Traditionally, biotech companies have focused on a single product or technology and worked on advancing it to clinical milestones, where they can partner or sell to pharmaceutical companies with gaps in their portfolio. In fact, as of 2018, drug companies with annual revenues of less than $500 million developed over 70% of drugs in Phase 3 clinical trials, according to the IQVIA Institute for Human Data Science.
However, while this model of developing one product or technology at a time allows for focus, some biotech executives believe it’s a very high-risk proposition for investors. As a result, a growing number of companies are adopting the hub-and-spoke model, an innovative strategy that involves gathering multiple portfolio companies or subsidiaries under the same umbrella, each addressing a different area of treatment.
Biotech companies that have adopted this approach say it allows for both traditional focus within individual units and risk optimization through a shared, diversified platform with combined resources and a level of strategic agility that is difficult to implement in larger corporations.
Some very successful biotech firms have already turned this hub-and-spoke model into great success, demonstrating proof of concept. Among the well-known names that are utilizing this business model are BridgeBio (BBIO), which has a $5.8 billion market cap, and Roivant Sciences (ROIV), with a market cap of $8.1 billion.
Several others are also scaling up using the hub-and-spoke model, including NAYA Biosciences, which is preparing to go public via a merger with INVO Biosciences (INVO), PureTech Health (PRTC), and the privately held Paragon Biosciences.
Investors appear to approve of this business model, voting for it with their capital in a huge way. According to McKinsey, investors had poured about $6 billion into biotechs utilizing the hub-and-spoke model as of August 2020, resulting in an estimated total public- and private-market valuation of about $20 billion.
Benefits of the hub-and-spoke model for biotech
The fact that multiple companies have proven the success of this business model showcases some of the significant benefits offered by it. For example, the portfolio approach offers much-needed diversification.
As a result, investing in such companies could come with less risk because if one area doesn't quite work out the way management expects, the other areas could lend the additional support required. In fact, McKinsey reports that only about one in 20 preclinical-stage biotech assets go all the way through to launch, demonstrating the importance of diversification for biotech.
Additionally, such companies can create significant value for shareholders in a variety of ways, including by spinning off their most successful portfolio companies through a separate initial public offering. For example, in 2022, Roivant formed a 75/25 joint venture with Pfizer (PFE) called Telavant to develop a treatment for inflammatory and fibrotic diseases. In October, Roivant sold that joint venture to Roche (RHHBY) for $7 billion.
Further, addressing multiple technologies or treatment areas enables a company to attract capital from a broader range of investors. After all, some may be more inclined to support the development of technology or treatments for one specific disease over others.
With the growth in adoption of this hub-and-spoke model among biotech companies, it's a good idea for investors to learn more about it and how different companies are implementing it in different ways. NAYA Biosciences, formed in 2023, is one of the newer companies adopting this business model.
Dr. Daniel Teper, founder & CEO of NAYA, shares more on how the company is implementing the hub-and-spoke model. He also discusses the important role companies using this business model are playing in the pharmaceutical industry as a whole.
Q: Can you tell us how NAYA has implemented this hub-and-spoke portfolio model?
A: The portfolio hub-and-spoke model has been implemented successfully by several companies, including Roivant, BridgeBio, Paragon Biosciences, and PureTech Health, although each company uses it differently.
For NAYA, the hub-and-spoke model combines commercial revenues with clinical-stage development, which makes us less dependent on raising capital and able to operate more like a lean pharmaceutical company. Although we remain opportunistic, we favor strengthening our portfolio within specific therapeutic franchises such as fertility, oncology and immunology, and regenerative medicine.
Q: What inspired or led you to choose this type of model versus the clinical model used by most biotechs currently?
A: Throughout my career, I noticed a pattern of large pharma companies leaving quality clinical assets on their shelves due to portfolio prioritization and an inability to be sufficiently agile, as well as smaller biotech companies lacking the necessary resources for development.
Increasingly, pharma companies have started implementing a structured model to divest or partner on the development of assets and create value outside of their core portfolio. Leading institutional investors have also advocated for the consolidation of smaller companies to increase their access to capital and talent and subsequent ability to drive products through successful development and value creation.
We believe we can capitalize on the above trends and establish NAYA among the new generation of high-growth, diversified portfolio companies. In the last six months, we have been able to acquire a differentiated portfolio, establish a corporate structure to support efficient access to capital, and attract a leadership team with decades of corporate and entrepreneurial experience and an ability to identify undervalued assets and capitalize on their potential through development and commercial execution.
Q: Can you talk more about how companies that utilize the hub-and-spoke business model fit in with the broader pharmaceutical industry as a whole?
There are many great assets that have been deprioritized by big pharma, while others are not moving forward due to volatility in the financial market affecting smaller companies. Investors are therefore talking about consolidation within the biotech industry, which is happening but not fast enough in our opinion. We believe we can join the pioneers of the hub-and-spoke portfolio model in paving a new way forward within the industry.
I think some of the portfolio companies I've mentioned play a very meaningful role in the ecosystem as they’ve acquired products from big pharma, developed them, then sold them back to other pharma companies once the product has matured.
Q: Cell engager antibodies look to be promising treatments for different types of cancer. Can you share more about why it's so important to develop new types of treatment for cancer and how cell engager antibodies are designed to work?
A: There's been a lot of progress in cancer treatment, and more patients are responding to treatment and able to live longer. In fact, there has been a rapid evolution from chemotherapy towards immunotherapy, including monoclonal antibodies and cell therapy. Bispecific antibodies such as NAYA’s lead product, which enable a single molecule to redirect immune cells to kill the tumor cells, are among the most promising recent developments.
When treating hepatocellular carcinoma, a type of cancer that affects 800,000 patients worldwide, the best standard of care today offers a response rate of around 30% and a progression-free survival in the six- to seven-month range. We aim to address the needs of the remaining 70% of patients with our lead clinical-stage bispecific antibody, capitalizing on a validated mechanism of action presented at multiple oncology conferences, including the American Association of Cancer Research.
Q: Can you share your insights on the future of biotech companies in Florida? Will Miami be the next major hub for biotech?
A: If you look at hubs like Boston and California, and to a lesser extent, Texas and New York, you'll see several elements that are essential. The first one is excellence in science and medicine, the second is access to capital, and the third is to have management teams that can create and grow companies. We are increasingly seeing all of these assets in the Florida ecosystem.
The University of Florida is among the top public universities in the United States, particularly in the medical field, in terms of patents and publications. Both the University of Florida and the University of Miami, which NAYA Biosciences is working with directly, have attracted some of the best physicians, making them very competitive with leading centers in hubs like New York, Boston, and San Francisco.
We are also reaching critical mass with investors and seasoned management talent who have relocated to Florida in the last several years. This influx of talent is bringing expertise, entrepreneurial energy, and a collaborative spirit, all of which are fueling Florida’s unique momentum and potential to become one of the leading global hubs for technology and life sciences.
Disclosure: Ari Zoldan is CEO of Quantum Media Group, LLC, and NAYA Biosciences is a client of Quantum Media Group.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Ari Zoldan
Ari Zoldan is the CEO of New York-based Quantum Media Group, LLC. The company provides investor relations, public relations and equity research services to publicly traded companies. As an on-air media personality, Ari can be seen regularly on major media outlets and is frequently quoted in mainstream news outlets covering business, innovation and emerging trends.
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