In our last post, we discussed the high growth rate of the biotechnology industry. With the rapid advancement of computing technologies, new government policies, and an increasing demand for synthetic biology, biotechnology is seeing a new dawn of innovation and success. There are numerous factors that contribute to this growth, but today we will delve deep on 3 key trends within the industry that are pushing boundaries in the field, both from a technological and an investment standpoint. First, in conjunction with this high overall growth rate, there is record high venture capital (VC), mergers and acquisitions (M&A), and IPO activity within the biopharma industry. Second, the use of Artificial Intelligence (AI) in drug and therapeutic discovery. Third, the advent of gene editing technologies.
- Increased VC, M&A, and IPO Activity
Making waves in the new decade is the biotechnology and biopharma industry’s increasing affinity for raising capital through venture capital, M&A, and IPO activity. VC activity in 2020 saw a record $25.8 billion of capital invested in the biotechnology industry, while 2019 saw $17.8 billion invested, demonstrating a record 60.5% year-over-year growth (source). 2021 is showing no deviation from this high growth trend, with the biotechnology industry already having seen $9.1B in VC deals as of the end of Q1, putting 2021 on pace to beat 2020.
Examining the deal numbers, it becomes apparent that there is an upward trend, even in the wake of a year in which the pandemic has slowed the world down. Looking back at mergers and acquisitions, M&A capital in the biotechnology industry comprised over $101.1 billion in the United States alone. Of this, $12.4B encompassed 43 deals specifically with VC-backed biotech companies. Throughout the COVID-19 pandemic, many companies had to retain capital and resources in order to maintain their own operations, causing M&A activity to briefly decline from pre-COVID numbers. Many potential M&A candidate companies required the extra capital to keep research and development programs afloat, or to fulfill new and rising demand for products related to the pandemic. This buffer period was necessary for the procurement of new acquisition targets, and 2021 should therefore see a larger influx of M&A activity to surpass both 2020 and 2019.
The numbers also show a rise in IPO activity, especially in VC-backed biotech companies. Over $11.5 billion of capital was raised by VC-backed biotech companies through new public listings. This $11.5 billion was distributed over 73 listings. Total exit value reached $37.3 billion, a new annual record. Median exit value among all 2020 biotech IPOs showed a 34.5% YoY increase from 2019’s median. 2020 also had a 1.32x median step-up multiple which has not been seen since 2014. Q1 of 2021 has already had 17 biotech companies publicly list which puts it on pace to be right up with the mark 2020 left. From these statistics, we can draw the conclusion that 2021 is on pace to meet and potentially surpass the number of biotech IPOs of 2020.
There are several reasons behind the biotech industry trending towards these forms of raising capital. First and foremost, biotech is increasingly becoming smarter, efficient, and able to leverage data. According to PwC U.S. Pharmaceuticals and Life Sciences partner, Ousmane Caba, recent months’ financing in biotech is linked to the ability to apply data to biology and the development of recent technologies that have the ability to combat rare diseases that have long been at the interest of scientists. The power of data and machine learning has expedited countless processes in drug discovery and clinical trials, making biotechnology companies highly lucrative business ventures. We will discuss the role of AI in making drug discovery more profitable in the next section. In what Caba calls an “agnostic” industry towards the COVID-19 pandemic, biotechnology has very few external impediments that could stand to halt its surge in financing.
2. The Use of Artificial Intelligence in Drug and Therapeutic Discovery
Popular discourse on modern technology may be saturated with the terms ‘artificial intelligence’ and ‘machine learning,’ but in the biotechnology industry, these are the keys to solving humanity’s perpetual battle with diseases like Alzheimer’s, Parkinson’s, MS, and even cancer. With the ability to process information hundreds upon thousands of times faster than humans, and with even more accuracy, AI makes trial-and-error methods in realms like drug discovery no longer necessary. A drug discovery process that from start to finish might have previously taken a decade and billions of dollars, can be shrunk to just 2–3 years with the proper AI implementation. Currently, this process often takes 5–10 years and cost $2.6B, with only a 10 % success rate. The immense waste here — of time, resources, and funding — is about to be hugely reduced.
One major player in the dawn of AI in drug discovery is Boston-based company, Berg Health. Using thousands of samples of healthy and cancerous human cells, Berg has been able to develop an AI platform that can generate massive amounts of data on the most minute differences between healthy and cancerous cells. Their creation has allowed them to specifically identify molecules that occur in cancer metabolism, and develop a drug, BPM31510, that is currently in Phase II clinical trials on patients with pancreatic cancer. Berg can be seen as an example of what is possible in the drug discovery space when AI is utilized from a biological and cellular analysis standpoint.
Many companies are also working towards building cloud-based AI platforms that aggregate data from patient records, clinical trials, and research papers to create billions of relationships between specific genes, candidate medicines, symptoms, proteins, etc. London-based company, BenevolentAI, has successfully synthesized such a platform, and has identified more than 100 compounds that have the ability to treat, currently incurable, amyotrophic lateral sclerosis (ALS). The necessity of a long trial-and-error search for therapeutics will very soon be outdated. AI platforms such as these aggregate patient data to pull patterns and connect data points into a relationship web that would otherwise be hidden.
Overall, AI in the drug discovery market is looking at a 40.8% CAGR through 2025, with the market expected to be worth more than $2 billion. In addition to the smaller AI startups mentioned above, larger companies like Microsoft, Google, and IBM already have a stake in the market through their platforms Azure, Google AI, and Watson, respectively. North America stands as both the largest market and largest R&D hub for AI in drug discovery, followed very closely by Europe. AI in drug discovery stands at a precipice, with the ability to completely revolutionize the effectiveness and speed at which therapeutics can be developed for even the rarest of diseases.
3. Gene Editing (CRISPR)
Having discussed the overall industry investment trends and a trend in the tools that make the development of biotechnology easier, we will now consider one of the trends in biotechnology itself.
One of the hottest new technologies in the realm of biotech is CRISPR (Clustered Regularly Interspaced Short Palindromic Repeats) and its ability to serve as a gene editing tool. The technology consists of two components, the Cas9 enzyme and a guide RNA, which operate in conjunction to precisely cut a desired section of DNA, and then let the DNA repair through natural processes. This allows for undesirable, potentially dangerous, portions of the genes of an organism to be completely altered. The technology’s applications span fields such as cell engineering, the treatment of rare diseases, agriculture, therapeutics & drug discovery, organ repair/modification, and stem cell research.
With a global CAGR of 23.95% through 2028, the market for CRISPR/gene editing technology is expected to grow to $5.8 billion by 2028, up from 2019’s $850.1 million. Currently, the largest market for gene editing technology exists in North America. One US startup, Intellia Therapeutics, co-founded by Nobel Prize winner Jennifer Doudna, recently used CRISPR gene editing technology for the first time to edit cells on patients’ internal organs. This form of therapy represents a massive milestone in the gene editing therapy community; gene editing has previously been confined to strictly external portions of the human body. Another company, Inari, has created a platform called SEEDesign that allows the engineering of plant seeds to require up to 40% less water & fertilizer and yield 20% more than their non-edited counterparts. This accomplishment will become critical to agriculture as the consequences of climate change and a rapidly growing population begin to unfold. Inari most recently announced the success of a $208 million fundraiser, putting the company’s value at $1.2 billion.
It is through the revolutionary applications from companies like Intellia Technologies & Inari that the gene editing market is going to inevitably boom in the next decade and beyond. Biotechnology like gene editing & CRISPR creates unique opportunities to overcome many of the hurdles that come curing diseases like cancer, Alzheimer’s, & autoimmune disorders, as well as building a more sustainable, global agricultural system. This Nobel-prize winning technology will be the tidal wave of the future in the biotechnology industry.