Image source: Generated by Unbounded AI

AI for Science is currently one of the popular scenarios for the implementation of large models.

DeepMind founder Demis Hassabis won this year’s Nobel Prize in Chemistry for AlphaFold 2. In November, DeepMind released a report "A new golden age of discovery: Seizing the AI ​​for Science Opportunity": the use of AI in laboratories around the world is growing exponentially, and the real golden age of AI for Science is coming.

Coincidentally, Dario Amodei, co-founder and CEO of Anthropic, shared his views on how AI can significantly change human society in October this year, among which he is most looking forward to the development potential in the fields of biology and neuroscience. He predicted that biological and neurological research supported by powerful AI will be greatly accelerated, and the progress of the next 50-100 years may be compressed into 5-10 years.

AI in life sciences is not only a data analysis tool. AI has the potential to accelerate the research process and act as a "virtual biologist": designing experiments, guiding research, and even controlling laboratory robots to complete experimental operations. . Many major breakthroughs in biology in the past originated from the discoveries of a very small number of talented researchers. The addition of AI is equivalent to adding more creative researchers to the research team, which can increase the discovery rate of key breakthroughs by 10 times or more.

In June this year, investment institution Pear VC released a research report on the Top 50 Biotech companies in the past 15 years (limited to North America and Europe). The research carefully analyzed the product distribution, founder background, capital sources, core driving forces, financial returns, etc. of these Biotech companies, and "Overseas Unicorns" compiled the report.

Some points worthy of attention:

There are far more drug development companies (46) in the Top 50 than diagnostic companies (3) and medical device companies (1). Most of the key drugs of drug R&D companies originate from academic institutions (20 out of 46); there are equal proportions of platform-driven companies and asset-driven companies, 24 and 22 respectively. 22 of the Top 50 companies are incubated by VCs. Third Rock, ARCH, Atlas, and Flagship are common VCs behind them. These VCs all use Venture Studio or similar forms to closely participate in the operation of Biotech companies. Half of the Top 50 Biotechs in North America and Europe were founded in the San Francisco Bay Area or elsewhereIn the Houston area, only three were established outside the United States. Comparing the Top 50 of the Technology industry and the Biotech industry, we found that although the average MOIC of the Technology industry is higher than that of the Biotech industry, the overall MOIC of the two Top 50 lists is very close. And the first exit time of the top 50 companies in the Biotech industry is significantly shorter than that in the technology industry, which is 4.7 years and 8.2 years respectively. In the future, we predict that drug R&D companies will continue to dominate; more platform companies will be born. The pharmaceutical industry spends more than $200 billion on global R&D every year, but its investment in software is far from enough. The software systems used by many Biotech labs are still very old and fragmented. We predict that LLM and AI will have a more important impact in the drug development value chain, such as drug discovery or target discovery. Therefore, the demand for smarter software in the Biotech industry will lead to the emergence of a number of Biotech SaaS.

The article is reprinted from "Overseas Unicorn" and has been adjusted by Founder Park.

Introduction

Life sciences companies transform scientific discoveries into medicines, diagnostic tools and technologies that significantly improve people's quality of life. In the past 15 years, tremendous progress has been made in this field: a variety of far-reaching drugs have been approved, such as COVID-19 vaccines, checkpoint inhibitors, and GLP-1 agonists; emerging treatment modalities have gradually Mature, such as gene therapy, cell therapy, gene editing, protein degraders, antibody drug conjugates (ADCs), radiopharmaceuticals, etc.; biological research and diagnostic technologies are also increasingly popular, such as NGS, epigenetics, transcriptomics, proteomics, single cell biology, spatial biology, organoids, etc.).

Many bioscience technology startups create significant value for patients, investors and industry. In this article, we selected the Top 50 Biotech companies dedicated to drug development (therapeutics), diagnostics (diagnostics), and medical devices (life sciences tools). Due to long R&D cycles, this article focuses on companies established within the past 15 years.

We selected and ranked 50 companies using their valuations when they went public or were acquired as a metric. For companies that went public and remained independent (although valuation is not a perfect indicator), we looked at their IPO or market capitalization as of December 31, 2023.

In order to better understand the characteristics of the Top 50 Biotech companies, we analyzed their core products, the backgrounds of their founding CEOs and scientific founders, and the origins of their core projects and technologies.Source, location of establishment, time to first exit, and other characteristics were studied.

01 Top 50 in Biotech industry

1.1 Products

In Top 50 in Biotech industry , there are 46 drug research and development companies, diagnostic companies and medical device companies respectively (accounting for 92%), 3 (accounting for 6%) and 1 (accounting for 1%).

Pear VC's Biotech Behemoth rankings

An overview of its main products is as follows:

1.1.1 Drug R&D Company

• Drug R&D Company Focus on indications

These 46 drug development companies cover major indication areas, including oncology, immunology, central nervous system (CNS) diseases and infectious diseases. Among them, oncology is the most common primary therapeutic area (16 companies, accounting for 34.78%), followed by rare diseases (13 companies, accounting for 28.26%).

• The clinical stage of the drug R&D companies’ products

(as of the end of 2023)

As of the end of 2023, the major pharmaceutical projects of these drug R&D companies Of these, more than half (52%) have received FDA approval, about a quarter have entered phase III clinical trials, and the rest are in earlier clinical stages.

• Overview of approved drugs by drug R&D companies

We investigated the approval status of drugs developed by the above-mentioned drug R&D companies and found that corporate valuations are usually related to the sales of approved drugs The expected peaks are positively correlated.

Source: GlobalData

• Platform-driven or asset-driven?

Platform-driven biotechnology companies rely on core technology platforms to develop multiple therapeutic or diagnostic products, while asset-driven companies focus on the development and commercialization of a single or a small number of specific products.

Among the 46 drug R&D companies mentioned above, there are slightly more platform-driven companies (24 in total) than asset-driven companies (22 in total), and the number of the two is relatively balanced. Here, a platform is defined as: a key technology or R&D approach that enables multiple assets (therapeutic or diagnostic products). There are several major themes among platform-driven companies, including:

• Cell therapies: such as Juno, Kite, Sana, Lyell, Arcellx

• CRISPR technologies: such as CRISPR Therapeutics, Intellia

• Computational-driven drug development methods: such as Nimbus, Recursion

• Gene therapy: such as Avexis, Spark, Krystal Biotech, Audentes

Four major themes of platform-driven companies

1.1.2 Diagnostic companies & medical device companies

Among the top 50 companies, Only four companies focus on diagnostics or medical devices. Founded in 2018, Grail developed and launched the Galleri test for early detection of a variety of cancers. Founded in 2012, 10X Genomics provides instruments and reagents for the detailed sequencing and characterization of cellular genomes and transcriptomes. Founded in 2010, Foundation Medicine develops a variety of tissue-based genetic tests for oncology and was acquired by Roche in 2015. Guardant Health, founded in 2012, develops a variety of liquid biopsy-based oncology tests for the detection of early and late-stage cancers.

1.2 Founder Profile

Age of Founding CEO

Among the top 50 companies, we found age information of 47 founding CEOs (data The error is ±1 year). The analysis found that the average age of a founding CEO is about 46 years old (with a margin of error of ±10 years). Among them, the average age of founding CEOs of drug R&D companies is 47 years old (±10 years), while among diagnostic/device companies (a total of 4 companies), this number is only 38 years old (±5 years).

In addition, we found that whether or not they were supported by VC incubators had no significant impact on the average age of the founding CEO. For VC-led firms, the average age of founding CEOs is approximately 48 years (±10 years), which is only slightly older than founding CEOs of non-VC-led firms (the latter is approximately 46 years, ±10 years).

We further explored whether there is a difference in the age of the founding CEOs of platform-driven companies and asset-driven companies. It was found that the average age of founding CEOs of the former was 46 years old (data error was ±9 years), which was slightly lower than the average age of founding CEOs of asset-driven companies, 49 years old (±11 years), but the difference was not significant.

Experience of Founding CEOs

Among the Top 50 Biotech companies, slightly more than half (approximately 53%) of the founding CEOs are serving as CEOs for the first time, and the rest have worked in one or more companies. has CEO experience, this discovery is actually a bit beyond expectations.

Will the founding CEO still serve as CEO when the investment exits?

In 29 of the 50 giant companies, the founders remained CEOs when they first exited their investment (IPO or acquisition). Among them, the foundingPeople are more likely to continue to serve as CEO in the case of IPO (22 people out of 36 people), followed by mergers and acquisitions (3 people out of 5 people), SPAC (1 person out of 1 person); and in the case of acquisition , the proportion of founders continuing to serve as CEOs is relatively low (3 out of 8 in total).

VC Incubation

The biotechnology VC field is characterized by the hands-on involvement of VCs in the establishment and incubation of enterprises. Judging from public information, only 44% of the Top 50 Biotech companies are incubated by VCs.

Among the 21 companies incubated through VC, the most common VCs behind them are:

• Third Rock: 5 companies

• ARCH: 4 Companies

• Atlas: 3 companies

• Flagship: 3 companies

• Versant: 3 companies

Founding CEO Equity ratio

For companies whose founders continue to serve as CEO after IPO, we studied the equity ratio of the founding CEO before the IPO. As shown in the table below, the median founding CEO ownership percentage is 5.6%. The median ownership stake of the founding CEO of VC-incubated firms (4.2%) is lower than that of founder-led firms (7.4%), consistent with our predictions.

Educational background of founding CEOs

We analyzed the educational background of founding CEOs. Among the 49 founding CEOs, we found:

• The most common academic qualification is a doctorate (PhD), with 21 people in total;

• Followed by a doctor of medicine (MD), with a total of 15 people;

• Master of Business Administration (MBA) again, 13 people in total.

Most founders have only one of these degrees, but a few have multiple degrees at the same time, such as MD/PhD (3 people), MD/MBA (2 people), and PhD/MBA (2 people) ). Nearly all founding CEOs hold graduate degrees (43). and the majority had a graduate degree before starting a biotech company (35).

Where do the founders with academic backgrounds (Scientific Founders) come from?

Many biotech companies have academic backgrounds. Of the 50 companies, 30 had founders associated with at least one academic institution. The institutions with the largest number of founders are Harvard (7), Stanford (4), and UCLA (3). Also, Mass General Hospital (2), Fred Hutchinson Cancer Center (2), UCSF (2), and MIT (2).

Key technology/drug R&D institutions

Among the 46 drug R&D companies, 20 core drugs originate from academic institutions, accounting for the majority. In addition, 12 startups obtained licenses from pharmaceutical companies; 2 were from pharmaceutical companies and academic institutions. 14 companies develop their own core drugs.

Big Pharma will license out some drug patents. There are different considerations for why this is done. To name a few common reasons: 1) focus on core business and outsource R&D and sales in non-core areas; 2) diversify risks and transfer R&D risks to startups; 3) activate stalled projects and use the flexibility of startups to drive progress ;4) Use the resources of start-up companies in specific markets to improve development efficiency.

These research institutions that license core drugs or technologies are widely distributed. The top two academic institutions are Stanford (4 companies) and UCLA (3 companies) (combining BridgeBio and Eidos Tx).

Geographical distribution

Of the 50 North American and European biotech companies, more than half were founded in the San Francisco Bay Area (15 companies) or the greater Boston area (10 companies). Additionally, seven businesses were founded in Southern California (including San Diego and Los Angeles).

Among them, only three companies were established outside the United States, namely AbCellera (Canada), CRISPR Therapeutics (Switzerland), and Acerta Pharma (Netherlands). But two of the companies still have established operations in the Boston area and the San Francisco Bay Area.

02 Corporate Financial Characteristics

2.1 Valuation

The lowest valuation among these 50 Biotech companies is approximately US$2.7 billion, equivalent to the top 0.17% of startups (approximately 28,000) during the same period. 50 companies account for approximately 2.5% of all drug development, diagnostics/medical companies raising more than $50 million.

In the VC industry, it is generally a very small number of outliers that contribute most of the fund's returns. The distribution of returns of the Top 50 Biotech companies also basically conforms to a power law distribution. As shown in the figure below, the equation of the power law distribution can fit the valuation trends of these Top 50 Biotech companies well. But to get a more accurate estimate of the overall trend, companies in the long tail also need to be taken into account.

2.2Multiple on Investment (MOIC)

The top 50 biotech startups have a combined valuation of approximately $322 billion, with total financing of approximately $43 billion (unadjusted), and the overall MOIC (simple here (defined as total valuation/total investment) is approximately 7.5.

2.3 Individual company MOIC

Among the top 50 companies, the average individual company MOIC is about 11.7, and the median is about 9.7. Companies with the highest MOIC include: Kite (~52.5x), Receptos (~46.2x), Loxo (~30.8x), Avexis (~27.6x), and Foundation Medicine (~26.8x).

2.4 Year of establishment and year of exit

We counted the establishment time of these 50 companies (between 2009 and 2023), and found that most companies were established in earlier years. This is expected, as biotech companies typically take longer to accrue value. Among them, the largest number of companies was founded in 2013, with 9 companies (Biohaven, Juno, Loxo, Vaxcyte, CRISPR, Spark, Turning Point, Eidos and Recursion).

Similarly, the year of first exit (i.e., IPO or acquisition) of these companies also tends to be later in the 15-year statistical period, especially concentrated in years when biotech capital markets performed well. Among them, the largest number of companies exited the investment market for the first time in 2021, followed by 2020 and 2016.

2.5 Time to Initial Exit

We analyzed the time required for these firms to achieve their first exit, with an average of 4.7 years (standard deviation of 2.7 years). It is worth noting that five companies achieved their first exit in the second year after their establishment (Juno, Telavant, Loxo, Immunovant and Chinook).

03 What is the difference between the performance of the Top 50 in the technology industry and the Biotech industry?

To better understand the data surrounding these top biotech startups, we performed a similar analysis on the top 50 technology companies founded during the same period.

The average valuation of the Top 50 technology companies is higher than that of the Top 50 Biotech companies because the former has a higher ceiling. The most valuable technology company is Uber ($156 billionUSD), nearly 4 times the highest valuation of the biotech company Moderna (USD 38 billion), and nearly half of the total valuation of the Top 50 Biotech companies. The lowest valuation among the top 50 technology companies is $3.2 billion (the top 0.2% of technology startups in the same period), while the lowest valuation of the top 50 biotech companies is $2.7 billion (slightly less than 1% of the top 50 biotech startups in the same period) 0.2%).

The average MOIC of the Technology Top 50 is 23.2, and the median is 9.4. Its average is mainly driven by WhatsApp (about 317 times), TradeDesk (about 197 times) and Honey (about 56 times). The average MOIC of the Top 50 Biotech companies is lower (at 11.7) but closer to the median (at 9.7).

Overall, while there are many differences between the two industries, the overall MOIC of the top startups is surprisingly similar (~7.4x for the technology industry and ~7.5x for the biotech industry).

One big difference between the two industries is the time it takes to achieve a first exit. Among them, the average time for the first exit of the Top 50 technology companies is 8.2±2.1 years, which is significantly longer than that of the Biotech Top 50 (about 4.7±2.7 years).

In addition, mergers and acquisitions are playing a more important role in the exit of these Biotech companies from the investment market. Among them, the Biotech Top 50 that achieved first exit through acquisition accounted for 24%, and the final acquisition ratio reached 52%; in comparison, the final acquisition ratio of technology companies was only 18%.

We also compared the age of founding CEOs in the two major industries. The average age of the founders of the Technology Top 50 was approximately 36 ± 8 years old when the company was founded, while the average age of the founding CEOs of the Biotech Top 50 was approximately 46 ± 10 years, which is significantly higher.

Finally, we compared pre-IPO shareholdings for companies that successfully went public and where the founder remained CEO at the time of IPO. The shareholding ratio of the Technology Top 50 founding CEOs is significantly higher than that of the Biotech Top 50, with the median in the Technology industry being 11.7%, which is approximately twice that of the Biotech industry (5.6%).

04 Past, present, and future prospects

We found that, Among the top 50 Biotech startups (including drug development, diagnosticsand medical device companies), drug R&D companies account for the majority. Although diagnostic and medical device companies undoubtedly create huge value for patients and the industry as a whole. But due to the constraints of their business models (which typically have lower pricing power and profit margins), these companies are often inferior to drug discovery and development companies in capturing and sustaining value.

Top 50 Biotech’s path to value success

The path to success is not unique.

Many companies in the Top 50 focus on specific drugs in oncology or rare diseases, but there are also two companies focusing on relatively common indications such as COVID-19 and migraine.

Some companies develop their own products and technologies in-house, but most choose to license them from academia or other pharmaceutical companies. Some businesses are incubated by venture capital, while many are founder-led. Some companies have impressive technology platforms, but many are driven by specific assets.

Some companies have experienced founders, but many others are led by novice CEOs. Some companies have scientific founders from Stanford or Harvard, but the vast majority do not have such academic backgrounds.

Most biotech companies are located in key biotech centers (such as the Bay Area and greater Boston) where capital, innovation, and management talent are concentrated. Despite this, their geographical distribution within the United States remains relatively broad. Notably, only three companies were founded outside the United States.

What is the difference between the top 50 companies in the technology industry and the Biotech industry?

The differences between the two types of companies are obvious, specifically reflected in capital intensity, technical risk, degree of supervision, and the prevalence of binary outcomes. and market size. In fact, even the most successful biotechs don't have valuations and ROI multiples comparable to some tech companies. However, looking at the MOIC (total valuation and/total investment) of the entire category, the performance of the Biotech Top 50 can be similar to that of the Technology Top 50.

The average return period of the Biotech Top 50 is shorter than that of the Biotech Top 50. This is mainly due to the following two points:

1) M&A plays a greater role in the biopharmaceutical field. (Because drugs continue to lose patent protection).

2) IPO provides strong support for expensive and high-risk late-stage clinical development.

These findings should be good news for potential founders of biotech companies.

What is attractive about the Biotech industry?

Many people join the Biotech industry because they hope to improve the standard of treatment and care through the development of innovative drugs and diagnostic tools; or they hope to improve existing diagnostic methods and extend the life of patients through early detection of diseases or selection of correct treatments; Or develop a technology to reveal unknown organismsLearn the principles and improve the treatment effect.

By this measure, the Biotech Top 50 in the past 15 years is undoubtedly the industry benchmark. Their achievements include:

• Launched the first mRNA in response to the global epidemic at an alarming speed Vaccine;

• Developed a treatment for schizophrenia that targets specific pathways in the brain, effectively avoiding side effects in other parts of the brain;

• Developed a treatment for patients with hereditary blindness the first gene therapy;

• Developed the first cell therapy for patients with some refractory blood cancers;

• Optimized genetic testing for cancer patient care;

• Developed technology to measure genomic and transcriptomic variation in single cells.

What are the prospects for the next generation of Biotech unicorns?

What will the next generation of Biotech unicorns look like? Below is our outlook.

• Drug R&D companies will continue to dominate: Although they are under pressure from the Inflation Reduction Act (a bill designed to limit price increases of certain drugs) and other price factors, However, it still has advantages in business model, and related technologies are also constantly improving. We also hope, and there is already data, that we have actually reached the inflection point of anti-Moore's Law. (Note: Anti-Moore's Law refers to the phenomenon that pharmaceutical R&D efficiency continues to decline over time).

• Some areas will see breakthrough growth: currently, GLP-1 agonists (for diabetes and obesity) and anti-amyloid antibodies (for There have been breakthroughs with drugs like Alzheimer's disease, and there are many more similar breakthroughs from pharmaceutical companies. Therefore, we believe that in the future, there will be a number of breakthrough companies in the fields of metabolic diseases, neurology and immunology, and their market value may reach US$5 billion to US$15 billion.

• The birth of innovative platforms: Since the birth of the Biotech industry, from the advent of recombinant DNA technology to the rise of companies like Genentech and Amgen, we have been seeing well-funded Biotech companies established based on innovative platforms. unicorn. This trend will continue, especially in the following areas: new target discovery platforms, new drug design methods, and the development of improved or novel treatments. For example, if a company can truly solve the problem of intravenous delivery of extrahepatic, tissue-specific macromolecular nucleic acid drugs and has the right business model and execution capabilities, that company could be worth billions of dollars. Because there are currently a large number of extremely valuable therapeutic molecules waiting to be delivered, and these technologies can also be used to treat many unsolved diseases.

• BiopharmaceuticalsSoftware companies emerge: Several biopharmaceutical-focused software companies are expected to emerge, with market capitalizations of $3 billion to $5 billion. Currently, the pharmaceutical industry spends more than US$200 billion on global R&D each year, but invests very little in software, and its drawbacks have already emerged. Currently, many biopharmaceutical R&D teams use software systems that are outdated, clumsy, or dispersion. In addition, artificial intelligence is expected to have a profound impact in multiple aspects of the drug development value chain (not limited to target discovery or drug discovery). As a result, pharmaceutical companies must ultimately invest significantly in software or risk losing their competitive advantage.

• The centrality of the Bay Area and Boston remains unchanged: Over time, the network effects of the Bay Area and Boston will continue to grow, maintaining their centrality in the biotech space.

• Age of founding CEOs continues to be high: Compared with technology unicorns, the average age of founding CEOs of Biotech unicorns will continue to be high. We believe this difference partly reflects the fact that the biotech industry is complex and highly regulated, requiring founders to have extensive education and experience. Another important reason is that when achieving important value inflection points, such companies often require large amounts of financial support from investors. However, these investors need to deal with multiple risks in the enterprise, so they are often unwilling to take on the additional risks caused by insufficient team capabilities.

• Improving founding CEO diversity: Currently, the industry is actively promoting diversity and inclusion on company boards and executive teams. As a result, we believe the race and gender of founders in the field will become more diverse.

05 Research Methods

We use Pitchbook screened startups working on drug discovery, diagnostics, and medical devices, founded between January 1, 2009, and December 31, 2023, all of which were founded in the United States, Canada, and Europe. We then looked at the companies' upfront payments when they were acquired, their proposed valuations, and their market capitalization at IPO or as of December 31, 2023, and selected the highest of these as the basis for ranking.

It is worth mentioning that some companies had high valuations at the time of IPO, but failed to realize their original valuations due to poor follow-up clinical trial results and other reasons. Such companies may also be included Inside. Different investors have different exit strategies after a company goes public, and the reason why we adopt the above screening criteria is to prioritize companies with the greatest potential for financial returns to investors during this period.

In this article, we do not consider spinouts from larger companies. For example, we exclude Cerevel Therapeutics and Viela Bio (the former spun off from Pfizer in 2018 and will be acquired by AbbVie for $8.7 billion in 2023; the latter spun off from AstraZeneca in 2018 and will be acquired by AbbVie in 2021). Acquired by Horizon for $3 billion). However, we decided to include Grail, Telavant, and Immunovant in the analysis. Among them, Grail was spun off from Illumina and focused on product applications different from Illumina's NGS tool platform. Telavant was originally affiliated with Roivant, which itself is a startup company.

In addition, we cross-referenced relevant news and reports from Crunchbase, Pitchbook, and the biotech industry to add several companies to the analysis list. The company and founder information in this article are all sourced from primary data, such as company website introductions, press releases, SEC filings, news, etc.

• Research limitations

1) This article uses valuation as the ranking criterion, but this criterion may not perfectly reflect the company’s intrinsic value or influence. 2) Many companies eventually brought huge benefits to patients or the industry, but were exited at low valuations early on. This article did not include these companies in the analysis. 3) Some of the selected companies had high valuations at the time of IPO or acquisition, but failed to achieve their valuations due to clinical or commercial failures. 4) This article only focuses on companies that have achieved significant success and does not compare with companies that have relatively failed, so the results may have survivor bias. 5) The data and resources available are limited. 6) Valuations used for rankings are not adjusted for inflation.

Original text of the report: https://pear.vc/biotech-behemoths-in-review/

DeepMind "A new golden age of discovery: Seizing the AI ​​for Science Opportunity": https://storage.googleapis.com/deepmind-media/DeepMind.com/Assets/Docs/a-new-golden-age-of-discovery_nov-2024.pdf Royal Society "Science in the age of AI 》Report: https://royalsociety.org/-/media/policy/projects/science-in-the-age-of-ai/science-in-the-age-of-ai-report.pdf