Artificial intelligence (AI) is a term that pops up everywhere lately. In this article, we provide some examples of how it opens a plethora of possibilities when it comes to improving healthcare. For example, AI is used in drug discovery, in diagnostics, in the analysis of clinical data and in telemedicine.
First of all, let’s get the terminology right. AI is an umbrella term for advanced computer techniques, developed since the 1950s, that include machine learning (ML) and deep learning (DL). ML creates algorithms and models to find patterns in data. It’s guided by predefined rules, which it uses as a basis to develop outcomes of a new dataset. Like ML, DL allows computers to solve complex problems through analyzing examples, yet deep learning takes this one step further. Deep learning builds the rules for pattern recognition in an automated way rather than through handcrafting, thereby making use of multi-layered neural networks, which function in a way similar to the human brain. DL is particularly powerful for solving very large datasets, which are common in many healthcare applications.
Turbo-charging drug development
Within drug discovery, the high failure rate strongly increases the average cost for development of a new drug. Biotech companies are trying different approaches to leveraging AI in drug discovery.
For instance, the company Atomwise is creating AtomNet, a deep-learning neural network based on molecular structures. AtomNet is designed to predict, in a high-throughput manner, the bioactivity of small molecules. This prediction can be used to discover new hits, find molecules with optimized selectivity, predict off-target toxicity or repurpose existing drugs.
Many other companies, including Recursion Pharmaceuticals, Exscientia, Deep Genomics, Benevolent AI, TowXAR, Numedii and Numerate, have also secured funding to explore the field and apply their AI algorithms in drug discovery and development. These companies all claim that they can significantly cut the cost of drug development and reduce the time from drug discovery to launch.
“It is too early to predict the exact impact of AI-based drug discovery on the overall development time and cost. Even though the early results are very exciting, we believe AI can be even more impactful by increasing the efficiency of the clinical development,” says Tarek Roustom, MD and Junior Analyst at V-Bio Ventures.
Leveraging clinical data
The mission becomes much more challenging, and rewarding, when employing AI in clinical decision-making or predicting clinical trial outcomes. The difficulty here is that the input data is usually very complex and hard to obtain.
As an example of a company active in this field, Flatiron Health is developing a learning healthcare platform in the form of a cloud-based database that includes medical records and clinical data from millions of cancer patients. AI-based analysis of past medical records allows to predict outcomes and propose optimized treatments for newly diagnosed cancer patients. That information can then be made accessible to clinicians, researchers, universities and drug-development companies. Flatiron raised over $300 M from different investors, including Google Ventures.
“The more we train these clinical database algorithms, the better they get. That’s why you see major funding flowing in AI-leveraged clinical data start-ups like Flatiron Health and iCarbonX. There is a big need to overcome the scarcity and variability of real-life clinical data,” comments Roustom.
No more eyeballing at scans
One obvious application for AI is using machine-learning algorithms to process large sets of unstructured data as machines are able to objectively spot complex patterns and correlations that humans wouldn’t come up with easily.
The low-hanging fruit here is the use of the ML and DL algorithms on data from different omics or imaging analyses, which are relatively easy to obtain. The resulting patterns can be very valuable to diagnose diseases, predict treatment response or unveil new therapeutic targets.” – Roustom
For example, Enlitic applies deep learning in radiology image recognition. Their technology can interpret a medical image in milliseconds, whereas a radiologist needs a couple of minutes. In addition, in June 2016, the Economist reported that in a test against three expert human radiologists working together, Enlitic’s system was 50% better at classifying malignant tumors. Moreover, Enlitic’s AI technology had a false-negative rate (where a cancer is missed) of zero, compared to 7% for human diagnosis.
Many other companies are using ML to discover patterns in biomarkers or imaging devices to diagnose different diseases, including Arterys, Butterfly Network, 3scan and DNAlytics.
Telemedicine and remote patient monitoring
AI platforms are being developed to provide patients with effective and low-hurdle health monitoring and advice. Such platforms can either complement or replace part of the work currently done by healthcare professionals, such as regular health assessment and monitoring.
The UK-based Babylon Health, for instance, runs a digital platform inviting patients to make virtual appointments with GPs and specialists. Babylon is also developing AI algorithms to chat with those patients and deliver simple health advice.
Other examples of companies developing patient-oriented AI platforms are Sense.ly, AiCure, SkinVision and Sentrian. Only the future will tell which of these will succeed in building large-scale customer engagement.
What will the future bring?
Roustom is excited about all the possibilities AI can bring to the biotech and healthcare sector in the broad sense: “We are optimistic that with the continuous advancement and the growing availability of affordable ML and DL service providers, the AI-applications will be increasingly adopted across the healthcare sector. AI will probably become a staple in healthcare, assisting researchers and clinicians in everyday tasks and hopefully creating shortcuts in drug development and disease diagnosis. We further believe that any successful AI-leveraged biotech start-up will have to be a biotech company at its core as AI will mainly be a tool to do some tasks faster and smarter. AI alone won’t create successful biotechs, but it is a valuable aid that an increasing number of biotechs will use. We expect that some AI-leveraged biotechs that fail to develop effective healthcare-related products per se will turn to the business of providing AI services.” For example, the AI discovery company Numerate, seeded by Atlas, pivoted to a service and collaboration business model. According to Roustom, these service activities will have to be highly focused on a particular niche: “Biotech-specialized AI service companies will face competition from tech companies providing generic AI services, including the likes of IBM and Google Cloud, that offer very affordable ML services.”
Hereditary diseases are caused by mutations or deletions in (single) genes that lead to either dysfunctional or inadequate levels of proteins. RNA- or DNA-mediated gene supplementation and gene editing are next-generation disease-modifying therapies for such diseases. Gene supplementation/gene editing allows the root of a hereditary defect to be tackled in a single corrective action with a lifelong effect. However, its development has proven much more challenging than initially thought 30 years ago, and conventional approaches with varying levels of efficacy have been developed and are, in some cases, firmly established standards of care.
In this article, we explore a few diseases in which established companies selling conventional small molecules or biologicals may be threatened by impending gene supplementation/gene editing therapies. Some established players have responded by joining forces with newcomers, which may create interesting market dynamics in the near future.
Hemophilia
Protein replacement therapy is used for the treatment of hemophilia, a hereditary disease affecting the body’s ability to efficiently halt bleeding upon injury. The market for blood clotting factors, such as Factor VIII or Factor IX, is currently worth over $7 billion.
The companies selling these protein replacement therapies, including large pharmaceutical companies, such as Pfizer, Bayer, Novo Nordisk, and Shire/Baxalta, face potential threats from smaller hemophilia gene therapy players, such as BioMarin, UniQure, Sangamo, and Spark. Hemophilia gene therapies consist of supplying a functional copy of the Factor VIII (Hemophilia A) or Factor IX (Hemophilia B) gene packaged in an Adeno-associated viral (AAV) vector in most cases. The viral vectors, typically delivered in vivo through a one-time intravenous injection, transfect liver cells, which then produce blood clotting factors and release them into the blood. Initial data from phase 1/2 clinical trials are encouraging, and the first phase 3 trials are expected to start in 2018. If the phase 3 trials meet expectations and if an attractive price can be found upon market launch, hemophilia gene therapies will put serious pressure on the blood factor market.
Pfizer, a current supplier of blood clotting factors, is taking proactive measures in this upcoming battle by teaming up with both Sangamo and Spark, two of the hemophilia gene therapy frontrunners, to develop gene therapies for the treatment of Hemophilia A and Hemophilia B, respectively.
Duchenne muscular dystrophy
Duchenne muscular dystrophy (DMD) is an inherited X-linked disease that leads to severe muscular weakness. It is caused by mutations in the gene encoding dystrophin, which is responsible for connecting the cytoskeleton of muscle fibers to the extracellular matrix. The only disease-modifying therapy currently on the market is Sarepta Therapeutics’ Eteplirsen (Exondys 51), which targets an out-of-frame mutation implicated in 13% of DMD cases. Eteplirsen is a morpholino antisense oligomer that triggers the excision of the out-of-frame exon 51 during the pre-mRNA splicing of the dystrophin RNA transcript, leading to the production of truncated, yet functional dystrophin. Despite its approval by the FDA in 2016, Eteplirsen’s relatively poor efficacy has sparked a highly controversial debate. However, sales for 2017 are expected to reach approximately $125 million.
The field of DMD has seen increased gene supplementation therapy activities (e.g., Solid Biosciences is preparing an initial clinical trial for an AAV-based therapy that delivers a shortened, yet functional version of dystrophin) and gene editing therapy (e.g., CRISPR Therapeutics, Editas Medicine, and Exonics Therapeutics). For example, Exonics Therapeutics focuses on deleting out-of-frame exon 51 in the dystrophin gene, the same exon that Eteplirsen targets. However, unlike Eteplirsen, the effect of the Exonics Therapeutics approach is expected to be durable as the excision occurs at the DNA level. All of these DMD gene supplementation/editing therapies are still in the preclinical stage, and hence, still way out. The key challenge with these ongoing approaches will be to impact a sufficiently high fraction of the muscle cells and to supply enough functional dystrophin to restore muscle function. It is yet unclear whether this will be feasible in the foreseeable future.
Nonetheless, Sarepta Therapeutics, the company selling Eteplirsen, the only disease-modifying therapy for DMD, is preparing to compete with these challengers and has initiated a collaboration with Duke University around its DMD-targeted gene editing technology.
Cystic fibrosis
Recently developed small molecule drugs provide disease modifying therapy options for cystic fibrosis (CF). Companies such as Vertex Pharmaceuticals and Galapagos/Abbvie have developed small molecules that either potentiate the dysfunctional Cystic Fibrosis Transmembrane Conductance Regulator (CFTR) protein or correct the intracellular trafficking of the CFTR protein. The Kalydexo and Orkambi drugs from Vertex are well underway to becoming blockbuster products, with combined sales for 2017 predicted to reach approximately $2 billion.
As the market leader in disease-modifying drugs for CF and driven by its desire to defend its growing CF franchise, Vertex Pharmaceuticals has initiated a collaboration with Moderna on mRNA therapies that treat the underlying cause of CF, enabling cells in the lungs to produce functional CFTR protein. AstraZeneca, which is historically strong in respiratory diseases, has also partnered with Ethris on an mRNA-based protein replacement therapy for CF.
Gene editing activities are also starting to emerge in the CF field; however, they are still at a very early stage. For example, Editas Medicine is active in this field and has received a $5 million grant from Cystic Fibrosis Foundation Therapeutics, the drug development affiliate of the non-profit Cystic Fibrosis Foundation. However, similar to DMD, scientists will need to devise effective ways to get the editing apparatus into the many epithelial cells affected by CF. Two options are being investigated: an in vivo approach, whereby vectors are delivered directly into the body of the patient, such as in the hemophilia gene therapy mentioned above, and the ex vivo approach, whereby cells are modified outside the patient and then delivered back into the desired tissues.
Spinal muscular atrophy
Spinal muscular atrophy (SMA) is a rare hereditary neuromuscular disorder characterized by the loss of motor neurons and progressive muscle wasting caused by mutations in the survival of motor neuron 2 (SMN2) gene. SMA is the leading genetic cause of infant death. Biogen commercializes Spinraza, the only disease-modifying SMA drug approved to date. Spinraza is an antisense oligonucleotide drug initially developed by Ionis Pharmaceuticals that modulates SMN2 gene splicing. Spinraza was launched in early 2017 and is expected to generate peak sales in the $1.5–2 billion range.
Spinraza is already experiencing serious competition from gene therapy. AveXis’s gene therapy product, AVXS-101, delivers a functional copy of the SMN1 gene into the motor neuron cells through an AAV9-based vector that crosses the blood-brain barrier. AveXis received FDA approval to start a pivotal trial in October 2017 after it reported positive data from an uncontrolled phase 1 trial. While it is dangerous to compare the phase 1 data of AVXS-101 to the phase 3 data of Spinraza, it is still striking that 9 of 12 AVXS-101-treated SMA babies were able to sit unassisted versus only 8% of Spinraza-treated babies. In addition, while AVXS-101 theoretically requires one-time intravenous or intrathecal administration, Spinraza must be administered intrathecally three times per year after four initial loading doses. It is unknown whether the effect of AVXS-101 will wane with time and whether the antibodies elevated against the AAV capsid protein will hamper re-administration.
Meanwhile, the interim clinical results from the small start-up company, AveXis, impact the stock price of big biotech Biogen. If the pivotal trial of AVXS-101 confirms the promising phase 1 data and if the product eventually obtains market approval, AveXis may disrupt Biogen’s nascent franchise, which would likely spark M&A activities among the players interested in rare diseases.
Conclusions
Germany is one of the leading industrial nations in the world and has 8x more inhabitants than Belgium. However, when it comes to investments in early startups and early stage funds in life sciences, Belgium seems fit to hold the candle.
The vivid Belgian landscape
Belgium represents only 3% of the EU economy but no less than 16% of Europe’s biotech industry and 14% of the European pharmaceutical exports. The pharmaceutical industry in Belgium accounts for almost 5% of the country’s total employment. And despite its size, Belgium has an astonishingly vibrant and prolific life sciences investment scene. Many Belgian life sciences venture capital funds (VC’s) are willing to invest in startup biopharmaceutical companies. A number of established funds like PMV, Gimv, Vesalius Biocapital, Gemma Frisius Fund, Capricorn, LRM, SRIW, and Vives invest in these kinds of startups, but there are also some new kids on the block like Qbic, Fund+, DROIA, Bioqube Ventures, Newton Biocapital, and V-Bio Ventures.
Germany not quite world champion in life sciences startups
Germany also counts a number of life sciences VC’s, although some of the most relevant funds are actually subsidiaries of funds with a Belgian origin (like Vesalius and GIMV) or Dutch origin (LSP and Forbion). Some remaining truly German funds are Wellington Partners, EMBL Ventures, Creathor, and MIG Fonds.
The High Tech Gruenderfonds (HTGF) specializes in investing in spinoffs and early-stage companies – not limited to life sciences – in many cases in syndicate with other VC’s. However, these syndicates are often very difficult to build for capital-intensive startups in the biopharmaceutical field, as most life sciences VC’s are not willing to step in so early. The same problem also limits the impact of Coparion as well as local funds in Germany such as LBBW, NRW Bank, or Bayern Kapital, whose operating range is restricted to a certain region and who often can only act as co-investors and are not allowed to take the lead.
Family offices and High Net Worth Individuals (HNWI), such as the Strüngmanns and Hopp/Dievini, can invest large amounts of money, but they do this only in very few, selected companies. And hardly any new investments have been made in the last couple of years.
What is Belgium’s secret potion?
Numerous factors contribute to Belgium’s strong life sciences investment scene:
Belgium, beware of the pitfalls!
One of the pitfalls is that few of the Belgian life sciences startups have really made it to standalone entities with a positive cash flow generated from their own product sales so far. Galapagos, Mithra, and Biocartis could be among the first to cross this barrier.
Also, in Belgium there are still not enough scientists who dare to found a new company and take ownership in its future development. Thus, it will be important to further stimulate entrepreneurship and educate scientists about what is needed to embark on this adventure. In addition, it will be essential to further decrease the barriers among industry, academia, VC’s, and TTO’s to spur learning and growth.
While Belgium has already made several steps in the right direction, the real challenge still lies ahead. The biotech hype at the beginning of the millennium caught the young VC and biotech scene in Germany off guard and led to a significant consolidation from which few VC’s recovered. With many Belgian VC’s being only in their first or second generation of funds, the real challenge of turning more startups into cash-generating mature companies still lies ahead. Openness, effort, and enthusiasm will be required from all stakeholders to create a sustainable ecosystem.
Reference
(1) Regering wil van ons land pharma valley maken, De Morgen, July 2017
Aphea.Bio is an agriculture startup, originating from the VIB and flourishing underneath the wings of V-Bio Ventures. Steven Vandenabeele (CTO at Aphea.Bio and previously working at BASF-CropDesign) and Willem Broekaert (managing director of V-Bio Ventures) explain how they found the necessary budget to give this company a head start.
We are convinced that, in parallel with the global awareness that agriculture needs to become more sustainable, the market share of biologicals will expand incessantly and that Aphea.Bio will have an impactful contribution to this shift.
Manipulating a crop’s microbiome for disease control and growth promotion
Vandenabeele: Aphea.Bio focuses on the development of agro-biologicals for biocontrol and growth stimulation of two important crops, wheat and maize, by mapping and subsequent optimization of the microbiome of these crops in the soil. For that, we use special algorithms, which were developed by Jeroen Raes. Jeroen is a VIB scientist and renowned for his microbiome mapping in the human gut and in oceans. We also have a special in-house technology that enables us to culture a large number of these soil organisms. Standard technologies only allow culturing 10 to 15% of the different specimens, but we can grow up to 40% of them. This percentage may even increase after continued optimization. This gives us access to a much larger pool of microorganisms and provides an important competitive advantage.
The use of microorganisms in agriculture is not new, but novel insights leveraged by recent technology leaps pave the way for the development of a second generation of products with improved efficacy and specificity. We are convinced that, in parallel with the global awareness that agriculture needs to become more sustainable, the market share of biologicals will expand incessantly and that Aphea.Bio will have an impactful contribution to this shift.
A VIB spin-off
Vandenabeele: The company is a spin-off from the VIB lab of Sofie Goormachtig, and we still have a strong collaboration with her. We received a research grant of 1.3 million euros from VLAIO, which will be used in part by her lab to reveal the mode of action and molecular mechanisms of microorganisms affecting crops.
There are different ways that a microbiome can affect plant growth. For example, there are microorganisms that stimulate plant growth by producing certain signaling molecules. Alternatively, certain microorganisms can process nutrients in the soil that are initially not absorbable by the crop but become bioavailable after metabolization. This is important for the absorption of, for instance, phosphorous and nitrogen compounds.
V-Bio Ventures guided Aphea.Bio to the right investors
Broekaert: Back in 2014, the VIB took the initiative to set up a proof-of-concept research program in the lab of Sofie Goormachtig. The program focused on the application of novel microbiome and bioinformatics approaches to agricultural crops. As the research delivered promising results, VIB decided in 2015 to appoint Steven to develop a business plan around this topic, and we provided him with strategic advice right from the beginning. Once the business plan was ready, V-Bio Ventures became the lead investor of Aphea.Bio, and we helped to find co-investors. We needed at least 6 to 7 million euros, which is a lot for a startup in agriculture. There are not many companies in Europe in the agricultural space that can start with such a strong capital base.
This has been a good example of how an intensive interaction between VIB’s Technology Transfer Office and V-Bio Ventures, sustained over a two-year period, led to the successful launch of a well-financed startup company.
V-Bio Ventures and VIB made an initial seed investment of 300,000 euros in Aphea.Bio in 2016. This move allowed us to initiate the first R&D programs and to maintain momentum while we were building a broader investment syndicate for a larger series A financing round. Meanwhile, the team was reinforced when Isabel Vercauteren was appointed as CEO. She is a perfect match as she gained a lot of experience in agriculture companies like Bayer and Devgen, and she brings expertise and insights that are complementary to those of Steven. Having both Isabel and Steven on board helped us convince seven other investors to gather the necessary capital for a 7.4 million-euro series A round, which closed in June 2017.
What I want to make clear here is that at the start of this project, most initiatives originated from VIB, but the closer we came to an investing round, the more active V-Bio Ventures became on the forefront. This has been a good example of how an intensive interaction between VIB’s Technology Transfer Office and V-Bio Ventures, sustained over a two-year period, led to the successful launch of a well-financed startup company.
Vandenabeele: Aphea.Bio is now in the R&D phase, but we envision bringing our first products to the market in about six years. Thanks to our investors, we now have a budget for the next three years in place. During that time, we first want to obtain field-validated lead products. Then we will need a new capital injection to bring these products to the market.
A startup in agriculture is not the same as one in healthcare
Broekaert: Finding money for a startup in agriculture has some specific challenges compared to a startup in healthcare. There are a couple of venture funds that are specialized in agriculture, but these are rarer than funds specialized in healthcare. Also, the agriculture market is much smaller than that of healthcare, so investors tend to put less money on the table for startups. For Aphea.Bio, we needed eight investors to gather about 7 million euros; for a similarly sized healthcare-related dossier, we would probably have needed only three investors. Having to deal with many investors obviously complicates the negotiations, but eventually we succeeded in aligning all parties.
For V-Bio Ventures, this is our first investment in an agriculture company. In general, we see fewer projects in agriculture than in healthcare. This reflects the difference in the amounts of research money spent in these sectors. Another difference is that there are only five agriculture/fertilizer companies with a turnover of over 10 billion USD, whereas there are more than 20 companies of that size in the pharma sector. As a consequence, the pool of companies that might acquire agriculture startup companies is much smaller than it is for the healthcare sector. On the other hand, there are fewer agriculture startups in the ecosystem, so all in all, the chances for success are not significantly different than they are for a healthcare startup.
The earlier in development, the greater the risk. It’s an unspoken law in biotech that makes valorizing promising academic projects difficult to fund. Venture Capitalists (VCs) specialized in early-stage funding need to be creative to come up with ways to make their investment worthwhile. In almost all cases, the solution lies in partnering up with academia, industry and even patient groups and charities.
Academia is full of the brightest minds around, conducting cutting edge scientific research. However, innovative science is not meant to stay within the borders of academia. For society to really reap the benefits, science and technology are pulled into industry, where practical applications based on this new knowledge are developed.
The transition from academia to industry can be a rough trajectory, with new companies in need of funding while the risk of failure is still at its greatest. The old model consists of the company receiving a small amount of seed funding from a VC (fund), followed by several financing rounds as the company matures and achieves certain milestones. VCs hope that this will eventually lead to an acquisition by a pharma company, through which they are compensated financially for the significant risks taken early on. However, risks taken at the early stages are often not recognized by later stage investors, putting pressure on the returns of early-stage investors.
Creative VCs needed
VCs interested in, or even dedicated to, supporting these kinds of very early-stage projects need to be inventive if they want to continue doing so in a sustainable way. As such, different models of collaboration have arisen to make investments in discovery projects financially rewarding.
Some VC funds have built structural partnerships with academic research centers and university technology transfer offices (TTOs). In this way, funds can keep a close watch on what’s moving in academia, and select the most promising technologies to grow into start-ups. This allows the VC to become involved from the very inception of the fledgling company. These partnerships can also include larger industry players willing to support the starting company, financially or otherwise.
One example of this model is the French investor Kurma Partners, which harnesses its network of academic, business, and industry partners to foster early stage investments. Kurma has collaborations with various TTOs in France and is a privileged partner of the renowned Institut Pasteur. Likewise, V-Bio Ventures partners with Belgium’s premier life science institute VIB to incubate technologies and create new companies, such as Confo Therapeutics and Aphea.Bio.
Taking the matter into their own hands
Some TTOs and VC funds have even set up their own drug discovery units to start development of high-potential programs. By funding early drug development research and gathering additional preclinical data, it can rapidly advance a project and gain credibility towards other potential investors, which in turn should lead to the creation of a start-up. Together with the European Investment Fund (EIF), the KULeuven TTO Leuven Research and Development (LRD) created the Center for Drug Design and Discovery (CD3). CD3 was founded to bridge the gap between academic research, spin-off companies and pharmaceutical industry. Since its inception, CD3 has partnered projects with pharma behemoths such as Pfizer, Merck, AstraZeneca and Novartis. In a similar fashion, Swiss venture capital firm Versant Ventures founded the drug discovery engine Inception Sciences.
In another approach, funds can also be created by parties interested in propelling early-stage projects. The Apollo Therapeutics Fund was created for this purpose by the TTOs of the Imperial College of London, Cambridge University and University College London (UCL) together with pharma companies GSK, AstraZeneca and Johnson & Johnson. The £40 million fund provides £2 to 3 million per project for the development of pre-clinical assets.
In some examples, these consortia creating funds focused on early stage development also involve non-profit organizations such as patient groups and charities. As such, funds are created with syndicates that truly represent all ecosystem players: companies, academic institutions, CROs and patient organizations.
If one thing can be clear from the previous examples, it’s that collaboration is a must in fostering early-stage assets. However, aligning different parties with often a different endgame in mind can be quite the challenge. Only open and transparent structures together with a great portion of respect towards each other’s needs can make these initiatives successful and generate sustainable new funding options.
Aphea.Bio focusses on plant-bacterial interactions for the development of biopesticides and biostimulants based on naturally occurring microorganisms.
VIB, Ghent University and KU Leuven have launched a new spin-off: Aphea.Bio. This new company will develop sustainable agricultural products based on natural microorganisms to increase crop yields and to protect them against specific fungal diseases.
Thanks to a successful Series A financing round and an R&D grant approved by Flanders Innovation & Entrepreneurship (VLAIO), Aphea.Bio is now backed by 9 million euros of funding, giving it a clear shot at a leading position in the fast-emerging market of biopesticides and biostimulants. Headquartered in Ghent, Belgium, Aphea.Bio will be led by CEO Dr. Isabel Vercauteren and CSO Dr. Steven Vandenabeele.
The VIB spin-off pulls together resources and expertise in plant-bacteria interactions of the lab of prof. Sofie Goormachtig (VIB-Ghent University) and microbiome know-how contributed by the group of prof. Jeroen Raes (VIB-KU Leuven).
Aphea.Bio will develop next generation ‘biopesticides’ based on natural microorganisms. These products will provide an alternative for chemical pesticides, which are currently under serious pressure. In addition, the company will develop novel ‘biostimulants’, i.e. microorganisms that stimulate crop growth, for example through promoting the uptake of nutrients from the soil.
Dr. Isabel Vercauteren, CEO Aphea.Bio: “This financing puts us in an excellent position to develop new and superior agricultural products based on naturally occurring microorganisms that have a growth promoting or protective effect on the plant. We distinguish ourselves in this growing and competitive market through our unique technology platform. A large number of microorganisms that coexist with plants haven’t been isolated so far, yet our expertise allows us to exploit this untapped microbial space. Our applications are focused on staple crops such as wheat, barley and maize, because they offer the most valuable European and global market opportunities.”
In total, Aphea.Bio has raised 7.7 million euros in capital. The series A financing round was led by V-Bio Ventures and was joined by a broad syndicate of investors including PMV, Agri Investment Fund, VIVES, Qbic II, Gemma Frisius Fund KU Leuven, Group De Ceuster and VIB itself.
Furthermore, Flanders Innovation & Entrepreneurship (VLAIO) has approved an R&D grant worth 1.3 million euros, bringing Aphea.Bio’s total financial resources to 9 million euros.
Dr. Willem Broekaert, Managing Partner V-Bio Ventures: “We are highly pleased to have built a strong investor consortium that provides the necessary financial backing for this innovative start-up company. This group of investors also brings along a unique network through their relationships with scientific institutions and key players in the agricultural sector.”
Dr. Johan Cardoen, Managing Director VIB: “This is a great example of the vital impact of basic plant research on sustainable agriculture. All stakeholders are committed to propel Aphea.Bio into a leading position in the agro-biologicals sector. The last piece of the puzzle has been laid to make this company successful: there is now a strong team in place composed of passionate scientists with academic as well as strong industry background.”
Many biotech management teams fail to reach out to investors in a clear and appealing way.
Community organization Biotech and Money has published its annual investor perception survey, confirming or disproving investor sentiment in the sector. While covering various topics of the biotech investment climate, the survey’s essential takeaway is that communication from management teams toward potential investors is far from optimal.
The number one concern among biotech CEOs remains finding suitable financial means to fund their activities. Bringing promising biotech companies into contact with sound investors is essential for a flourishing biotech ecosystem. However, finding a match between investor and company requires the two parties to understand each other’s language, habits, and incentives. In its annual investor perception survey, community organization Biotech and Money asks the investor community about the state of biotech companies and their management teams, revealing some interesting insights.
Of all of the questioned investors, over 54% of them manage funds under $100 million. This confirms an issue mentioned in our previous article on the European biotech investment scene: While early-stage funding is available, the investors providing these funds are limited in their ability to follow up on their initial investment for long enough. Only 25% of the investors participating in the survey invest in public companies and can therefore function as crossover investors necessary to support IPOs and foster further independent growth. This disparity of early- and late-stage investors remains a hurdle for biotech companies outgrowing their seed funding and evolving to the next stage.
Communication breakdown
A second issue is that the value of good communication is often underestimated by biotech management teams. Convincing investors of a solid business case requires not only a sound innovation, but also a clear story and vision to support it. A frequently occurring complaint is that management teams assume investors to be knowledgeable, so they dive into scientific details too quickly without plainly communicating key advantages. Investors need to understand the problem a company is solving, how the company will achieve its goal, and how eventual cash flow from commercial partners will compensate for the risk taken by the initial investors.
Not only external communication toward potential investors is of importance. Upon financing, company structures become more formally organized, making streamlined internal communication indispensable. Proactive communication is essential to keep a good working relationship with the company board, to get the most out of their networks and the input they provide, and to prevent micro management.
Lastly, companies need to be able to communicate their progress to a larger audience. While this is mainly true for public companies addressing both general and specialized investors, private companies would also do well to hone their broad communicative skills. Too often, public relations communication does not match scientific publication, and it is well-documented that withholding data typically backfires. While communicating about data is often as difficult a balancing exercise as walking a tightrope, not doing so leaves room for unwanted speculation.
More than half of management teams deemed inefficient
Central to an investor’s decision to fund a company is the quality of its management team, which again underscores the importance of fluent communication and presentation. In this context, investor perception is quite dreary. A whopping 86% of surveyed investors believe less than half of the biotech management teams are effective. The clearest and most critical outcome from the survey is that biotech management teams hinder their ability to raise funding due to their lack of communication skills and inability to demonstrate effective management.
As an early-stage VC, V-Bio Ventures is often dealing with first-time CEOs and management teams, but also here quality is a key requirement for a VC investment. Investors at this stage look for management teams to work with during both good and bad times and base criteria on personality, potential, and character rather than track record, which is obviously lacking. Sadly enough, some management teams are desperate for cash to the point of bringing in investors who do not share the team’s vision or strategy. This lack of alignment between investors and managers can prove to be fatal.
This article is based on the Investor Perception 2017 survey by Biotech and Money. Get the full report here.
Despite the initial intent of charitable foundations to be not-for-profit, some of them tend to morph into organizations with bigger aspirations.
The Bill and Melinda Gates Foundation, the Chan Zuckerberg Initiative, the Dana-Farber Cancer Institute, the Juvenile Diabetes Research Foundation. All are examples of foundations that fund research via charity. This phenomenon, also called venture philanthropy, especially thrives in the USA. Whereas research funding in Europe mostly comes from the government, in the USA it comes increasingly from charitable foundations. Despite the initial intent of these charitable foundations to be not-for-profit, some of them tend to morph into organizations with bigger aspirations.
Billions and billions spent
One of the most famous examples in the history of venture philanthropy for drug development was the investment by the Cystic Fibrosis Foundation (CFF) in Aurora Biosciences (later acquired by Vertex) in 1999. Thanks to this organization, the life-changing drug Kalydeco, a therapy for mutations in the cystic fibrosis transmembrane conductance regulator (CFTR) gene, is now on the market. CFF sold its royalties for 3.3 billion dollars to Royalty Pharma, allowing CFF to fund more research and foster further breakthroughs.
The amounts of money these American foundations spend to fund research is tremendous. A prime example of this is the Jimmy Fund, founded by Dr. Sidney Farber and The Variety Club of New England. The club organized a radio broadcast for Farber’s 12-year-old patient, who was visited by members of the Boston Braves baseball team. Since its start in 1948, the Jimmy Fund has raised more than 750 million dollars, all of which is used to support the Dana-Farber Cancer Institute.
The Susan G. Komen foundation for breast cancer is another well-known philanthropic organization. It was founded in 1982 by Nancy Brinker as a promise to her dying sister, Susan, to end breast cancer once and for all. To date, the fund has invested more than 2.6 billion dollars in ground-breaking research, community health outreach, and advocacy programs in more than 60 countries.
In addition to these charities, there are also public/private partnerships that, through donations and grants, conduct innovative studies as well. The most famous example of this type of partnership is the I-SPY TRIAL Program. The program has engineered a novel approach to finding the most appropriate and efficient treatments for breast cancer. Using adaptive clinical trials that promote or “graduate” certain treatments through Phase I, Phase II, and Phase III clinical trials, and by identifying subsets of high-risk breast cancer patients that will benefit the most from new agents, they aim to reduce the overall cost, time, and patients needed to bring new drugs to the market.
The story is that some of these charitable foundations are morphing from mere charities into huge players that do good work overall, but it can be a balancing act.
Altruism or business by disguise?
These charities’ investments have allowed innumerable amounts of research to be conducted that would not otherwise have been possible. But as they become more cash rich, some charities are setting up their own clinical trials rather than investing in external research institutes. For example, the Leukemia & Lymphoma Society set up a wide-ranging clinical trial, called the Beat AML Master Trial, to investigate treatment regimens for acute myeloid leukemia (AML). But is this a good thing, isn’t there a conflict of interest? Do charities have enough knowledge to set up trials themselves?
Ward Capoen, senior analyst at V-Bio Ventures, comments: “The story is that some of these charitable foundations are morphing from mere charities into huge players that do good work overall, but it can be a balancing act. They are more like corporations run by professional managers, and that means they no longer are content with just raising money and handing it out to professors in some lab. Donations are variable and they want to streamline cash flows. Over the years, they have moved into being more proactive, for example, by starting trials on their own.”
There have been increasing numbers of charitable foundations engaging in large-scale venture philanthropy. The Bill and Melinda Gates Foundation is perhaps one of the best known of these organizations. Mark Zuckerberg and his wife, Priscilla Chan, have announced plans to invest 3 billion dollars in the next 10 years toward a goal of tackling all diseases. Sean Parker, the billionaire Silicon Valley veteran, plans to grant 250 million dollars to 6 cancer centers nationwide, which will form the “Parker Institute for Cancer Immunotherapy”.
Some charities seem to go very far to serve the “common” good. Take, for example, the Michael J. Fox (MJF) Foundation, which is the richest non-profit foundation seeking to cure Parkinson’s disease. The foundation initially agreed to fund the research of a Georgetown University scientist to test the off-label use of the leukemia drug nilotinib. But the MJF Foundation and Georgetown had a bitter falling out. This delayed the trial, and the MJF Foundation has now set up a separate study group competing with the original group performing the study. This could, at the very least, be perceived as though the foundation is vying to get the financial upside of the study themselves, rather than sponsoring others to do so.
Bragging at the country club
There is also Dr. Patrick Soon-Shiong’s “Cancer MoonShot 2020” Program. Some have called Soon-Shiong megalomaniacal and his program unrealistic, viewing his actions as more of a marketing trick for his expensive cancer diagnostic tool than as an actual effort to further cancer research and treatment.
There is no doubt that charity is a great and noble cause, and it has accomplished much in the past. However, some of these modern-day, wealthy investors may have ulterior motives when it comes to performing acts of charity. Curing a disease would come with obvious bragging rights at the country club. But this type of motivating factor goes against the very nature of altruism. Charity work can be highly beneficial to society, but investing money in healthcare research can be a complex undertaking, especially in this day and age. When dealing with these amounts of money, safeguards need to be in place to ensure that these charitable foundations maintain professionalism, fairness, ethical boundaries, and the spirit of collaboration, without which all of society may suffer.
Investing in biotech companies is a capital-intensive and risky business, and it’s no secret that more money and less risk-averse investors are available in the US than in Europe. To keep innovations, companies, and their economic benefits from being transferred to regions outside Europe, many national and international European initiatives are in place. The question remains whether this is sufficient to fundamentally improve Europe’s currently underfunded biotech ecosystem. The biotech investment specialists of V-Bio Ventures take us through Europe’s biotech investment landscape.
Lost in translation
While Europe is home to world-class research institutes and their scientific output is competitive with any region on the globe, the continent seems to struggle to valorize and hold on to its scientific assets.
One of the main reasons for this is the fact that seeking useful applications for scientific discoveries is less actively pursued by European scientists. Compared to the US, there is (with some exceptions) less entrepreneurial culture among Europe’s scientific community, whether at the level of its institutes or individual scientists. Lack of scientists with training in business makes good management scarce, but experienced management is crucial for the success of any biotech company. Better integration of research centers with business schools and smarter mechanisms for incentivizing scientists to file patents and create start-up companies should increase Europe’s capabilities of translating science into societal and economic benefits.
Larger tickets needed
A second and even larger hurdle in the European scene is the difficulty of biotech companies in finding the funds for their cash-burning activities along their path to market. There are many public (and public/private) initiatives and VC funds in place to provide companies with initial funding, and the amount of money being invested in seed and series A rounds in Europe has been steadily increasing over the past few years. However, when considering the investment needed to ultimately bring a biopharmaceutical product to the market, biotech funding in Europe is far too low and too thinly spread.
The result is an ecosystem where early-stage companies can find initial, small amounts of funding for early development of their products. Mid- to late-stage companies requiring large sums to finalize development (phase III clinical studies) or commercialize a product, however, are unable to find knowledgeable investors with the kind of financial firepower required for their ultimate maturation. This is a severe impediment, since mature, commercial-stage biotech companies are essential for the biotech ecosystem to thrive. It’s in this phase of a biotech’s life cycle that they generate the most value and drive the interest of a broader audience of both specialized and general investors.
Because of the lack of later-stage funding, European biotech companies in general partner their programs much earlier than their US counterparts and create less value in the long run. In many cases, parties that acquire or license European biotech programs are large commercial-stage US pharma or biotech companies. Promising biotech companies thus mature and create massive value outside of Europe, where a lot of the initial investments were made. Sadly, this leads to a significant innovation drain for the region.
Breaking the cycle
In short, Europe is stuck in a vicious cycle—biotech companies need larger investments from established funds to mature, while mature biotech companies are needed to attract larger investment funds. However, big generalist funds investing in biotech might not be the ideal tool to break the cycle, as the sector requires extensive knowledge to make well-founded investment decisions. To guarantee a more focused approach, larger funds with strong biotech expertise are needed to bridge the gap between venture capitalists and the public market. These crossover investors in turn can give more general investors the comfort to invest in this sector.
Europe is stuck in a vicious cycle—biotech companies need larger investments from established funds to mature, while mature biotech companies are needed to attract larger investment funds.
Of course, generating a track record in biotech crossover investments takes time. Until such funds have been established, alternatives need to be considered to create a sustainable biotech ecosystem. Expanding the investor base, for instance, will increase the chance of companies finding funds and reduce the inherent refinancing risk of biotech startups. This positive trend of more available investors is already being observed. Next to the number of funds, size is also of importance, since spreading money too thinly will result in a weak and unfocused effort to empower many—yet not necessarily the right—companies.
Collaboration between the many smaller, specialized funds must play a major role in keeping European companies from emigrating or partnering their lead program prematurely until larger funds have been established. Europe has understood that venture capital in all sectors and funding of innovation plays an essential part in ensuring economic growth. Hopefully, Europe will give a more concerted effort in the future to build an ecosystem that attracts investors, enabling innovations to bloom on home ground.
Grail has vowed to change the field of cancer diagnostics via simple blood tests and ctDNA analysis. Their Big Data approach, in which the company will build an atlas of DNA found in the blood, convinced major investors, such as Bill Gates and Jeff Bezos, of the technology’s potential. A whopping $1 billion was gathered in the company’s series B financing round. Yet, do Grail and its technology deserve this huge ticket?
Nearly one year ago, DNA sequencing leader Illumina spun off the company Grail to apply Illumina’s sequencing technology to develop diagnostic cancer tests that can detect the disease in its earliest stages, even before symptoms become apparent. The company’s plan is to do this by detecting cancer cell derived DNA floating around in the patient’s blood stream. Although detecting cancer in blood samples is a popular approach, it is also fraught with challenges.
Circulating tumor DNA: A needle in a bloody haystack
Circulating tumor DNA (ctDNA) is present in the blood in extremely low concentrations as part of the circulating cell-free DNA in blood. When discussing the detection of ctDNA, the needle-in-a-haystack comparison is never far away. On top of that, detection is especially hard for small tumors and/or in the early stages of cancer, which are Grail’s targets. Early detection of cancer remains the ultimate goal because it increases the odds of survival by 5 to 10 times.
To succeed in its quest, Grail intends to tackle the problem with a Big Data approach. By recruiting tens of thousands of both healthy and diseased individuals and sequencing the cell-free DNA in their blood, Grail wants to lay the foundation of a circulating cell-free genome atlas. Characterizing the landscape of cell-free DNA profiles will yield a huge amount of information, and it might reveal parameters relevant to discerning healthy and non-healthy individuals at an early stage.
Big investors, big money
Backed by industry giant Illumina, Grail easily found interested investors for its series A funding round. The company gathered over $100 million—an impressive feat for a first financing round of a spin-off. Participants in the series A included Amazon CEO Jeff Bezos and Microsoft’s Bill Gates, indicating broad general interest from heavyweight investors.
Only one year after its foundation, the company is now finalizing its series B. In a single round, Grail will have raised more than $1 billion. You read that correctly—an astronomical $1 billion for a company with neither a product, data, nor a proven strategy, and that is far from being the first entrant in the market of ctDNA based diagnostics. A private investment round of this size is simply unprecedented. The fact that a company such as Grail is able to succeed in this makes it all the more astounding.
Where is the financial exit?
In the case of Grail’s financing, we are entering uncharted territories. Without benchmarks from either past or current competitors, investors are betting big with proportionally high risks. The question also remains how these investors will monetize their investments. An acquisition seems out of the question, considering Grail’s sheer financial size against the background of established global diagnostic companies whose turnover is typically in the 1- 10 billion dollar range.
An IPO seems the only viable exit strategy for current investors. However, Grail’s last financing round will make new funds unnecessary for a long while. Additionally, a significant return on investment would only be achieved with an IPO of “Silicon Valley size”: tens of billions of dollars. For that to happen, Grail must build a credible story regarding its technologies that speaks to the general population, such as the approach used by Facebook. With their pitch of a simple blood prick test that can assess whether or not a person has a certain cancer, they might be able to pull it off.
Off course Grail will also have to prove that their concept is economically sound. A multi-billion dollar valuation would only be justified if Grail’s test would be used on a global scale in cancer screenings performed on a sizable portion of the population at multiple times throughout a patient’s lifetime. Not only is this a high bar to set, but preventive screenings would also put further pressure on healthcare budgets worldwide. Budgetary pressure will not only result from Grail’s tests per se, but even more so from a higher need for additional confirmatory diagnosis, and from subsequent expensive therapies.
A hidden business plan?
The question arises if the company will try to generate value through strategies that are separate from their diagnostic product. The data generated by Grail via their population-scale studies will be highly valuable and coveted by many interested parties. Is third-party access to data part of Grail’s “hidden” business plan? If so, this would raise serious ethical questions.
Many questions remain regarding Grail’s unique position, and the company’s future is shrouded in uncertainty. Only time will tell if Grail will truly change cancer diagnostics and is thus a sustainable investment for believers.