An Ambitious Proposal: De-risking in Biotech Investing

Introduction: Who am I?

My name is Laura A Prendergast, Chief Science Officer and Co-Founder of PlanetBio, and owner of a patent filing on an in vivo gene delivery system for HIV cure genetics. I have a BA from Columbia University in Biology, and an MS from New York University in Recombinant DNA Technology. I have done “benchwork” in a variety of academic and industry laboratories; written several grant applications for funding to the NIH and numerous charitable foundations; served in various roles in research laboratories including Business Manager and Senior Research Technician; and I am currently seeking funding for proof-of-concept experimentation to validate the genetic mechanism of my gene delivery system.

The observations that follow are drawn from my extensive education in biology, my experience in bioresearch laboratories, and on my efforts to acquire funding to develop what amounts to a cure for HIV.[1] My thesis is: in the current state of the Life Sciences sector, getting funding to develop treatments that either improve on or entirely obviate established pharmaceutical regimens is essentially hopeless. The Founder of PlanetBio (Peter Yassopoulos) and myself formed PlanetBio in part to rectify this dismal picture. By unifying bio-researchers and giving them a voice and a platform from which to be heard, we hope to improve the chances of viable cures acquiring FDA approval and ultimately getting these cures to the patients who desperately need them.

I am writing this overview of the Biotechnology sector to support a proposal (I call it “The Collaborative”) for improving the investing landscape for venture capital firms that fund biotech companies developing innovative treatment options or actual cures for diseases that are currently treated with expensive drugs that have to be administered indefinitely.[2]^,

Let’s have a look at the current situation.

There is an approximate duality between Big Pharma and the Biotechnology sector. Until relatively recently, Big Pharma tended to focus on what Biologists call “small drugs” – synthetic chemicals engineered to fit into the binding pocket of a target enzyme or receptor, or to modify the activity of a target molecule in some other fashion. Biotech companies, in contrast, mostly focus their efforts on what Biologists call “biologics”: these include monoclonal antibodies, aptamers, genetic therapies, protein or RNA vaccines, or T-cells that have been engineered for therapeutic purposes. Biologics hold an advantage in that they do not introduce any molecular classes into the body that aren’t already naturally present; hence, they are likely to have a stronger safety profile and are less likely to be toxic. Also, monoclonal antibodies and gene therapies can be exquisitely specific, and therefore less likely to engender “off-target effects.”

Most major pharmaceutical companies have been in existence for several decades. They typically have vast internal research budgets, relying on profits from existing blockbuster drugs to fund their new research endeavors. They often prioritize projects with a high likelihood of success and large potential markets, sometimes leading to a more conservative approach to innovation. They have the resources to take on costly clinical trials and navigate the complex regulatory landscape. Their funding is generally more stable and predictable, derived from consistent sales revenue.

Biotechnology companies, on the other hand, are typically smaller, more agile, and focused on specific scientific areas or technologies. They rely heavily on external funding sources like venture capital, private equity, and Initial Public Offerings (IPOs). Biotech companies are often driven by scientific breakthroughs and the potential to develop novel therapies. They face significant financial risks, as funding is often tied to achieving milestones in research and development. And funding can dry up unexpectedly based on market vicissitudes.[3]

Doing the Math

Until the widespread adoption of bioinformatics and AI tools, the numbers looked like this:

It would take 12 years for a drug treatment to progress from concept to market, and only 1 in 3,000 would receive FDA approval. Target discovery was based on traditional methods like cell-based assays, animal models, and limited genetic studies. This was slow and expensive, and researchers were generally limited to studying one gene at a time. Consequently, when a treatment was ultimately marketed, the price point would have to take into account the cost of all the very expensive failures that fell by the wayside.

Advances in bioinformatics and AI technology have significantly streamlined the identification of molecular targets for treating or curing diseases. Bioinformatics, particularly when integrated with AI, empowers researchers to decipher complex biological systems by analyzing vast datasets. This capability allows them to pinpoint potential drug targets through the detection of disease-related patterns and relationships often hidden from human analysis alone. Furthermore, AI specifically aids in prioritizing genes for investigation, modeling biological networks to reveal key intervention points, and predicting the potential efficacy and safety of drug targets.

That being said, there are elements to the development of treatments that have not changed. While it is inarguably easier to identify and characterize a molecular target, a proposed treatment must still pass rigorous safety and efficacy clinical trials and conform to ethical considerations.

Imbruvica: A Case Study

I’m going to use the example of Imbruvica because it is a particularly egregious example of a treatment that should probably never have made it past pre-clinical studies.[4] This chemical, known by its generic name ibrutinib, was FDA-approved in November 2013 for patients with Mantle Cell Lymphoma (MCL). Approval was expanded in February 2014 for patients suffering with Chronic Lymphocytic Leukemia (CLL). In January of 2017, ibrutinib was approved for marginal zone lymphoma (MZL). When it was ultimately marketed, Imbruvica would cost recipients $170,000 per person per year (pppy). And the fact that it was a treatment, and not a cure, meant these patients would need to pay for the drug for the entire rest of their lives.

The story of Imbruvica does not end happily, either for the drug manufacturers or the patients who were prescribed this chemical. The list of adverse events (AEs) associated with Imbruvica range from “very common” (≥10% incidence), which included hematologic, immunologic, gastrointestinal, musculoskeletal, skin, and cardiovascular complications; to “common” (1% to <10% incidence), which included all of the aforementioned plus neurologic, respiratory, metabolic and nutritional, psychiatric, and eye disorders; to “rare” (<0.1% incidence), which included other malignancies and sudden death.

Despite this bloated list of adverse events, what actually led AbbVie (the manufacturer of Imbruvica) to voluntarily withdraw the accelerated approval of Imbruvica for MCL and MZL in the United States, was that confirmatory trials for these indications did not meet the required endpoints to convert the accelerated approvals to full approvals. Ultimately, the data from the confirmatory trials didn't definitively show that Imbruvica provided a significant benefit in those specific situations, compared to other treatment options.

What’s with the ”Silver Bullet?”

In the mid-1980’s, in my high school Biology class, we were taught the scientific rationale of chemotherapeutics in use at the time. We were told they were powerfully mutagenic, and because cancer cells divide faster than normal cells, the cancer cells would thereby accumulate mutations more quickly than normal cells, leading to the death of the cancer cells. It was a race to the death between the cancer cells and the patient. The hope was that the therapeutics killed the cancer before they killed the patient.

Well, this was an acceptable rationale until we started learning more about stem cells. Stem cells are a type of cell that “differentiate” (become specialized) as they divide.[5] Hematopoietic stem and progenitor cells (HPSCs), for example, are stem cells that give rise to a variety of blood cells, including red blood cells, white blood cells, lymphocytes, b cells, t cells, natural killer cells, myeloid cells, neutrophils, eosinophils, basophils, monocytes, and platelets. This becomes relevant to chemotherapeutics when you consider the implications of administering powerful mutagens into the whole body (“systemically”), which includes stem cells.

Think of a tree, with the trunk as the “stem,” with numerous branches that get smaller as you get towards the twigs at the tips of the branches. If you introduce a mutation near the tip of a twig, only the rest of the twig is affected. If, however, you introduce a mutation into a branch that grows out from the trunk of the tree, all the secondary branches and twigs that emerge from that branch will carry that mutation. If you introduce a mutation into the trunk of the tree, every branch and twig will be affected by that mutation.

Consider further that we are not just introducing one mutation here or there. I told you chemotherapeutics are powerful mutagens and that they are administered systemically (i.e. into the whole body of the patient – including stem cells). In our arboreal analogy, we are introducing multiple mutations at multiple points into our poor tree. In practice, this means that HSPCs that have accumulated mutations are passing those mutations along to all their progeny – all the blood cells derived from the HSPCs. Importantly, this implies that the occurrence of metastatic cancers seen after chemotherapeutic treatment might very well be caused by the chemotherapeutics themselves.

How does this relate to ibrutinib?

Imbruvica (the name ibrutinib was marketed under) was presented as a more specific chemotherapeutic, designed to combat B-lymphomas by targeting a molecule in the B-cell receptor (BCR) pathway. But was it really more specific?

The answer is “not really.”

The molecular target of ibrutinib is Bruton’s Tyrosine Kinase, or Btk, a non-receptor tyrosine kinase, which does in fact play a role in the growth and survival of B-lymphocytes. A review of ibrutinib, published in 2015, acknowledges that very few medicines are mono-specifc, and goes on to mention that even this early in the history of ibrutinib, it was known that it could also bind other kinases. The implications of such off-target interactions go beyond the selective effect on Btk in B cell malignancies.[6] In point of fact, Btk plays a role in six other cellular pathways besides the B-Cell Receptor (BCR) Signaling Pathway, including the Fc Receptor (FcR) Signaling Pathway, the Toll-Like Receptor (TLR) Signaling Pathway, the Chemokine Receptor Signaling (CXCR4, CXCR5), the PI3K/AKT Pathway, the RANKL Signaling in Osteoclasts, and the MAPK/ERK Pathway. These pathways are responsible for mediating literally dozens of important cell functions. Furthermore, in the course of researching the scientific rationale for ibrutinib for this essay, I learned that Btk is present in dozens of different cell types – obviously NOT an ideal target if you’re looking for a “silver bullet” that will cure cancer but leave normal cells alone.

By examining the published literature on ibrutinib, its molecular target, the cellular pathways it affects, and its mechanism of action, I hope to make the case that most or all the AEs associated with Imbruvica could have been anticipated and should have led to funding for its development being discontinued before it ever reached clinical trials. I propose that this sort of research might also be applied to other therapeutics under development, informing decisions on whether or not to continue funding them earlier, rather than later.

The Collaborative.

Now, I realize that literature research alone, especially ex post facto, might not be particularly persuasive to an investor considering a funding round for a cancer treatment. Accordingly, I have formulated a de-risking strategy designed to produce a “go/no go” decision on investing within six months to a year of initiating experimentation on a proposed treatment. The Collaborative will create a three-way partnership between VC firms, biotech companies, and academic bio-researchers wherein the academic bio-researchers perform experimentation with the biotech companies’ proposed treatment to validate the science underpinning the treatment’s action.

So…how would this work, in practice?

Let’s first have a look at the three elements of the partnership.

First, the biotechnology companies. A Series A funding round for a biotech startup with a useful idea can be 50 to 100 million dollars. But the biotech company is only answering some baseline questions about their proposed treatment. Does it kill the patient? And if not, does it work at all? Generally speaking, the biotech company doesn’t have the bandwidth to perform extensive studies to validate the cell and molecular processes underlying a successful treatment.

Second, the VC firms. For their part, VC firms are pursuing a “high-risk, high reward” strategy, putting tens or hundreds of millions of dollars into funding rounds at biotechnology companies, betting that one in ten of their investments will pay off and they will walk away with at least three times their original investment. A successful biotech investment must typically return at least five times the initial investment. Most VCs hope for ten, twenty, or even higher returns on their best investments (blockbusters).

But what if they don’t hit that target? Consider the existential threat to a VC firm if they fail to score one successful investment out of ten? What if only one in eleven…or one in twelve of their investments pays out?

Also to be considered: when making investment decisions, the VC firms are coping with what’s called: “information asymmetry.” This is a disproportion of information between the VCs providing investment dollars and the biotech companies developing the treatment. The biotech companies know a great deal more about their proposed treatment than do the VC funders, and they have a vested interest in keeping unfavorable data under wraps.[7]

The third element of this partnership is the academic bio-researchers. Bio-researchers at colleges and universities tend to be very “territorial,” in that their work usually centers on one specific molecule, in one specific cell type, in one particular signaling pathway, usually in the context of one specific pathology, in one specific animal model…but they know everything about that molecule. They know its structure, its function, its cellular location, which other molecules it interacts with and under what conditions, and its role in cellular processes. To support their research programs, academic researchers are usually competing for grant money from the NIH (which is funding only about 18 percent of the grant applications they receive) …and for these researchers, a million-dollar grant is a lot of money.

A win-win situation.

From what I’ve just described, it should be clear that there are two primary deficits here. In order to make better investing decisions the VC firms need more information about how the treatments work. And basic bio-researchers need more money for their research.

So. The Collaborative will take ten percent of an average funding round (say, $10 million) and distribute about $1 million each to nine Principal Investigators working in the space occupied by the proposed treatment (keeping $1 million for operational expenses, administrative costs, consultancy and networking fees, and legal services). Using the example of ibrutinib as a test case, we would recruit bio-researchers who work on the numerous pathways I listed above that involve the Btk molecule.

We will have no shortage of researchers to network with, and these researchers will not be difficult to locate. A quick search on PubMed for “B-Cell Receptor (BCR) Signaling Pathway” alone turns up 2,218 papers. Furthermore, the rewards derived from implementing this strategy will be additive. Cancer research, for example, mostly focuses on signal transduction pathways or cell cycle checkpoint enzymes. A few iterations of this program will vastly enhance the amount of scientific data available to biotech companies and researchers working in those areas and prodigiously accelerate the development of new treatments.

Can I offer you some money?

I do not think this is going to be a hard sell. If I approach a VC firm and offer to improve their odds of scoring a successful investment from one in 10 to one in eight, or one in seven or better, for a fraction of the money they were going to invest in just one funding round…I don’t think I’m going to get much of an argument. And if I contact a Principal Investigator at a research institute and offer that researcher a million dollars, which they might use to expand the research they are already doing in return for their expertise…I expect they will probably be agreeable.

I hope I’ve made my case for The Collaborative. I hope that in the process, I’ve taught you something about Biology that you can use to impress your friends and colleagues. Most importantly, if you’re a VC considering an investment, or a stakeholder at a biotechnology company, or a bio-researcher with expertise that could be useful for the development of a novel treatment, I hope that you are motivated to connect with me, and we can talk about next steps.

Thanks to all for reading.

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[1] (21) A Cure for the HIV Virus | LinkedIn

[2] John Carreyrou (May 21, 2018). Bad Blood: Secrets and Lies in a Silicon Valley Startup. Penguin Random House. ISBN 9781524731656

[3] Drakeman, Donald L, et al. From Breakthrough to Blockbuster the Business of Biotechnology. New York, Ny Oxford University Press, 2022.

[4] Vardi, Nathan. For Blood and Money. National Geographic Books, 10 Jan. 2023.

[5] Stem cell | Definition, Types, Uses, Research, & Facts | Britannica

[6] Targets for Ibrutinib Beyond B Cell Malignancies - PMC

[7] Drakeman, Donald L, et al. From Breakthrough to Blockbuster the Business of Biotechnology. New York, Ny Oxford University Press, 2022.