Modality Biotech Platform

TL;DR

New modalities offer an improved way to address biologically de-risked targets and explore new target space.

• Sales cycle on partnerships: 6-18 months of hand-to-hand combat with pharma
• Typical partnership value:
• Avg: $5–10M upfront + $200–250M biobucks
• 90th percentile: $20–30M upfront + $700–800M
• Preclinical licensors typically capture <20% of the total deal value after nine years

Value capture: 4/5

Companies

Applied research pioneers of entirely novel modality: Genentech, SeaGen, Alnylam, Ionis, Moderna, BioNTech, Prime

Execution-focused pioneers of relatively new modalities: Amgen, Biogen, Monte Rosa

Tech platforms to systematically improve established modalities: Dyno

Compound portfolio companies Polyphron, Bionaut and Boost Biomes

Overview

Modality Platforms

A review (albeit with small n) found that new modalities can have higher success rates than small molecules.

First companies to translate a novel therapeutic modality from academic labs to human trials (e.g. Genentech, SeaGen, Alnylam, Ionis)

• Fairly often emerge from the lab that made the initial discovery or at least made a major leap towards therapeutic relevance
• They take several decades to build, because almost all modalities go through hype cycles. On average, it takes 30+ years to go from discovery to a breakthrough drug.
• ~13 years to go from discovery to first company formed
• ~14 years to go from first company formed to first drug approved
• ~7 years from first approval to the first year a drug does $1B+ in annual sales

Companies innovating on established therapeutic or delivery vehicle modalities (e.g. Dyno, BigHat, Fate, Abcellera, Adimab, LabGenius)

• These companies commercialize a step function improvement and / or a process innovation that enables them to continue to optimizing existing modalities over time
• They generally don’t require multi-decade journeys and if they solve a crucial bottleneck in a hot area can even be $2B+ takeout targets within a couple years of founding (e.g. Aliada)
• Hot later stage companies can often get $30-150M upfront with $0.5-1.5B+ in biobucks per partnership

Strategy for Modality Platforms

Steven Holtzman put it best:

In general, if you are a Product (Therapeutic Modality) Platform Company, your primary risk is under-spending/under-capitalizing early: 1) Your value is directly driven by your first-mover advantage. 2) You need to drive as many shots on goal as possible. 3) You need to stay ahead of the pack in the perfection of your platform/product engine: be, continue to be, and be perceived as the leader. Because you have a potential “embarrassment of riches,” you can partner early and often to raise non-equity capital because whatever product rights (= source of long-term value) you monetize, there will be more where those came from. Early deals can give away all product rights, e.g., to a disease area, maintaining only a downstream economic interest (typically, milestones and royalties). In the next step, the ability to “belly to the bar” for greater downstream financial participation (cost and profit share) will likely feature without commercialization rights. In the following step, some level of commercialization rights (co-promotion/ geographic splits) will be added to the cost and profit share. In a possible next chapter, the deals may add on full commercialization rights to one or more of the products coming from the collaboration (e.g., via a picking mechanism). It is the author’s belief that you are better off sharing in all of the fruits of the collaboration with profit share and retention of a geography and/or co-promotion than in going with a picking mechanism to provide forward integration to commercialization ability. Picking is a binary bet…spread the risk.[3] The combination of a high stream of non-equity capital and clarity that you are using that to build out the leading platform while, at the same time, you have retained enough opportunities for forward integration into downstream value, will drive your stock price up. Now is the time to use the equity markets as your primary source of capital to fuel your retained product opportunities.[4]

Building Platforms Broadly

Over the last 10+ years, the dominant meta in biotech has swung violently and irrationally between being all-in on maximally general platforms and conservative single assets plays.

We at Compound push back on the recently popularized platform playbook of raising hundreds of millions, then taking 5+ years to build out the most generalized tech infrastructure possible, only after that start thinking about what target/disease to apply it to, and then pursue a pipeline of 10+ drug candidates under the flawed logic of maintaining maximal optionality (which really just means that no candidate will receive adequate focus).

The reality is that no matter what, ultimately all platforms:

• Will be judged by their first asset progressed to clinic
• Have little to no pricing power until proven by stand-out clinical read-outs
• Have at best slightly better odds (i.e. still very low) of developing a successful drug, so building a large, unfocused portfolio is the negative expected value strategy

Moreover, nearly 50% of biotechs go bankrupt due to lack of continued funding vs just 33% for clinical failure. This further accentuates the misguided rationale for maximally general, long duration infra buildout without targeted end-points in mind.

We at Compound focus our bio investing efforts on how to build platforms thoughtfully. We firmly believe that platforms should be built in a step-wise, capital constrained / gated way with an intense focus on building the initial technology towards a specific target/disease uniquely unlocked by your technology.

• Teams should from the beginning have informed views on the range of targets / diseases that they would be uniquely positioned to address
• Not only will this inform the initial tech buildout, but also it will enable you to be in a greater position of strength when you go to negotiate with pharma. Instead of accepting their list of targets (which will be those that’ve proven impossible for them to drug internally), you can give them a list of target types or targets you’re exploring and partner with them on ones similar to those of interest to you. This may also better align your early partnerships with your vision for you long-term tech buildout, rather than being a speculative distraction.