Built to Last: The Exponential Potential of…

At Flagship, we are singularly focused on creating bioplatforms in distant spaces where there is little to no competition and the potential of transforming human health.

Over the past decade, platform-based business models in the biotech sector have gained in popularity so much that we’ve seen the term devolve into a buzzword that’s added to marketing materials irrespective of whether a company is a platform or not. The interest in platform approaches is a welcome one, but it’s important to understand what defines a platform, and why true biotechnology product platforms (or bioplatforms, as we call them at Flagship Pioneering) are by far the most attractive biotech business models worth building.

At Flagship, we define bioplatforms as a new biotechnology or a new understanding of biology that allows for the intentional and repeatable generation of multiple medicines across different therapeutic areas and/or agricultural and sustainability products. Some examples include Alnylam (RNAi), CRISPR (CRISPR/Cas9), Denali (blood-brain barrier transport vehicle), Ionis (ASOs), Moderna (mRNA), Regeneron (Trap fusion protein, VelociSuite platform), Rubius (red cell therapeutics), and Sana (fusogen platform).

Bioplatforms have several advantages. They have the potential to create numerous product opportunities not only in parallel but also in a highly efficient manner as learning effects from platform optimization and program data create a virtuous cycle of innovation and improvement. They can create multiple related (highly correlated) or unrelated (low correlated) programs, in which the success of a vanguard program substantially derisks future highly correlated follow-on programs. They have the flexibility to rapidly enable new programs in response to unforeseen opportunities. Each of these advantages helps mitigate development risk, enhances potential returns and strengthens the opportunity to build long-term sustainable businesses.

As is the case with any innovation, bioplatforms also present challenges. First, if the bioplatform is novel, it needs to be validated and the programs that are generated need to demonstrate positive clinical proof of concept (POC) data. Second, bioplatforms require more capital, patience and perseverance than other biotech business models, given the need for investment in both clinical programs as well as in platform innovation and optimization.

While there are added challenges associated with building bioplatforms, we believe the advantages and outsized potential returns far outweigh the risks.

Why are bioplatforms an attractive investment? Let’s look at the simplest possible example. If you were to invest in a single-asset biotech company with a drug that takes seven years and $500 million to develop, and generates $1 billion in peak sales, the estimated net present value (NPV) of that company in year eight (drug-launch year) would be $1.1 billion (see Tables 1 and 2 for additional assumptions).

However, if you were to invest in a bioplatform with a single vanguard program and two correlated follow-on programs that each take seven years and $670 million to develop ($170 million more than the single-asset biotech company to reflect platform investments), and have $1 billion peak sales potential, the estimated NPV of the bioplatform in year eight would be $5.0 billion, or $4.0 billion greater than the single-asset biotech company. The return differential is exponentially greater if you have a bioplatform with multiple low-correlated vanguard programs and multiple highly correlated follow-on programs to each vanguard.

Table 1: NPV Modeling Assumptions for Single-Asset Biotech vs. Bioplatform

* Using a TVG of 0% given the unsustainable nature of a single-asset biotech; using 3% for a bioplatform given the long-term potential sustainability of the business

Table 2: NPV Modeling R&D Assumptions*

* For the bioplatform, we assume upon positive clinical POC data the likelihood of approval (LOA) for follow-on programs would double in preclinical and Phases 1 and 2 from 5% to 10% and 15% to 30%, respectively, and increase in Phase 3 from 50% to 65% (no change in LOA in the other phases). ** New drug application/ biologic license application

While this valuation comparison is simplistic and doesn’t account for failures, it also doesn’t reflect the fact that bioplatform returns come from a multitude of product opportunities that can be developed in parallel and drive exponential potential; come from unexpected platform optionality; and carry much lower risks than other biotech company models, when including low-correlated vanguard programs and highly correlated follow-on programs – a development strategy that a single- or multi-asset biotech company cannot replicate.

The most powerful example of this strategy is Moderna’s COVID-19 vaccine, which was its seventh prophylactic vaccine program. Building on 10 years of platform development, Moderna was able to create its mRNA-1273 vaccine within 48 hours after the SARS-CoV-2 spike protein sequence was received and was granted emergency use approval in less than a year, helping the company to save millions of lives and create over $100 billion in value for shareholders within 11 years of its founding in 2010 – an unprecedented record of exponential value creation in the biotech sector. Many research analyst reports about the company now ascribe structurally high probabilities of success to Moderna’s other prophylactic vaccine programs.

At Flagship, we are singularly focused on creating bioplatforms in distant spaces where there is little to no competition and the potential of transforming human health. Such bioplatforms offer the prospect of building businesses with a long-term, sustainable competitive advantage. While there are added challenges associated with building bioplatforms, we believe the advantages and outsized potential returns far outweigh the risks. This is especially so if you believe (as we do) that we’re finally at a tipping point where our understanding of biology coupled with maturing technologies will lead to bioplatforms that will redefine drug development.

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Story By

Andy Oh

Andy Oh is a senior partner working closely with Flagship’s Origination Partners and NewCo CEOs to help create an integrated view of long-term value potential and storytelling, including analytical value models for each of our enterprise companies.…

Stephen Berenson

Stephen Berenson is a managing partner at Flagship Pioneering and a member of the firm’s Resource Allocation and Management Committees. He focuses on capital formation at the fund and portfolio company levels and value growth after our companies…