Animal Cloning and New Drugs: How Biotech Works

I, Yuri Filipchuk, partner at investment company, discuss the nature of the biotech industry, its peculiarities and prospects. 

In 2011, Marc Andreessen, the investor, and founder of the a16z fund (Andreessen Horowitz) : 

“Software is eating the world. My own theory is that we are in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy. ”

And it’s hard to disagree with him: in every industry, you can find a leader who relied on software. Amazon was the largest seller of books, Spotify and iTunes were the biggest music companies, while game developers dominated entertainment. Eight years have passed, and the situation has not changed much at first glance. The very same Amazon, Apple, and Spotify only strengthened their positions, and in many industries, new stars were born. But Andreessen Horowitz Foundation: biology comes to the fore. It is no longer an empirical science, but an engineering discipline. Previously, in this area, we applied tools created by ourselves, but then we learned to apply nature’s mechanisms. One can literally program the body and create, for example, bacteria or cells to fight diseases. 

Biotech features

I should probably highlight the essentials. Biotechnology involves the use of living organisms’ processes for creating commercial products. It’s essential to divide the concepts. Mankind has been developing in the field of biology for a long time, but the invention of beer, for example, refers to long-standing biotechnologies, whilst DNA manipulation is a modern biotechnology industry. Today, biotech companies and startups are mainly focused on four industries. Red biotech refers to healthcare and medicine: diagnostic, treating illness and pharmaceuticals. Companies find genes and proteins associated with specific diseases and create drugs for them. This approach allows for drug development in a wide variety of cases, including cancer, neurological and infectious diseases. Medicines for the diseases of the endocrine and cardiovascular systems are underway. 

Oncology therapy is the most promising area in red biotech
Source:

Green biotech pertains to agriculture. It implies a slightly different approach. Mankind has long been manipulating crops and livestock to increase the yield and quality of the final product. Bioengineering has proposed a similar but more effective method. Now, genetically modified foods have become the norm both from crops and animals. Let’s take Beyond Meat startup as an example. The company produces vegan meat using pea protein, rice and mung bean. Beyond Meat can imitate the taste of chicken, beef and pork without the use of animal meat. Conversely, in China scientists Crispr technology to breed giant pigs that grow much faster than ordinary species and tolerate winter better. There are white and blue biotech: the industrial sector and the marine environment industry. Agriculture and industry are now considered the most promising. In the next five years, they are expected to be worth $36.4 billion and $274 billion respectively. According to cell biologist Olga Maslova, uneven progress in the industry is the main feature of biotechnology. At the same time, she emphasizes high risks for investments, and R&D requires costly premises, equipment, specialists and time for testing. However, biotechnology is extremely promising as it covers the most important areas of human life, including health. 

Market development and its current position

The modern biotech industry was born in 1973. Back then, American scientists Herbert Boyer and Stanley Cohen first changed the DNA of bacteria by combining it with another sample’s genes. In 1976, Boyer, along with venture capitalist Robert Svenson, founded Gentech, a private biotechnology company, which became the first IPO company in the industry four years later. Biotech began to commercialize.Since then, the domain has shown sustained progression. So much so that in 1991, 35 biotech companies went public, and by 2000 there were 63 of them in the USA alone, which was an absolute record at that time. The average amount of funds raised has also increased from $20-30 million to $85 million. Investment in biotech grew from $5.2 billion in 2013 to $ 17.5 billion in 2018. Basically, it’s a more than three-fold increase during five-year period. Therefore, the market is very hot. Over the past five years, an average of about 70 companies launched IPOs annually. At the same time, 2018 was a record year for the total amount of investments through this procedure — $ 8.1 billion. We’ve seen oncology projects closing impressive rounds for clinical trials within the last couple of years. To be more specific, series A in this market varies between $30-50 million for the first phase of clinical trials. After that, a pre-IPO takes place, projects raise $150-200 million to complete the tests and get FDA approval. Investors expect that with a proven cure for cancer, the startup will nail IPO with the highest possible assessment. Red biotech remains the largest industry segment $314 billion. Biotechnology companies use DNA data to quickly determine the patient’s disease, for instance, malignant tumors or STDs. In August 2019, binx permission from the U.S. Food and Drug Administration (FDA) to start selling a portable device for diagnosing chlamydia and gonorrhea in women, the most common STD. In binx, they promise a result within 30 minutes; this allows you to determine the diagnosis and get an appointment with a doctor. Gene therapy is another area of ​​red biotech. Companies are developing drugs that modify human DNA and fight the disease. Today, 17 drugs are for cell and gene therapy in the US market. One of them, Luxturna, treats a rare retina condition which gradually leads to blindness. Another medicine, Provenge, is for the treatment of prostate cancer. Johnson&Jonson, Roche, Novartis are giants with hundreds of thousands of employees and billion-dollar sales. Using biotechnology, they medicines not necessarily for gene therapy, but which treat a wide variety of diseases: from heart problems to nervous system disorders. Now there are about 7,000 such drugs at various development stages. 

Unlike other verticals, in biotechnology, a ready-made product that is introduced into the market raises a very small amount of funds. Investors are betting on companies whose products can undergo clinical research and immediately become leaders in the newly created market.

Source:

White biotech or the industrial sector is the second-largest biotech business worth $248 billion in Q4 2017. Such companies use microorganisms and enzymes to create industrial materials, from energy and biofuels to plastic. Avantium, for example, creates renewable packaging materials for Coca-Cola and Danone. The German AMSilk produces protein from spider silk, which can be used in various fields. The company has already agreed with Adidas on the creation of biodegradable sneakers as it did with Airbus on the development of materials for aircraft construction. 

Agriculture (green biotech) and aquaculture (blue biotech) are two relatively small areas of biotechnology. The first is known for the development of genetically modified products, this market is worth $32.9 billion. Here, companies modify the DNA of crops to increase yield, improve their quality, and help adapt to environmental conditions. Monsanto, Syngenta and Bayer are among the largest players in the segment. I should point out, that the field of aquabiotechnology is worth $ 3.5 billion. Marine organisms are deemed a source of more diverse biomolecules. They are used in food additives, medicines and cosmetics. Norwegian Aker BioMarine, for instance, creates foods rich in healthy omega-3 fat from krill, which are small shrimp-like crustaceans. Marinova, another market leader, produces fucoidan brown algae extract, which is then used in food, pharmaceuticals and skincare products. Tech improvement itself also contributed to the growth of investment in the field: DNA sequencing, for example, became ten times cheaper, neural networks and machine learning have enabled numerous process automation. 

In addition to the United States, startups from Asia raise the most funding in red biotech.
Source:

Industry Challenges and Prospects

First and foremost, discoveries take quite some time: biotech companies spend years researching, developing and testing. I would call it the main shtick of the industry. According to estimates, the process usually takes between 8-10 years. The result is not necessarily predictable: a product can be both a historical breakthrough and a resounding failure. According to , in 2017, pharmaceutical companies alone spent more than $71 billion on R&D. Not every dollar invested results in something specific. According to IQVIA, only 11.4% of biotech products successfully the path from the first phase of testing to regulatory approval in 2018.  Entrepreneur Daria Loseva, co-founder of the MyWayDNA biotech startup, industry projects share common complexities in the early stages: a need to minimize the risks associated with the product, finding understanding investors and partners, and proving to them the technology works and will be highly relevant in the future. Despite all the difficulties, analysts predict rapid growth of biotech. According to , by 2025 the market will be worth $729 billion, which is almost a twofold increase compared to 2018. At the same time, the average annual growth rate (CARG) will reach 8.3%. The skyrocketing areas will be agricultural and industrial sectors with 10% GAGR (thanks to a wide range of application areas and production cost reduction). Marine biotechnologies and the healthcare sector will stay a little behind — 9.6% and 6% respectively. 

Andreessen Horowitz believes that the biotech industry now resembles the 50-year-old IT industry. Well, I am positive that pretty soon the industry will make a rapid breakthrough and become a part of every aspect of our lives, from the treating of illnesses to the materials we use and food we eat.