deals say private investors aren’t waiting on an upturn in IPOs. Instead, there are signs they’re already putting more money into biotechs than they were. 

Cohen, of Brown Rudnick, says over the last three months, he’s observed a “significant uptick” in the number of seed and Series A rounds, the early fundings that get young drugmakers started. 

“I'm seeing a willingness to support these new companies in a manner that I haven't seen since the first quarter of 2022,” he said. SVB’s Frank agrees, noting an increase in investments “in general,” not just with early-stage companies. 

The reason, Cohen said, is that a number of companies have either been bought or “petered out,” freeing up the bandwidth for investors to back newer biotechs. Additionally, investment firms that raised funds a few years ago but held onto the money are being pressured by their backers to act, added Jeffers.

SVB’s Frank adds that investors have now had the time to work through their portfolios and decide where to put their cash. They’re also sensing that “there’s more clarity” around the state of the public markets.

“By and large, the private markets are back,” Jeffers said. “The stringency by which we are judging things is higher, but money is definitely flowing.” 

The J.P. Morgan Healthcare Conference, a yearly temperature taker for the biotechnology industry, had a different feel in 2024.

For the first time in awhile, young drugmakers and their backers were optimistic the sector’s downturn might finally be over. An improving macroeconomic picture, combined with a recent run of dealmaking, has led many to hope investors may again see biotech as a worthy bet.

“This event is always the canary in the coal mine for the year,” said Andreesen Horowitz general partner Jorge Conde. “This year, we have a happy canary.”

Yet underneath the optimism remain concerns the rebound may be short lived. Private funding rounds and initial public offerings are still difficult for biotech companies to pull off. Early technologies aren’t getting the same support they were three years ago. Among nearly a dozen investors and executives interviewed by BioPharma Dive, all expect changes in how biotechs are built and that industry layoffs, which regularly made headlines last year, will continue.

An election and geopolitical conflict could also bring uncertainty for a sector already defending itself against drug pricing legislation and an aggressive Federal Trade Commission. The Federal Reserve, which has signaled interest rate cuts, may still surprise markets, too.

”There’s a lot of stuff going on in the world that no one in this room really can control,” said Kristina Burow, a managing director at Arch Venture Partners. “2024 is probably going to be a roller coaster.”

The new funding climate

Investors interviewed at the meeting were hesitant to make predictions on biotech initial public offerings, which have dropped dramatically since their 2021 peak, according to BioPharma Dive data. While there were some signs of market momentum last year, each spurt of IPO activity quickly lapsed into longer dry spells.

There were a few big winners in 2023. Radiopharmaceuticals developer RayzeBio went public and was quickly acquired by Bristol Myers Squibb. Companies with drug candidates in testing, like Neumora Therapeutics and Structure Therapeutics, were rewarded with lucrative offerings and a climbing share price.

Overall, however, performance was mixed and IPOs were few. Public investor demand appears limited to more advanced companies, making the road to an IPO for earlier-stage startups harder.

“We’re still optimistic on companies, but the trading dynamic hasn't been great,” said Carlo Rizzuto, a managing director at Versant Ventures, which invested in RayzeBio.

Private investors also appeared to shy away from backing so-called drugmaking platforms, which saw large drops in funding totals. And later funding rounds were harder for companies that raised Series A rounds but hadn’t hit key milestones yet. Gone are the days of a quick pivot from a Series A to a “crossover” round and subsequent IPO.

“People with a platform that is five years away from the clinic, that's just not going to fly in this environment whatsoever,” said Christiana Bardon, a co-managing director of MPM BioImpact. “But if you have a Phase 2 asset that's coming into the clinic for a great indication, you're going to do fine.”

Building differently

Platform companies will still exist and win investor backing, of course. But they’re now being more tailored to the moment, investors say.

During the height of biotech’s bull run a few years ago, billions of dollars were going to companies built with such broad ambitions. They were staffed with high-powered management teams and hired hundreds of employees to build out technology they claimed could support many drugs across many diseases. “That’s because things were frothy,” says former Alnylam Pharmaceuticals CEO John Maraganore, now a consultant and adviser to startups. “Companies got overbuilt.”

That frothy environment led investors to provide what a16z’s Conde described as “R&D funding with public capital.”

“You’re putting your phone on ‘Do Not Disturb’” and saying “you're not going to hear from me for awhile,” he added. In the meantime, share prices — and the broader market — deteriorated.

Venture backers are aware market expectations are now higher. "People are, in this environment, judging companies much more sharply and quantitatively about their demonstrable progress rather than the promise of progress,” said Vik Bajaj, a managing director at Foresite Capital.

Platform companies may therefore have to be constructed differently, with more tightly controlled spending. “Leaner,” Rizzuto said, with smaller staffs, more outsourced functions and smaller physical footprints.

“Work the deal hard over the initial 12 to 18 months, until you really feel confident that there’s a ‘there’ there,” he said.

In Maraganore’s view, preclinical companies should stay under 100, or even 50, employees until advancing far enough to warrant growing bigger.

Companies may also delay filling out their executive team, which can be a big source of cash burn for fledgling companies. Startups like Artbio and Maze Therapeutics already have taken this approach.

“We’re not rushing to build a C-suite,” said Artbio CEO Emanuele Ostuni, adding that he wanted the “middle layers of the company to be solid.” Maze CEO Jason Coloma chose not to hire a full management team and is currently performing multiple C-suite functions instead.

“But you have to consciously say ‘okay, we're not going to do that,” he said.

Lessons learned

One frequent criticism of biotech in recent years is that too many companies were created. Many were formed around similar technologies and targeted similar groups of diseases. Once the market turned, they had to fight for investors’ attention and cash. A wave of layoffs and company restructurings has followed.

Venture capitalists interviewed by BioPharma Dive claim things may be changing.

Conde says that, in the past, investor and founder groups split off to start more competing companies, diluting the talent, intellectual property power and funding that can go into each. Now, he speculates there may be a shift to pool larger groups behind fewer companies. Already there have been data suggesting as much from J.P. Morgan and Pitchbook, showing that venture firms are making less, but more substantive, investments.

“Instead of investing in three different companies, let's actually go back to the way things used to happen in biotech,” Conde said. Then “you’ll have a concentration of technology and talent, and syndicate support and all that.”

Even if fewer companies do get built, investors say they will have to quickly get initial drug prospects moving and engage potential pharmaceutical partners early.

“Focus, performance and execution are going to be what makes the difference now,” said former Sage Therapeutics CEO Jeff Jonas, now a partner with investment firm Cure Ventures.

Maganore said these strategies suggest the next crop of biotechs should be “a lot more grounded in product opportunities than what you've seen before.”

“Every time we go through these cycles, we learn,” he said.

Gwendolyn Wu contributed reporting.

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It has been over two decades since the European Union (EU) issued the first Commission Directive (2001/83/EC) regarding biosimilar drugs (referred to as similar biological medicinal products). Five years later, the small biologic Somatotropin was approved (2006).^{1, 2} It was still two years until the United States (U.S.) entered the biosimilar market, triggered by (U.S.) Congress approval of the Biosimilar Price Competition and Innovation Act (BCPIA). BCPIA was enacted as a provision of the Affordable Care Act the following year (2010) creating a regulatory approval pathway for biosimilars for Americans. The U.S. Food and Drug Administration (FDA) issued an abbreviated licensure pathway with submission under 351(k) (2012) for approval of biosimilar drugs. This licensure pathway permits a biosimilar biological product to be licensed under the Public Health Service Act (PHS Act) based on less than a full complement of product- specific preclinical and clinical data. The first biosimilar (Zarxio, Filgrastim-sndz) was approved by the FDA three years later.^{3, 4} As in the EU, the first approved biosimilar in the U.S. was a small biologic (18.8 kDa). Incrementally, the biologics approved as biosimilars increased in complexity/size. The first monoclonal biosimilar drug product approved was for reference product Remicade (infliximab) and was approved by the EU in 2013 and the U.S. in 2016.

In the U.S., guidance for establishing interchangeability was finalized in 2019. Per this guidance, approved biosimilars are not automatically considered Interchangeable. Instead, the interchangeable designation is applied after biosimilarity is confirmed and following the review of additional data needed to support a demonstration of interchangeability. Products that will be administered multiple times are recommended to be assessed using switching studies that cycle patients between the reference product and the biosimilar.^{5, 6} In late 2023, adalimumab-adbm was the first biosimilar approved with the Interchangeable designation in the U.S., which allows for pharmacy-level substitutions between the reference product and an approved biosimilar.⁷

Prior to 2022, the European Medical Agency (EMA) did not provide biosimilars with an interchangeable designation, allowing each country to establish individual recommendations. However, to harmonize recommendations within the EU, the EMA and the Heads of Medicines Agencies (HMA) issued a joint statement on July 22, 2022 that confirmed that all biosimilar drugs were interchangeable. The level of approval required for substitution is still decided by each country.⁸

Overall, the EU is the clear leader in biosimilar adoption with 86 approvals, compared to 46 in the U.S. (as of March 2024).

Method development and validation to support biosimilar programs pharmacokinetic assays

Bioanalytical assays that measure the concentration of reference and biosimilar drug products in patient samples ensure that the pharmacokinetic (PK) characteristics of both drug products are comparable by evaluating the pharmacokinetics/potency of targeted epitopes. Differences in the drug products at this level are not observed in chemistry and manufacturing controls (CMC) comparability testing but may be observed during PK method development. PK assays also allow for comparisons of drug clearance and biodistribution of the reference product versus the biosimilar.

Marini et al. discussed the one-assay-approach in 2014.⁹ The goal of method development and validation is to establish bioanalytical comparability using a single assay designed to detect each drug product equally. This approach eliminates the biases that may result from methodology differences and allows the bioanalytical scientist and clinical pharmacologist to remain blinded to dosing. Concentration-response curve comparison was also recommended by Marini et al.⁹ To support the one-assay approach, this assessment must occur very early in development. Current recommendations now suggest that curve overlay experiments must also be conducted during validation.¹⁰

Immunogenicity assays

Anti-drug-antibodies (ADAs) may change the rate of drug clearance or potentially cause severe reactions or adverse events including anaphylaxis and cytokine release syndrome. As a result, similar immunogenicity profiles for the reference standard and biosimilar are critical when establishing biosimilarity. Two drug products may have differential immunoreactivity in patients due to glycosylation or post translational modifications. Evaluating immunogenicity ensures that the magnitude (incidence and severity) of immune response is the same in patients dosed with the reference product versus biosimilar. Immunogenicity is also key when establishing interchangeability in the U.S. Switching studies are recommended to evaluate the immunogenicity impact as patients switch between a reference product and biosimilar over an extended treatment time.

Regulatory agencies only require that the biosimilar product is no more immunogenic than the reference product when evaluated head-to-head. Due to the evolution of assay methodologies, ADA incidence in patients assigned to the reference product may be higher than reported during historical trials. This is expected, as advances in methodologies over the last decade have improved assay sensitivity. Consequently, comparative immunogenicity assessments during the biosimilar clinical trial provides the most meaningful data. In circumstances when ADA incidence is lower than previously reported for the reference product, it may suggest that the bioanalytical method used for biosimilar assessment is not fit-for-purpose.

The bioanalytical industry extensively debated using one versus two assays for biosimilar immunogenicity assessments.¹¹ In 2019, the one-assay approach was determined to be most appropriate.¹² In addition to providing rationale for using a single assay for comparative assessments, evaluations such as drug tolerance and confirmatory evaluations were also recommended to provide evidence for antigenic equivalence. As a final step,during validation, confirmatory cut points were established with both drugs, and similarity is assessed using a statistical approach; ANOVA and LEVENES test were suggested.

Method development and validation to support a biosimilar program at a CRO

When contracting bioanalytical method development with a contract research organization (CRO), it is important that a sponsor has identified the target markets for biosimilar approval. As discussed above, the U.S. and EU have different requirements, as do many of the other regulatory agencies world-wide. Early market identification will enable the CRO to better scope and frame expectations. Each market has specific regulations that must be followed, and additional drug products will also extend development time and complexity of the validation. It is also important to know that even if a CRO has an in-house assay for reference product analysis, this should be considered a starting place and pre-validation runs will be necessary to confirm comparability of the biosimilar and the reference product. And full validation will be necessary for the required head-to-head comparisons.

In addition, final certificate of analysis (CoA) for the biosimilar is essential; changes in concentration will trigger full scale recalculations during the validation phase. Finally, as with all bioanalytical assays, good capture and detection reagents are essential to a quality method. As noted in Thway et al., reagents for reference products off-patent are often commercially available and are used in 80% of cases that were evaluated.¹⁰ However, caution should be used; these reagents may not detect the reference product and biosimilar in an identical manner, as commercially available reagents are not specific to the biosimilar structure and may result in under recovery due to post translational modifications present on the biosimilar.

Sample analysis to support biosimilar programs

Bioanalysis for a biosimilar program’s patient samples can be daunting; however, if planned correctly keeping regulatory requirements, shipment logistics and analysis strategies top of mind, these large quickly – enrolling studies can go very smoothly. Published reference product results permit method development to be tailored appropriately, ensuring the assay range, sensitivity, drug tolerance and throughput of each assay are optimal for method performance and clean, high quality data submissions.

Strategic planning for each study ensures that requirements are met for each regulatory authority that will review the data and can reduce variability between the reference product and reference product dose groups. The assay acceptance controls, drug products and statistical evaluations are just some of the aspects affecting comparability assessments that are required to ensure submissions schedules are met in the highly competitive biosimilar segment.

Controls

Per EMA guidance all controls included on sample analysis assays must have criteria applied to pass or fail a run.

The sponsor will have access to characterization data for the proposed biosimilar drug product and has the ability to extend product stability over the life of the program. Therefore, when using a single assay approach, after comparability of the two drug products is proven in method development and validation, all controls used to monitor PK assay performance should be prepared with the biosimilar. For immunogenicity assays, the biosimilar should be used in the inhibition solution for all samples, regardless of dosing product.

In addition, setting upper bounds for the assays negative control (NC) and lower bounds on the low positive control (LPC) for immunogenicity methods is important to ensure the LPC/NC signal to noise ratio remains within the bounds established during validation.

Qualifying a new lot or preparation of critical reagents is important to ensure the bioanalytical methods consistent performance. A target interference control (TIC) can be used to monitor the performance of new lots of reagents used to reduce target interference. A TIC can be used to qualify new lots of the reagent which is used to limit the formation of drug-target complexes which may lead to false positives for immunoreactivity. New lots of reagents should be bridged into the method prior to use to ensure the TIC meets acceptance criteria and the TIC can be included in each sample analysis assay (but is not required).

PK considerations

Reference products are packaged with a nominal concentration for dosing; however, the actual concentration of each lot is within an allowable range. Whereas the biosimilar is dosed at a known concentration for the individual lots. This may contribute to a perceived comparability issue in the PK data.

This actual versus the package concentration difference for reference product drugs is also a reason to use the biosimilar to prepare calibrators, quality controls and inhibition solution once comparability is proven in method development and validation.

Immunogenicity considerations

Immunogenicity data is generated to determine if the immune response is the same in patients dosed with the reference product versus the biosimilar. The data is considered qualitative so ensuring the assay performance is consistent with validation data and that assay variability is low is important for accurate and high-quality analysis.

The patient population should be evaluated to determine if it is consistent with the commercially purchased individuals used to generate the cutpoints during validation. The two populations are considered equivalent if the study predose sample screening and confirmatory results generates a false-positive rate of 2%-11%.

An in-study cutpoint may be required if the patient population differs from commercially available individuals used to determine the cutpoints during validation. If an in-study cutpoint is needed, samples collected during patient screening may be used instead of the day 0 predose samples if available. This reduces the handling and volume stress of analyzing predose samples in multiple panels for cutpoint statistical evaluations.

It is also important to ensure the ADA drug tolerance is sufficient to cover sample Cmax to minimize risk of false-negative immunogenicity results, potentially impacting comparability between dose groups.

Analysis Strategies to Limit Artificial Variance Between Biosimilar and Reference Product Patient Results

“The observed bioanalytical bias differences exceeded 10% in nine out of 18 comparisons between biosimilar product and US-reference product and in seven out of 15 comparisons between biosimilar product and non-US comparator product. These data demonstrate that understanding the potential bias difference that may exist between products may be important and suggest that minimizing the absolute bioanalytical bias difference among products to less than 10% could be beneficial.”¹⁰

One strategy to reduce bioanalytical bias is to batch samples by patient into a single assay from dosing to washout timepoints to reduce assay-to-assay variability.

This allows for the most accurate area under the curve calculations for PK assays. This reduction in variability also allows for a meaningful comparison of ADA results, particularly titer results, across timepoints for a patient. This does increase the amount of long-term stability needed to cover PK samples and the complexity of selecting samples for analysis by subject ID as full profiles become available at the BioA lab for testing.

Employing automation, especially for the PK analysis, is another way to decrease assay-to-assay variability it results in an electronic audit trail of sample volumes used in sample dilutions and plating which can be reviewed to find assignable cause for any results questioned by the PK scientists.

Neutralizing antibody (NAb) analysis may be optional depending on how many patients generate an ADA response. Very low immunogenicity rates may not be balanced between dosing groups and the data may not be meaningful for comparability between drugs. The NAb method should be validated so the data can be obtained quickly if needed.

Reanalyzing samples after generating an initial reportable result is highly discouraged by guidance. If reanalysis is required, the assignable cause must be well documented and very transparent in the final bioanalytical report. The lab should also ensure samples and controls are within long-term, freeze thaw and thawed matrix stability parameters established during validation. Method performance trending can also be very important for ADA and NAb analysis to ensure critical reagents are maintaining validation performance and any deteriorating critical reagents are replaced promptly.

Looking to the future

Over the next several years many of the biggest drugs that will come off market are biologics and therefore candidates for biosimilar products. Biologics coming off patent leading up to 2030 include but are not limited to Keytruda®, Revlimid®, Eliquis®, Eylea®, Stelara®, Opdivo®, Trulicity®, Prolia®, Cosentyx® and Entyvio®. More than 15 large pharma companies are major players in the Biosimilar business and will be targeting development and testing of biosimilar products to align with patent expirations.

Market research estimates growth from $35.47 billion to $82.27 billion over the 5-year period from 2024 to 2029. Asia Pacific is expected to be the fastest growing biosimilar market with North America being the largest market. , As biosimilar companies compete to grab a share of the market the cooperation between pharma and CROs to create and execute analytical methods with highest quality comparability assessments will be key to gaining approval and licensure for new biosimilars products.

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References

1. Romer, T.; Peter, F.; Saenger, P.; Starzyk, J.; Koehler, B.; Korman, E.; Walczak, M.; Wasik, R.; Ginalska-Malinowska, M.; Solyom, E. Efficacy and safety of a new ready-to-use recombinant human growth hormone solution. Journal of Endocrinological Investigation 2007, 30, 578-589.

2. Saenger, P. Current status of biosimilar growth hormone. International Journal of Pediatric Endocrinology 2009, 2009, 1-6.

3. Awad, M.; Singh, P.; Hilas, O. Zarxio (Filgrastim-sndz): the first biosimilar approved by the FDA. Pharmacy and Therapeutics 2017, 42 (1), 19.

4. Raedler, L. A. Zarxio (filgrastim-sndz): first biosimilar approved in the United States. American health & drug benefits 2016, 9 (Spec Feature), 150.

5. Biosimilars and the era of interchangeability. The Lancet Rheumatology 2023, 5 (9), E495.

6. Barbier, L.; Vulto, A. G. Interchangeability of biosimilars: overcoming the final hurdles. Drugs 2021, 81, 1897-1903.

7. Bhat, S.; Patel, M.; Duly, K.; Choi, D. Adalimumab-adbm: the first interchangeable biosimilar for the treatment of inflammatory diseases. Annals of Pharmacotherapy 2022, 56 (12), 1356-1364.

8. Gherghescu, I.; Delgado-Charro, M. B. The biosimilar landscape: an overview of regulatory approvals by the EMA and FDA. Pharmaceutics 2020, 13 (1), 48.

9. Marini, J. C.; Anderson, M.; Cai, X.-Y.; Chappell, J.; Coffey, T.; Gouty, D.; Kasinath, A.; Koppenburg, V.; Oldfield, P.; Rebarchak, S. Systematic verification of bioanalytical similarity between a biosimilar and a reference biotherapeutic: committee recommendations for the development and validation of a single ligand-binding assay to support pharmacokinetic assessments. The AAPS journal 2014, 16, 1149-1158.

10. Thway, T.; Wang, Y.; Booth, B.; Maxfield, K.; Huang, S.; Zineh, I. Current perspectives on ligand-binding assay practices in the quantification of circulating therapeutic proteins for biosimilar biological product development. The AAPS Journal 2020, 22, 1-6.

11. Ryding, J.; Stahl, M.; Ullmann, M. Demonstrating biosimilar and originator antidrug antibody binding comparability in antidrug antibody assays: a practical approach. Bioanalysis 2017, 9 (18), 1395-1406.

12. Civoli, F.; Kasinath, A.; Cai, X.-Y.; Wadhwa, M.; Exley, A.; Oldfield, P.; Alvandkouhi, S.; Schaffar, G.; Chappell, J.; Bowsher, R. Recommendations for the development and validation of immunogenicity assays in support of biosimilar programs. The AAPS Journal 2020, 22, 1-9.

Arch Venture Partners, one of the biotechnology sector’s most prolific company creators, is raising a new $3 billion fund, according to an early February regulatory filing.

The fund, which would be Arch’s 13th, is being put together less than two years after the firm closed a similar-sized $3 billion raise that was its largest to date. Plans were outlined in a filing Arch made with the Securities and Exchange Commission. The form was signed by Arch managing director and CFO Mark McDonnell.

Arch declined to comment on the filing.

Arch’s planned raise comes at a time of tenuous optimism in biotech. An uptick in dealmaking and the prospect of interest rate cuts in 2024 has fueled a recent rally in the sector’s stocks. There have been signs of life for initial public offerings, too, with eight biotechs raising about $1.2 billion combined this year. More are set to follow.

Arch isn’t alone in raising investment: A number of venture firms closed new funds in the second half of last year, including OrbiMed, Westlake Village Biopartners, Bioluminesence Ventures, Pivotal Life Sciences, Abingworth and Yosemite. Combined, those six funds alone have more than $6 billion to deploy into new investments.

Yet the good signs could be temporary. The Federal Reserve hasn’t yet moved to lower interest rates, although it’s still signalling cuts are coming soon. An election year and geopolitical tumult could bring further financial uncertainty. Funding for biotech startups has also fallen from record highs as investors have become more selective and turned toward safer bets. Many startups and publicly traded biotechs are still struggling to survive.

“I’d put myself in the cautiously optimistic group,” said Arch managing director Kristina Burow, in an interview last month. “The pace of innovation is sky high,” she said, but added that “2024 is probably going to be a roller coaster.”

Still, even against that backdrop, Arch has placed more bets than most. A recent report by investment bank Oppenheimer & Co. found the firm put $2.1 billion into companies last year, the third most of any biotech investor.

In a January report, meanwhile, HSBC’s Innovation banking division found Arch participated in more deals, 11, than any other biotech venture focused on early-stage investments. Those deals included Neumora Therapeutics, a brain drug developer that went public last year, and RNA drugmaker Orbital Therapeutics, which raised one of 2023’s largest funding rounds.

“2023 was a very difficult year. The industry really scrambled,” said Burow, who’s been at Arch for more than two decades. But “our strategy hasn’t changed in the years I've been around.”

Founded in 1986, Arch was an original investor in DNA sequencing giant Illumina. Over the years, the firm has become one of biotech’s most prolific early-stage investors, often participating in cutting-edge areas of science, like RNA interference with Alnylam Pharmaceuticals or genetic medicine with Juno Therapeutics and Bluebird Bio. More recently, the firm has invested in gene editing startups like Beam Therapeutics and Tome Biosciences.

While Burow is concerned about the broader economy, she’s still expecting money to flow into biotech in 2024, just at a slower pace than during the sector’s peak.

“This my third downturn. It’s not an unprecedented series of events,” she said. Though there is “some economic instability, you have drugs and innovation coming from biotech and reaching patients at an accelerated pace with, I think, bigger impact.”

Ask a biotechnology company executive, investor or analyst how they feel about the sector in 2024, and the answer tends to include, in one way or another, the word “optimistic.”

They have some reason to be, despite a downturn that’s dragged on for more than two years. Dealmaking, a key source of returns for biotechs and their investors, perked up in 2023. The Federal Reserve has signaled interest rate cuts may be coming, bolstering a market rally for biotech stocks that some expect to continue this year.

Still, industry watchers are cautious. Last year brought a six-year low in initial public offerings, mixed returns for those who did go public and a wave of layoffs at small and large companies alike. Investors remain skittish, making funding rounds harder to complete.

“We are not out of the woods yet,” Jonathan Norris, a managing director at HSBC’s innovation banking division, wrote in the firm’s annual recap.

Here are five questions emerging biotech companies face in 2024:

Is this the new normal for IPOs?

Only 19 biotechs went public last year, down slightly from 2022 and far below the 104 that priced in 2021, BioPharma Dive data show. The question no longer appears to be when biotech IPOs will bounce back, but rather whether the bar for young drugmakers is now higher.

In 2020 and 2021, nearly two-thirds of biotechs that went public had drugs either in preclinical or Phase 1 testing. By comparison, only eight IPOs last year were from companies that early in development. About one-third of the drug developers going public were already in Phase 3 trials, a higher percentage than in any of the previous six years.

While a smaller sample size, last year’s numbers suggest the road to an IPO may be longer for young biotechs. That is forcing startups to lean more on their existing backers for funding. Even when biotechs have priced IPOs recently, insiders are closely involved. HSBC Innovation Banking noted how last year’s offerings were “more heavily covered by insider syndicates” than previous years.

Investors and analysts are also monitoring whether newly public companies can hold their value. About half of biotech’s 2023 IPO class did, led by radiopharmaceuticals developer RayzeBio, which Bristol Myers Squibb acquired only months after its stock offering, and obesity drug developer Structure Therapeutics. But many trade well below their IPO price.

“There's been a very mixed performance,” said Jackie Spencer, head of relationship management for SVB’s life sciences and healthcare practice. “A number of companies have gone out earlier in the year and are trading significantly down. We've seen some trade up, we've seen some stabilize, so I think continuing more of that performance will be pretty key.”

Will the layoff wave continue?

Nearly 150 drugmakers announced layoffs last year, according to BioPharma Dive data, a wave of restructurings that engulfed both startups and public companies.

The source of the problem was a financing crunch that made equity offerings for public companies difficult to pull off, and rounds for privately held startups harder to raise. The current climate contrasts with the last decade, when investors poured into biotech, giving fledgling companies the financial wherewithal to build up staff and pursue a wide range of programs.

Layoffs in biotech have always been “binary,” Spencer said. If a drug fails in testing, cost-cutting usually follows. But in the current environment, difficulty raising subsequent funding rounds is a common culprit.

As a result, companies now have to make tough decisions about which programs to fund, or even whether to dial back their research. A report earlier this year from investment bank Stifel indicated that smaller biotechs accounted for the bulk of industry layoffs in the first half of 2023.

“We're going to continue to see companies needing to do more with less,” Spencer said.

Startups may have to look elsewhere for cash. That could mean partnering with larger companies, raising debt or selling royalty rights to prospective programs, all of which involve trade-offs.

“It's imperative for companies to use every tool in the toolbox these days and not just rely on equity financings as route one for getting capital for the company,” Kevin Eisele, a managing director at investment bank William Blair, said in an October panel hosted by BioPharma Dive.

Will the specter of FTC action hurt startups?

The Federal Trade Commission’s December announcement it would sue Sanofi to block the company’s licensing of a rare disease drug candidate from Maze Therapeutics sent a chill through biotech.

Federal regulators’ opposition to the deal could mean increased scrutiny for early-stage licensing deals, not just large pharmaceutical M&A. The FTC’s complaint against Sanofi claimed the French firm sought to kill competition for its own drugs for Pompe disease, which progressively weakens the heart and skeleton muscles.

“How can a risky, early-stage candidate requiring years of R&D be a competitive threat?” analysts at Cantor Fitzgerald wrote in a December industry report.

Sanofi ultimately chose to let Maze’s experimental treatment go, rather than fight the FTC’s case — a surprising turn of events that suggests the company didn’t see the deal as worth the legal effort to defend.

While alarming to those in industry, the FTC’s action may not turn off the dealmaking spigot, especially after Pfizer and Amgen were able to close their respective deals for Seagen and Horizon Therapeutics. And pharmas still rely heavily on young biotechs to supplement their own research laboratories, particularly as many face looming patent "cliffs."

Can startups break into the obesity drug race?

2023 was the year weight-loss medicines broke through. A poll from the Kaiser Family Foundation found nearly half of adults surveyed were interested in taking a safe and effective obesity drug. About 70% had heard at least “a little” about therapies like Novo Nordisk’s Wegovy and Eli Lilly’s Zepbound, drugs known as GLP-1 agonists.

Though Lilly and Novo currently dominate the market with their respective medicines, they’re followed by a widening field. Other pharmas are advancing research programs of their own, while some hunt for smaller biotech prospects to plug into their pipelines.

Already there have been multiple deals announced. Roche, for instance, bought startup Carmot Therapeutics before it could go public. Lilly and Novo brokered deals for startups. AstraZeneca turned to Ecogene to get an experimental drug.

Yet Lilly and Novo have set a high bar. Structure, which went public last year on the back of its obesity drug work, lost nearly half of its value when its top treatment appeared less potent than a Lilly medicine in clinical testing. The setback was a cautionary tale for startups aiming to compete. Many, among them Carmot and Regor Therapeutics, are developing their own GLP-1 drugs.

"What are the other opportunities around diabetes and obesity?” said Jakob Dupont, an executive partner at Sofinnova Investments. “Are they things that are complementary to GLP-1s? Maybe that's the next company we should be focusing on.”

Several are trying. OrsoBio is working on drugs meant to be used in tandem with GLP-1 drugs. Kallyope and Versanis, the latter of which Lilly acquired, are among those advancing different approaches.

Will platform companies remain out of favor?

Last year, pharmaceutical companies showed they’re willing to pay up for derisked products that can quickly fill their pipelines.

A number of the sector’s top acquisitions involved medicines either nearing regulatory approvals or in advanced testing. Bristol-Myers Squibb agreed to pay $14 billion for Karuna Therapeutics, which has a schizophrenia drug that could be cleared by the Food and Drug Administration this year. Astellas Pharma bought Iveric Bio for an eye drug a few months prior to its approval. Novartis and AbbVie, meanwhile, each gambled billions of dollars on medicines close to a study readout.

Those deals continued an investment shift favoring companies narrowly focused on drug candidates, rather than broad technology platforms that can be more expensive and time-consuming to develop. HSBC’s report showed that funding for biotechs with drugmaking platforms fell by more than half in 2023 as the “focus shifted towards clinical assets or funding for initial clinical data.”

Single medicines are also easier to sell to investors than a broader technology, said Armon Sharei, the founder of two platform companies, and currently the head of startup Portal Bio.

Yet drugmaking platforms are the foundation of some of the sector’s largest companies, like Alnylam Pharmaceuticals and Moderna. They can pioneer new ways to develop medicines, enabling companies to treat previously intractable diseases or reach tough drug targets.

In the current environment, though, platform biotechs are in a tough spot. Pressured to hit milestones quicker to raise cash, they may need to cut research, lay off staff or focus resources on only one or two medicines. That can lead to bets on something that "can go right or wrong for 1,000 reasons that might have nothing to do with the broader platform,” Sharei said.

BONUS: How will cell and gene therapy companies fare?

Cell and gene therapy developers have had a particularly tough time during the market’s pullback. Many have had to cut programs, retrench or lay off workers to save cash. Some startups have shut down for lack of funds.

“There are some real development and logistical problems” getting genetic medicines to patients, especially those who can’t receive cell or gene therapies because of the toxic preconditioning regimens they usually require, said Dupont, of Sofinnova.

Nonetheless, investors are still investing in cell and gene therapy, a trend some expect to continue.

Data from HSBC, for instance, show that four of the sector’s five largest funding rounds last year went to cell and gene therapy makers. The largest, Kriya Therapeutics, brought in $430 million. According to DuPont, companies that can help solve the field’s ongoing delivery challenges are likely to gain traction, as are those targeting autoimmune diseases — an increasingly competitive area of genetic medicine.

But sentiment around the field may depend on how several recently approved gene therapies, including the first CRISPR treatment, fare on the market. Gene therapy launches have generally been slow, making their commercial trajectory moving forward an important barometer.

Chris Gibson, the CEO of Recursion Pharmaceuticals, thinks the future of drug discovery lies within a ChatGPT-like interface.

At a J.P. Morgan Healthcare Conference reception co-hosted with Nvidia, the tech giant now making inroads with biotechnology investment, the Salt Lake City-based company set out to pitch biotechs small and large on its artificial intelligence software.

In a demonstration of a large language model-based program called LOWE, scientists at Recursion showed how the software can pull together information from animal models, commercially available compounds, and existing research papers on disease targets and molecules. Researchers can also use the software to order materials to start experiments.

LOWE and AI inventions like it are part of a broader bet that advanced computing can knock down some of the barriers that impede drug discovery and development. But there’s considerable skepticism about how much impact such tools will actually have, at least in the short term. Critics note how, even if AI helps identify a promising target or drug compound, the hard work of proving a medicine safe and effective in humans will remain. 

That hasn’t stopped companies like Recursion and Nvidia from investing, though. Early in January, Recursion announced it was continuing a partnership with Nvidia and licensing out its software to help drugmakers discover new targets.

Gibson sat down with reporters from BioPharma Dive, Axios and other publications on Jan. 10 to discuss how machine learning is helping biotechs today. His answers have been condensed and lightly edited for clarity.

ON NAVIGATING A BIOTECH DOWNTURN:

CHRIS GIBSON: It's been a challenging capital markets environment for biotech generally. And the question is "over what timeline are you optimizing for?" We had really fantastic conversations with the board, with leadership. And we've decided, while being prudent stewards of our capital — our burn was pretty flat this year compared to last — that we cannot walk away from the big bets we want to make. That's why we did acquisitions this year. 

You will see us continue to make bets. Ultimately, whether or not Recursion is successful, we're running an experiment that is going to give us or others behind us a lot of data about how one could take a swing at discovering and developing medicines better. But even if it's not us, it's the company behind us. It will absolutely be different in the next 10 years. 

I won't name them, [but] CEOs and heads of R&D from many of the large pharma companies … are starting to make these investments. If you're not already on board with building in this space, in eight years you will look like the equivalent of what a large traditional auto company looks like [now]. 

ON WHERE AI WILL GO IN BIOTECH:

GIBSON: The biggest question is how long it's going to take. There are going to be successes. There are going to be failures. People are going to make some predictions about the industry based on those early data points. 

What has happened in all these other industries, from the chip industry to the automotive industry, will happen in our industry. The fact is ... it's more regulated. And it's a more complex system. It's a question of when and how we're going to bring patients, scientists and the rest of the industry together.

Pie-in-the-sky case is in five years almost every biopharma company is using machine learning and AI to the level we are. But if it doesn't happen in five, it's going to happen in 10 or 15.

ON THE PRICE OF AI-FOUND DRUGS:

GIBSON: It makes failure cheap and easy at the early stage, so we can explore more broadly and every scientist can do five or 10 new programs a day. 

It doesn't mean that they're all going to translate. In fact, 99% of them aren’t, but the failure’s happening like in the first six hours, weeks or months, as opposed to happening six years down the road in Phase 2 or 3. That could still happen — that's inevitable. The question is how can we reduce that failure rate over time. It seems this could help scientists explore more scale. 

In 10 to 15 years, machine learning and AI will dramatically reduce the price of medicines. Today, the industry defends its extraordinarily high prices, because they fail 90% of the time in the clinic and they fail 90% of the time before the clinic. That is fair because it's a decade of investment. 

What if it was three years and 50% success? All of a sudden, a patient population of 500 patients might justify that investment for pharmaceuticals, or you might be able to justify going after 10 diseases at once. If you have all those companies going after all those diseases and being successful, you will have more competition. You will still have a vibrant ecosystem of businesses, because what we're doing is eliminating some of the cost of failure and putting it earlier in the process.

ON EXPANDING MACHINE LEARNING TO CLINICAL TRIALS:

GIBSON: I believe very deeply we will do that. But I don't think it's because we're going to design a trial that's 10 times less expensive.

We're going to pick a target based on much broader systems biology data that on average, across hundreds of targets, will eventually have a higher probability of success. Now, we won't know for any individual target whether they’ll succeed or fail, so it will seem bimodal to people who want to put all that kind of focus on that first readout. But at the end of the day, if you were to go out to our first 10 readouts, and then our next 10, and then our next 100, and do this across all the companies in the space who are starting to use these tools, I think we will bring down the price.

We will still spend a lot of money on clinical trials, because it's a critical thing to do. I don't think we're going to simulate clinical trials for 20 years, but we're going to have synthetic control arms. There's already companies working on that; even large pharma have adopted that at scale. In areas like oncology, we're going to have much better tools, like our collaboration with Tempus, allowing us to actually use data from patients to help identify novel targets. 

Our dream is to go back to the same patient, six or 12 months later, [whose] genetics helped us find a potential treatment, and try to enroll them in a study. You start to close that loop, that molecule is more likely to do well if you are treating the patient who also helped you find the medicine. This is the future: it's creating virtuous cycles of learning and iteration.

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.

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.