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Bio-Boom Boosted By Biomarkers

With 37 IPOS and over $2.5bn raised, 2013 was by far the biotech sector's most active year in over a decade. Oncology clearly drove this surge, comprising 57% of the biotech IPOs last year. When taking a macro view of this bubbling activity, personalized medicine emerges as a reoccurring theme with companies making the jump from private to public status. Biomarkers, which have applications across the course of drug development, are prominent in the strategy of many newly public oncology biotechs. By marrying targeted drug discovery with niche patient selection and companion diagnostics, these companies have emerged as attractive options for public investors. Early-stage pipelines, nonetheless, remain a high risk investment. Given the fact that many companies will not have clinical data for years, one might wonder: What is suddenly fueling investor confidence? A myriad of factors affect this dynamic; yet honing into certain microtrends may shed clues about the sustainability of this growth in the longer term.

Companion diagnostics and targeted patient selection are two key areas in which biomarkers are directing oncology strategy.

Epizyme, which develops personalized therapies for genetically defined cancers, raised $18m through a 2013 IPO, plus $48m in non-equity funding, and an additional $101m in a follow-on offering in February 2014. The company's lead program centers around a Phase I trial with EPZ-5676, a DOT1-like, histone H3 methyltransferase (DOT1L) inhibitor with the FDA's Orphan Drug Product designation; EPZ-5676 targets patients with a mixed-lineage leukemia, a rare subset of Acute Leukemia. Epizyme is actively working with Abbott Labs and Roche to develop companion biomarker diagnostics to identify this niche of genetically qualified patients.

Target discovery is a prime area in which biomarkers are playing into the emerging biotech strategy.

Previously focused solely on diagnostics, Ignyta shifted to an integrated drug and companion diagnostic approach, or "Rx/Dx" strategy in 2013. The company now leverages genetic data to discover novel targets and fuel biomarker discovery. The company's anaplastic lymphoma kinase (NYSE:ALK) inhibitor, RXDX-101, is expected to be investigational new drug-ready (IND-ready) in 2014. Similar to Epizyme, Ignyta is targeting genetically defined patient subsets. The biotech company is also employing biomarkers for efficacy monitoring. If this structure is compelling to investors, Ignyta will raise upwards of $40m via an IPO this month.

Mechanistic biomarkers are increasingly employed as surrogate endpoints in early-stage trials. By using markers to demonstrate a molecule's desired downstream effects, a company can progress early-stage products more swiftly. Dicerna Pharmaceuticals, which raised $90m through a January 2014 IPO, is utilizing biomarkers in this way to advance the preclinical program for DCR-M1711, a ribonucleic acid interference (RNAi) process with potential in cancers driven by the Myc oncogene such as hepatocellular carcinoma.

While the bulk of oncology offerings in 2013 were for therapeutics companies, several pure-play diagnostics firms also stepped into the public arena.

Cancer Genetics, which specializes in biomarker assays for hematological and urogenital cancers, raised $7m through an IPO, followed by a further $46m offering in 2013. Through a robust partnership program, the company also develops companion diagnostics and biomarker efficacy tests for industry clinical trials. Meanwhile, the personalized diagnostics company, Foundation Medicine, also proved attractive to investors, raising $106m through its 2013 IPO. Notably, Veracyte, with its $4,300 thyroid cancer diagnostic, raised $65m upon going public last October. Other recent and expected IPOs include NanoString Technologies, Microlin Bio, and Biocept.

Although many balk that the current biotech market is wrought with over speculation, certain trends signal that this growth is warranted. Advances in genomics, combined with an increasingly granular understanding of cancer pathology, are translating into novel opportunities. By designing clinical programs with genetically characterized targets in mind, emerging companies are mediating risk and streamlining approval timelines. From a regulatory standpoint, companion diagnostics provide a compelling value proposition if they can ensure that only patients who have a high probability of responding to a drug, receive it. The ultimate value of biomarkers lies in their potential to accelerate drug development, reduce healthcare costs, and revolutionize patient care. If these tenets form the basis for investors' surging interest in early-stage companies, this bio-boom may be sustainable well beyond 2014.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.