Overview
In biotech due diligence, the stakes are high. While due diligence checklists are crucial for documenting a company’s clinical, scientific, and operational information, they often miss subtle signs of potential failure or untapped breakthroughs. This case study explores how a biotech investor used advanced qualitative analysis to uncover a hidden breakthrough and avoid a potential failure by looking beyond standard due diligence checklists.
Client Background: Biotech Investment Firm
Our client is a venture capital firm specializing in early-stage biotech investments, particularly focusing on gene therapies, oncology treatments, and immuno-oncology startups. This firm was considering an investment in a promising gene therapy company (referred to as GeneTech (name changed)) developing a novel treatment for a rare form of cancer.
Due Diligence Process
The initial due diligence involved a comprehensive review, including:
- Scientific Data: Preclinical trial results, data on the mechanism of action (MoA), biomarker identification, and therapeutic efficacy.
- Regulatory Review: Investigating regulatory filings, FDA IND submissions, and potential orphan drug designations.
- Intellectual Property: Patent filings and freedom-to-operate (FTO) analysis.
- Financials: Assessing burn rate, runway, and prior funding rounds.
- Manufacturing: Evaluating scalability, GMP compliance, and contract manufacturing organizations (CMOs).
The Standard Checklist Approach
The team used a typical checklist that covered all these areas and more. On the surface, GeneTech seemed like a strong candidate:
- Preclinical data showed promising efficacy in mouse models.
- Their IP portfolio appeared robust with several issued patents.
- Clinical trial designs were standard and well-structured.
- Manufacturing capabilities seemed scalable, with quality systems in place.
The Hidden Risks and Breakthroughs
Despite the strong checklist results, the investor’s due diligence team suspected there might be more beneath the surface. By going beyond the checklist and with support of the PlexoA team, they identified several key issues and opportunities that would have been overlooked in a standard review.
Case Study 1: Identifying a Hidden Breakthrough
The Discovery
While the preclinical data showed positive results in mouse models, there was a subtle detail in the data that raised a red flag: tumor regression was inconsistent across mouse strains.
- Standard checklist analysis: The data showed a statistically significant decrease in tumor size in most models, which would be considered a win in the checklist.
- What was missed: The variability between the mouse strains was never fully explained. The checklist didn’t delve into why certain strains showed greater sensitivity while others did not respond as well.
The Deeper Analysis
Upon further investigation by the team, they realized that GeneTech’s drug targeted an immune checkpoint pathway that was more active in human tumors than in the rodent models, and not all mouse strains had the same immune system profile.
This subtle nuance — which had been buried in secondary data sets — pointed to a potential human-specific efficacy that wasn’t visible in the mouse models. GeneTech had yet to complete their human studies, and this finding could be a major breakthrough if confirmed in future trials.
- Significance: This finding suggested that the treatment might work better in humans than in rodents, a common issue in oncology trials that often leads to unmet expectations.
The Result
Based on this deeper analysis, the investor firm accelerated the due diligence and pushed for accelerated clinical trials targeting human cohorts. If the treatment worked as suspected in humans, it could lead to a blockbuster market opportunity in immune-oncology.
Case Study 2: Avoiding a Potential Failure
The Discovery
While GeneTech’s clinical trial designs appeared sound, the diligence team uncovered a troubling sign: The company’s manufacturing process relied heavily on a single-source supplier for the viral vectors, a key component of the gene therapy.
- Standard checklist analysis: The checklist flagged that GeneTech was GMP compliant, and the supplier was well-established in the industry.
- What was missed: The checklist didn’t identify that this supplier had been experiencing production delays due to supply chain disruptions, as well as an inability to scale efficiently.
The Deeper Analysis
In reviewing supply chain documentation and conducting confidential interviews with the manufacturing team, the diligence team learned that GeneTech’s supplier had recently faced major disruptions in production timelines for viral vectors, affecting several other biotech clients.
- Significance: If GeneTech continued to rely on this single-source supplier, the potential for delays in manufacturing was high, which would lead to delayed clinical trials and regulatory setbacks — a major red flag for investors.
The Result
The team advised GeneTech to either diversify its suppliers or find an alternative contract manufacturing organization (CMO) that could scale. By addressing this issue early, they avoided significant delays in future clinical trials, saving investors from major financial risk.
Key Takeaways from the Case Study
1. The Importance of Going Beyond the Checklist
- Scientific nuances: Understanding the underlying mechanisms of action and the importance of species-specific responses can uncover opportunities.
- Supply chain stability: Always dig deeper into the operational side of things, as hidden supply chain issues can derail the entire project.
2. Risk and Opportunity Detection
- Early signals of failure like supply chain dependency or manufacturing scalability issues can often hide in the details.
- Hidden breakthroughs often lie in seemingly small discrepancies, such as data anomalies that could lead to major therapeutic advantages in human trials.
3. Informed Investment Decisions
- A due diligence process that relies solely on a checklist can miss critical insights.
- Using a more holistic approach to uncover both hidden risks and breakthroughs allows investors to make more informed and confident decisions.
Conclusion
The biotech investment landscape is complex and unpredictable, but it’s also full of untapped potential. By looking beyond the checklist and digging into the nuances of the scientific data, regulatory risks, and operational challenges, investors can uncover critical breakthroughs and avoid devastating failures.
In the case of GeneTech, by spotting a hidden breakthrough in the preclinical data and avoiding a manufacturing failure, the investor was able to make a high-stakes decision that paid off.
Are you navigating biotech due diligence?
If you want to uncover hidden risks and spot breakthroughs early, let our expert team at PlexoA guide you through a more comprehensive due diligence process that goes beyond the checklist. Contact Us!
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