The last 30 years of medical research has seen exponential growth. Certain cancers have been effectively eradicated, HIV is all but moot, and the emergence of cell and gene therapies have been propelled by our increased understanding of how Nature has designed us. An increase in complexity has accompanied these exciting advancements, and it is difficult to stay on top of the industry as it continues to change. Understanding key industry terms is crucial to contextualizing the value proposition of early-stage biotechnology research companies, even if a full understanding of the exact science is lacking. The list below has been specifically curated for the up-and-coming biotech investor to make intelligent investment decisions.
Food and Drug Administration (FDA)
The FDA is a US federal agency of the Department of Health and Human Services, responsible for protecting and promoting public health through the supervision of food, tobacco, supplements, and prescription and non-prescription drugs. The Agency oversees clinical trials of vaccines, biopharmaceuticals, small molecules, and medical devices, and offers technical support to study sponsors. The FDA is headquartered in White Oak, Maryland and has 223 remote offices throughout the 50 states. Drug developers submit an Investigational New Drug (IND) application to begin Phase 1 human trials after completing preclinical trials in animals, and upon completion of Phase 3 trials file a New Drug Application (NDA) for small molecules or Biologic License Application (BLA) for biologic therapies. Read more about the approval process.
Investigational New Drug (IND) application
An Investigational New Drug (IND) application is submitted to the FDA before a pharmaceutical company can start human clinical trials and ship their drug candidate(s) experimental drug across state lines. This is the first step in the FDA regulatory process. Once an IND is approved, biotechs can begin recruiting patients and conducting their Phase 1 study. Regulations are primarily at 21 CFR 312.
Clinical Trial Application (CTA)
The European equivalent to the IND. The CTA is submited to the European Medicines Agency (EMA, see below).
Center for Biologics Evaluation and Research (CBER)
The division of the FDA that is responsible oversight of biologic treatments, such as cell, gene, RNA, and recombinant protein therapies.
Center for Drug Evaluation and Research (CDER)
The division of the FDA that is responsible for the oversight of traditional small-molecule pharmaceuticals.
European Medicines Agency (EMA)
The EMA controls the drugs that are marketed in the European Union. Originally located in London, the UK’s withdrawal from the European union forced the EMA to relocate to Amsterdam in 2019. The Agency’s main responsibility is the protection and promotion of public and animal health through the evaluation of experiment drugs for human and veterinary use. Like the FDA, it oversees 3 phases of clinical trials and offers technical guidance and scientific advice to study sponsors. Upon successful approval the EMA issues Marketing Authorization (MA).
Health Canada is the department of the Government of Canada responsible for oversight of the country’s federal health policy. The department is responsible for multiple federal health-related agencies that ensure compliance with federal law in healthcare, agricultural, and pharmaceutical activities. The Health Products and Food Branch is responsible for the oversight of biologics, gene therapies, natural health products, veterinary drugs, and medical devices. Like the FDA, the clinical trial process is divided into 3 Phases of increasing size and complexity. Study sponsors submit a Clinical Trial Application to being Phase 1 human studies after completing preclinical studies, and after positive Phase 3 results submit a New Drug Submission for regulatory review and Marketing Authorization.
Treatment (Therapeutic) versus Prophylactic
Treatments take on many forms, but the one thing they have in common is that they address the disease after the disease or infection has set in. Treatments may only address the symptoms of the disease (such as pain and inflammation of the joints in osteoarthritis), but good treatments address the root causes of the ailment. Ultimately, the goal of a treatment/therapeutic is to extend the duration and improve the quality of the patient’s life, as if the disease were absent. All treatments have associated side effects, which are examined and noted by the FDA and drug developer. Contrastingly, prophylactics are used to stop the formation of the disease or infection before it occurs. Well-known prophylactics are vaccines, which prime the body’s immune system to recognize and destroy the virus. Prophylactics against specific viruses can be difficult to make, as they must not cause an overactive immune response, and must be able to identify a virus that is constantly mutating.
Endpoints are the measurements made to assess the safety and efficacy of a drug in a clinical trial. An example of an endpoint for a cancer study might be % reduction in tumor size, or overall patient survival over a 3-month timecourse. Safety endpoints are used to measure potential side effects, for instance researchers may measure the immune response in patients injected with a therapeutic protein (see Science section below). Sometimes intermittent endpoints may be used to assess the safety and efficacy of a drug before the study completes.
Overall Survival versus Progression-Free Survival
Both are endpoints in clinical trials and are commonly used to evaluate the efficacy of anti-oncogenic (cancer-fighting) drugs. Overall survival is the % of patients that survive over a set timeframe after initial treatment. Progression-free survival, on the other hand, measures the duration after initial treatment that the disease does not worsen (e.g., the tumor does not increase in size). Overall survival is accepted as the best endpoints, for obvious reasons.
Chemistry, Manufacturing, and Controls (CMC)
A requisite component of every new drug or biologics license application to the FDA that details the chemical composition of the product, the manufacturing process, and the quality tests developed to ensure its effectiveness, safety, and reproducibility.
Good Laboratory Practices (GLP)
FDA regulation that establishes standard procedures for record keeping. GLPs must be adhered to in laboratories testing and producing pharmaceuticals for clinical trials.
Good Manufacturing Practices (GMP or cGMP)
FDA regulation that establishes procedures for drug testing and manufacturing for human use.
Contract Research Organization (CRO)
A laboratory that offers contracting service in drug development, manufacturing, preclinical studies, and clinical trial management. CROs are highly-specialized and often cater to a particular disease area or specific type of therapy. It is much more efficient for a startup biotech to out-source drug development and clinical studies to CROs than to try and manage them themselves.
Securities and Exchange Commission
The Securities and Exchange Commission (SEC) is an agency of the US government that is concerned with protecting the individual investor and national banking system. Their primary responsibility is the enforcement of federal securities laws. The Commission was formed following the stock market crash in the 1920s to regulate the sale of securities (e.g., stock) across state lines on the secondary market (e.g., New York Stock Exchange). The Securities Act of 1933 and Securities Exchange Act of 1934 firmly established the directive of the SEC to increase the public’s trust in the capital markets by requiring disclosures about public companies selling their stock to retail investors.
Business and Finance
Biotech versus Biopharma
Biotech companies are defined by their size and scope. Generally small and lean, biotech companies are concerned with leveraging early-stage technology (often licensed from a research institution or translational medicine accelerator) into a return on investment once the drug asset is in FDA trials. Their interests are wide, ranging from developing gene therapies to food additives. Biotech companies attract early-stage seed investors, such as Venture Capital and Angel groups. Contrastingly, biopharma companies (or pharmaceutical companies) tend to be much larger and focus on developing biologic and small molecule (chemical) treatments. These companies tend to be publicly listed and not concerned with raising seed capital. Sometimes called Big Pharma.
Like any technology startup, biotech companies are focused on developing an early-stage asset to the point where an acquirer will take interest . Reliant solely on investor dollars, startup biotech companies much continue to search for investor support to push their projects further down the clinical trial pipeline. Venture Capital and Angel investors will typically invest in these high risk/high reward companies at very attractive investment terms (i.e., low stock price), and will usually take an active role in assisting the company by aligning them with advisors and subject matter experts, and making further investments as the company hits its milestones.
Venture Capital (VC) groups are seed-stage investors that invest in companies that have the potential for a very high Return on Investment (ROI). VC firms take an active role in the company’s development and provide resources (intellectual capital, additional investment) as the company grows. VCs have specific investment criteria that use to analyze investment opportunities and are risk-seeking in their strategy.
Intellectual Property (IP)
An IP portfolio is central to a biotech company’s drug development strategy.
Strategic partnerships and licensing agreements are fundamental business strategies for biotechnology companies, for both Big Pharma (established pharmaceutical companies with the ability to commercialize clinical-stage drug assets) and clinical-stage companies developing novel therapies. Clinical-stage biotech companies often rely on licensing their intellectual property to institutions or large pharmaceutical companies to take their experimental drugs through the FDA regulatory process. Typically, the licensee (buyer) will agree to develop and commercialize the licensor’s (seller) drug asset once a certain amount of risk has been dispelled by proving the drug is safe (and effective) in FDA clinical trials. Historically, Big Pharma acquires clinical-stage drugs once they have Phase 2 data . Licensing deals usually involve an upfront acquisition fee, lump sum milestone payments (e.g., successful FDA trials), and royalties on gross sales. Drug discovery and development is a very length and costly process that is fraught with many pitfalls, and as such the economics of licensing deals are heavily influenced by the amount of risk that will be assumed by the purchaser (i.e., a drug that has advanced through Phase 3 will command a much higher purchase price than a similar drug that is only in Phase 1). The value of the license is tricky to determine, and there are a handful of valuation methodologies that can be employed. Learn more about biotech valuations here .
Initial Public Offering (IPO)
An Initial Public Offering is the process of selling the shares of a private company to the public through the issuance of new stock. This allows the company to raise capital from public investors. This can be an important event for early shareholders, who invested when the company was still private and at a very low share price, to cash out of their investment and realize a return. Companies must meet stringent requirements by exchanges and the SEC to hold an IPO. Companies looking to “go public” often hire investment banks to underwrite and market the offering to retail investors. An IPO is a big step for a private company and occurs when the company has grown out of its seed-stage funding and is ready for public injection of capital. This gives the company greater credibility and publicity, especially if a bulge-bracket investment bank (e.g., Goldman Sachs) is marketing the IPO.
Uplisting to a major exchange (e.g., the NASDAQ or NYSE) is a major goal for small companies that need to raise capital to finance their immense research budgets. “Micro” and “nano”-cap companies (companies valued at less than $50M) often find themselves able to list on the over-the-counter market (OCTQB) to generate some liquidity for early investors, but the trading volume is low and the number of investors that see the stock is low compared to a major exchange. Uplisting from the OTCQB to a major exchange gives the stock greater visibility to the capital markets, allowing the company to attract more investors and get the attention of potential strategic partners. So why aren’t all companies uplisted? If only it were that simple… major exchanges have lengthy listing requirements that must be met before the company’s stock will even be considered (see “IPO” above). An uplisting to the NASDAQ or NYSE is a tremendous accomplishment for a small, privately-held company.
Determining the value of a publicly traded company is easy… just look at the market capitalization (# of shares outstanding x price per share). But it is not such a simple task when the company is a pre-revenue, clinical-stage biopharma with a diverse pipeline and no freely traded shares. The earlier the company is in the drug development process the more difficult it is to assign a reasonable value since additional risk must be built into the computation. Seed-stage valuation is the single-most difficult thing about being a venture capitalist. Everyone has a great idea, but only some of those ideas have a reasonable chance of commercial success, and an even smaller portion are value investments or acquisitions. The most common methodology used to value pre-revenue biotech companies is a risk-adjusted net present value (NPV) model. This model takes into account the risk of failing in clinical trials, the addressable market, the opportunity cost (discount rate) of a similarly risky investment, and the duration of market penetrance (likely the duration of the patent portfolio). Learn more about biotech valuations here .
The price-to-earnings ratio (P/E ratio) is a metric used to assess the value of a publicly traded company. It is calculated by dividing the price per share by the company’s earnings (net income) per share. P/E ratios are used by investors to determine the relative value of the company, often comparing P/E ratios between company’s within the same industry (e.g., Microsoft v. Apple) to determine if a company’s stock is reasonably valued. A high P/E ratio compared to the industry average could mean that the stock is overbought, or that investors are expecting high growth in the future, and vice versa. In practice, two types of P/E ratios are used: forward (forecasted revenue over the next 12 months) and trailing (revenue over the last 12 months).
Deoxyribonucleic acid (DNA) is the molecular store of genetic information of all known organisms and many viruses. DNA is considered a “macromolecule” due to its double-helix shape formed from two independent DNA strands and extensive structure composed of nucleotides and a sugar-phosphate backbone. Both strands of DNA in the double-helix contain the same biologic information, which is replicated as cells divide and proliferate. Every cell contains the exact same DNA sequence which is organized into chromosomes in humans and other eukaryotic organisms. When most people think of DNA they immediately make the association with “genes”, which is logical since DNA is the store of genetic information. However, the vast majority of the DNA (over 98% in humans) is considered “non-coding”, meaning that the DNA sequence does not encode for proteins. Therefore, a ‘gene” is a sequence of DNA that ultimately produces a protein molecule (RNA is an intermediate step in this process. See below). Protein expression ultimately determines the function and activity of the cell (i.e., what makes a cardiac cell differ in structure and function from a skin cell).
Ribonucleic acid (RNA) is like DNA in that it is composed of nucleotides and a sugar-phosphate backbone, however it differs in the it is found as a single strand folded onto itself. RNA plays many biologic roles in regulating protein expression, a critical step in the conveyance of genetic information into cellular function. Messenger RNA (mRNA) is produced from sections of DNA that encode for proteins, and acts as the intermediate between the gene and its final protein product. Non-messenger RNA molecules also play an active role in catalyzing biologic reactions and controlling gene expression/protein synthesis.
Proteins are large macromolecules that are formed from chains of amino acids. They are the end products of the genes which exist in the DNA sequence of all organisms. Proteins are largely responsible for the structure and function of cells and exist in complicated 3D structures (“conformations”) which determine their activity, such as catalyzing biologic reactions, transporting molecules within the cell, regulating DNA and RNA expression, interacting with the environment (extracellular space). Like DNA and RNA, proteins are involved in almost every cellular process.
Cells are the basic structural and functional units of Life. Cells are shielded from the outside world by a membrane which houses the intracellular components (DNA, RNA, proteins, organelles). DNA replication and gene expression happen within cells, giving them their structure and function. There are two types of cells – eukaryotic (contain a nucleus, multi-cells organisms) and prokaryotic (no nucleus, single-cell organisms). Cells interact with their environment through transmembrane receptors which signal to the intracellular components via transduction pathways. These signals tell the cell whether to grow, divide, differentiate (into different cell types, such as skin or heart), or die (apoptosis).
The study of heritable traits that are “picked up” from environmental forces and do not involve mutations in the DNA sequence of organisms. “Epi-“ derives from the Greek prefix meaning “outside of, around”. Therefore “epigenetics” literally translates into “outside the genome”. Environmental factors play a role in modifying DNA expression (i.e., gene expression) without actually changing the DNA sequence. This occurs through mechanisms such as DNA methylation and histone modification.
An organism’s genome contains the entire DNA sequence, which divided into “coding” (i.e., genes) and “non-coding” regions. The genome is composed of a complete list of the nucleotides (A, C, G, T) that make up all the chromosomes of an organism. The vast majority (greater than 98%) of the human genome is composed of non-coding regions, which play a role in regulating gene expression. As opposed to human genomes, viral genomes can be composed of either DNA or RNA.
Similar to the genome, the proteome is the entire set of proteins that are expressed from genes (i.e. coding regions of the genome). Proteomics is the study of the proteome. Variations in the proteome between cells determine their different functions, and comparative analysis of the proteome between healthy and diseased (e.g. cancerous) cells have been used to determine biomarkers associated with the disease and the molecular pathogenesis. There are roughly 20,000 proteins in the human proteome.
A collection of cells and proteins that protect the body against infection. I like to draw the analogy with computational Artificial Intelligence, a decentralized network that stores information and learns how to interpret it through iterative trial and failure. The immune system is ‘intelligent” in that it keeps a running log of every invader (pathogens, such as bacteria and viruses) that has been “defeated”. This information is stored in “memory cells” (B and T-lymphocytes). The body’s immune response is called into action when a pathogen is detected and processed by Antigen Presenting Cells (APCs). APCs “present” pieces of the pathogen to T-cells (which come in two flavors: Helper T-cells or Cytotoxic T-cells). After presentation, the Helper T-cells proliferate and begin to coordinate the immune attack by recruiting other immune cells (B-cells, Cytotoxic T-cells, Natural Killer Cells, macrophages) and signaling proteins (e.g., cytokines) to the point of infection. Cytotoxic T-cells, Natural Killer Cells, and macrophages recognize infected cells by the piece of the pathogen (i.e., antigen) displayed on the cell’s surface (remember the APCs?). Helper T-cells also present the antigen to memory B-cells, which secrete antibodies that bind to infected cells and signal for macrophages to clear them. The entire immune response is much more complicated and involves more characters than this description, but the overall theme is that the immune system is a brilliant feat of engineering by evolutionary forces that kept humans one step ahead of mutating pathogens.
Pharmacodynamics (PD) is the study of “what a drug does to the body” in terms of the drug’s molecular effects. PD characterizes the mechanism of action of a drug.
Pharmacokinetics (PK) is the study of “what the body does to the drug” after a drug has been administered. PK phenomena include metabolism, clearance, and distribution of the drug in the internal organs after administration.
Polymerase Chain Reaction (PCR)
PCR is a technique to amplify trace amounts of DNA for laboratory or clinical applications. The ability to efficiently amplify DNA derived from an organism or biologic sample (e.g., fingerprint, saliva) had evaded scientists for years… until Kary Mullis came along and, under the spell of a hallucinogenic trip, realized that DNA could be unwound at high temperatures and “primed” using single strands of nucleic acid to isolate genes of interest. The real challenge was finding an enzyme that could withstand the high temperatures require to unwind DNA prior to replication. Mullis credits LSD with his idea to harvest these enzymes from the sulfur ducts inhabiting the ocean floor. Appropriately named “luciferase”, Mullis put this enzyme to work in the replication process known as PCR. This technique is fundamental to all work in genomics and proteomics. Genes have been amplified, sequenced, studied, and modified thanks to Mullis and his genius.
Recombinant DNA (rDNA) synthesis is the foundation of genetic engineering. “rDNA” is produced by combining at least two fragments of DNA from two different sources. This allows researchers to create “custom” genes (and their final protein products) which can be used to study their function in organisms and create biologic therapies. Recombinant DNA synthesis relies on Polymerase Chain Reaction (PCR) to amplify the DNA sequences that will be joined together. This process is often used in conjunction with genetic “cloning” procedures, in which the amplified and adjoined DNA sequences are then inserted into a rapidly-dividing cell (such as E. coli or yeast) and incorporate into the cell’s genome. After successful incorporation or (“recombination”, hence the term recombinant DNA), the cell will continue to divide and express the inserted DNA sequence as a peptide or protein product (which is aptly termed a “recombinant protein”). A famous example of a recombinant protein therapy is insulin for the treatment of diabetes, developed by Eli Lilly in the 1980s.
An antigen is a molecule that is found on the exterior of pathogens that can be recognized by an organism’s immune system. The recognition of antigens by antibodies or B-cells trigger an immune response.
Haptens are small molecules that can induce an immune response only when bound to a large protein. This property has been harnessed by immunologists to elicit immune responses against proteins that, on their own, would appear innocuous to the immune system. Typically, only large molecules and pathogens elicit an immune response in the body. OThe body then generates antibodies against the hapten-bound protein. This technology is being employed by BioVaxys to develop a COVID and cancer vaccines.
Stem cells are the precursors of all “specialized” cells in the body, such as heart, skin, gut, etc. Stem cells divide to form more cells called “daughter cells”, which either become new stem cells or differentiate into specialized cells with a specific function. Stem cells are the only cells that have the natural ability to generate new cell types, and as such as sought after as therapies for regenerative medicine applications. The effectiveness of stem cells is debatable, yet they have been heralded as miracle treatments by some members of the medical community. The FDA takes a much more critical stance, acknowledging that they have the potential to repair and regenerate cells, which may be therapeutic in certain diseases. Many of the stem cell therapies that people receive are not actually approved by the FDA, and the only FDA-approved use in the United States consists of blood-forming stem cells derived from cord blood.
Transcription is the first step of DNA based gene expression, in which a coding region of DNA (aka a “gene”) is copied into RNA by a special enzyme called the “RNA polymerase”. The transcription process involves the unwinding of the DNA double helix, and the recruitment of other molecules and cellular components to produce a messenger RNA strand, called a “mRNA transcript”. While most organisms can only transcribe DNA into RNA, some viruses can “reverse transcribe” RNA back into DNA. Once such virus is HIV, which transports RNA coding for viral proteins into human host cells and reverse transcribes the RNA into DNA, which is then inserted into the cell’s genome.
Translation is the final process that produces a protein product from a coding DNA sequence. The translation process takes the mRNA transcript (see “transcription” above) and assembles a 3-dimensional protein based upon the order of the nucleotides that comprise the mRNA strand. The process is broken into 3 steps: initiation (ribosome assembles around target mRNA), elongation (mRNA sequence is read and amino acids are joined creating an amino acid chain), and termination (the final piece of mRNA is read and the translation process halts).
Small molecules are chemically synthesized drugs, such as ibuprofen and Viagra. Over 90% of the drugs on the market are classified as small molecules typically, these drugs are manufactured into compressed pills or tablets and taken orally, digesting in the gastrointestinal tract and being metabolized by the liver. Their small size allows them to pass easily through the cell walls.
Antibodies are a key component of the immune system, and function by recognizing certain regions on proteins and peptides (called “residues”). Antibodies know which proteins are “endogenous”, or produced naturally by the body, and can selectively detect foreign proteins for removal by the immune system. Antibodies bind proteins after being exposed to them by other immune cells, going from a “naïve” state to a “mature” state. Once matured, antibodies can both neutralize foreign pathogens and direct other immune cells to kill them. Antibodies can be engineered in the lab to perform other functions, such as identifying unique proteins on the exterior of cancer cells and directing cytotoxic chemicals to their location.
Cell therapies leverage the function of the body’s own cells to fight disease. Cell therapies can be autologous or allogenic if derived from the patient or from a donor, respectively. Examples of cell therapies include stem cells derived from bone marrow and induced pluripotent stem cells (iPSCs) which are manufactured in a lab. Stem cells’ therapeutic potential is predicated on their ability to become almost any other cell type.
CAR-T therapy is a type of cell therapy. Chimeric Antigen Receptor T cells (CAR-T) are engineered T cells that are extracted from the patient (autologous) or a donor (allogenic) and engineered in the lab for specific cancer-fighting functions. These engineered T cells are made to recognize specific proteins on cancer cells (called “antigens”) to allow them to target and more effectively destroy the cancer cells. When they encounter the cancer cell’s antigen, the CAR-T cells become activated and start to multiply and become cytotoxic (cell-killing). After being injected back into the patient the CAR-T cells are considered a biologic “living” drug. The first CAR-T therapies were given FDA approval in 2017, and these cell therapies are a rapidly expanding area of clinical research.
Gene therapies affect the function of cells by adding, subtracting, or modifying sections of their genetic code. The term “gene” refers to any piece of DNA to encodes for a protein, which are the functional components of the cell. Altering gene expression means changing cell behavior, which can be used to restore the cell’s natural function (that was dysregulated by a lack of normal gene expression) or fix a mutation in the genome.
Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR) is a gene therapy that is used in combination with Cas9, an enzyme that cuts through DNA, for the purposes of editing specific pieces of the genome within a cell. Cas9 effectively cuts out the gene of interest so that a new, modified piece of DNA can be inserted into the cell’s genome, restoring normal, healthy function to the faulty gene.
RNA is similar to DNA in that it is made up of nucleic acids, but its structure and functions are slightly different. RNA plays a key role in the cell’s regulatory function and can catalyze biologic reactions, control gene expression, and modulate cell signals. Unlike double-stranded DNA, RNA is single stranded and can adopt very complex 3-dimensional structures. One of RNA’s main functions is the production of proteins through a process called “translation” of the protein-coding segments of the nucleotide strand (there are many non-protein coding sequences of RNA that serve important functions, but I could write an entire book on that subject). RNA therapies targeted at this protein coding function can be used to increase the quantity of a (natural) protein being produced or induce the creation of an entirely new protein by injecting a cell with the blueprint RNA. Contrastingly, another approach to treating cells with RNA is RNA interference (RNAi), which is designed to block the expression of specific proteins)i. Recently, RNA has been used to create vaccines by inserting strands that encode for viral proteins, which are recognized by the immune system.