By Aimee Raleigh, Principal at Atlas Enterprise, as a part of the From The Trenches function of LifeSciVC
“It was the very best of occasions, it was the worst of occasions…”
One other JPM is behind us, and whereas a lot of the small speak was centered on the attractive climate, spectacular sea of pink in assist of the Biotech CEO Sisterhood, and Monday’s offers (congratulations to ITCI, Scorpion, and IDRx groups!), general sentiment was bifurcated. Whereas many early-stage personal VCs (and particularly these taking part in latest M&A) are feeling good going into 2025, public buyers lamented the poor efficiency of public portfolios and indices. Equally on the corporate facet, a couple of megaround darlings have captured a big share of the capital prior to now 12 months (almost 100 raises >$100M). In distinction, the temper is extra apprehensive for these firms with information or timing setbacks, particularly on prime of one of many highest charges of RIFs in 2024. The previous 12 months has been a blended bag, particularly when factoring in tenuous macro headwinds similar to uncertainty relating to the brand new administration, debate on drug pricing, and persistently excessive rates of interest. You’ll hear from different shops that JPM sentiment ranged from poor to cautiously optimistic – whereas I received’t add extra adjectives to the pile, under are a few of my key takeaways as we begin the brand new 12 months.
Earlier than we dive in, I might be remiss if I didn’t name out the truth that lots of final 12 months’s themes proceed to be entrance and heart, together with M&A and investor {dollars} targeted on “scorching” areas. With out additional ado – my key themes from this 12 months’s JPM as we sit up for one other productive 12 months in biotech…
Courageous New World: China Property are Right here to Keep
Regardless of grandstanding from Washington, China out-licenses to U.S. and EU-based biotech and Pharma have by no means been extra ample than prior to now 12 months (Fig. 1). Whereas our trade will proceed to debate whether or not the fast timelines and ample applications out there in China are a growth or a bust for our biotech financial system, there isn’t any denying the panorama for therapeutic improvement is shifting (and particularly for “validated” targets for “best-in-class” performs). Pharma particularly elevated China-sourced deal quantity considerably final 12 months, a vote of confidence for the sturdy discovery and improvement expertise there in addition to extra environment friendly timelines to medical proof-of-concept. Stifel not too long ago reported that ~1/3 of Pharma licensing offers in 2024 had been sourced from China, an unbelievable statistic and one which factors to the shifting panorama for asset-centric offers.
A number of questions are prime of thoughts for buyers when eager about China-sourced belongings:
- How lengthy will these offers stay aggressive, particularly within the context of quickly rising economics (upfront, whole milestones, royalties, fairness)?
- How can we mannequin evolution of this market – will we proceed to see largely “me-too” or “me-better” performs? Or will the China ecosystem evolve to ship first-in-class applications targeted on riskier biology or difficult druggability?
- Associated to the above, what number of impartial applications towards the identical goal can the market moderately assist? Sooner or later we’ll attain a saturation level in belongings, past which there aren’t sufficient consumers to credibly carry a program via late-stage improvement and commercialization.
The longer term right here isn’t all or none – it’s extremely unlikely China will utterly substitute Western nations in drug discovery and improvement, and it’s also unlikely that future laws will utterly block collaboration. It’s to our profit as an trade to work in direction of a brand new paradigm that leverages cross-geography collaboration, whereas additionally making certain the U.S. and Europe stay aggressive in executing on improvement for first-in-class performs.
There and Again Once more: Buyers Tiring of “Me-Too” Performs
Relatedly, investor pleasure for asset-centric performs has performed a job within the rush to supply (largely clinical-stage) belongings from China. As my colleague Bruce wrote in a latest put up (right here), the sentiment in 2024 was overwhelmingly “assets-in, platforms-out.” Corporations elevating cash for first-in-class biology or earlier platforms tended to have a tougher fundraising journey final 12 months, with few standout exceptions. Nonetheless, the pendulum will inevitably shift, and the query is whether or not we as an trade can foresee that shift early and regulate or whether or not now we have already oversaturated sure indications and targets. Given the motion in direction of massive indications of the previous 18 months (weight problems, broader cardiovascular, excessive incidence oncology, and huge I&I indications), it’s essential to recollect the big price, experience, and time dedication required to run a number of Part 3 trials and commercialize in these aggressive areas. It’s unlikely that many firms past Pharma and large-cap biotech can pull it off. Thus, if you find yourself evaluating the 7th antibody program towards Goal X, contemplate whether or not the client pool is saturated and what incremental alternative is obtainable by any differentiated options. I’ve little question many extra of those applications will “work” clinically than will be feasibly commercialized.
For instance, we are able to contemplate a few of the “scorching” areas in 2024 and the combination inventory efficiency for consultant public firms (Fig. 2). Whereas each I&I and weight problems performs are controversial sturdy performers, it’s worthwhile to notice that some classes clearly turned overhyped final 12 months and subsequently offered off. At occasions the sell-off was as a result of information that, whereas good, fell in need of the perfection priced in. At different occasions, it was associated to aggressive performs rising on the personal facet. In a market the place there are zero-sum parts, an “apparent” play is simply valued as long as it’s perceived as best-in-class and aggressive in late-stage improvement.
Maybe within the near-future buyers will once more recognize riskier however doubtlessly higher-reward biology and offers – we could already be beginning to see that in 2025 with a few of the massive follow-on financings for next-gen modalities. A standard chorus this previous JPM was that of public buyers lamenting lack of “originality” within the personal offers they had been evaluating. There’s an uncanny Catch-22 at play – platform or first-in-class asset performs require appreciable funding and conviction, however firm creation VCs can’t proceed to spend money on these areas if later-stage buyers (crossover and publics) don’t take part in financings earlier than these are de-risked in Part 2. If we proceed to pay attention bets in “validated” performs, I frankly fear in regards to the novelty of our collective pipelines 5 years from now.
New Alternatives & Headwinds in Scientific Growth
So the place does an investor or entrepreneur look when some indications really feel saturated? One space of focus could be indications the place trial landscapes are evolving such that chance of success is greater in the present day than beforehand. For instance, contemplate bronchial asthma – up till the early 2010s bronchial asthma trials didn’t use eosinophil ranges as an inclusion standards or stratifier, however somewhat some taste of Th2 marker (e.g., periostin). A number of mechanisms that many agree ought to work (e.g., anti-IL13 lebrikizumab) failed underneath this trial design – is {that a} learn on the mechanistic relevance itself, or somewhat the setting during which it was trialed? Altering improvement paradigms supply a path ahead for brand new or beforehand discarded mechanisms – a couple of of my favorites from the previous ~12 months are under:
- COPD: a pure extension of the eos excessive vs. low paradigm in bronchial asthma is the applying of this affected person stratification method in COPD. The Dupixent approval for sufferers with an eosinophilic phenotype final September factors to the success of this method. Will anti-IL33s have the identical success stratifying by smoking standing? We’ll quickly discover out, as numerous these readouts are anticipated this 12 months.
- HFpEF: coronary heart failure is an space the place incretins are radically altering the paradigm, together with the idea that weight reduction can really be useful in sufferers (in comparison with the “weight problems paradox” notion, i.e., weight problems correlates with higher survival charges, implying losing a few pounds might be detrimental to CV outcomes). Novo and LLY have trialed semaglutide and tirzepatide in each T2D and non-diabetic overweight populations with coronary heart failure and proven gorgeous efficacy on CV outcomes, high quality of life, and performance. Nearly as essential because the incretin mechanism, these trials established a brand new paradigm for overweight HFpEF by way of affected person choice, approvable endpoints, and remedy period. Hopefully this altering trial panorama for HFpEF, and doubtlessly broader segments of HF, alleviates a few of the threat for biotechs growing new remedies for these sufferers.
- Urticaria: the outstanding efficacy of KIT inhibitors in CSU has confirmed the function of mast cells in driving pathology, and has additionally ushered within the idea of Xolair naïve vs. refractory as a affected person stratification method. Whereas Xolair is an okay early-line agent for sufferers, potent KIT inhibitors like CLDX’s barzolvolimab have proven to be equally efficacious throughout each Xolair-naïve and refractory sufferers, suggesting that best-in-class efficacy is feasible throughout affected person segments when disabling mast cells. Different applications focusing on Th2 biology (e.g., dupilumab) have proven mediocre efficacy and solely within the Xolair-naïve inhabitants, implying restricted impression of the mechanism past present standard-of-care.
- Stable tumors: latest FDA steering on use of ctDNA as an endpoint for remedies with healing intent for strong tumors could also be an early biomarker for a shift within the surrogate endpoint panorama. Whereas extra work is required to harmonize assays and interpretation throughout therapies and trial settings, it’s a promising improvement to expedite sign in search of in these trials.
Whereas these altering paradigms will help drive additional improvement, there are additionally loads of indications the place the trial panorama is in dire want of latest insights on affected person stratification, endpoint choice, and remedy period. Atopic Dermatitis particularly stands out – whereas the pipeline of energetic brokers is rising, so too is the collective uncertainty re: constraining placebo response. Likewise for ALS, we proceed to see failed mechanisms throughout trials (the previous 12 months alone it was ATXN2, eIF2B, RIPK1, 15-Lipoxygenase, and others) and it’s unclear whether or not we’re seeing trial design noise or true unfavourable reads on the biology. At this level it’s unclear whether or not NfL as a surrogate shall be related throughout a number of subtypes of ALS (genetic and in any other case) and what timeframe is cheap to see illness modification. That mentioned, with a number of high-conviction applications near the clinic (together with from Hint and others), hopefully 2025 brings extra readability on how one can finest consider therapies for this devastating situation.
Herculean Scientific Affect: What Can’t Incretins Do?!
Whereas some buyers are rising exhausted with the sheer quantity of weight problems newcos, it’s clear T2D and weight problems are solely the tip of the iceberg for indication relevance of this class. The “winners” have potential to command super market share given the enduring metabolic profit established prior to now few years for this class. In 2024 we witnessed stellar readouts in HFpEF, MASH, Obstructive Sleep Apnea, Knee Osteoarthritis, Persistent Kidney Illness, and T2D prevention. Whereas these datasets are being generated by LLY and NOVO, there may be now a strong clinical-stage pipeline of incretins in quick pursuit.
There’s super alternative for any Pharma with a present or future metabolic illness franchise to construct quickly right here – the market is so massive that no 2 gamers can feasibly nook all market share. Many indications exist the place rising stage of weight reduction (and corresponding enhancements in lipid profiles, glucose management, and so forth.) is prone to drive larger medical profit. Tirzepatide (Zepbound / Mounjaro) is clearly market-leading for these advantages, however there may be nonetheless substantial therapeutic potential for an agent that achieves greater weight reduction (approaching ~25% bar set by bariatric surgical procedure at 1 12 months). Whereas a few of these potential opponents (e.g., CagriSema, MariTide) have upset by way of differentiation vs. tirzepatide, others in late-stage improvement (VKTX, Kailera, choose others) could very effectively obtain the excessive bar required for differentiation.
Along with the broad spectrum of metabolic illnesses the place incretins at the moment are a related first line remedy, there are a couple of high-risk however high-reward readouts forward in 2025. Topline readouts from Novo’s research of semaglutide in early Alzheimer’s Illness (EVOKE and EVOKE PLUS) are anticipated by the top of this 12 months. One other trial by Novo will learn out on the efficacy of semaglutide and cagrilintide (amylin) in alcohol-related liver illness – importantly this trial has excessive potential to indicate profit on alcohol consumption, doubtlessly paving the way in which for broader improvement in substance use problems. Lastly, we’re beginning to see trials for incretins together with anti-inflammatory brokers for I&I situations with a comorbid weight problems inhabitants (e.g., Lilly’s Part 3 trial for tirzepatide together with anti-IL17A ixekizumab in psoriasis).
Finally there are rising “tiers” of mechanistic rationale for incretins in indications past weight problems and T2D:
- Group 1: most “apparent” enlargement of mechanism and associated to impression of weight reduction on physique mechanics. Examples embrace Knee Osteoarthritis and Obstructive Sleep Apnea.
- Group 2: much less apparent however doubtless associated to each discount in fats mass & irritation. HFpEF and MASH fall into this class, and whereas not 100% correlated, improved weight reduction profit (a surrogate for therapeutic efficiency) tends to enhance outcomes for these indications.
- Group 3: indications the place incretin efficiency is prone to impression efficacy however the place information continues to be rising. These indications embrace habit / cravings, cognition / dementia, and long-term CV outcomes.
Whereas the urge for food for brand new incretin-based firms is waning, it’s largely a results of the compelling late-stage applications (e.g., from VKTX, Kailera, and others) already in line to compete with LLY and NOVO. It’s additionally clear that incretins as a category have extra to show by way of mechanistic relevance and impression on human well being – this might very effectively be the most important therapeutic breakthrough of our lifetimes.
Inside Neuro, Epilepsy Continues to be a Darling for Buyers
2024 noticed many beneficial properties within the neuro area, together with repurposing anti-amyloid antibodies with TfR1 shuttles for improved mind penetration, the primary approval in Schizophrenia in over 30 years in Cobenfy, and optimistic mHTT and NfL readouts in Huntington’s. Final 12 months was additionally marked by quite a few compelling datasets for epilepsy. Particularly, information in pediatric developmental and epileptic encephalopathies (DEE) and grownup focal epilepsy suggests a paradigm shift to best-in-class exercise with safer profiles. A few of the compelling readouts prior to now 12 months, and people on faucet for 2025, are under:
- Novel therapies for DEEs could obtain illness modification and thus have a profound impact on infants and kids with refractory epilepsy.
- STOK not too long ago obtained Part 3 design alignment from the FDA, EMA, and PMDA (Japan) for the EMPEROR trial of zorevunersen, an modern oligonucleotide to extend SCN1A transcript ranges and thus immediately handle the haploinsufficiency driving illness. Compelling seizure discount (>85%) is annotated for these sufferers on prime of standard-of-care (albeit in an open-label setting). As well as, Part 2 information exhibiting profit on cognitive and developmental scales in addition to inclusion of the Vineland-3 endpoint in Part 3 suggests potential for actual illness modification in these refractory sufferers
- Final 12 months Lundbeck acquired Longboard Prescribed drugs largely for its 5-HT2c superagonist small molecule remedy Bexicaserin after studying out compelling Part 1/2 earlier within the 12 months in DEEs. Given >30% seizure discount (placebo-corrected) throughout DEE sufferers, 2025 shall be an essential execution 12 months for the Part 3 trial for the mechanism
- Praxis additionally learn out a compelling Part 2 dataset for DEEs final 12 months – relutrigine is a sodium channel inhibitor being trialed in SCN2A and SCN8A DEE sufferers. Topline information confirmed almost 50% seizure discount (placebo-corrected) at 16 weeks in a really extreme inhabitants and 1/3 of sufferers achieved seizure freedom
- Whereas early, Xenon not too long ago printed preclinical information for its Nav1.1 sodium channel openers, which have blockbuster potential for Dravet Syndrome.
- The previous 12 months has additionally seen super advances in therapies for adults with focal epilepsy.
- 2/7.3 potassium channel openers have quickly emerged as one of many highest-potential remedies for focal epilepsy, particularly these with selectivity (and thus security) to allow power remedy. XENE leads the pack with azetukalner, attaining ~35% seizure discount (placebo-corrected) in a latest Part 2b readout. BHVN’s Kv7 activator BHVN-7000 isn’t too far behind, and these applications could usher in a flood of opponents
- RAPP’s RAP-219, whereas earlier-stage, has potential in focal epilepsy as a extra selective AMPA receptor NAM – Part 2a readouts are anticipated this 12 months, and curiously will present a learn on lengthy episodes (through implanted intracranial EEG) as a possible PD marker
The mechanisms governing hyperexcitability in seizure technology might also play a job in different neuro situations, and it’s no shock a few of these applications are additionally being developed for psych, motion problems, and associated situations. Even with all of the success of this subject, it’s value noting that 2024 wasn’t uniformly optimistic in epilepsy – Ovid and Takeda noticed the Part 3 failure of small molecule inhibitor of ldl cholesterol 24-hydroxylase (CH24H) soticlestat in refractory Dravet syndrome and Lennox-Gastaut syndrome. Whereas not all information has been rosy, the long run has by no means regarded so brilliant for epilepsy remedies and 2025 could usher in an actual paradigm shift for brand new (and doubtlessly disease-modifying) medicines.
Closing Ideas – Exits Will Proceed to Dictate Sentiment
Finally buyers are judged on their exits, so M&A and public portfolio efficiency will proceed to play an outsized function in sentiment for 2025. On the previous, Pharma patent cliffs proceed to loom massive and thus will doubtless drive sustained acquisitions for medical or near-clinical performs. On the latter, we’re nonetheless seeing sturdy information being rewarded (e.g., BMPC, DNLI, others final week). Even when shares aren’t at their all-time highs, there may be alternative to choose winners and do effectively on this market, particularly contemplating a few of the undervalued names.
There’s a bimodal distribution in investor and firm sentiment and it’s unlikely to vary within the very near-term. As an alternative of specializing in what’s out of our management (geopolitical agita, pricing stress, cussed inflation), let’s put power into what we are able to management: doing every little thing in our collective energy to carry medicines to sufferers. Cheers to a productive 2025 for our trade.
P.S. For these of you following alongside, sure the callbacks to literature had been intentional and there are 5 in whole!
