Image: (from left) Felice Verduyn-van Weegen (EQT Life Sciences), Marina Record (Baillie Gifford), and Ursheet Parikh (Mayfield Fund)

Looking Ahead: The Human Health Investment Landscape

What do synbio for human health companies need to know to successfully navigate the next 12-18 months?
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Fiona Mischel
March 28, 2023

It’s no secret that today’s investment landscape is extremely challenging. The macroeconomic environment has depressed public markets and put pressure on all levels of investment, from seed through IPO. Synbio on its own is already considered a high-risk, high-reward sector. Combined with the inherent risks of therapeutics development, synbio companies in human health face a generally challenging outlook. So what do synbio for human health companies need to know to successfully navigate the next 12-18 months?

Ursheet Parikh, a partner at the Mayfield Fund, sees the current environment as part of the natural cycle of any successful company. “Creating an enduring company is a 7-10 year journey and most startups need to see a recession on this journey. While fundraising is harder in recessions, long-term company building becomes easier,” says Parikh.

Marina Record, an investment manager in human health at the renowned public markets investment firm, Baillie Gifford, also sees promise in today’s adversity. “As uncomfortable as it may be, the best seeds of differentiation are being sown now. Financial resilience and [a company] management’s willingness to invest in technology, teams and science (thus cushioning the impact of tighter financial conditions) will prove vital to competitive positions in the future,” says Record. 

Now that the initial shock of the 2022 downturn has passed (and the recent turmoil triggered by Silicon Valley Bank appears to be easing), companies are emerging to raise again. But, as Felice Verduyn-van Weegen, a partner at EQT Group Life Sciences Team, points out, we are not in the boom times of 2020 or 2021. Companies looking to raise today need to adopt a different, more grounded mindset.  

“We notice that companies out fundraising often have updated their development plans to be leaner and more focused on delivering a product, rather than selling a “dream”.” She adds that the macroeconomic environment is still in a precarious position given the promise of more interest rate hikes. “Companies should prepare to weather any storm coming their way and be prudent on where they spend their cash,” says Verduyn-van Weegen. 

Parikh also emphasizes the importance of adjusting to the current climate. “There is plenty of capital available for founders with strong teams who are demonstrating situational awareness and are raising rounds for meaningful value inflection milestones on a 10-year historical valuation view,” says Parikh.

Of course, lean financial planning and more grounded milestone roadmaps aren’t the only things investors look for. Investors are also drawn by trends in technology and therapeutic targets. 

For Record, there’s a virtual cornucopia of technologies that are contributing to faster, more predictable drug discovery and development. Novel technologies that reveal biology in incredible detail, such as single-cell techniques, imaging, and machine learning, are creating a new foundation for the drug discovery tech stack. Ovelaying this foundation are technologies that can mimic and control biological mechanisms with much greater precision such as RNA-based therapies and antibody technologies. All combined, these tools give rise to extremely powerful platforms that are driving investor interest. 

“What really excites us as investors about these [technology] trends is a growing cohort of companies that are not only using these technologies to shift the odds of success in their favour but are also building a [platform] foundation to create new drugs again and again. These companies can reinvest capital at high rates of return and doing so creates the potential for them to grow exponentially,” says Record. 

This kind of success isn’t theoretical. mRNA technology, made famous by the COVID-19 pandemic, delivered vaccines at lightning speed—within 9 months compared to 5-10 years that it normally takes to develop a vaccine. Now, companies like Moderna and BioNTech are expanding the technology to address more infectious diseases, such as RSV and influenza, as well as personalised cancer vaccines and rare diseases. “mRNA is an information molecule—it carries instructions for making proteins in our bodies and can be programmed to deliver practically any protein using our bodies as factories for producing the drugs that we need. The potential is virtually open-ended,” says Record.

Another hot therapeutic trend is targeted delivery. Early synbio therapies have struggled to reach disease targets beyond blood-related disorders or the liver. “Targeted tissue delivery technologies are high on everyone's radar, besides novel targets for cell therapies and other modalities in solid tumours,” says Verduyn-van Weegen. She also adds that a number of disease areas are especially interesting to investors right now including neuro-inflammation, cardio-metabolic and kidney disease. 

Record is also watching the targeted delivery space carefully, especially around one of the biggest challenges in human health: crossing the blood-brain barrier. “We’re excited to see Denali Therapeutics making progress with their large molecule transport vehicle to deliver therapeutic antibodies and enzymes to the brain. Delivering drugs past the blood-brain barrier has been a major obstacle in treating brain diseases and overcoming this obstacle could be a massive catalyst for progress,” says Record. 

It’s important for companies not to get too caught up in small technical tweaks and lose the big picture as a result. “Too often, we see companies in the [synbio for human health] space that have been heavy on engineering known biological mechanisms [but], in the grand scheme of things, only offer incremental benefits to what already exists. The companies that can successfully leverage their engineering or leverage novel biology to go where others couldn't go in terms of targeting a new patient (sub)population are the ones that have always been most exciting to investors,” says Verduyn-van Weegen.

For companies that tick all the boxes for investors— right team, right tech, right targets, right timeline—it’s critical for teams in this economic environment to focus on specific programs even as they build their underlying platforms. “Spending cash on programs that are not going to drive exits is seen as an unnecessary dilution,” says Verduyn-van Weegen. Companies should be thinking about lean and focused fundraising while, at the same time, providing optionality. “The focus should be on the programs that will deliver actual clinical data in the short term, showing proof of concept for the rest of the platform without spending too many resources all at once.”

But what about companies who are looking to raise their most significant round: their IPO? Record points out that companies looking to go public in this environment can still influence the outcome of their IPO. "Even in public markets, companies can control their shareholder base by clearly communicating priorities, what the de-risking path looks like, the time horizons involved and progress. This helps to build relationships with shareholders who are aligned with the company’s vision," says Record. 

While Record, Parikh and Verduyn-van Weegen all see challenging times, they are excited about the quality, ingenuity, drive, and vision of the companies that weather this storm. Tightening belts and asking the tough questions on a company’s trajectory will serve founders well in the long run. It’s important to aim high but still keep your feet steady and grounded. It’s a tough balance, of course. But those that manage it will set themselves up to thrive. 

Written by Fiona Mischel.

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