The focus is shifting

Positive momentum to continue

The momentum of the biotech industry will likely remain strong, but we expect a shift away from SARS-CoV-2 vaccines and therapeutics back towards the high unmet medical needs of patients with chronic and severe disorders. Prevalent diseases have gained recognition due to the pandemic, and we observe an increased willingness of the biotechnology industry to dare to tackle these disorders. Major technological advancements, focusing mostly on rare diseases, are expected to make many more inroads into broader indications than in the past. Overall, a growing number of products have been approved. Approvals have dramatically increased from the 20s range per year in the early 2000s, to 30 to 40 products approved per year in the last decade to around 50 in recent years. Despite the pandemic’s effects on the industry and regulatory authorities, 50 approvals were awarded in 2021 by FDA’s CDER division in addition to 10 products by FDA’s CBER division (vaccines and cell-based products). 2022 should be no exception to this trend, as regulatory authorities balance their COVID-19 response while supporting innovative technology progress, surveying clinical projects and reviewing important registration filings. Following regulatory approval, access to healthcare systems remains another core hurdle for success. The recent controversial approval of Aduhelm by the FDA was challenged by CMS with their draft coverage guidance restricting its reimbursement for the product. In an unusual move and disputably not within their usual mandate, CMS is asking Biogen to run further clinical trials to prove the efficacy of the product. Although the critical stance towards Aduhelm is not a real surprise, many investors worry that this CMS decision can set precedence and have far-reaching consequences for the drug industry.

Number of FDA drug approvals

Overall, as a pure quantitative measure, the number of trials and patients enrolled in clinical trials is now well ahead of pre-pandemic levels. Many disease areas will have a flurry of trial readouts throughout 2022. Examples of important readouts for our portfolio throughout 2022 are Moderna’s updates regarding its Omicron specific booster and for its influenza vaccine mRNA-1010 with pending Phase II readout in the first half of 2022. This trial is directly controlled by a trial arm of standard conventional flu shot and aiming for non-inferiority on immunogenicity, tolerability and safety. The next generations of Moderna’s influenza vaccines are aiming for superiority on immunogenicity as well as consequentially vaccine efficacy and effectiveness by incorporating additional antigens (mRNA-1020/1030) or additional strains beyond the four selected by the WHO (mRNA-1011/1012) on a faster and shorter timeline than the currently used seasonal influenza protocol. Ultimately, Moderna’s vision entails combination vaccines with a single annual injection covering multiple respiratory pathogens (e.g. SARS-CoV-2, influenza, RSV, hMPV, PIV3, etc.; depending on regional and geographic risks) for high risk populations such as elderly and pediatrics.

Overall, as a pure quantitative measure, the number of trials and patients enrolled in clinical trials is now well ahead of pre-pandemic levels.

Other RNA based or RNA targeting drugs in development of importance for 2022 include the TTR lowering agents from Alnylam and Ionis. Alnylam will report highly anticipated P3 results for Onpattro to treat TTR amyloidosis patients with cardiomyopathy, while Ionis together with its development and commercial partner AstraZeneca will report data for the TTR-LICA drug eplontersen for TTR amyloidosis patients with polyneuropathy.

In oncology, a highly anticipated clinical result is expected from Nektar Therapeutics for bempegaldesleukin, a pegylated interleukin 2, in metastatic melanoma patients. The company will report on its cytokine drug in combination with today’s standard of care, a PD1 antibody. If positive, we expect more focus on the cytokine class in general and for many other combination trials to become a bigger focus for the oncology field. In addition to the continued efforts around immune oncology and cytokines, many targeted oncology pipeline candidates will report proof of concept studies throughout 2022, such as our portfolio companies Relay Therapeutics and Revolution Medicines.

New technologies are expected to prove their disruptive potential

Progress for the newest generation of drug technologies will continue to be a focal point for biotech investors in 2022 and beyond. Important data points have been presented throughout the past year and further proof of concept for different approaches of gene editing, next generation gene therapy and cell therapy are expected. A recent example of a groundbreaking breakthrough is the ex vivo gene editing treatment CTX001 by Crispr Therapeutics and Vertex to treat sickle cell disease (SCD) and transfusion-dependent beta thalassemia (TDT). Designed as a one-time treatment that incorporates the fairly invasive procedure of bone marrow transplantation, CTX001 has so far resulted in functional cures for all treated patients. Crispr Therapeutics and Vertex have guided that the registrational data will be filed in the second half of 2022 implying a potential launch in 2023. This represents the first approval and major product launch of a gene-editing product.

The manifold of challenges posed by high doses of viral vector delivered gene therapies have offered a key point of differentiation for non-viral gene therapies and our investment hypotheses on Generation Bio. The company’s technology utilizes cell-targeting lipid nanoparticles (ctLNP) to encapsulate closed-ended DNA (ceDNA) as cargo, which typically encodes for the respective protein of interest or need. During preclinical experimentation between different species, this approach unfortunately did not translate with sufficient expression levels from mice to non-human primates, with the latter providing the most important proximity to human physiology and clinical studies. Generation Bio now has to redesign this liver targeting construct, reduce the inter-subject variability and improve the inter-species translatability before moving into human clinical trials. An update on progress on the next generation is expected in 2022. Many biotechnology companies are working to solve the challenge of organ or tissue-specific delivery of genetic material. We believe that Moderna as one of our largest holdings is at the forefront of such endeavors developing LNPs with tropism for muscle and lymphatic tissue as deployed for their SpikeVax SARS-CoV-2 vaccine and further LNP formulations for one-time or repeat delivery to the liver, lung or hematopoietic compartment.

In the cell-based therapies space, our portfolio company Fate Therapeutics is developing induced pluripotent stem cell products. The company’s pipeline candidates FT516 and FT596 targeting CD20 and CD19/CD20 with different mechanisms of action are making continuous progress. Promising early results demonstrating robust anti-tumor efficacy have been disclosed in hematological cancers. For 2022, we expect further demonstration of efficacy in patients treated at even higher doses, and most importantly to gain insight regarding the durability of these responses. Vertex announced an early but intriguing result for VX-880, an investigational allogeneic human stem cell-derived islet cell therapy evaluated for patients with type 1 diabetes with impaired hypoglycemic awareness and sever hypoglycemia. Although these infused functional islet cells require co-concomitant immunosuppressive therapy, the results for the first patient at the low dose indicate a transformative potential. The patient was able to substantially reduce exogenous insulin and simultaneously achieved rapid improvement in glycemic control. More patients are being treated with this approach as well as progress on the next generation free of immunosuppression and instead including a protective device for the cell graft will be presented in 2022.

RNA-based medicines, such as siRNA and ASO, are making substantial progress in moving from rare and specialty to more prevalent diseases. In mid-2022, Alnylam is expected to announce results for its clinical study APOLLO-B, treating ATTR Amyloidosis patients with cardiomyopathy with Onpattro (patisiran). If successful, it could expand Onpatto’s market potential substantially, with the current approved indication targeting hereditary TTR amyloidosis patients with polyneuropathy from around 50–000 patients globally to the 200 000 to 300 000 patients with wild type or hereditary TTR cardiomyopathy. Additionally, Novartis – Alnylam’s development and commercialization partner for Leqvio (inclisiran) – is targeting the large hypocholesteremia market and has launched commercial efforts for the product in the US in early 2022.

Computational capabilities influencing the drug industry

Computational power and the digital transformation of the biotechnology industry are becoming a focus on all levels of the drug development industry. Advanced analytics, artificial intelligence (AI) and machine learning (ML) approaches are being applied from target identification over drug discovery and candidate selection all the way to better trial design and patient selection. There are many early stage companies applying such methodologies, but the clinical proof of concept is still sparse and will require more time to be proven. Relay Therapeutics has proven in a first instance with its FGFR2 specific inhibitor RLY-4008 that its Dynamo platform approach to modelling and studying protein motion in order to dynamically understand drug-target interactions at highest fidelity in early clinical trials can result in superior drug candidate properties. Most companies are working towards this goal, with a few select projects in clinical development. Established drug companies are increasingly investing in such internal capabilities as well as in external collaborations to learn from AI/ML frontrunners. Most of these technology companies are still privately held, so we expect more IPOs and market listings in the coming years. This will increase both visibility and scrutiny regarding the promise of developing drugs faster, cheaper and with a higher success rate.

Ownership of assets will matter, at some point

The biotechnology business model has radically changed over the last decade, moving away from an innovation provider for large pharma and large biotech companies as more and more companies become fully integrated biopharmaceutical companies. Retaining assets through clinical development, regulatory approvals up to commercialization, even globally, is more capital intense but leads to higher ROICs (return on invested capital) for companies that are successful in clinical trial development and once commercial launches are capital efficient and successful. This requires a better understanding of a product’s profile, pricing power, and value proposition for all healthcare stakeholders in order to grasp the long-term prospects of a product in the context of the established standard of care as well as future competition.

Important product launches in biotechnology are rare, thus investors monitor early launch metrics and project the prescription ramp to peak sales assumptions and cumulative cash flows that can be generated by individual products. A negative example in 2021 was Aduhelm (aducanumab) with a highly disappointing launch driven by controversial product data, a cost-ineffective pricing strategy and barred access to the US Medicare population. This has cast a shadow not just on Biogen but on the whole industry. As a hopefully positive counterexample, the ongoing global launch of Argenx’ Vyvgart for the treatment of myasthenia gravis patients will be of utmost importance for our portfolio and the industry in general. Further, the US roll-out of Intra-Cellular’s Caplyta will be in focus now that its label has been expanded to bipolar patients as a second indication after its approval in schizophrenia.

We expect that the broad investor base will regain appetite for the biotech sector as soon as successful drug launches can prove that the fully integrated biotech business model still can provide positive and competitive returns on invested capital, a measure that seems to have fallen by the wayside during times of low interest rates and excess capital.

Politics and healthcare reform – US midterm elections

The Biden Administration has proposed Robert Califf as new FDA commissioner. The Senate committee has advanced the nomination, but a full Senate vote and confirmation is still pending. We expect Califf to replace Janet Woodcock and maintain FDA’s innovation mindset.

Of high importance to the US healthcare system are the midterm elections in November of 2022. A substantial focus will be potential shifts in congressional majorities. If Republicans win control of both houses of Congress, this would deal a significant blow to the Democrats’ agenda of pushing for the individual mandate implying limits to the cost of healthcare insurance all the way to the lowering of prescription drug prices by changing laws currently banning Medicare from negotiating lower drug prices with manufacturers.

With the biotechnology industry dominated by the US, China is making great strides due to a rapidly evolving regulatory landscape and a maturing biotech industry. The high growth of Chinese firms in contract research, development and manufacturing is fostering a move away from the former focus on generics towards innovation in general.