China has become a key piece of Foresite Capital\u2019s 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.<\/p>\n
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\u2019s coming from big pharma, he said.<\/p>\n
Foresite has made Chinese innovation a key part of its investment and company formation strategy. China-sourced science is brought into Foresite\u2019s to mature in the firm\u2019s incubator. There, an artificial intelligence technology platform analyzes genomic data to identify drug targets and guide indication selection.<\/p>\n
Foresite last year closed its sixth fund with $900 million<\/a> 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\u2019s 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.<\/p>\n MedCity News: Tell me about Foresite Capital.<\/strong><\/p>\n Michael Rome:<\/strong> We\u2019re 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\u2019re going to graduate to a main fund investment syndicate round.<\/p>\n 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\u2019ll support our companies into IPOs and when they\u2019re public as well. That\u2019s a high level of who we are.<\/p>\n MCN: I\u2019m wondering about the company creation. I\u2019m seeing more VC firms doing that. Are there certain areas you\u2019re looking at or are certain kinds of companies you\u2019re looking to create, and where does the science come from?<\/strong><\/p>\n MR:<\/strong> There\u2019s three flavors of companies we\u2019re 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<\/a> in capital. It\u2019s a drug discovery company, but really using AI as their primary toolkit for discovering drugs. We\u2019re doing more in that category, it\u2019s an area of interest at Foresite Labs, this kind of an AI\/ML-enabled approach in platform companies.<\/p>\n Something else we\u2019re very active in are asset-centric plays. We started looking at China going back to 2019. We\u2019ve been doing deals in China. That\u2019s a major trend of ours and what we\u2019ve been doing is basically licensing assets in China or doing essentially like an M&A deal to secure an asset. Then we\u2019ll incubate that in a Foresite Labs company. And sometimes we\u2019ve identified the entrepreneur that we\u2019re working with and we find the asset, or vice versa.<\/p>\n MCN: Do you have anybody on the ground in China, or do you just travel a lot?<\/strong><\/p>\n MR:<\/strong> (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.<\/p>\n 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\u2019re putting together are basically just finding the right entrepreneurs we work with and who are experienced, and essentially starting companies there. Numerous companies we\u2019ve 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\u2019re following every conference, we\u2019re following all the news trends, we document therapeutic areas, and we use that to enable our platform companies at Labs.<\/p>\n MCN: I\u2019m 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?<\/strong><\/p>\n MR:<\/strong> 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.<\/p>\n There\u2019s another example, another one of our portfolio companies called Latigo [Biotherapeutics]. They have a NAV1.8 inhibitor. I bring it up because it\u2019s the same thing. Population genetics show that you can knock out NAV1.8 and what\u2019s really interesting is people didn\u2019t experience pain the same way. It\u2019s 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\u2019s called a cold pressor test, and it suppresses your response to cold. Anyway, we\u2019re doing stuff exactly like that. We\u2019re mining large-scale genomic data. That\u2019s a platform we\u2019ve built out over Labs for a while now, and that is informing new target direction.<\/p>\n Another thing we\u2019ll do is, a portfolio company might come in and say, \u2018Hey, we\u2019re 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?\u2019 So those are how we\u2019re building things out.<\/p>\n MCN: So in terms of therapeutic areas, are there areas that you\u2019re really interested in?<\/strong><\/p>\n MR:<\/strong> 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\u2019s basically a spectrum of problems. So we\u2019re actually doing things like looking for certain genetic signatures that might respond to certain drugs.<\/p>\n MCN: Existing, already available therapies?<\/strong><\/p>\n MR:<\/strong> Yes.<\/p>\n MCN: So this would be like a repurposing of a drug?<\/strong><\/p>\n MR:<\/strong> Yeah, you can think of it as repurposing. There\u2019s 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<\/a>.<\/p>\n We saw the autoimmune area started out in cell therapy on exciting data from Georg Schett<\/a> 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<\/a> 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.<\/p>\n 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.<\/strong><\/p>\n MR:<\/strong> There\u2019s 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.<\/p>\n 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\u2019s 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.<\/p>\n Don\u2019t quote me on the year, but I want to say it\u2019s 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.<\/p>\n