Why Don't Biotech Investors Run Replication Studies Before Investing?

Ichor Life Sciences is one of the earliest longevity industry companies, an interesting mix of contract research organization (CRO), biotech working on several different therapeutics, and investor in very early stage biotech startups. One of the Ichor co-founders here offers an interesting, though possibly biased perspective on how investors should behave in the biotech space. Inside companies, every new development program in the biotech industry starts with an attempt to replicate the research results that form the basis for the program, even given the existence of detailed, published papers and a coven of accessible researchers who suggest that it works. That replication often fails. Cellular biology is complicated, and many papers cannot be reproduced easily or at all. So why don't biotech investors do this before investing?

'VCs should run experiments to derisk longevity biotech investments'

"It always surprises me how willing a venture capital firm is to write a $5 million check but will not run a $10k experiment to replicate key findings from a potential investee. This is especially surprising given the reproducibility crisis that exists in the life sciences." Before making an investment in an early-stage biotech, Ichor CEO Kelsey Moody says Ichor first makes sure it can replicate the key preclinical findings of the company seeking funding. "Importantly, this process also allows us to obtain a clear understanding of where the technical hurdles are for these companies, and this also serves to de-risk investments for our angel network when they syndicate on deals with us."

"Unfortunately, in an effort to dazzle investors and get money, most companies cannot have a frank conversation about what their biggest development challenges are going to be. In many instances, we see these challenges are quite predictable (and therefore manageable) provided one is aware of them ahead of time. It also gives us a competitive edge. We see many 'diamond in the rough' deals that VCs will not touch, but we can move forward collaboratively with the investee very rapidly because of our knowledge on the bench and willingness to work through technical challenges."

Why don't we live in a world in which biotech investors put 1% of their investment into running a confirming study before proceeding? There are a number of plausible reasons, but the largest would be that investors don't run their own in-house laboratory and vivarium teams. $10k would barely pay for an acknowledgement of the time of day from a CRO if one is outsourcing the study. The economics of running a venture capital fund are interesting, but at the core of it, the money they manage is not their own, it belongs to the limited partners. Fund managers take a yearly fee of invested capital (typically 2%) and a cut of profits at the end of the day (typically 20%), and that 2% has to keep the lights on and the fund running. It is by no means enough funding to be running a laboratory and vivarium on the side. All but the largest funds are just about getting by on the day to day costs, given the necessary expenses of diligence, travel, offices, and so forth.

The second important reason is that studies take time. If outsourcing, it is reasonable to expect six months, end to end, for a short study to be planned, designed, scheduled, and conducted. Three months would be a heroic effort and require, at the very least, an established relationship with a friendly CRO that has resources held back to support the investor. While large institutional rounds of fundraising can certainly take six months to come together, early stage investment is a lot faster than that. Any investor that took months to decide whether they even liked the science would lose the best deals to other investors: the present venture capital industry clearly demonstrates that investors can move fast and be successful enough to convince limited partners to fund them. Speed is a competitive advantage.

Lastly, biotech investors, either individual or institutional, largely have a poor understanding of the science involved in any given project. This is not the image that biotech funds like to present, but it is definitely the reality under the hood. Very few funds employ people with a strong grasp of any specific part of the field, and even then it is a roll of the dice as to whether an interesting company is based on science that is easily understood by the fund consultants and employees. This is not an environment in which an investor could be expected to know how to arrange, design, and run a replication study. Investors are not the subject matter experts in the room - the experts are all in the company they are deciding whether or not to invest in.


In other words, VC's can be snowed.

Posted by: Abelard Lindsey at February 28th, 2024 3:34 PM

I totally agree with Reason. The only thing I could add is that the investors often are looking at and copying each other( there's a game theory explanation). This leads a form of here-like mentality with outright ridiculous effects , like increasing stock price because the company added "block chain" to the name

Posted by: Cuberat at February 28th, 2024 9:03 PM

I think reason 2 - that trials cost more than 10k and take at least half a year is why it is important to further develop the "lifespan machine" from worms to daphnia, or even killifish. Sure they are not mammalian models like mice, but they should at least provide a good sanity check. And fish have got to be easier to maintain than mice?

Posted by: jimofoz at March 1st, 2024 6:34 PM

I don't know if it has been discussed a lot, but longevity might be suffering from a design, build, test, learn cycle problem. Senolytics seem to have gone almost nowhere over the past decade, despite promising results in mice.

Would things be different if there were also positive and negative test results in dahina and killifish for each senolytic?

Posted by: jimofoz at March 2nd, 2024 8:18 AM
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