Biotech bounces back at JPM 2024 on optimism, breakthroughs and calculated bets, but uncertainties persist

At the dawn of 2024, there’s a sense of renewed optimism in the biotech sector despite a downturn that has lasted for more than two years. At the JP Morgan Health Care Conference, deal-making activity showed signs of strength. For instance, Merck agreed to acquire cancer drug developer Harpoon Therapeutics for roughly $680 million, highlighting continued interest in oncology cancer therapies. Meanwhile, Novartis announced plans to acquire Calypso Biotech, a deal involving an upfront payment of $250 million with potential milestones worth up to $175 million.

“I feel like in the last two or three weeks, we’ve almost made up for 50% of the deals that didn’t happen in 2023,” quipped Jen Nwankwo, CEO of 1910 Genetics, a company specializing in computational biology and automated laboratory technologies. Pointing to recent clinical successes and FDA approvals, Nwankwo notes that Big Pharma and biotech recorded some significant achievements in 2023. “Antibody drug conjugates are experiencing an absolute renaissance,” she said. (We interviewed Nwankwo in the second episode of AI Meets Life Sci.)

Strong interest in antibody-drug conjugates and next-gen obesity drugs

There are several recent examples of Big Pharma companies scooping up antibody drug conjugate assets. Most notably, Pfizer recently completed its acquisition of the ADC pioneer Seagen. In late 2023, AbbVie also announced its intent to acquire next-gen ADC firm ImmunoGen for $10.1 billion while Daiichi Sankyo and Merck & Co. agreed to co-develop three of Daiichi’s oncology-focused ADC candidates. The deal involved a $4 billion upfront cash payment.

It goes without saying, too, that interest in GLP-1 drugs is another bright spot. Last year, strong sales of semaglutide contributed significantly to propelling Novo Nordisk’s valuation above Denmark’s GDP. Simultaneously, Eli Lilly achieved a significant milestone by recently scoring FDA approval for its GLP-1/GIP receptor agonist drug Zepbound (tirzepatide) which is designed for chronic weight management.

VC funding remains resilient

Owen Hughes, new CEO of the royalty aggregator XOMA, is not getting swept up in the general excitement. “We don’t really care,” Hughes said. As XOMA focuses on finding promising undervalued assets and convincing the companies of the value of royalty financing, Hughes notes that its business model tends to flourish when biotech firms struggle to finance their programs through traditional means. ”But what keeps me optimistic is that the venture community has not stopped deploying capital into new, exciting areas of science,” Hughes said. Despite fluctuating in recent years, VC investment in biotech remains significantly higher than, say, 25 or 30 years ago. “And while it slowed down a little bit in the last year or two, it’s still at an above-average clip,” Hughes said.

FDA approvals climbing but R&D efficiency still lags

FDA drug approvals have followed a broadly similar trajectory. While the agency approved 21 novel drugs in 2010, it approved 55 in 2023. While approvals dipped in 2022, that appears to be more of an exception than a rule. In the early 2000s, FDA drug approvals hovered around 25 per year while they increased to around 41 new drug approvals per year from 2010-2018. The momentum has largely increased in recent years, with 48 approvals in 2019, 53 in 2020, 50 in 2021. While approvals dipped to 37 in 2022, they rose again to 55 in 2023.

While successful clinical and regulatory outcomes boost investor confidence and drive a surge in funding and acquisitions, these positive developments have not necessarily translated into increased efficiency in R&D. Despite the promise of novel technologies to drive more efficient clinical trials and drug discovery, costs remain high and failures remain frequent. “It’s a ratio problem where productivity equals output of an input,” Nwankwo said. The output here is the number of FDA approved drugs, while the inputs is the combination of time and resource and capital. “All the things that you put in to generate that output,” she said. “And what people are saying is that over time, we’re putting more in the denominator and we get less and the output,” she said.

Reaching for higher-hanging fruit

Multiple factors, of course, are at play in the dynamic. One is that while traditional drug discovery tended to discover promising compounds by happenstance, “a lot of the low-hanging fruit has been picked,” Nwankwo said. The types of drugs the industry is working on now are objectively harder.

Additionally, pharma companies have limited incentives to completely revamp R&D efficiency given the dynamics of high-margin blockbusters. While there is a constant push to boost efficiency in drug discovery and development, the potential for blockbuster profits can make it more financially viable for companies to continue their existing R&D strategies rather than invest in wholly new technologies or approaches that may carry more risk or uncertainty.

While AI is clearly a buzzword in pharma and biotech, relatively conservative approaches to investing in the technology are typical.

This reluctance to invest heavily in improving R&D processes also extends to computing power and AI, key tools for enhancing efficiency: ‘Pharma is not incentivized to invest that kind of money in compute, and as a result, they keep making like this pilot investments, these 2 million here and 3 million there and it’s not enough it’s not moving the needle.’”

From platforms to clinical development

In an attempt to move the needle forward, a range of biotechs have emerged in recent years focusing on drug discovery platforms based on the power of, for instance, CRISPR and Machine Learning (ML) technologies. Some of these organizations that initially focused on platforms have undergone a strategic shift by expanding into clinical development and therapeutic applications.

Take Caribou Biosciences as an example. This firm began by dedicating its efforts solely to leveraging its CRISPR gene editing platform for drug discovery. But over time, its leadership recognized the need to translate these technological capabilities into real-world patient impact. “In the early days, my co-founders and I just had this incredibly broad enthusiasm for genome editing through CRISPR,” said Rachel Haurwitz, CEO of the company. While the company initially began as a pure technology platform company that would rely on partners for product development. But feedback from its partners using genome editing ultimately prompted a pivotal strategy for Caribou.

The development of its chRDNA platform, a next-generation genome-editing platform, which integrates both RNA and DNA in its CRISPR guides, enhances the specificity of genome editing, effectively reducing off-target editing. This advance led the company to reconsider its direction and ultimately decide to develop its own products. It now has three therapies in phase 1 studies: CB-010 for relapsed or refractory B-cell non-Hodgkin lymphoma (r/r B-NHL), CB-011 for relapsed or refractory multiple myeloma (r/r MM), and CB-012 for relapsed or refractory acute myeloid leukemia (r/r AML). CB-010 is its lead program. Last year, the company shared some very encouraging Dose Escalation data on all 16 patients who’ve been enrolled in the CB-010 program, fundamentally showing that CB-010 can result in the kinds of durable responses that can also be achieved with autologous CAR-Ts,” Haurwitz said. “Those data led us to really think in a very forward way about where the field is going, where the unmet medical need is and where the opportunity is.”

Platform, partnership a and pipeline

Similarly, 3T Biosciences  harnesses its 3T-TRACE RNA platform, which combines high-diversity target libraries with machine learning, to identify novel targets and T-cell receptors (TCRs). The platform identifies and validates novel TCR targets using its extensive library of more than 1 billion peptide human leukocyte antigens (HLAs). The platform is a core component of its alliance with Boehringer Ingelheim (BI), in which BI provides patient-derived TCR data to support 3T’s target discovery efforts. In exchange, 3T will receive research funding and is eligible for up to $538.5 million in milestones across, plus royalties on future products.

Reflecting on the company’s direction and strategy, Dr. Stefan J. Scherer, the CEO of 3T Biosciences noted that in the past, many investors tended to prioritize assets in later stages of development over platforms. “Now, the pendulum has swung back,” Scherer said. “Investors are currently more interested in a combination of platform plus assets.” In that vein, the company is moving its first molecule into IND-enabling studies. “And we have four assets progressing to the clinic, tracking along a timeline of six to nine months from the lead asset,” Scherer said.