The Rising Tide of Scientific Innovation: Biotech in 2020 and Beyond
By: Penn Venture Group
Tags: Covid 19, Biotechnology, VC, Startup, Biology

The COVID-19 pandemic has largely sucked up conversation surrounding the biotech industry. Companies like Moderna, Pfizer, and AstraZeneca have entered the public vernacular as the vaccine race consumed the attention of national media this fall. While this intense focus is justified due to the seriousness of the pandemic, it comes at the expense of covering significant innovation in other areas of biopharma, where scientists are making strident advancements in the treatment of various rare diseases. However, in parallel with these advancements in the science of biotech, a previously favorable venture capital environment has taken a significant beating due to the coronavirus recession. In this article, we’ll first outline two significant case studies of developments in biotech before examining the venture capital atmosphere and the outlook going into 2021.

Case Studies: Biotech Innovation in 2020

Despite the pressure placed on R&D by the pandemic, biotech companies remain strong and are pushing out new innovations to address the significant unmet needs confronting the healthcare world. Two case studies include:

C2N Diagnostics: Alzheimer’s Diagnostic Test

Alzheimer’s Disease is notoriously difficult to detect, and monitoring the progression of the disease is an invasive and costly affair, requiring extended hospital stays and procedures that present elevated costs to both patients and hospitals. C2N’s novel diagnostic is a blood test that measures levels of amyloid plaque to extrapolate the presence of neurodegenerative disease.

Figure 1

The logic behind the test is simple. Amyloid plaques are aggregations of misfolded proteins that accumulate in the spaces between nerve cells. This accumulation and the plaque’s subsequent interference with neuronal communication is a hallmark of diseases such as Alzheimer’s (Figure 1).

Thus, C2N’s test provides physicians with a benchmark of amyloid plaque levels in a patient’s blood, which can be useful in funneling patients with higher plaque levels to obtain the more expensive tests, whereas a patient with lower plaque levels could be in the clear.

Amunix: T-Cell Cancer Treatment

The most promising frontier of novel cancer treatment over the last few years has been immune-based therapies, and this trend shows no signs of stopping in the near future. Amunix, a small biotech company based out of California, has been developing a novel T-cell engager to fight tumor growth since its inception as a company in 2006. Its preclinical drug, AMX-818, is specifically designed to trigger the body’s immune response to fight cancer cells which the body can tag as being “foreign-origin,” much as the immune system would combat a virus. An issue with this approach is that these therapies, known as CAR-T treatments, often trigger an overreaction of the immune system — cytokine release syndrome (CRS).

CRS is a potentially fatal systemic inflammatory response that is induced by cancer immunotherapy drugs. When the immune cells are activated by drugs, they release molecules called cytokines that, under normal conditions, act as messengers directing the cell “army” conducting the immune response. In CRS, drugs overstimulate this system and release an excess of cytokines. Symptoms of CRS range from mild to severe (Figure 2).

Figure 2

AMX-818 is designed with the goal of reducing CRS, and, so far, preclinical trials in mice and monkeys have demonstrated significant tumor shrinkage with an absence of CRS at maximal doses.

Venture Capital Environment in 2020 — The Effect of COVID-19

Venture capital is an important source of funding for small biotech start-ups, which typically burn through immense sums of money for R&D expenses before ever turning a profit. The risk-reward potential for investors is quite high — on the one hand, there is no guarantee of FDA approval at the end of decade-long development processes. On the other hand, payoffs after successful approval are immense, due to patent protections granted to therapies for rare diseases. This is evident in light of the immense sums invested in potentially effective treatments. For example, Amunix was able to begin developing AMX-818 following a whirlwind Series A funding round that raised $73 million earlier this year.

Indeed, VCs have only recently taken interest in risky young biotech startups, following the movement towards licensing and acquisition deals formulated by large pharmaceuticals who are starved of innovation. Today, biotech VC is dominated by a very specific model known as “Venture Creation.” The VC creates the concept and taps a team of in-house entrepreneurs to run the company. Retaining significant control and minimizing risks in the process. This model makes sense in light of the capital-intensive nature of biotech and the relatively late returns that must, by necessity, arrive after drug approval by the FDA.

The coronavirus pandemic has thrown a wrench into the rise of VC investment in biotech. Investments are down 16%, and firms are moving more carefully due to a volatile business environment where the COVID-19 vaccine race has sucked all energy out of other disciplines in biotech. According to Pitchbook, deal flow has also slowed — down from 271 between February to May 2019 to 228 this year.

What’s next? Biotech VC in 2021 and Beyond

While currently, VC investments in biotech seem to have hit a speed bump, this by no means spells a drought of investment. Scientists project that, with the release of a vaccine in the first quarter of 2021, we could see a slow return to normal as the year progresses. Safe reopenings guided by sound public policy is the first step to ensuring economic recovery and assuaging investors’ fears about the future while returning attention to the other innovations in biotech.

Nonetheless, the lessons of COVID-19 will not soon be forgotten by investors. It is possible that we see a movement away from the “Venture Creation” model. Risk tolerance will probably remain low for the foreseeable future, depending on the robustness of the recovery, and investors might begin to favor measures that include licensing or collaboration deals that spread out risk even further. Likewise, investors may favor doubling down on later-stage, proven winners at the expense of new players at the A or B fundraising levels.

On the flip side, COVID-19 has already sparked an increased awareness of scientific research and the potentially lucrative returns embedded in the life sciences industry. If the economic recovery is stronger than expected, markets might see an uptick in VC funding of biotech rather than a decrease. Time will determine the magnitude of these competing effects and the future of biotech in 2021 and beyond.

Shiva Teerdhala is a sophomore in the Life Sciences and Management Program at Penn, studying Cell Biology in the College and Finance at Wharton. He is always looking to learn more about the latest developments in science and biotech. A Texan born and raised, Shiva is passionate about football and Tex-Mex cuisine, and enjoys reading and going to the movies in his free time.