What Ochre Bio’s latest partnership illustrates about biotech’s business model evolution
Written by Alex Brunicki, co-founder and partner at BACKED VC on Wednesday 12th June 2024
Ochre Bio announced their $37.5m partnership with GSK, the second pharma partnership the company has signed so far in 2024, following the multi-year discovery research collaboration penned with Boehringer Ingelheim — a deal worth $35m in upfront and near-term payments, and up to $1bn tied to later-stage pre-clinical and clinical milestones. These partnerships mark the end of the beginning for a company we are proud to have supported since their seed round in 2021.
Read the coverage in Fierce Biotech
What differentiates this most recent agreement is the field on which Ochre Bio and GSK are collaborating: a multi-year data licence and platform agreement. Pharma partnerships with earlier-stage biotechs are certainly not new, but they typically centre around spinning out, or partnering on, assets. This deal represents an additional plane that data-driven, AI-native biotech companies can leverage both commercially and scientifically to deepen their own in-silico data moats.
TechBio — a catch-all term for companies operating at the bleeding edge of technology and life sciences — represents a generational change in therapeutics development: a combination of tools, technology and knowledge that promises to improve the speed and cost of drugs we can develop and the clinical efficacy of those assets, alongside the breadth of indications we can target. What is perhaps less well discussed, however, are the business model (and by extension, return on capital) implications of companies building these powerful software-driven platforms.
Companies like Ochre Bio can generate revenue — in descending order of complexity, cost and risk — through the commercial development of their internal asset pipeline, through asset sales or asset partnerships with pharma, but also through data, technology and platform agreements unlike their more analogue counterparts.
We warn our portfolio companies that asset-centred pharma partnerships are not always straightforward wins for early-stage biotech companies. Although they often present a validating signal to the market, they can be expensive to execute on, and worse still, can derail a company’s focus away from their more valuable internal pipeline and mission. Perhaps most destructive is the sale of a company’s lead program through these partnerships, thereby eroding the company’s core value. The more nascent world of in-silico, data and platform partnerships, such as Ochre’s tie up with GSK or Recursion’s partnership with Roche Genentech, may present higher margin and lower risk sources of revenue, alongside strong scientific benefits, with more limited downsides. And the more productised these software platforms become, the more value-accretive, predictable, and less time-consuming and internally destabilising these partnerships can be.
What excites us about Ochre’s recent partnerships with both Boehringer Ingelheim (BI) and GSK is the symbiotic nature of both deals. A great pharma partnership is one that subsidises your company’s current plan, providing data and expertise that you do not have internally, alongside strong downstream revenue potential. Ochre are teaming up with BI on their liver regeneration research programme for MASH-cirrhosis, an area that BI has considerable drug development expertise in. The complex nature of this mechanism also makes it a perfect candidate to risk-share with a larger partner. With GSK meanwhile, Ochre are building human-derived foundational liver disease datasets at scale which both companies can utilise to draw biological insights to support their respective pipelines. The combination of both partnerships provide Ochre with a considerable warchest to fund their own internal pipeline and platform, centred around late-stage liver disease, and reducing their dependence on dilutive equity funding.
The pharma industry has not seen the same turnover in the fortunes of the top companies witnessed in other industries despite the emergence of strong AI biotechs. Whilst a key component of that resides on the investor side and the willingness of later-stage allocators to fund companies through to cash-flow independence, a material challenge in the industry is how back-weighted biotech cashflows are and the uncertainty surrounding a company’s ability to achieve them. An acquisition, oftentimes following a public listing, still represents the best route to company success and commercialisation, potentially plucking a company too early enroute to its manifest destiny.
At Backed, what excites us about the emergence of these additional, near-term and more margin accretive revenue streams is their ability to provide an alternative route for the next wave of therapeutics companies to chart a more independent path to success, potentially unleashing a new generation of big biopharma companies.
