Portfolio Biotechs
The oldest hub-and-spokes are over 10 years old – has the model been validated?
The model – comprising R&D-focused subsidiaries or ‘spokes’ led, and often funded, by a central hub – offers investors a way to spread asset-risk across a trusted central management team. They’re also efficient and flexible. Spokes can tap into central resources – including regulatory, legal, development, data analytics or artificial intelligence (AI) expertise– and thereby save the costs of setting up their own. If a project fails, it’s swiftly shuttered and another emerges.
This is not a new model – the oldest hub-and-spokes are over a decade old. Has it been validated?
Ten-year-old Roivant Sciences, after some growing pains, continues to monetise its subsidiaries. Immuno-dermatology-focused Dermavant recently went to Organon for up to $1.2 billion; in 2023 Roche bought inflammation and fibrosis-focused Telavant for $7.1 billion. New spoke Pulmovant houses a freshly-licensed inhaled hypertension candidate from Bayer.
BridgeBio hasn’t had an entirely smooth ride either, its fortunes falling and rising with Phase 3 data from lead asset acoramidis for rare disease transthyretin amyloidosis. But in March 2024 BridgeBio raised $250 million in a private placement, weeks before spinning off subsidiary TheRas Inc. as BridgeBio Oncology Therapeutics, with $200 million of fresh funding from blue-chip investors including Omega Funds. GondolaBio emerged in August with a clutch of pre-clinical and early clinical rare disease assets, attracting another $300 million.
Private Nimbus Therapeutics and its purchase-ready subsidiaries had a bumper 2023. A TYK2 inhibitor for psoriasis was sold to Takeda for $4 billion up-front, and Nimbus central raised over $200 million in fresh funding to craft its next R&D cohort across cancer, auto-immune and metabolic disorders. Also in 2023, Bristol Myers Squibb paid $14 billion for PureTech-founded Karuna, whose lead asset KarXT (xanomeline-trospium) in late September 2024 became the first new-mechanism schizophrenia drug to gain FDA approval in decades, branded Cobenfy.
Investors can choose to fund the central hub with its broader portfolio, and/or back individual subsidiaries as their assets mature.
Investors can choose to fund the central hub with its broader portfolio, and/or back individual subsidiaries as their assets mature. Successful exits encourage winning teams to go again, most often taking their backers with them. PureTech in April 2024 launched psychiatry-focused Seaport Therapeutics, with PureTech founder Daphne Zohar at the helm. Seaport raised $100 million from VCs including ARCH Venture Partners and Sofinnova – both backers of Karuna - to develop another suite of CNS medicines.
Listed BridgeBio, Roivant and PureTech are together worth about $14 billion.
European investors have also embraced the asset-centric model. It’s well-suited to Europe’s relatively fewer experienced teams since it leverages their expertise across multiple programs. The multiple-shots-on-goal aspect also speaks to Europe’s more risk-averse funders.
Munich-based TVM Capital has been building and selling lean project-focused companies (“PFCs”) with partner Eli Lilly for over a decade. Switzerland-headquartered Medicxi created Centessa in 2020 out of ten disparate portfolio biotechs, each too early to stand alone and benefiting from group-wide efficiencies. The collection went public in 2021 - arguably better placed to weather the subsequent public market downturn than individual private entities would have been. Alys Pharmaceuticals emerged in February 2024, assembling six Medicxi immuno-dermatology companies and $100 million in fresh funding. Alys’ multi-modality pipeline spans discovery to Phase 2.
Entrepreneurs are building portfolio biotechs from the ground up. Edinburgh, Scotland-based Cumulus Oncology selects promising cancer projects from academia or industry to push through to buyer-ready early clinical; CEO Clare Wareing, who also founded a CRO, knows the kind of assets, and data, that Big Pharma buyers want. Cumulus has spawned four companies so far.
European investors have also embraced the asset-centric model.
Switzerland’s Cureteq is both hub and spoke: it’s a spoke within investor Partex’s broader portfolio, but also hub to two of its own subsidiaries. The set-up offers advantages as AI and other tools wash across drug R&D: another of Partex’s portfolio companies, Innoplexus, specialises in AI and data analytics. “We tap into their expertise as required,” says Cureteq CEO Mads Dalsgaard. Few small independent biotechs could easily and cost-effectively access the right tools for the job.
Bioinformatics expertise is also prominent across the hub-spoke ecosystem at Oxford, UK-headquartered Molecule to Medicine (MTM). Founded by Kirsty and Tom McCarthy (who sold CNS-focused Spinifex to Novartis in 2015), MTM has six subsidiaries which have together raised $250 million from external investors and employ over 80 people. Attracting talent is another of the model’s strengths, according to McCarthy. Employees can move across the organisation and may work across more than one subsidiary; if one program fails, they shift to another.
It's not all a bed of roses. Portfolio biotechs can’t fully escape the risks of R&D, and in reality “the intrinsic value of the number one or two assets drives that of the whole portfolio,” says one investor. Central expertise and focus may be spread too thinly as subsidiaries multiply, and management incentives – and autonomy – can blur as the offshoots grow. “The traditional start-up model works because management have skin in the game, and significant up-side potential,” says the investor. As subsidiaries mature and attract outside investment, the central structure may mean incentives for subsidiary managers are diluted more than normal. Multiple corporate structures can also add complexity and limit cross-learning and efficiency.
Not all hub-and-spokes retain the structure: Cullinan Oncology gradually unwound its sub-companies. But that wasn’t the end – the company re-branded in April 2024 as Cullinan Therapeutics as its focus broadened beyond cancer, raising $280 million in a private placement.
The portfolio model isn’t perfect. But its flexibility, optionality and risk-mitigating characteristics – plus a handful of successful exemplars – mean it’s likely to endure.
