China has become a key piece of Foresite Capital’s investment and company formation strategy. During the J.P. Morgan Healthcare Conference, Managing Director Michael Rome shared his thoughts on why biotech in China is booming as well as therapeutic areas where he sees promising science.
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Look at recent big pharma asset acquisitions and new biotech company launches, and you might spot a common theme: The drugs at the heart of these deals were originally developed in China. The portfolio of venture capital firm Foresite Capital has several such drugs, the product of regular trips it has made to the country since 2019. One key difference between then and now: Getting these assets is a lot more competitive.
China is teeming with promising science in areas such as oncology and immunology, said Foresite Managing Director Michael Rome. But these days, the competition for these assets comes not only from other VC firms or even biotech companies. It’s coming from big pharma, he said.
Foresite has made Chinese innovation a key part of its investment and company formation strategy. China-sourced science is brought into Foresite’s to mature in the firm’s incubator. There, an artificial intelligence technology platform analyzes genomic data to identify drug targets and guide indication selection.
Foresite last year closed its sixth fund with $900 million to invest in startups at all stages of development. Rome sat down with MedCity News during the annual J.P. Morgan Healthcare Conference in San Francisco last week to discuss the firm’s investment strategy, the wave of innovation from China, and the areas he sees as promising for research and investment. The Q&A has been lightly edited for length and clarity.
MedCity News: Tell me about Foresite Capital.
Michael Rome: We’re 50% early stage, 50% later stage, [and] for that, 78-80% of our investments are in private companies. The rest we do in public companies. We have an incubator called Foresite Labs where we incubate companies and new concepts, and if those work, they’re going to graduate to a main fund investment syndicate round.
Therapeutic area, we do everything. We do a lot of oncology, autoimmune. We have investments in neuroscience. We also do platform companies. And then again, our team actually is the same team that does the early stage and the later stage. So our team members could be starting companies, we could be investing in syndicated Series As. On top of that, we do a fair amount of later stage Series Bs, the crossover rounds, and we’ll support our companies into IPOs and when they’re public as well. That’s a high level of who we are.
MCN: I’m wondering about the company creation. I’m seeing more VC firms doing that. Are there certain areas you’re looking at or are certain kinds of companies you’re looking to create, and where does the science come from?
MR: There’s three flavors of companies we’re incubating at Foresite Labs. One are larger platform companies and we use kind of an AI/ML-driven approach built on a platform. An example of that is a company called Xaira [Therapeutics]. Last year, they raised a billion dollars in capital. It’s a drug discovery company, but really using AI as their primary toolkit for discovering drugs. We’re doing more in that category, it’s an area of interest at Foresite Labs, this kind of an AI/ML-enabled approach in platform companies.
Something else we’re very active in are asset-centric plays. We started looking at China going back to 2019. We’ve been doing deals in China. That’s a major trend of ours and what we’ve been doing is basically licensing assets in China or doing essentially like an M&A deal to secure an asset. Then we’ll incubate that in a Foresite Labs company. And sometimes we’ve identified the entrepreneur that we’re working with and we find the asset, or vice versa.
MCN: Do you have anybody on the ground in China, or do you just travel a lot?
MR: (Laughs) We do travel a lot. We have two full-time consultants that we use in China. We were in Shanghai four months ago. We have members of our team that are fluent in Chinese. So we have a really good concentration of efforts in China.
Those are probably our two biggest areas at Foresite Labs, doing AI-enabled drug discovery companies, then doing asset-centric plays with entrepreneurs. The third kind of companies we’re putting together are basically just finding the right entrepreneurs we work with and who are experienced, and essentially starting companies there. Numerous companies we’ve done now are built around someone we work with, putting a company together from the ground up. Our team is very active in building these companies. We bring our knowledge of the industry, we’re following every conference, we’re following all the news trends, we document therapeutic areas, and we use that to enable our platform companies at Labs.
MCN: I’m seeing a lot of companies doing artificial intelligence or talking about it. Is there a certain flavor of AI or machine learning (ML) that would be emblematic of a Foresite company?
MR: Sure, probably two ways. One is using large-scale genomic data to hunt and find targets. There is a classic example in the drug discovery industry with a target called PCSK9. And a PCSK9 inhibitor is very effective at lowering your LDL [cholesterol]. It also lowers an important protein called LP(a). All of these are implicated in heart disease. That was actually discovered using large-scale genomics.
There’s another example, another one of our portfolio companies called Latigo [Biotherapeutics]. They have a NAV1.8 inhibitor. I bring it up because it’s the same thing. Population genetics show that you can knock out NAV1.8 and what’s really interesting is people didn’t experience pain the same way. It’s an ion channel in the periphery, and essentially your pain response goes down. You can take these drugs and you can put your hand in cold water, it’s called a cold pressor test, and it suppresses your response to cold. Anyway, we’re doing stuff exactly like that. We’re mining large-scale genomic data. That’s a platform we’ve built out over Labs for a while now, and that is informing new target direction.
Another thing we’ll do is, a portfolio company might come in and say, ‘Hey, we’re thinking about target XY and Z and XY and Z indication. What is the Labs platform showing, telling us about that? Can that advance drug discovery sooner?’ So those are how we’re building things out.
MCN: So in terms of therapeutic areas, are there areas that you’re really interested in?
MR: We do a lot of oncology and autoimmunity, probably our two biggest categories. We also have a lot of targets that were enabled, through the Labs platform again, in autoimmunity for selecting autoimmune indications. An indication like lupus is a very complicated disorder and it’s basically a spectrum of problems. So we’re actually doing things like looking for certain genetic signatures that might respond to certain drugs.
MCN: Existing, already available therapies?
MR: Yes.
MCN: So this would be like a repurposing of a drug?
MR: Yeah, you can think of it as repurposing. There’s fair amount of interest in an area called T cell engagers. Those are being repurposed from oncology to autoimmunity, and there actually is a fairly big kind of genetic component of finding the right patient population. I think we can talk about Candid [Therapeutics]. Candid is a company we founded in collaboration with entrepreneur Ken Song. Ken sold his company, RayzeBio, last year.
We saw the autoimmune area started out in cell therapy on exciting data from Georg Schett in Germany, showing complete remissions in lupus and other autoimmune conditions. Cell therapy is a really tough business model to personalize therapy. T cell engagers actually do a very similar thing. They bind to a target and they have another arm that binds T cells to direct the T cells to its target. Those were getting repurposed for autoimmune. We were really early in that trend. We basically found two assets in China. And then we collaborated with another group that was led by Third Rock [Ventures], they found an asset. We put it all together and we have three different T cell engagers. Ken raised $370 million last year, one of the biggest financings. We have two products in the clinic right now. And I should mention all the assets were sourced in China.
MCN: Why is China so hot? I keep hearing deals happening in oncology and in autoimmune where the assets are coming from companies in China.
MR: There’s a few reasons. One is that they have an incredible amount of funding in the country going back the last decade now, and even the Chinese government, believe it or not, helped start biotechs. They subsidized a lot of early-stage research. So they had a very good ground for entrepreneurship.
Another thing that was happening, you started just getting really good scientists who were starting companies in China, brilliant people who were leveraging all the innovation in the field and starting companies. Also, it’s a lot cheaper to run a biotech in China than it is in the U.S., so you just saw this explosion of innovation in the last five years.
Don’t quote me on the year, but I want to say it’s maybe 21 or 20, the [Chinese] IPO market was almost flat for early-stage biotech companies. This was like a seismic event because it meant that you had a lot of companies that were relying on public markets to get financing that were sort of in a holding pattern. What you have is this bolus of assets and that opened up the ground for a lot of business development.
We were there 2019, we sourced a company that ended up the asset at a public company called Alumis, which is a very early deal for us. We’ve done numerous deals in China since then. We’ve done asset purchases, we’ve done equity investments in companies.
MCN: Is doing a deal in China significantly different than it is doing a deal In the U.S. or Europe?
MR: There are definitely differences. A lot of them are idiosyncratic to China. Their tax structures are different. A lot of times companies are being restructured from China to Cayman [Islands] entities. That’s another nuance in deals. You’re also getting assets cheaper in China, and the science is great, so you’re getting fairly good deals. We were early in that trend, and then pharma started getting really interested in China. We were just at a meeting with a top M&A firm, and they were saying pharma is now making quarterly trips out to China looking at assets. The other thing that’s interesting is as it’s gotten more competitive, we usually lose out to deals, not from other [VC] firms, but from pharmaceutical companies coming in and bidding up assets.
MCN: With the changing of presidential administration, President Trump has made anti-China comments. What might that mean for dealmaking in the future?
MR: I don’t think I have a prediction of what will happen. If Trump is more focused on tariffs at first, that probably wouldn’t impact our industry. If there was more regulation of looking at deals more closely, that can certainly slow the closing time on a transaction. But I haven’t heard anything specific yet. Because we’re so active there, we’re following it really closely. It would be a shame, because there’s a ton of innovation going on now between the two countries, a lot of synergies, you see a lot of companies working together. It’s an exciting time.
MCN: In the bigger picture, apart from Foresite, are there therapeutic areas you see that are hot? I see a ton of obesity drug deals, and I’m just wondering what your thoughts are on this market. Is it too crowded?
MR: Obviously GLP-1 have sort of taken over. What you’re seeing now is next generation GLP-1 drugs starting to come on the market. First we had drugs like [Novo Nordisk drug] Ozempic, which were the breakthrough and you were seeing substantial single digit weight loss fairly quickly. The next wave were drugs targeting other receptors in the same family, like GIP. [Eli Lilly’s] Mounjaro is a next-generation drug. The next generation almost doubles the efficacy, in some cases, for percentage of weight loss, and they’re better tolerated.
You’re going to see now a third generation of drugs that are targeting a receptor called the amylin receptor, and now you’re seeing dual GLP-1/amylin [targeting drugs]. The next wave will be drugs that preserve or enhance muscle. One of the big issues with GLP-1s is they reduce all your mass. They take away not only your fat mass, but your muscle mass. There’s a new generation of drugs in the TGF-beta space where you’re seeing muscle preservation or even muscle enhancement. I think you’re going to find people taking those potentially for cosmetic reasons that want more muscle, but also as you get older, muscle loss is big problem. I think you’re going to see dual GLP-1 agents that give you [muscle] preservation or enhancement.
MCN: What about orals?
MR: Orals right now are a little bit tricky in that you just have oral GLP-1s. Those will come on the market soon. If I’m a patient, I might want to go for the most weight loss, so I might be more inclined to take a Mounjaro that is going to give you more [weight loss] than an oral. But patients continually have preference for oral drugs. Those will be big market players. From our perspective as VCs, we want to find the next dual combos of orals — oral GLP-1/GIP, agonist or antagonist, oral GLP-1/amylin, all these different targets together.
MCN: I do see a ton of activity in metabolic/obesity, but at the same time, it’s so crowded that I’m wondering how investable is such a crowded space? If it is investable, what are you looking for?
MR: We’ve been looking at a lot of opportunities, particularly in China, where they’re like the same drug over and over again. We are staying away from those. No ‘me toos’ in obesity because it’s so expensive to run these trials, and unless you have a natural acquirer, it’s going to be tough. A lot of pharmas have made their bets on their initial GLP-1s, a few haven’t. But it has to it has to be differentiated for us to make a bet.
MCN: Differentiation is oral or superior weight loss?
MR: All of the above. Orals, superior weight loss, better tolerability, next generation for muscle preservation. Those are the spaces that we’re trying to get into.
MCN: I’m also seeing a lot of immunology deals.
MR: Yeah. Immunology, we’re very focused right now. Part of the reasons is the innovation in the past five years. In oncology, you had a wave of precision oncology, which is targeting the right patient population specific to the mutation that causes cancer. There was a lot of genetics and the field took off. The field kind of moved, using that approach in immunology. If you have an indication like lupus, that could be a manifestation of a lot of different mutations. So to treat lupus now, find the right drug that is specific for a certain patient population. And that kind of thesis has emerged in a lot of autoimmune mechanisms. So finding the right cytokine inhibitor for patients who have dysregulation of whatever cytokine or whatever the autoantibody is.
MCN: So in the way that in oncology, knowing the right patient population for a drug is important, it will be the same in immunology as these therapies expand from oncology to immunology?
MR: That’s right. Said another way, we just started understanding immunology, all the underlying mechanisms, better. There’s been a lot of trial and error, what drugs work, what drugs don’t work. That’s one of the reasons it’s gotten bigger. And the patient populations are huge. Humira is the largest selling drug right now, and it’s an immunology drug. It’s a little different [than oncology]. Immunology, your patients are on drug for a long time, so the market opportunity becomes bigger.
MCN: But the safety profile is also different when you compare oncology to immunology.
MR: Your margin for error there is a lot tighter. I would rank/order it, [first] cardiovascular, you need to have the safest profile because that’s going to be the largest patient population. Statins or other mechanisms have to be exquisitely clean. Then I would go autoimmune. Autoimmune can be devastating conditions, so you have a little more leeway, you can say, O.K., I can get away with a little less safety profile. In oncology, you know, these are going to be grave indications you might be able to tolerate a drug that’s fairly toxic if it’s going to be efficacious.
MCN: Is there anything else we didn’t talk about that we should talk about?
MR: If there’s one thing, right now, we’re seeing is a lot of people developing the same drug. We’re very cautious about that.
MCN: You mean in the same indication, like everybody is doing obesity drugs?
MR: You could say obesity, but there are targets in autoimmune where you have six companies going out after the same target. There might be nuances and maybe one is a longer-acting version of another one. Those are safe plays because investors know it’s going to work. But how much innovation is that providing having the fifth drug or the sixth drug? We’re aiming to find things that have evidence they are biologically validated, but might be a first-in-class mechanism. Those are things we’re spending a lot of time on.
Photo: VCG, Getty Images
