Biology is definitely far messier than computer science. But I tend to believe that there's always some asymmetric bet out there, with high upside and mispriced risk.
Here are some interesting examples I've come across.
For context, I have Campbell and Reece on my bedside table, and I read about the immune system for fun, but I'm definitely not a biotech expert!
IL-2 is a cytokine that tunes how strongly the immune system responds to toxins. In the early 2000s, high-dose IL-2 was an approved cancer treatment, used to help the body attack growing tumors. Conversely, low-dose IL-2 was used to treat autoimmune disease, where it was effective in subduing the immune system.
Why was IL-2 was behaving so differently at different doses?
Well, it turns out that IL-2 actually binds to two receptors, not just one. TLDR: the high-affinity IL-2 receptor includes the CD25 subunit and sits on regulatory T cells, which calm the immune system. But the low-affinity IL-2 receptor lacks CD25 and sits on the NK cells, which kill infected and cancerous cells.
With that context, a startup called Delinia created DEL-106 — a Fc-fused IL-2 mutein that hit CD25 very selectively. It was 1,000 times more selective for regulatory T cells than for NK cells. Since low-dose IL-2 had already helped auto-immune patients, Delinia didn’t have to prove out the fundamental biology. Their main focus was demonstrating DEL-106's selectivity in-vitro.
After they proved this out, Celgene bought the company for $775 million. That was three months after their $35 million Series A, and before Delinia had put the drug into a single patient.
Guaifenesin was an old cough expectorant that was sold for ages. When Congress passed the Food, Drug, and Cosmetic Act in 1938, it was just "grandfathered in". The market was full of old guaifenesin products, none of them formally FDA-approved.
However, the FDA had a quirky rule. If a company developed a specific, improved version of one of those grandfathered drugs — a new formulation, say — and ran real trials showing that version was safe and effective, then it could get that version formally approved. And once it did, every company still selling that kind of product without approval would suddenly be illegal.
Knowing this, in 1999, Sam Zell backed Adams Respiratory — which built a slow-release, long-acting form of guaifenesin. When the FDA approved it in 2002, they cleared Adams’s product and also ordered every other maker of long-acting guaifenesin off the market until they replicated the results. That created a temporary moat.
Adams sold the drug as Mucinex and poured money into marketing it. Revenue climbed from $14 million in 2003 to $332 million in 2007. Reckitt Benckiser then bought the company for $2.3 billion, and Zell’s fund, which had put in $26 million, walked away with $380 million.
Ibrutinib was the first drug to block an enzyme called BTK, which B-cell cancers like chronic lymphocytic leukemia depend on to survive. Pharmacyclics and Janssen brought it to market, and the FDA approved it in 2013.
It worked by latching permanently onto a particular cysteine in BTK. The issue was that a handful of other kinases also carried that same cysteine, so ibrutinib stuck to them too. That resulted in side-effects like bleeding, atrial fibrillation, and rashes. Some patients had to quit the drug.
Acerta was a small biotech startup, started in 2012, that tried to address these side effects. They designed a new drug, acalabrutinib, to hit BTK and leave the look-alikes alone. They swapped ibrutinib’s reactive group for a milder one and reshaped the scaffold, so the molecule bonded to BTK but rarely to anything else.
Because ibrutinib had already proven that blocking BTK treats cancer, Acerta primarily had to show that its molecule had higher specificity. It took until 2021 to finish the actual clinical trial proving that acalabrutinib caused less atrial fibrillation than ibrutinib.
But in 2015, six years before having that proof, AstraZeneca bought 55% of Acerta for $4 billion, with an option on the rest.
Each of these companies started with some "proven biology" (e.g. an existing drug that was already approved), and then found a way to supercharge its effect. By making that drug safer, more selective, or more convenient to use.
So they started with a much lower "will it even work?" risk, and spent their effort on the engineering risks instead.