Investing in Precision Drug Discovery

PitchBook data since 2015 would suggest that investors are increasingly liking the trend towards drug discovery with precision at its core. In the UK alone, Myricx Bio has extenuated the trend, but the underlying trend excluding that deal appears strong. The approach is enabled by advances in technology, use of AI and greater understanding of disease pathologies, along with M&A partners willing to pay high premiums.  

Many commentaries have suggested this later-stage deal focus is driven by several factors, such as geopolitics, to cost of capital and pending patent cliffs. These factors are for sure all important, yet preclinical investment and M&A deals are being reported. These have included the recent $1.4Bn acquisition of Myricx Bio by Novartis and TRIMTECH Therapeutics’ $47M venture raise. So, why are some securing investment while others not?  

There could be a feeling that the teams securing early-stage investment have better connections, stronger track records or even a better sales patter. There is perhaps no single reason, since whilst having world-class innovation led by a well-connected and experienced team is not always sufficient now. A company can do everything under its control right, and it still needs to be lucky sometimes to be in the right place at the right time when the rate-limiting step is investor or corporate partner attention rather than innovation supply. The competition is fierce.  

Why Does Fundraising Feel Like Kissing Frogs?

In a drug discovery world that is delivering medicines with greater precision in terms of molecular target engagement, drug delivery, and patient selection, there is still a feeling that the search for an investor remains a bit like a spray and pray approach, having cast the net wide when it comes to pitching to investors. Biotech leadership teams routinely hold dozens, if not hundreds, of investor meetings; seek endless introductions by mixing at the right events; try hard to move beyond a generic pitch deck to resonate with each investor met while still retaining the passion and enthusiasm for their value proposition that is essential to connect with an investor on a human level. It can feel like a tough endeavour where it feels like months of effort resulting in little progress. And all the time, the cash runway is shortening, and a deal is increasingly pressing.  

What if the Problem is Not the Science, the Team or the Slide Deck, but the Targeting?

In a fireside chat with Simone Fishburn of BioCentury 2024, E Eric Tokat of Centerview Partners remarked that ‘assets in our sector are always bought, not sold’. A reminder that Pharma acquiring an asset they want is rarely a deal broken by cost but more likely a deal broken by the asset not being a fit for their strategy and pipeline. There is no compelling reason why investors do not behave likewise. There may be more flexibility and opportunism, but essentially there are clear criteria investors seek out. Investment-seeking biotechs are pitching a vision of what could be rather than a ready-made asset. Capital will need to be spent, and risk will need to be taken before any return on investment can be realised. After all, the likely exit route will be M&A, and hence the envisioned product will be subject to the same Pharma scrutiny ultimately, so the potential fit is important.  

Investors will be driven by their specific mandates from their LPs on top of needing to see a fit with corporate M&A partners after value inflection or even a clear route to market if planning to stay independent until IPO. Specifics such as therapeutic vs diagnostic; therapeutic area, geography, ticket size, and portfolio conflicts can all determine the level of relevance of the opportunity. There are innumerable reasons a biotech could be pitching to the wrong investor. That said, the wrong investor is not a bad investor; they are simply the wrong fit.  

Following the Four R’s of Precision Fundraising

Drawing the parallel to precision medicine, which is moving away from treating every patient and instead treating the right patient with the right medicine in the right tissue at the right time, then a more precise approach to fundraising could be interpreted as targeting the right investor with the right opportunity at the right time with the right message.  

In precision medicine R&D, the latest technologies generating a depth of data and leveraging AI mean some the R’s are addressed in the process. The ever-growing amounts of data on investors, often curated by commercial business intelligence providers for ease of use, mean biotechs can leverage technology, including AI, to help address the R’s of precision fundraising. It has possibly never been easier to build (or acquire) a comprehensive list of investors, their profiles, their activity to date, and contacts. Of the global pool, there will be the right investor/s for any quality opportunity; the challenge becomes in finding the right frog to kiss. Biotech leaders, much like every other business leader seeking a customer, partner or investor, start with defining the ideal target. Investors are prioritised by their foci in investment stage, therapeutic area, technology platform, geography, typical ticket size, whether a lead or follow investor, track record and their syndicate preferences. When the starting list may be hundreds, perhaps even thousands, of investment sources, prioritising can be overwhelming for any entrepreneur.  

Fortunately, as much as investors now have the benefit of tools such as AI to track and identify leads of interest, biotech leaders have the mirror tools available to identify and interrogate investors in order to target their efforts. Subscription databases such as Beauhurst, Biotechgate, Life Science Nation, PitchBook and more undertake a huge amount of primary research and data collation to enable those seeking capital to prioritise investors with the best fit as well as those with capital available to invest in the right opportunities. This is complemented by the less formal sources of information and connectivity through previous companies, the existing investors and so on.  

From Target Identification to Lead Generation and Outcome

In the way that applying the latest advances in technologies, including -omics, AI, functional genomics and screening, can enable scientists to identify and validate a novel drug target, there is a wealth of supporting data sources in the literature and in other groups to help. Addressing questions like which molecular pathway is being affected, what side effects may be expected, how can the target be engaged and so on enables the R&D scientist to progress testing of their hypothesis for an innovative medicine.

For those seeking to identify and target the right investors, similar principles apply. The depth of available data and connectivity allows for prioritising as above; the biotech leader hypothesises which investors should be approached and works on a strategy to engage them. Everyone has the ability to call or email the investor to make contact yet based on a poll run for One Nucleus in 2025, the data suggested cold calling was perhaps not the optimal approach. As illustrated below, cold calling felt like a fairly inefficient mechanism compared to warm introductions or event conferences when it came to direct lead generation.  

Much like the R&D scientist, perhaps engaging the target investors is a case of pathway mapping, networks and introductions. Identifying an investor that meets the criteria of mandate and status listed above, it is then possible to map out that investor’s pathway of activity and their connectivity based on their activity to date. Who they have invested in already does not only illustrate their preference of opportunity but also which founders and biotech leaders they have shared success with. Moreover, looking wider than the teams they have invested in, it reveals who they invested with, sat on boards with and sought advice from. These direct contacts are likely to be the executives and reference points they trust the most. The question for the entrepreneur is whether they, or someone they know, sits among that investor’s trusted network. The results of another One Nucleus poll conducted around the same time as the one above illustrated this point. When asked about the hardest step in closing a deal, it was often not the price or the technology; it was the human factors of the need to build rapport with the buyer, gaining the trust of the buyer’s advisors and having sufficient brand value in the sector.