The Abalone Bio Investment Thesis

The Abalone Bio team, led by Richard Yu, is harnessing evolution to find activating antibodies, a new drug class that binds with targets, then activates or tunes biological pathways to treat disease.

Conventional antibody drugs have achieved great success therapeutically. Antibody drugs have a 1.5x higher FDA approval rate than small molecules, indicating a significant safety and efficacy advantage, and also exhibit long half-lives allowing for less frequent dosing. These advantages have translated to commercial success as well – seven of the top ten best-selling drugs are antibodies, and the median annual revenues for all 105 approved antibodies is $1B.

Despite their success, conventional antibodies have been limited to inactivating cell surface receptors – including G Protein-coupled receptors (GPCRs), Ion channel-linked receptors and Enzyme-linked receptors – which are embedded in the plasma membrane of cells. They are specialized integral membrane proteins that allow communication between the cell and the extracellular space. They act in cell signaling by binding an extracellular chemical signal and transducing it into cellular responses. The signals may be hormones, neurotransmitters, antibodies, growth factors, small molecules, or nutrients; they react with the receptor to induce changes in the metabolism and activity of a cell. It is well accepted within the drug development community that cell surface receptors are one of the most promising families of disease targets. In fact, cell surface receptors are the targets for more than 60% of approved drugs.

Thus, drug developers find themselves in a situation where they can’t drug one of the most promising families of disease targets (activating cell surface receptors) with one of the most promising therapeutic modalities (antibodies). A new discovery technology is needed to find antibody drugs for these targets.

Enter Abalone Bio – Abalone combines synthetic biology and computational biology to find activating antibodies for cell surface receptors. The foundation of Abalone Bio’s Functional Antibody Selection Technology (FAST) platform is a highly engineered yeast cell chassis. Using the latest tools in synthetic biology (CRISPR, etc.), Abalone incorporates human cell surface receptor targets into its FAST platform yeast cells. They then genetically encode a different antibody variant in every cell. The yeast cells make and test the antibody they carry. Cells in which the antibody binds the target and activates cellular pathway response grow, while others don’t. Thus, an expanding cell population indicates that an activating antibody has successfully bound with the cell surface receptor.

The FAST system allows for massively parallel, high-throughput screening. The system can test billions of antibodies per experiment (100X+ more than other antibody discovery methods). The sheer throughput volume of the FAST system combined with Abalone’s high quality extensive antibody library allows them to find a needle in the haystack (activating antibodies that bind and activate cell surface receptors). Activating antibodies that bind cell surface receptors are very rare, and prior to the development of Abalone’s FAST system, the sheer amount of trial-and-error experimentation required to find such antibodies made them functionally impossible to find. Abalone’s FAST system tests all possible activating antibodies in parallel, effectively burning the haystack and leaving the needle.

In addition to Abalone’s large, well-designed antibody libraries and high throughout system that allows them to effectively burn the haystack, they’ve also incorporated computational feedback cycles into the FAST system. With insights from each experiment transferrable to the next, the platform grows more powerful with every selection campaign, a positive feedback loop that grows Abalone’s competitive advantage over time.

The FAST system is functional and has surfaced two hits for two different targets – one for an internal program (immune regulator CB2), and one for a pharma partner (a cancer GPCR target).

Partnerships

Abalone has executed one co-discovery partnership with a public biotech partner for antibodies against an immuno-oncology GPCR target. The feasibility study was successfully completed in May 2022. The discovery phase of the partnership concluded in September 2022, and Abalone met all of its deliverables – antibody hit sequences. It is now in the partner’s hands to develop any antibodies. This partnership entails upfront payments, development milestone payments, and sales milestone payments totaling more than $100M.

Abalone has completed diligence with and entered contract negotiations with four additional pharma partners. This group includes a top-10 pharma company widely viewed as a leader in the antibody sector, and is the only pharma to-date that has published on engineering an activating antibody, so it is compelling that an industry thought leader of this caliber is turning to Abalone. Abalone expects to advance into the discovery stage of this partnership in Q4 2022. Abalone has also completed diligence and entered into term negotiations with a top-3 antibody development company. Additional partners are now moving into scientific review for target selection.

Abalone recently brought on Neil Berkley, former CBO for AbCellera (NASDAQ: ABCL), a top antibody discovery company, on to drive partnering and support BD and fundraising efforts. He will start as a part-time “acting CBO” role as a Senior Business and Corporate Development Consultant, with the plan to increase in efforts as needs demand.

Internal Development Pipeline

In tandem with its partnership development activities, Abalone is developing an internal drug development pipeline. Abalone’s lead candidate is a CB2 agonist for the treatment of pain and inflammation. The company has demonstrated compelling pre-clinical progress in mice in models of neuropathic pain and liver fibrosis. Studies are ongoing in IBD.

Potential indications for the CB2 agonist include neuropathic pain ($1.6B market), liver/lung fibrosis ($18B market), and inflammatory bowel disease ($8B market).

Total Addressable Market

The global monoclonal antibody market was valued at $143.5B in 2020 and is expected to surpass $368.8B by 2027. Key trends in the market include increasing prevalence of cancer, rising regulatory approvals and launch of therapies, increasing research collaborations for the development of robust drugs pipeline, and adoption of collaboration strategies by the companies. Targeted oncology therapies accounted for $100B of the 2020 global monoclonal antibody market.

Moreover, increasing research collaborations for the development of robust drugs pipeline is a major factor that is expected to drive the market growth over the forecast period. Success of popular monoclonal antibodies such as Avastin, Herceptin, and Rituxan (revenue as $6.8B, $7.1B, and $5.9B, respectively in 2017 globally) has spurred manufacturers’ interest in these therapies.

These figures do not account for activating antibodies, only inhibition antibodies. Cell surface activation receptors are the targets for more than 60% of approved drugs. Indications for drugs that target these receptors span cancer, inflammation, pain and metabolic disease among others. This represents a vast untapped market for antibody drugs. 90% of small molecules targeting cell surface receptors fail clinical trials because they lack targeting specificity and require a better half life. Antibody drugs are approved at 1.5x the rate of small molecules because they target very specifically and have a long half life. Enabling cell surface receptor targeting with activating antibodies represents a significant expansion of the broader antibody TAM. Cell surface receptors as a family of targets represent a $300B market today.

The Competitive Environment

Abalone’s FAST system sets itself apart in terms of antibody testing throughput and functional output upon binding, as opposed to a simple yes/no binding output, making it the only option for identifying cell surface receptor targeting activating antibodies.

Outside of the top-10 pharma company that is in partnership discussions with Abalone, no other pharma company has found a cell surface receptor activating antibody.

Aside from large established antibody discovery companies, there are a handful of startups targeting this sector. The most notable is Tectonic (more on them below). We believe Abalone’s discovery platform is best-in-class relative to its peers, both large and small. Abalone’s system can test billions of antibodies per experiment (100X+ more than other antibody discovery methods). The sheer throughput volume of the FAST system combined with Abalone’s high quality extensive antibody library allows them to find a needle in the haystack that others simply cannot find.

Exit Comps

Looking at recent private market comps, Tectonic raised an $80M Series-A in April 2021. Tectonic is primarily an antibody discovery platform targeting GPCRs. Septerna, a non-antibody GPCR company started by Third Rock raised a $100M Series-A in January 2022. ShouTi (now Structure) Therapeutics, another non-antibody GPCR company, raised a $133M Series-B in October 2021. Based upon the sizes of these raises and the ownership targets of the investors involved, we assume they all raised at valuations ranging from $200M on the low end to $400M on the high end.

Adimab was considering going public at a ~$5B valuation prior to public biotech valuations pulling back significantly in Q4 2021. Adimab is on the extreme partnership-services side of the partnership-services model versus the internal development pipeline valuation spectrum. Abalone has significantly more traction and potential relative to developing an internal therapeutics pipeline, but Adimab is a good example that shows how much value even a primarily discovery + backend milestone business model can generate in the antibody sector.

AbCellera also falls on the extreme partnership-services end of the valuation spectrum. AbCellera focuses on discovery of antibody therapeutics with backend development milestone payments from partners. AbCellera went public at a $5.3B valuation and has pulled back to a $3.2B valuation in the recent biotech valuation environment.

Achievement of an exit primarily based upon a successful partnership discovery + backend milestone business model (i.e., lacking a compelling internal development pipeline) in the valuation range of Adimab and AbCellera would result in a promising return for Seed stage investors.

Looking at potential exit comps based upon companies with a partnership-based fundamentally enabling technology that drove into internal pipelines business model perspective:

– Genmab ($23B) – transgenic mouse-based discovery technology

– Amgen ($133B) – molecular genetics

– Genentech ($47B) – molecular biology / antibodies

– Biogen ($31B) – molecular biology

– Gilead ($80B) – DNA drug technologies

Exits of this nature would result in a 5-20x multiple magnitude improvement upon the already impressive return profile for the partnership discovery + backend milestone comps.

Any exit of this nature would be directly linked to patient outcomes. We are thrilled to be supporting Richard and the Abalone Bio team in their mission to bring a new class of antibody drugs to market and dramatically improve the lives of patients.