Private biotech: Immunology and inflammation’s third wave

Immunology and inflammation (I&I) is a compelling area of biomedical innovation that targets chronic and prevalent diseases affecting people of all ages and backgrounds. Companies developing the next generation of drugs for these large end markets have been a bright spot in the current biotechnology market, with active M&A and public offerings.

At the turn of the 21st century, the second wave of I&I drugs delivered life-changing patient benefits. In our view, this space is at the dawn of the third wave of novel drug modalities and targets, which will build on this progress and offer interesting opportunities for private biotech investors.

The first wave of immunology and inflammation drugs

The coronavirus pandemic gave the world a crash course in immunology, underscoring the centrality of the human immune system in defending against novel infections and diseases. Yet the human immune response is double edged, with both over- and underactive dysregulation producing disease. Too little activity and our bodies become vulnerable to infection whereas too much activity can drive a pathologic autoimmune response to otherwise benign signals.

At the dawn of modern medicine, physicians used blunt tools to reset the immune system, with limited success. Frequently, patients found steroids and chemotherapy to be less tolerable than the underlying disease these drugs were intended to treat. Toxicities limited both the duration of treatment and the derived benefit for patients suffering from autoimmune and inflammatory disease. The second wave of I&I drugs was sparked at the turn of the millennium as biomedical advancements in the basic science of immunology combined with the productization of therapeutic antibodies.

The second wave — Groundbreaking therapeutic antibodies

Decades of research into the workings of the immune system fueled the emergence of a new modality — therapeutic antibodies. Contrasting the blunt hammer of steroids and chemotherapy, these cell-derived therapeutics selectively target disease-causing pathways with the precision of a surgeon’s scalpel.

Doctors could finally direct an antibody at a defined immune target, enabling fine-tuned control of chronic autoinflammatory disease. This allowed them to manage diseases like multiple sclerosis and rheumatoid arthritis without indiscriminate immunosuppression. Beyond this selectivity, new therapeutic antibodies could now target previously undruggable pathways.

Patients derived unprecedented benefit and pharmaceutical companies unlocked large new markets. For example, since its first regulatory approval, Humira, a well-known antibody used to treat an array of inflammatory diseases, has generated over US$200 billion in sales.

Today’s third wave — Novel targets and improved modalities

In recent years we have evaluated hundreds of I&I companies, and we believe this new cohort could develop the next generation of blockbusters. A few themes emerge:

Raising the bar: Improved drugs against derisked targets 
Improving on approved therapeutics via more convenient dosing and route of administration can reduce novel target risk while delivering better patient compliance and commercial differentiation. The success of Skyrizi demonstrates the patient demand for and commercial viability of improved biologics against a derisked target. Several notable biotech companies that illustrate this theme include Apogee Therapeutics (Nasdaq: APGE), Upstream Bio (Nasdaq: UPB), Spyre (Nasdaq: SYRE), and Jade Bio (private, merging with AVTE). These companies are developing more potent or longer-acting versions of approved drugs to reduce the injection burden from 12 – 24 per year to 2 – 4 per year.

A number of new biotechs are developing novel combinations of proven mechanisms either as bispecific molecules or co-formulations to improve the breadth and depth of clinical response. Johnson & Johnson (JNJ) recently acquired Proteologix and Numab’s lead I&I antibodies, and these transactions provided JNJ with multi-specific antibodies that promise the potential of superior efficacy relative to established antibody therapeutics. We believe immunology will see new drugs that use multiple mechanisms to continue to raise the efficacy bar and drive greater commercial adoption.

Investors are also betting on smaller-format therapeutics for superior exposure in diseased tissue or more convenient administration. MoonLake Therapeutics (Nasdaq: MLTX) argues that smaller antibodies should improve efficacy by penetrating deeper into diseased tissue. DICE Therapeutics (acquired by LLY) and Forward Therapeutics (private) are developing oral small molecule inhibitors of known targets. Catalyzed by the success of oral peptides, biotechs like Nimble Therapeutics (private), Orbis Medicines (private), and Insamo (private) are now developing oral peptides against targets previously derisked by antibody therapeutics.

Drugging novel targets aided by genomics and precision medicine
Over the last two decades, the cost of genomic sequencing has dramatically declined. New computational tools enable us to harness large databases of genomic information to identify novel disease-associated therapeutic targets.

We have found that disease-associated genetics can enable precision medicine for inflammatory conditions, bringing even greater patient benefits and substantial market opportunity. For instance, genetic studies identified TL1A variants that may predispose for inflammatory bowel disease (IBD). Prometheus Therapeutics employed a precision medicine approach to develop a TL1A-targeting antibody for IBD and it was acquired by Merck for roughly US$10.8 billion in June 2023. Iveric Bio targets a novel genetically linked signaling pathway and it was acquired by Astellas for US$5.9 billion (July 2023). Nimbus Therapeutics sold a small molecule inhibitor of a genetically linked I&I target, in clinical development across multiple autoimmune and inflammatory diseases, to Takeda for up to US$6 billion (February 2023).

Repurposing the immuno-oncology toolbox
The field of immuno-oncology has seen remarkable progress over the last decade by innovating on new drug targets and novel modalities. Patients living with previously untreatable cancers have benefited from retargeting the immune system to recognize and eradicate tumors. James Allison and Tasuku Honjo shared the Nobel Prize in Medicine in 2018 for their groundbreaking work in immuno-oncology and the development of checkpoint blocking therapeutics.

Perhaps unsurprisingly, advances in immuno-oncology like cell therapy and T-cell engaging biologics are being repurposed for I&I. Academic trials have reported that patient-derived immune cells, harvested to be engineered outside of the body and then subsequently reinfused, can deliver deep and durable control of difficult-to-treat autoimmune disease.

Potential investment risks for I&I companies

Immunology is a competitive space in which many drugs pursue the same target and where novel agents face fierce competition from established drugs. This means there is a high bar for success for novel I&I therapeutics. Critically, proving clinical differentiation remains capital intensive.

Investing in the third wave of immunology and inflammation innovation

2024 was a busy year for biotech companies developing new I&I drugs, with numerous acquisitions and large IPOs and private financings. As the biotech market recovers from the lows of recent years, we believe these trends will accelerate for the third wave of I&I innovators.

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