Venture capitalists have poured tens of billions of dollars into new pharma startups in recent years, dramatically expanding the ranks of private and public biotech companies.
But some say there is still room for more. Specifically, there is room for more young biotechs driven and led by the scientists and researchers who founded them. While the idea of the science entrepreneur is not foreign, more and more of the hottest, best-funded biotech startups are being launched from within the walls of big backers like Flagship Pioneering, Third Rock Ventures and Atlas Venture.
These companies often train and incubate young drugmakers around ideas developed in-house and equip them with the tools, funding and frameworks they need to advance their research. It’s a controlled approach that has led to high-profile successes like Moderna as well as a host of other well-resourced companies advancing new drug manufacturing technologies. But it has also spawned similar businesses, which some say may struggle to stand out.
Jake Becraft, CEO and co-founder of Strand Therapeutics, is one of those advocating for more founder-led biotech companies, and a better ecosystem to fund and support their development.
“There is still good science that is not funded, and there is bad science that is funded,” he said in an interview.
Becraft founded Strand in 2017 to make drugs from messenger RNA, years before genetic code strips powered COVID-19 vaccines from Moderna and Pfizer partner BioNTech. It has raised $58 million to date in seed and venture capital funding, but its investors are outside the familiar circle of East Coast biotech backers. The company, which now employs around 75 people, aims to put its first therapy into clinical trial next year.
BioPharma Dive spoke with Becraft about the founder-led biotech movement, the current public market downturn for drugmakers, and the lure of “platform” companies. The following interview has been lightly edited and condensed for clarity.
BIOPHARMA DIVE: There’s this idea of founder-led biotechnology, which is sometimes mentioned in contrast to some of the venture capital models that are out there. As founder and CEO, what does this idea mean to you? What does this mean for how biotech companies are created?
JAKE BECRAFT: To me, it’s not really an ‘either/or’ thing. Companies created by venture capital will continue to exist. I think the biotech ecosystem would be healthier and we would probably have more breakthrough companies if we had more founder-backed ecosystems.
The handbook of business creation – for the development of classic drugs, [where you] taking an asset from a university group, discovering new biology, then bringing it to a company and leading the development of traditional drugs – has become a kind of formula. Not to spoil the challenge, but essentially this formula was more repeatable and so a lot of funds started running these businesses.
What we’re seeing from people across the industry is that these kinds of companies have ended up being…there’s just less identity when a fund is successful and the management also changes sometimes rapidly. You will see CEOs and management teams cycle every two years. I think that usually leads to a very different experience for your employees.
To me, founder-led biotechnology simply means that the founders and creators of the technology have a voice and a position in the direction of the company. This does not necessarily mean that the scientist doing the work has to be the CEO of a company. This will certainly not be the case for everyone. Not all scientists will be able or even willing to take on a CEO role.
You mentioned that you think the biotech ecosystem would be healthier if we had more founder-led biotech. What are some of the challenges preventing this from happening?
BECRAFT: It’s a bias that arose because of the way people were doing things. When I started Strand, before there was a founder-driven biotech movement, there were simply no biotech founders that I knew of here in Boston. There were more in San Francisco, but the idea that you were going to both start a company and run that company was pretty foreign. I remember having a lot of investor meetings where people were rejecting the idea completely, almost rudely. The general nature of what is not the case leads people to say, “Well, the end justifies the means”.
I don’t think I’m such a smart person that I stand out for his ability to start and run a business. The fact that I did it is more luck and to have the opportunity. What stops more people is this opportunity. It is certainly not the ability to do so.
With more capital being put behind the founders now in the biotech space, especially as more west coast capital has come in and been more open to this idea, we are seeing people succeed.
Much of what the big biotech venture capital firms create are companies that they have incubated in their own labs, funded, and perhaps put in their own frameworks. Is biotech venture capital open to ideas from outside?
BECRAFT: Again, it becomes like a playbook you know. The problem, say five years ago in the Boston biotech ecosystem, was that people were confusing what was good with what was best. They said, ‘It works and that’s the way it is, so that’s the only way to go.’
I’m trying to argue for something that’s less mainstream, because that’s what needs to be defended. I don’t think venture capital funds that start their own business need to be defended. They seem to do this very well themselves.
We hope to see a trend of people continuing to [found and run companies] and obviously more wins on the board help everyone feel more comfortable too.
There has recently been a downturn in the biotech markets. Yet there has still been a huge injection of capital into the sector over the past few years. What effect did this have on the ideas funded?
BECRAFT: Before this slowdown, there was a lack of discipline. There is still a lack of discipline. Things still to this day seem to be funded – I’m all for funding your innovation, right? I mean, this is capitalism at its best. However, I think a lot of them weren’t good ideas.
There is always good science that continues without funding, and there is bad science that is funded. Do we really need another AAV [gene therapy] for Duchenne muscular dystrophy? No. We should focus on Duchenne, but there are about 20 companies trying to do the same approach and it just seems pointless.
You see it with fancy new platforms that sometimes come out of the business building arena. Then you look at their development plan and they say, “We’re going to start with liver disease, prove it there and then we can solve all these other things.” I just banged my head against the wall. The liver delivery problem is the problem. It’s wonderful that another liver disease is targeted. But the hardest part will be not going to the liver and reaching the other tissues. This does not directly open the platform. You’re just a liver disease company unless you have a clear idea of how not to get there.
The idea of a platform has become a buzzword that is often used to describe why a business might have a lower risk of failure. Over the past year, however, I’ve heard that people may be less inclined to invest in this premise. Has there been a change in how people view platforms?
BECRAFT: people abused [the idea of] fundraising platforms. Because how many companies actually intelligently develop a platform that will make a difference? How many of them have then, over time, translated that into actual drug approvals? You probably have six companies that have multiple drug approvals for different diseases – Alnylam, Regeneron, etc.
You have companies that have platforms, and you have companies that have a single asset and a dream. If a company has a phase 2 clinical trial and then there’s a bunch of discovery work, it’s never really been a platform company. It’s more the story they use.
Unfortunately, investors were burned by this and so now what they would like to do is back out of the idea of the platforms. But more than that, it’s not even that investors are retreating from the platforms right now, it’s just that they don’t care about the story as much. They want to tell you less about the platform and more about the drug.
What impact has this slowdown in biotechnology had on Strand? Has the downturn in public markets made itself felt on the private side, or has it closed avenues that were previously open to you?
BECRAFT: This does not concern us directly. You only really feel the effect if you go out and try to fundraise. We always talk to investors. I have CEO friends who are at similar stages and there has been a big pushback, especially in the B series as well. The problem in the biotech ecosystem is that over time, private market investors have swum upstream to create their own companies. The later-stage guys just became crossovers, rather than growth-stage private capital.
What’s happening now is that the early private market players are still building new businesses and trying to get there early. If they are far enough away from the public market, they are sure that the market will rebound in the next two or three years and they won’t have to worry about it.
We’ve seen other companies private valuations fall with the public markets, and just a lack of capital to invest in this area because people are scared. It’s a weird time.