"The reality is that our biotech VC industry is facing an unprecedented level of competition where there has been a massive influx of capital into the sector from traditional and new players, going after a fairly limited pool of high-quality investment opportunities."

Can you describe the approach Vertex Ventures HC takes to portfolio construction and the platforms you currently find most appealing for investment?

CN: In terms of platform plays, there are novel chemistry platforms, novel biology platforms and other types of next-generation platform technologies for specific applications (e.g. regulation of cytokine expression). Within our portfolio, Bicycle Tx ($BCYC) is a great example of a novel chemistry platform, where Bicycle’s scientific founder, Sir Greg Winter, who was awarded a Nobel Prize in Chemistry in 2018, invented bicyclic peptides, which in turn created a new universe of chemical matter with differentiated tumor-penetrating and PK properties. We have also made concentrated bets on breakthrough biological insights where we have a high level of conviction. These range from interrogating extra-chromosal DNA to target amplification oncogenes with Boundless Bio (founded by UCSD’s Paul Mischel), to critical biological insights into glycan-mediated immune regulation in oncology and inflammatory diseases with Palleon Pharma (founded by Stanford’s Carolyn Bertozzi), to first-in-class approaches of targeting RNA-binding proteins, which underpinned our investment thesis in 28-7 Tx (founded by Harvard’s Dean George Daley and co.). In addition, there are unique cytokine regulation platforms like Obsidian, where they are developing IL-15-regulated engineered TILs (Tumor Reactive Lymphocytes) cell therapy that could potentially obviate the need for IL2 treatment.

There are also ways of conceiving platform concepts with unique business models. This perspective led to our investment in Elevate Bio’s Series B last year. They have a central cell and gene manufacturing facility called Basecamp on one hand, and about half a dozen cell and gene therapy programs incubated and founded with different scientific founders on the other. Not only does the central facility Basecamp serve process development and manufacturing needs of its in-house incubatee companies, it also provides such services to non-Elevate companies. The structure is analogous to Bridge Bio's model and we are excited to see this model gaining significant investor traction when they raised the US$525 million Series C recently.

How has the influx of capital affected the biotech investment landscape?

CN: It is paradoxical that it is actually more challenging for fundamentals-focused funds like ours to make new investments in the current bull market. The reality is that our biotech VC industry is facing an unprecedented level of competition where there has been a massive influx of capital into the sector from traditional and new players, going after a fairly limited pool of high-quality investment opportunities. Most of these financings are centered on great science, but one has to recognize that there is still a limit to which their pipeline could be derisked in terms of actual scientific and clinical risk. In short, we are witnessing a disconnect now between valuations and early-stage opportunities where scientific and clinical risks are still inherently very high. As long-term investors, our we try to avoid herd mentality when it comes to chasing “hot deals”, because to us, successful financing is a means to an end – the end being the delivery of outcome benefits to patients in the clinic.

Where does regulatory oversight rank in your criteria when evaluating an investment?

CN: Our portfolio is heavily weighted in areas such as oncology and orphan diseases, where regulatory aspects of drug development have largely been favorable. Generally speaking, we have seen FDA being open to collaborate and willing to provide feedback to early-stage biotech companies on the development path of a clinical program. Regulatory challenges are of course different outside of oncology or rare indications, or for cases where clinical evidence is ambiguous at best. We are seeing this now with the case of Biogen’s aducanumab for Alzheimer’s Disease, which has been contentious.

What areas of biotech do you believe have potential transform the industry over the next decade?

LH: We have seen a lot of traction in the gene editing space and we still like the fundamental science. CNS is an area we invested in as well, which is higher risk biology, but we believe there is huge unmet need and great opportunities. We have not done as much with pure play AI and machine learning drug discovery platforms, which could be a very promising for the field. However, we are still awaiting more proof of concept in terms of the drugs that come out of the platforms and how they perform in the clinic relative to more traditional drug discovery.