JPM24: Biotech investors tip toe around the bear market to familiar territory

As the biotech industry attempts to claw its way out of a brutal bear market, investors are starting to pull their punches in preference for more sure bets.

Gone is the fire hose of funding for every good—or even just interesting—idea. Consumer investors have retreated and the veterans left are returning to things they know, despite good, novel science still happening. 

"It's always been about haves and have-nots and it should always be about haves and have-nots," said Flagship Pioneering CEO Noubar Afeyan in an interview on the sidelines of the J.P. Morgan Healthcare Conference. "This notion that biotech goes through these tough periods where there are have-nots, but then in good periods everybody has haves, defies logic. Because we're supposed to be doing things that don't work, in order to do things that matter."

Outside of the major firms like Flagship, those with capital to offer are turning to more traditional investments, Sharon Flanagan, a managing partner for global law firm Sidley’s San Francisco office, told Fierce Biotech. 

"I do think in markets that are a little uncertain, sometimes the more truly novel types of products might get less interest," Flanagan said. Investors and other dealmakers instead choose later-stage assets and modalities that don’t have super risky profiles. 

After riding the highs that followed the pandemic, biopharmas have had to face a harsh comedown in subsequent years, with 2023 hitting the hardest. Annual funds raised in the sector hit the lowest mark in four years, at a projected $24 billion across 840 transactions, according to PitchBook. This is compared to $38.1 billion in 2020, $53.9 billion in 2021 and $36.9 billion for 2022.

Roivant CEO Matt Gline says he's never been great at predicting capital access—he thought the pandemic would be tough to navigate, but that time period saw a boom in investing and goodwill towards the industry. But one thing is for sure: if you need it, it's hard to get. 

"In my experience, capital is easy to access when we don't need it and hard to access when we do and since we don't need it right now, my guess is it'll be relatively easy to access, but that's more of a fatalistic and less of a macroeconomic opinion," Gline said with a laugh. 

While most experts think the market bottomed out in 2023, this year carries a lot of unknowns as the sector tries to recover. 

"Do I think the worst is behind us? The worst is really hard to call for me, but I think this year will look partially like last year, and partially like next year," Afeyan said. 

 

Finding a silver bullet

So what is still attracting interest? J.P. Morgan opened with a flurry of deals in antibody-drug conjugates (ADCs), which Flanagan said is a perfect match for bruised investors. In fact, ADCs drove a fourth-quarter spike in licensing deal proceeds, according to J.P. Morgan’s annual 2023 Biopharma Licensing and Venture Report. 

"ADCs are really interesting," Flanagan said, citing Johnson & Johnson's $2 billion acquisition of ADC-focused Ambrx Biopharma announced on the first day of the conference. "That's a way to do something that's still pharma, but with something novel and interesting that has a spin to it."

Another way to assure some sort of return is to focus on companies that can keep the goods coming. For Mubadala Capital investors Alaa Halawa and Ayman AlAbdallah, that means platform companies—jargon for technology that can quickly and more efficiently identify therapeutic candidates. They serve as R&D engines that can “spit out programs.”

“While we are largely therapeutic area-agnostic and modality-agnostic, we like to focus on platform technology, so we don't have single assets,” Halawa explained.

Both Halawa and AlAbdallah do want to be sure that the modality matches the disease, rather than investing in the modality itself.  

“There is not a silver bullet that is going to be curative across all diseases,” AlAbdallah said in an interview.

Mubadala Capital—a subsidiary of United Arab Emirates’ sovereign wealth fund Mubadala Investment Company—is currently putting money into the oncology, metabolic, neurodegeneration and autoimmune spaces, with more emphasis on backing the right tech than specific therapeutic areas.   

Meanwhile, the obesity and metabolic space that brought biotechs success in 2023 may have seen its heyday. Novo Nordisk’s Ozempic and Wegovy, as well as Eli Lilly’s Mounjaro and Zepbound, spurred investments galore and even a rare IPO. Metabolic and pulmonary disease-focused Structure Therapeutics made its public market debut in a largely frozen-over IPO landscape and Roche shelled out $2.7 billion for Carmot Therapeutics, a biotech with injectable dual GLP-1/GIP receptor agonists and an oral GLP-1 drug in clinical development. 

With so much action consolidated on one idea, some investors think it's time to look elsewhere. 

“Everyone's looking for some sort of derivative GLP-1, but we're not,” Nate Chang, operating partner of life sciences at Playground Global, said in an interview. “We're not focused in that area whatsoever.”

Why? Because it’s oversaturated, Chang explained, also citing supply chain and commercialization issues. He said the only way he could envisage investing in the space is if it was conducive to democratizing such medicines, meaning it would make the drugs less expensive and more accessible to more patients. 

Certain companies are already at work on that exact problem. Take Carmot, which touts CT-996, a GLP-1 receptor agonist designed to be an equivalent to Novo’s Ozempic and Wegovy, with one key difference—it’s not an injection. The oral small-molecule weight loss candidate, now under Roche’s umbrella, is being tested in a phase 1 clinical trial.

However, the candidate will have to wow on safety and tolerability as Pfizer was forced to drop an oral obesity candidate, also a GLP-1 receptor agonist, after seeing elevated liver enzymes in clinical trials this past summer.

“What I'm interested to follow is, ‘Is there a path to an oral dose?’” Roel van den Akker, PwC partner and pharmaceutical and life sciences deals leader, told Fierce Biotech. “That's something that nobody really knows where it's going to go. That's definitely what I’m keeping my eye on.”