Private biotech: Immunology and inflammation’s third wave

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2024-12-31
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The companies listed in this piece are examples shared for illustrative purposes only and are not a complete list of all companies in this space. These examples are not intended to be an endorsement of any companies or products listed.

Immunology and inflammation (I&I) is a compelling area of biomedical innovation as it targets chronic and prevalent diseases affecting patients across all age cohorts. Companies developing the next generation of drugs for these large end markets have been a bright spot in the current biotechnology market with active M&A and public offerings.

At the turn of the 21st century, the second wave of drugs in this space delivered life-changing patient benefits. In our view, I&I is at the dawn of the third wave of novel drug modalities and targets, which will build on this progress and offer interesting opportunities for private biotech investors. 

The first wave of immunology and inflammation drugs

The recent coronavirus pandemic provided the world with a crash course in immunology, underscoring the centrality of the human immune system in defending against novel infections and diseases. Yet the human immune response is double-edged with dysregulation on either side provoking disease. With too little activity, our bodies become vulnerable to infection, but too much activity can drive a pathologic immune response to otherwise benign signals.

In the early days of modern medicine, doctors used blunt tools to balance the immune systems with limited success. Frequently, patients found steroids and chemotherapy to be worse than the underlying disease they were intended to treat. This limited the duration of therapy and the derived benefit for patients suffering from autoimmune and inflammatory disease. In the early 2000s, biomedical advancements in the basic science of immunology combined with productizing therapeutic antibodies to enable the second wave of I&I drugs.

The second wave – Groundbreaking therapeutic antibodies

Decades of research into the workings of the immune system fueled the emergence of a new modality — therapeutic antibodies. Contrasting with the blunt hammer of steroids and chemotherapy, these cell-derived therapeutics selectively targeted disease-causing pathways with the precision of a surgeon’s scalpel.

Doctors could finally direct an antibody at a defined immune target, allowing them to control chronic autoinflammatory diseases such as multiple sclerosis and rheumatoid arthritis without indiscriminate immunosuppression. Simultaneously, new therapeutic antibodies were able to target previously undruggable pathways.

Patients derived unprecedented benefit and pharmaceutical companies unlocked large new markets. For example, since its first regulatory approval, Humira, a well-known antibody used to treat an array of inflammatory diseases, has generated more than US$200 billion in sales.

Key biotech investment insight
Patent cliffs for second-wave I&I drugs are creating revenue holes and incentivizing large pharmaceutical companies to develop or acquire innovative therapies that better serve unaddressed needs.

Today’s third wave — Novel targets and improved modalities

In the last few years, we have evaluated hundreds of I&I companies, and we believe this new cohort could develop the next generation of blockbusters. A few themes stand out:

Harnessing improved drugs against derisked targets
Improving on existing therapeutics with more convenient and potent formats can reduce target risks while delivering better patient compliance and commercial differentiation. The success of Skyrizi demonstrates the patient demand for and commercial viability of improved biologics against derisked targets. Several notable biotech companies that illustrate this theme include Apogee Therapeutics (Nasdaq: APGE, US$345 M IPO in July 2023), Upstream Bio (Private, US$200 M Series B in June 2023), and Viridian Therapeutics (Nasdaq: VRDN, US$270 M follow-on in August 2022). These companies are developing more potent or longer-duration versions of approved drugs that reduce the number of injections from 12 – 24 per year to 2 – 4 per year. 

Some biotechs are betting on smaller-format therapeutics that can drive better drug exposure in diseased tissue or offer more convenient administration. Leveraging advances in protein design and engineering, Acelyrin (Nasdaq: SLRN, US$621 M IPO in May 2023) and MoonLake Immmunotherapeutics (Nasdaq: MLTX, US$400 M secondary in June 2023) argue smaller antibodies may improve efficacy by penetrating deeper into inflamed tissue. Other biotechs are developing oral small molecules for well-known targets including Dice Therapeutics (acquired by Eli Lilly for US$2.4 B in August 2023) and Forward Therapeutics (Private, US$50 M Series A in November 2023).

Drugging novel targets aided by genomics and precision medicine
Over the last two decades, the cost of genomic sequencing has dramatically declined. New computational tools enable us to harness large databases of genomic data to identify novel targets across various diseases. 

We think the identification of disease-associated genetics can help develop precision medicine for inflammatory conditions, bring even greater patient benefits, and drive substantial market opportunity. For instance, genetic studies have suggested that people with TL1A variants are predisposed to inflammatory bowel disease (IBD). Prometheus Therapeutics employed a precision medicine approach to develop its TL1A-targeting antibody for IBD and was acquired by Merck for roughly US$10.8 B in June 2023. Iveric Bio targeted a signaling pathway genetically linked to geographic atrophy and was recently acquired by Astellas for US$5.9 B in July 2023. Nimbus Therapeutics sold its small-molecule TYK2 inhibitor, in clinical development across multiple genetically linked autoimmune and inflammatory diseases, to Takeda for up to US$6 B in February 2023.

Repurposing the immuno-oncology toolbox
The field of immuno-oncology has made remarkable progress over the last decade, innovating on new drug targets and novel modalities. This progress has delivered unprecedented benefit to cancer patients by retargeting their immune system to eradicate tumors. James Allison and Tasuku Honjo shared the Nobel Prize in Medicine in 2018 for their groundbreaking work in immuno-oncology and the development of checkpoint-blocking therapeutics. 

Perhaps unsurprisingly, advances in immuno-oncology like cell therapy are being repurposed for I&I. Academic trials have demonstrated that patient-derived immune cells, harvested to be engineered outside of the body and then subsequently reinfused, can deliver deep and durable control of difficult-to-treat autoimmune disease. Catalyzed by these findings, Kyverna Therapeutics recently raised a US$145 M Series B in August 2023 to fund multiple autoimmune studies.

Potential investment risks for I&I companies

Immunology is a competitive space in which many drugs target similar mechanisms of interaction, and novel methods also face fierce opposition from incumbent drugs. This means there is a high bar for success for new I&I drugs. Critically, the path to proving clinical differentiation remains capital intensive. 

Investing in the third wave of immunology and inflammation innovation

2023 was a demanding year for biotech companies developing new I&I drugs with numerous acquisitions, significant IPOs, and private financings. As the biotech market recovers from the lows of recent years, we believe these trends will continue and accelerate for the third wave of I&I innovators.

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