Promising biotech startups ‘dying on the vine’: In-Q-Tel

DNA molecular structure with sequencing data of human genome analysis. (Getty Images)

WASHINGTON — Driven by the spread of CRISPR gene-editing techniques and rapid advances in AI-powered biochemical models, biotechnology is taking off. But not all biotech is equal in an investor’s eyes, and the biotech sectors that face the hardest fight for funding — at least in the United States — happen to be the ones with most promise for the Pentagon.

While tens of billions of dollars pour into biotech ever year in the US and Europe, it overwhelmingly goes to pharmaceutical products, everything from lifesaving medicines like mRNA COVID vaccines to mass-market cosmetic creams, because those investments have the shortest and most obvious path to high returns. By contrast, there’s much less commercial demand — and a more confusing regulatory process — for other promising biotech that might matter for the military. That includes new, biologically-derived materials like lighter-weight body armor, anti-corrosion coatings or even explosives.

“The private sector on its own is not going to fund that stuff,” said Vivek Chilukuri, director of the technology and national security program at the Center for a New American Security, in an interview with Breaking Defense. “It’s going to fund skin creams and lotions and other mass-market pharmaceuticals.”

“It’s easier to … either go after quick-turn products or to really focus, laser focus, on high return-products,” Jessica Dymond, vice president for technology at In-Q-Tel, the nonprofit venture-capital arm of the US intelligence community, said last week at a panel hosted by CNAS. “There’s a lot left on the sidelines, that is, you know, quite frankly, dying on the vine.”

Private-sector investment just isn’t coming fast enough to sustain these biotech startups, Dymondvadded. That means, she said, “a lot of thought is needed in terms of how to cultivate that early, very fragile stage.”

Investors weren’t always so hyper focused on pharmaceuticals, lamented another panelist at CNAS, Jason Kelly, cofounder of Ginkgo Bioworks, which provides high-tech tools for other biotech firms.

“Fastest growing area for us now is biopharma,” he said. But if you go back to the first influx of venture capital about ten years ago, he said, “all the rage at that point was … being able to make new materials,” such as humane alternatives to leather and meat. However, he noted that when interest rates rose in the last few years, the funding for everything outside of pharmaceuticals “evaporated.”

“When private markets aren’t there for the parts of biotech that are relevant in defense, how do you back-stop it?” he asked.

One federal effort to fill the gap is BioMADE, a nonprofit, public-private partnership aimed specifically at bio-manufacturing. It was launched in the last months of the first Trump administration with $87 million in Pentagon funding spread over seven years, and $187 million in private-sector and university funds. The Biden administration followed up in 2023 by pledging another $1.5 billion for various biomanufacturing initiatives spread over five years, so it will be up to President Donald Trump to continue it or not.

There’s also a congressionally chartered National Security Commission on Emerging Biotechnology just now wrapping up its work, though they’re not focused solely on DoD interests or biomanufacturing.

“In just a few weeks, the NSCEB will publish our major report, including a number of policy recommendations,” said the chairman, Sen. Todd Young, in an address to CNAS after the panel. “Our government must take targeted action in ways only the federal government can.”

Otherwise, the Indiana Republican warned, China will capitalize on its current dominance of the low end of the biotech supply chain — by some estimates, it exports 40 percent of all active pharmaceutical ingredients worldwide — and steal undervalued American IP to take the lead in biotech writ large. “China, in short, plays to win,” he said.

This really is a moment that Congress and Trump can seize, said Chilukuri, a former Hill staffer himself. “I’m optimistic that the commission is going to put forward some very thoughtful, practical recommendations,” he told Breaking Defense.

While finding more federal funding at a time of feverish DOGE cuts is far from easy, the money that’s gone to bio-materials and other non-pharmaceutical biotech so far is “a rounding error” in the Pentagon budget, he argued. Even without new funding, he went on, there is an opportunity to streamline biotech regulation and improve coordination among federal agencies — 13 different offices have some degree of jurisdiction, with multiple funding sources in DoD alone.

“These programs could stand to scale up, but that should be paired with an actual strategic plan at DoD about how these different programs are going to be married together and what is the actual vision for the next five to 10 years of actual products,” Chilukuri told Breaking Defense. “We don’t have that plan right now, and it’s a huge opportunity that I think is just waiting for this administration to seize.”