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- [00:00]
A
You're listening to Biotech Hangout, a live and unedited weekly discussion of all the latest news in our industry with a group of biotech leaders and experts and observers. I'm Josh Shimmer, one of those observers, joined today by Tess Cameron, Eric Schmidt and Sam Fazelli. For more information about our hosts and guest speakers. To listen to the most recent episode, Please go to biotechhangout.com and any commentary about biotech stocks should not be construed as investment advice because we all know how difficult and tricky a field it can be to navigate. But with that said, the XBI is ripping. It's up two octaves higher in a month. It's gone from the 130 to 140 range now up into the middle of the 150 to 160 range. So I guess we'll kick off with this question. Are we getting ahead of ourselves? Is this all a response to some expectation that the FDA is going to be highly permissive for new drug approvals or is something else going on? Who wants to take a shot at that? Eric, of course.
- [01:03]
B
Okay, I'll start, guys. Chime in. You know, it's funny, as Sam just mentioned, I was through Europe this, this week and there was a lot of trepidation that we're getting ahead of ourselves. Almost every meeting I, I had started with just that question. Isn't this a little bit too, too far, too fast for the xbr and we get ahead of ourselves. And I don't know, to me it feels like that's coming from a background of ptsd. Right. We were beaten for so long and so glass half empty that when things are as good as they are right now, and I think it's almost a perfect storm in terms of the fundamentals coming together here. Josh, you mentioned the fda. Certainly it's going to be permissive in the near term M and A. I know we're going to talk about that on this show. The macro environment, low interest rates, innovation being as good as it's ever been. No, I think we ought to sit back and enjoy it. What I don't see that you typically see at a frothy market is signs of lack of differentiation. Right. Everything going up at once. And we've still got names that we can talk about today that are down 20, 25% on the week. It's still a good stock pickers market and still a great time for biotech. But I'll keep it to that and let the others chime in
- [02:18]
C
something that we like to be anchored to when we look at biotech valuations is we look at pharma free cash flows and we say how many years of pharma free cash flows would it take to acquire like all SMID cap biotech? You know, that's, that's kind of our equivalent, I guess of like the, you know, an EV to sales ratio or something like that, you know, that you might look at for you know, revenue generating sectors. But when we look at that metric, like look, 20 was really high, right? And when we look at the years of free cash flow to acquire all SMID cap biotechs, it was like over five years of free cash flow from strategics. Today we're sitting at like a bit under. Well actually, you know, I think bit under, bit under four. So it's not, it's not that out of, you know, the realm of, of reasonable, you know, 2025 was around, you know, three and a half times, 2026, 3.7 times. So the growth that we're seeing in biotech is certainly supported by the growth that we are seeing in pharma free cash flows. So that's just one point to kind of add here. And I think a second one is we have to remember the change in XBI composition, right? So you could look at this and just kind of go back to history and say like, well, in you know, 2020 wasn't the number really high and we were looking at, you know, a peak of, you know, just south of, of 170 and now we're at 155. But the composition for the XPI did change, you know, pretty substantially, you know, with you know, weighting towards, you know, bigger, you know, bigger companies with, you know, pretty, you know, pretty strong fundamentals. So I think that's, that's important to, to kind of take into account as well.
- [04:10]
A
Oh, fascinating. Sam, what's your take?
- [04:12]
D
Yeah, Josh, I mean look, pretty much every indicator you look at is positive for the sector. So you know, the FDA issues have, are behind us, which I think we're going to talk about a little bit. M and A is doing well. Public market is back open despite AI some days at least doing really well. So tech sector, I think the only thing that I hear from people is that they're not just worried about where XBI is going, going back to the ptsd, which I think is a very, very astute comment. But also they're also having to worry about what happens if this AI. I'm not going to call it a bubble. A lot of People do use that phrase, bursts. That's the one that I think a lot of people are also scared of. And that wasn't necessarily always the case as the biotech was doing really well. It wasn't another sector that they thought could drag them down if that enormous bubble, if you want to call it that, bursts so over.
- [05:15]
A
It's so interesting, I mean Tess, especially the way that you framed it around years of pharma cash flow to acquire the entire sector. And I guess what I would argue is that that framework historically kind of had to be in place because the only way to get capital out of the sector was with M and A, because most of the companies weren't even profitable on average, biotech was unprofitable. But now that we're in a new era, we actually do have the potential to create profitable biotech companies, diversified biotech companies instead of selling off some of our best companies with the best prospects to pharma. If we could keep that revenue and cash flow generating power within the xbi, it would draw in more generalists seeing a sector that was very attractively valued on a fundamental basis, not on a hopes and dreams, not on a multiple of revenue and et cetera, on a real fundamental basis. And that kind of cash flow would be incredibly powerful for the entire sector, probably dwarfing what one could accomplish through M and A. So I'm kind of curious how others see the evolving role of pharma, M and A for biotech and the extent to which, you know, it's, it's great in the moment, you know, getting a 2x return on a, on a stock overnight. But are we compromising the opportunity to create tremendous long term value for the sector if we kept these companies independent longer and instead of selling to firma, sold to other biotech?
- [06:46]
D
Josh, you've always, you've always been a bit worried about this. I mean this is, and I think, do you have a choice here though? Is there something you can do to prevent it?
- [06:59]
B
Fair. Well, you know, I'll just, I'm just going to chime in on Josh's behalf here. Look at Revmed, right? I mean people were cheering when early this year the Stock was at 80 and there was rumor that Merck was going to buy them for maybe a whopping 50% premium around 120. And something happened. We don't know Sam, if it was the redbubble that turned it down or what, but there was no deal. And today what? The stock's hitting new highs at 180. So I know that's a short term nominal and certainly the final chapter has yet to be written. But so far, kudos to those guys.
- [07:33]
D
I'm not arguing against it, it's just that I don't know what power we have to prevent it apart from telling boards and shareholders not to accept these deals. On the other. And I completely agree. I mean, the people who came into that latest fundraising for Revmit have told me they're looking at a future in their view, Vertex. You look at that multiple on sales now look at where this is going and you can see. And that would be a very strong wind over.
- [08:02]
C
Yep, yep. Maybe just adding. Right. I think, I think, Josh, you know, you've, you've emphasized a lot the importance of biotech being a business. Right. And you know, executives, you know, biotech executives really, really building for their companies to be businesses and you know, ultimately, you know, be able to, to grow to profitability. And it is great to have other companies like now, you know, revmed in the sector that like, can be future acquirers. I mean, remember the anxiety, you know, when Celgene, you know, disappeared and became a part of, you know, bms and they had been such an engineer, you know, for collaborations and acquisitions, you know, within the, within the ecosystem. So I think, you know, definitely good to have multiple, you know, business models that can work and I think can help give boards and companies confidence to commercialize independently when they see great, you know, great peers who've been able to achieve the same and, you know, would love to, would love to see more of those. But, you know, I know we're about to jump into one example of a company where I guess the, you know, the offer from Pharma was just to, you know, too attractive to, to resist. So I think that's, that's going to continue to happen. And the more pharma sees companies, you know, actually creating a lot of value in the commercial space, you know, probably the more, you know, the more it becomes important to try and place those bets, you know, before a company has commercialized and made decisions around things like pricing and contracting.
- [09:33]
A
Yeah. Do you want to continue with that, with that update, the Apogee acquisition?
- [09:40]
C
Yeah, absolutely. So, you know, words started, you know, coming out over the weekend about, you know, AbbVie, you know, potentially making a bid for Apogee. And indeed we saw that come to fruition. So Almost, you know, $11 billion, 10.9, you know, 10.9 billion, you know, buyout for, you know, buyout for the company, you know, and Apogee is focused on so they have, you know, they have a Half Life Extended IL13 antibody, Zumi Lockabart that, you know, is currently in development with atopic dermatitis as the lead. And this is, you know, being positioned as a potential better, you know, better dupixent. Right. Which is a, which is an IL4 antibody. And I think third, you know, this is, I think this is the first. I know many people on this call will correct me if I'm wrong, but I think this is the first of the companies that have really been focused on taking a known target, really optimizing the antibody and building in half life extension to create potentially better molecules. Fairmount founded company. Huge congratulations to them on this deal. And you know, I think there had, you know, maybe been some skepticism in the market previously about just this approach. Right. And you know, hey, is half life extension going to be enough to be really interesting for, you know, Strategics to want to jump in? Right. Especially in this case, we do have, you know, dupixent that has lots of exclusivity for atopic dermatitis at least, you know, in 2031. And so I think this acquisition, you know, kind of clearly, you know, demonstrates these, you know, talking about this as an over $10 billion, you know, peak sales drug and, you know, clearly reinforces that when you have these, you know, half life extensions that can lead to a potentially differentiated profile. You know, that, that, that's certainly very interesting for Strategics.
- [12:01]
A
Was anyone else surprised that given all the competitive dynamics coming out of China, Abby decided to pay as much as they did for apogee as opposed to finding something cheaper? And does anyone think that that may reflect some growing concerns that the US may block or the US government may, may block funds into, into China assets?
- [12:27]
D
I don't know if.
- [12:28]
B
Well, it sounds like.
- [12:29]
A
Sorry.
- [12:29]
D
Ahead. Go ahead, Eric.
- [12:32]
B
No, Sam, please.
- [12:32]
A
No, no. Just go ahead.
- [12:35]
B
Well, I, I want Josh to kind of flesh out his view a little bit further. It sounds like he's got this concern and I don't know if that's just something that, that is from the top of his head or whether we should all be more worried than I am right now about this.
- [12:51]
A
I don't know. We had our bus tour, our colleague Eric Sinoli Wadsack hosted, and I was fortunate enough to be able to join. It's just so impressive in terms of how much innovation's happening there, how high quality and most importantly, how cheap.
- [13:07]
B
Right.
- [13:07]
A
So I guess companies have to decide, right? Like maybe you're a little bit behind if you're bringing an asset out of China, but on the other hand, the purchase price is quite small. Obviously there's power to them having the first mover advantage. But how important is that and what is the trend going to be over time as China increasingly becomes the source of high quality, fast market or faster development? I should say innovation.
- [13:38]
C
Well, let me comment on a couple things here, right? Because the call that Abbvie had was informative for like why this asset, right? Why apogee overdoing something that's potentially earlier but cheaper coming out of China? And I think a few things to point out, right? One is that ABVI did talk about the part B of the trial being consistent with what a global trial would look like, right? And just they talked about balance of patients, you know, balance of countries, sites. And so that kind of speaks to replicability, right. And how important or how value creating replicable data can be. Right. And then I think another point here is, you know, they talked about sales starting in 2030, right? When we think about the dupixent timeline and you know, 2031 for atopic term for dupixent, you know, that positioning like a year may be worth a lot there, right? Because you're talking about, you know, potentially coming into a market where, you know, formularies may have changed versus like, you know, formularies kind of leading with like a, well, not leading with a branded agent, you know, here, but you know, having that, that you know, branded agent, you know, be the first kind of biologic that someone may see. Right. Rather than having to go through a biosimilar. So, you know, they did talk about, want to position Zumi as, as first line, right. And I think that is, you know, a reason where time and replicability of data can just be worth like a lot here. Right. And I think that, you know, I know we'll, we'll talk about China more here in a minute, but I think that kind of speaks to like, you know, no matter where an asset kind of comes from, if it's, you know, something that's, you know, comes out of a, you know, initially discovered in the US or initially, you know, discovered in China, a lot of that kind of value creation comes down the road while you're building that data set that can be highly replicable and really thinking about order of entry, order of entry really matters, right? Order of entry, especially for markets that are heavily contracting driven, that order of entry really matters. And strategics are willing to pay a lot for that.
- [15:59]
A
Coming back to M and A as a driver of biotech, I guess. I ran a quick regression analysis looking at XBI performance versus Biopharma M&A over the last five or six years. There's like almost no correlation. It's like an r squared of 0.2. So now I didn't slice and dice the data more precisely to figure out if there are clear trends of XBI performance correlating with M and A. But everyone kind of talks about M and A being a major driver of XBI performance. Does anyone really have strong data that that proves that to be the case?
- [16:39]
D
Nope. Did you do deal volume or deal value?
- [16:43]
A
Sorry, I did deal value.
- [16:46]
D
Yeah. So you would have thought deal value would be, if anything is going to correlate, would be deal value because that's the money going back in the sector, supposedly, right?
- [16:54]
A
In theory, right?
- [16:55]
D
Yeah.
- [16:55]
A
But at the end of the day,
- [16:57]
B
I mean, to test this point. Yeah, good, good. Well, I was going to just iterate around a comment that Tess made earlier around pharma cash flows and the ability to use that cash flow to acquire a major chunk of our industry. What would our industry be like if we didn't have ma? I mean, generally speaking, we've been very fortunate to have, I don't know, somewhere between 50, $100 billion worth of deals each year, year in, year out, all at a very substantial premium to where stocks trade in the public markets. Right. So if we were to X that out, if we were to take out $75 billion a year, now I get that there are some years it's a little higher, some years a little bit lower, and that there's no direct correlation, as you showed us earlier today, Josh, it would still be a very, very meaningful premium dollar amount that came out of our industry. A 40, 50% premium on $75 billion is 20 or $25 billion that would be lit on fire that we otherwise don't get access to as biotech investors. So I don't want to think about that. Just because there's not a direct maybe year in, year out correlation doesn't mean that the M and A is not very, very, very important to our sector. There aren't too many sectors that benefit from this kind of big brother eating little brother phenomena, which is.
- [18:22]
A
So if you add up the value of biotech companies, depending on how you kind of defined it all the way up to Vertex and Regeneron, it now sums to about 1.4 trillion. So there's 100 billion in M and A and half of that is premium. Really move the needle on the Sector again relative to what obviously generalists can do. We see the journalists coming in. That's why the sector is now in the trillion dollar plus kind of, kind of range. Interesting, interesting debate. But maybe we are so far off the script, but I know everyone here is so adaptable to all the questions, but maybe we can kind of press on with another one of the China assets spin out updates. We had a couple of them this week, Serapha, if I'm pronouncing that right and I think Sam, you were going to take that obviously relevant for Tess and NRA capital and then Tess is going to take all in that China spin out.
- [19:16]
B
Yes.
- [19:17]
D
So correct me if I get any of this wrong, certainly not on the name because Tarafa I'm going to call it. Right. So this is a new code, the Chinese call them Newco. Right. With a twist and I have to say hell of a transaction to pull together because they've formed the company and I think at the same time or very shortly beforehand, there's no date on it. They in license the key asset which is I'm looking for my notes here. Yolt202 which they've now called SERP01 for AATD. So they've brought that in and then reversed into a company bolt which is obviously Boundless Bio. So there's some maneuvering there. I don't know how that tango was all organized and the first thing I assumed was to go and see whether there was an obvious shareholding by RA and RTW who are the key leads on the Serafa $230 million raise on the bold investor list and I couldn't find them. RA was there. RA got out by the look of it, sometime in the first half this year. So the only link I could find, which of course I think these things do need a link, was the connection between RTW and Jonathan Lim who is the chairman of Boundless Bio, which is one of the few biotechs in the us. Although I haven't done the maths, I don't know how many biotechs there are like that where the CEO chairman are not the same. He is the chairman and of course he is also the founder of Irasca. If I'm not totally off there, NRA had a position position there, so clearly they know or RTW had a position there. They clearly know each other. Maybe that's what helped link the assets here together. And of course the common area again is that Raska is also based on at least one of the assets of a China based Asset. So Bandas agrees to have Serafa reverse into it. Serapha raises $138 million in a Series A plus $92 million to come and close a deal co led by RA Capital and RTW and a bunch of other luminaries in the biotech sector, Eventide, Baliasney, lifecycle, Kasdin Vivo, etc. Janice. So with the boundless cash. I love that. I wish everybody had boundless cash.
- [21:40]
C
Boundless cash. If only every company had boundless cash.
- [21:43]
D
With the cash that's coming in. Although they're making a a dividend to their shareholders of around $40 million or so. The companies suggested they have enough money to get to the second half of 2029 to finish phase two and start phase three. And what is this drug? Well, it's an investigational in vivo based editing therapy for alpha 1 antitrypsin deficiency. And of course that technology was based on what Yoltec has and Yoltec is a China based biotech and they have plenty of other assets etc. So very interesting deal, very interesting structure and I wonder if Tess can or would like to add any color to it any further.
- [22:28]
C
I think you summarized it super well.
- [22:30]
D
Well, there you go.
- [22:32]
A
So test it.
- [22:34]
D
Yeah,
- [22:36]
A
maybe test can cover all in and then we can keep this conversation going because there's a little bit of a interesting Twitter battle going on.
- [22:46]
C
Indeed. So Josh, do you want to summarize the Twitter battle?
- [22:49]
A
Well, why don't you do all in first and summarize that because I think they pair interestingly well.
- [22:54]
C
They do. They do. Yeah. So I think another one, another financing that got announced this week was an all in, you know, all in biosciences which is a $330 million Series B. And this was to advance phase three development for OLN324 in you BME and wet AMD. So coming up with a competitor here for IAH which is, you know, exciting RA capital, you know we were in this, you know, along with a number of other, you know, another, a number of other investors, you know, Blackstone, A16Z, Commodore, you know, Canadian pension plan. And this was a company that was founded back in, launched in 2023 by Arch Venture Partners together with Mubadala Capital and Monograph Capital with a really interesting set of assets including OLN324 which was really highlighted in the PR as well as another medicine that was in license for Graves disease. I think in terms of just, just in terms of where these came from, the Graves deceased drugs was in license from a company called Velovigo in China and the 324 had demonstrated data in China as well. I don't actually have a record of which. Inevent of course is the innovator behind OLM324. I think another example of, you know, a few assets that kind of came from China. Innovators, you know, have presumably, you know, continued to, you know, look, look strong in the clinic and really led to very meaningful financing to move forward and you know, phase three development and maybe make one of those other big biotech companies, Josh, that you've, you know, that you've talked about that can, you know, really, really bring things forward on their own.
- [25:08]
A
Yeah, I haven't seen the back of the eye data for the all in product but having followed the wet AMD space now for almost 20 years, you just have to be so careful in terms of how you interpret particularly the OCT images and looking for baseline imbalances. But I know at least the data is reported to say that the efficacy may be better than the Bismo, which would be really an important differentiating profile. But these, these deals triggered a little bit of a Twitter titan spat with, with Arch's Bob Nelson, suggesting that maybe Serapho was kind of just a copycat of beam and why do we need that type of innovation? Peter Kolchinsky kind of responding, saying that there's, you know, there's some data to still come out so let's wait and, and see what that shows before we just call it a me too. And then someone else chimed in and kind of said, well hold on Bob, what's Olin? I mean, isn't that a little bit of a me too as well? And of course the same counterpoint is. Well, no, it's actually potentially quite differentiated but I guess that with some of the rumblings in Washington around deal flow coming out of China. I know this is something Tess, that Peter's been very vocal about. Do we have any general expectations in terms of how this might evolve? There was some news this week about the US government presenting to the Bio Board about plan offense and defense versus China. Any thoughts as to what the future may hold?
- [26:45]
C
Hard to know. I think there have been a few articles about various meetings related to the COINS act which does restrict U.S. investment and particularly U.S. knowledge transfer to AI and robotics and a number of other kind of dual use sectors. Right. You know, biotech is a different, you know, it's a different story in terms of, you know, the potential, you know, the potential for, you know, military applications. Right. They're certainly There. Right. But you know, can kind of regular way biotech business, you know, really enable, you know, enable that I think is a, you know, we're looking at a different situation than in you know, AI and you know, robotics where maybe those you know, applications can be more closely linked. So you know, definitely still discussion ongoing on that. I am not you know, smart enough to you know, have a prediction or forecast, you know, for this administration other than to say, you know, I think there is an understanding that these are, you know, that there's important differences between these sectors. You know, we always make the distinction. And Peter and I wrote in our article about why, you know, a ban on China would, would really be self defeating for the US we need to make a distinction between physical supply chains and innovation supply chains where physical supply chain like yeah, gotta really you know, protect national interests there and make sure that supply of drug is something that you know, could be maintained in any type of conflict. Innovation supply chains. Right, that's based on patents, like patents are out there. Right. So you know, the more that we, you know, kind of reinforce that that ecosystem, the more we're all you know, kind of relying on patents as the source of value and the more that we, you know, the more that that innovation is, is kind of visible and you know, available in a, you know, in a, in a, you know, conflict situation. So I think that's a really key difference here. That needs to be, you know, that needs to be considered. And then on the like, you know, what should the US be doing? Well, like it's great to see all the, you know, it's great to see the IND pilot come out from the FDA and you know, fantastic to see a lot of energy and focus on, you know, what can we do to really, you know, keep the US competitive and incentivize early discovery and innovation here.
- [29:29]
A
So along these lines, if you look at the private finance things year to date that are north of 100 million, I haven't crunched the numbers yet but it's clear that a growing proportion of them are kind of these China asset hunting spin out transactions. Go to China, find a couple of assets, build a company around it, financing it, you know, for north of 100, sometimes hundreds of millions. And there has been some criticism that you know, we're not diverting efforts and funding, whether it's investors or whether it's pharma to US based innovation. So is this trend pulling too much capital away from us original innovation as we're kind of pursuing these validated low costs incrementally beneficial medicines out of China.
- [30:24]
C
So I think you got to look at the numbers really closely, right? And some people kind of cite the numbers in terms of like overall out licensing deals, right? Where you know, my gosh, 2025, like 136 billion of out licensing deals from China in 2025. But we have to put that number in context, right? Like what of that is upfronts? Well, it's about 5.6 billion in upfronts in 2025. So like 136 billion. That's not the right number to be looking at. Like we've got to look at, you know, the upfronts. And then when we consider those upfronts relative to like the acquisition of one company, Apogee, 10.9 billion, right? It's like, all right, like I think we can see where value creation is accruing, right? And that is the U.S. market. And I think actually examples like Olin, like Sarafa actually show why the US market is likely going to remain the center of gravity for biotech value creation, which is because the end market is the U.S. you need to study in a U.S. patient population. You want your phase three design, ideally, like your phase two design. You want to show that these medicines are going to work. We talked about, you know, Abbvie's comments on how, you know, Apogee's, you know, part B of the trial was, you know, gave them a lot of confidence and replicability. So, you know, that I think that's a really important point to emphasize why, you know, a lot of that value creation is likely going to stay here, right? More incentives, more that, you know, allows, you know, US biotech to, you know, especially on the early side, you know, really, you know, continue to, you know, really continue to compete and do well is important. But I think the kind of flow of dollars from here to there, like, you know, I don't think that's really true. When you actually, you know, look at the numbers and consider the probability adjustment on those, you know, future out licensing payments, even just looking at the total. Sorry, I just have one more point that's, that's kind of important here. But even just looking at the total amount of outlicensing activity, you know, we looked at, you know, the US for the past, you know, five years or so and you know, the ex China value of out licensing deals has stayed around like 140 to 160 billion since 2021. And then you just see this like spike start coming up in 2024, 2025 with a lot more of these China deals. But that ex China out licensing activity that, that hasn't really, you know, diminished. It's kind of, you know, sat around that, that 140 to 160 billion level.
- [33:12]
D
So Tess, if this tap was shut, if you were told tomorrow you're not allowed to somehow, by some mechanism bring in any assets from China to start a company in the U.S. now you do that, what would that suddenly mean? That you have an extra $5 billion or whatever in your bank that you're going to now hunt US Deals? Because that's the ultimate aim here, right?
- [33:42]
C
Well, look, I mean, I think that's a good question, Sam, of like, what is the ultimate aim? And is the ultimate aim really national security, as people say, or is it, you know, U.S. profits? I think there's a lot of reason why, you know, US profits, US value creation will actually stay here, whether, you know, the seeds for that are coming from the US or China. But yeah, I mean, if the idea is like, hey, can we just, just, you know, kind of keep capital at home and not let it leave the US if you want to invest in biotech, what happens? Well, I think what happens kind of near term is like, hey, maybe there's a bit more that's hanging around the US Is that all going to flow to early stuff? No. Right. Like that's going to flow across multiple stages wherever there's the most, you know, the highest opportunity for like absolute returns. You know, a key kind of consideration there is like, like, it's not like you don't have to think about China anymore. If, you know, US companies can't just outbound to, you know, outbound and, and go to China. You still have to think about China. Right? Because like, hey, like China drugs can still go through a lot of other places and come into the U.S. right? Like, there's nothing that I've seen that is proposing an actual ban on like a drug that is ideated in China.
- [34:58]
D
It just doesn't make sense. I think we can go on forever about this.
- [35:03]
C
Yeah. And ultimately, you know, a compression of returns in biotech is just going to mean less money for biotech. Right. I think, I think we all know that. So, you know, let's hope, let's hope that people are kind of thinking through that game theory as they, as they consider some of these policies.
- [35:21]
B
You know, this conversation to me sounds like we're arguing about the weather or something like that. Nobody can control this, right? The innovation is going to find its way to the markets and, and the capital is going to find its way to the innovation. So whether or not Bob Nelson and Peter Kolchinsky view something as innovative or non innovative, it doesn't matter. Over time, innovation will rise to the top. Three years ago, four years ago, we had 20 companies going after CD19 car TS and that was too many. And many people who invested in quote that innovation at the time lost a lot of money and closed shop and went elsewhere. So, so that wasn't an innovative of enough thing to do and the market decided that those companies were still pursuing that lack of innovation. We're not going to be rewarded. I think the same thing's going on here. It's a global economy very, very hard, I think for anyone to determine, no matter where they sit or who they are, that innovation should or shouldn't be funded. It's going to get funded.
- [36:19]
A
Speaking of hard to predict aspects of innovation, let's go to oncology. Sam, are you going to talk about an update from Pfizer and their ADC platform they acquired with Gliocgen?
- [36:31]
D
Yeah, I'm not going to dwell too much on this given the time and how many more other topics we have. So they had a trial fail which was in second line monotherapy trial with a drug called Sigvutatog vodotin. So Sigv, which is an integrin beta 6 targeting ADC which came from the Sejen stable. Now that was in second line monotherapy going up against docetaxels. So when you looked at the phase two data, we couldn't see a very strong reason for why this should work. Any phase three failed. What is interesting of course is that when you look at the combination with Keytruda, remember these Vedotin type drugs, now Obviously that's a nectin 4 vedotin ADC in bladder muscle, invasive bladder with keytruda has been super successful. So here what would be interesting to see whether this combination in first line combined with Keytruda is going to give us better data. Two things. The data that we've seen so far, phase one does suggest there's a good synergy there. And the other thing is that in the press release they say when we look at the 2/3 of patients with only one line of therapy, so not more advanced, there does seem to be a better trend in os. Now I don't know whether it's going to end up being data dredging or not, but there's a phase three ongoing anyway so we'll find out the reason for that. And don't forget that Pfizer raised a couple of eyebrows when they did a deal with Innovant a while back with a meaningful sized upfront, which included some adc. So the folks were going, well, why are you doing this? Didn't you just acquire an ADC company?
- [38:11]
A
Which of course is
- [38:14]
D
not a relevant point because things evolve and that's what you know, if anybody's got something more interesting with their different linkers and that's what you do over.
- [38:24]
A
So this week was the bio conference in San Diego, right in my backyard. And Mike King, our good friend, was scheduled to be on a panel talking about investing in oncology. He wasn't able to to join, so of all the people, he asked me to fill in. Which is kind of ironic because Eric and I often debate how investable oncology is in general. And I'm often taking the kind of the more pessimistic approach. Oncology is so hard because preclinical data doesn't effectively translate into response rates, which doesn't effectively translate into pfs, which doesn't effectively translate into overall survival. You also wind up in just really intense competitive dynamics that makes it more speculative and really hard to pick the winners with any degree of confidence. I think I probably left that audience a little bit more depressed than I had intended. I mean, obviously oncology innovation is incredibly important and also incredibly successful on whole, but when it comes to picking specific companies, I find it very challenging. Personally, I'm super, super selective. Eric and I often debate, do you need to be all in on oncology or can you dabble a little bit? Sam, I know you spend a lot of time in this space. I'd love to kind of get your views around really feeling confident, getting ahead of potential updates or outcomes in this space.
- [39:51]
D
Yeah, I mean, look, Josh, I hear everything you're saying from the translation from preclinical models. That's very fair. What is a positive with oncology is that you can go into phase one, pretty much into patients, and you can get, get a much more meaningful outcome or data set. Now again, you did say that response rates don't always translate to pfs. It certainly is the case in some tumors, but not all tumors. So. But at the end of the day, it is a tough space to be in and you've got to, you're gonna, you know, when you're pushing up against the tail of the curve with keytruda and you want to raise that by 10%, that's a pretty hefty ask. If you trying to engage the immune system to do better than it was doing before with just keytruda. And yet whoever does that will be a big winner because we know these drugs can sell big. And that is the story of biotech. I mean, I could throw back at you that we shouldn't be doing that. CNS continues to be a difficult space and yet so many companies spend effort into it. So I think oncology, I'm hearing that there is maybe a resurgence of interest. I mean, I mean, you look at what VCs have been doing, it doesn't show anything like a resurgence of anything. It's the opposite, right? Investment's been going down, number of deals been going down, and the first half of this year, I think we had for the first time, far fewer oncology deals than we had non oncology deals in terms of Series A, et cetera. So that's the story. But I'm hearing from some of my friends who are like you guys on the sell side, doing IPOs and looking at some of these things that there may be a resurgence. I don't know what Eric and testing on this over.
- [41:39]
B
I think you guys are discussing maybe, maybe two different things. Sam, you were talking about how from an investment standpoint, the returns can be quite substantial because you de risk things quite early. You have premium pricing, you have a lot of unmet need, you have these blockbuster markets and you have M and A. I think even. And even today, oncology is the number one subsector for ma. And it's been that for the last five years, as Josh knows. But Josh, on the other hand, was suggesting that from our standpoint as investors, it's hard to get an edge, it's hard to get an angle, it's hard to get conviction, it's hard to beat our investor competition. And I don't know, I guess I feel a little bit differently, or maybe I'm still too pigheaded to admit that I can't be any bit better than the pack at this point. I do think that the models have gotten a lot better. Yes, Josh, you got to roll up your sleeves and really understand the clinical data. Certainly the genomic mechanistic rationale for certain targets is superior to others. And again, I think it takes a ton of work and I don't think anyone should dabble in the space. But in some ways, it's the most molecular of of industries that we have. Right? Everything comes down to clear, discrete molecular pathways. And I think a lot of it is increasingly predictable. So we'll see how things play out. But I think it's going to get easier, not harder.
- [43:06]
A
Why don't we move to some of the FDA updates? Specifically, regenexx has resubmitted its Hunter BLA application for its gene therapy replicors now on the slate for an ADCOM and PDufidate for its oncolytic virus in the third quarter. Where do we feel like we're at now with the fda? And Tess, I think you're also going to talk about an RBC Capital Market report on FDA commissioner candidates to the extent that that'll influence the outcome of FDA permissiveness going forward.
- [43:42]
D
So Josh, my answer is very short one, so I'll just give it. I think we are very close to normality. That's it. You know, we seem to be getting our outcomes back. We seem to be walking back the one year of waste that we had. You know, the flu vaccine from Moderna Regenx Bio. There was a melanoma product from company's name that I forget that it's going back to normal. Bring your drug, we'll assess it properly and we'll tell you what we think. Not make somebody at the very top decide that they don't like it. And the same obviously with Huntington's cure right over.
- [44:19]
A
Yeah, exactly, Tess.
- [44:23]
C
Yeah, I think, you know, maybe just one of the big questions outstanding is obviously, you know, who is going to be the next commissioner and you know, who are the, who are the potential contenders here. And RBC came out with a, with a report, you know, looking at, looking at candidates and you know, they highlighted the, you know, increased comfort around the fda. You know, talked about replimoon resubmitting, you know, we just talked about regenexx, you know, resubmitting, you know, oculus alignment on single trial, you know, single trial filing. And you know, they put forward an analysis on, you know, the kind of current set of, you know, who they understand to be the current, you know, top set of candidates which are Heidi Overton, John Crowley, Steven Ferreira, Norm Sharpless, Richard Pops and Kyle Diamantes. And you know, it was an interesting, interesting report, right. That shows that, you know, we, there's obviously a range of options on, you know, who the commissioner could be. And we're not looking at one own kind of unique stance behind these individuals. They talked about both Heidi and Kyle as likely, depending on a lot of the direction from RFK and Maha agenda with Crowley Ferreira as you know, Crowley Ferreira, you know, Sharpless and Pops as you know, a set of candidates that's likely going to be quite constructive with industry has a lot of Industry background. Some of those folks, you know, Pops and Crowley in particular, you know, coming with, you know, coming with industry backgrounds, likely, you know, subject to very hot scrutiny around conflict of interest. So I think those, those are the things that. That kind of stood out to me is that, you know, there's still, you know, I think where, you know, there, there's. Vinay Prasad is not on the list. Right. So, you know, there's a certain amount of, you know, maybe, you know, more, you know, maybe trying to, you know, trying to not, you know, bring. Bring the FDA kind of closer to, uh, you know, what we have used to as normal, you know, for. For many years before, you know, before 2025. You know, I think all the candidates probably, you know, bring us. Bring us back in that direction, but still a pretty, you know, broad, broad aperture in terms of what the FDA could look like.
- [47:17]
B
Great.
- [47:17]
A
Do you, do you want to cover the German pricing update?
- [47:21]
C
Oh, yeah, just very, very quickly. I think we can. We can cover this quickly. I mean, look, it's. It's been interesting to see all the back and forth on, you know, pricing plans for Europe. You know, we had tariffs last year. We had, you know, MFN come out end of last year. And I think, you know, a lot of European governments have been, you know, kind of wrestling with how to, you know, how to think about these policies. Germany came out with a, you know, policy in April where they said, you know, that, hey, we're going to use drug pricing to close the funding gap in our budget. Budget. And, you know, hey, if you make more revenue as a drug, guess what, we're going to, you know, cut the price more. And, you know, depending on what revenue threshold you make and the impact that would have had, I think we can all, you know, we can all forecast would be, you know, essentially to make Germany a substantially less attractive market for, you know, launching medicines, which, when you combine with MFN is really, you know, a real, you know, kind of puts that market at a real detriment. We saw, you know, we saw Lilly announced that they were going to reduce investment in Germany. And then USTR came out, you know, in June 18, saying that they were going to open an investigation under section 301 into, you know, the. Those pricing policies. And, you know, the word this week was that, you know, maybe Germany's going to back off. You know, so we'll have to, you know, we'll have to see where that goes. I'm not sure if anyone else here has more insights,
- [49:02]
D
but Eric's in Germany. So maybe you can go and do some channel checks for us. No, but let me just add one little bit here in that I obviously live in Europe, not in Germany but in France and the uk So I see this issue all the time. As a group we're looking at the what Europe needs to spend to retain some semblance of sovereignty when it comes to tech, AI, defense, energy industrials and the numbers are eye watering. So the problem I think the region as a whole is going to have irrespective is how do you balance that need for investing and defending yourself against some adversary with defense and the needing to keep your folks health healthy. That's the tough part. And I think I don't want to be in these politicians shoes to make these decisions. But I tell you that is the I think the background source of this
- [50:00]
A
issue over why don't we move to some other industry news. Sadly, it looks like the end of the road for Sangamo. One of the remaining class of 2000 biotech IPOs filed for bankruptcy protection. Not necessarily bankruptcy, selling off its assets. They have a couple of stopping horse bids for the platform and assets from Eli Lilly and Estellis. I didn't realize it's called stocking horse bids because hunters often hide behind a horse as they're stalking their prey. So in theory there are other companies that are kind of hiding behind Lilly and Estelles, waiting for them to make their first move before coming in and potentially bidding higher. Typically there will be a breakup fee though for those first mover asset bidders and buyers. In other news, Aris Pharma got a little clobbered this week with the announcement that Nefi was not added to the formulary of an important PBM for July 1 ahead of the back to school season. Nefi being a nasal epinephrine to replace things like the EpiPen. What I didn't realize was that for negotiating access to formularies with PBMs, oftentimes smaller companies such as Ars can't talk to the company directly and so they have to use kind of a third party negotiator who negotiates on behalf of a group of smaller companies and smaller assets in a very opaque type system. So a little bit confusing there. Also a little bit frustrating that smaller companies just can't get into important PBMs to get products on formulary a little bit faster. That was kind of a nuance I had not appreciated. We got an update from Moderna now their science day moving their MRNA platform in all sorts of directions. T Cell Engagers in vivo car T Sam, what's your take on that?
- [52:00]
D
So don't forget Josh, very quickly here, given time that they've got a new science head of R and D, David Berman, who came from Immunocore and then many years at large homework before that. So the things that I found quite interesting is as you and I discussed offline, why do you need T cell engages produced by mRNA? What advantage does that give you? In fact another thing that I didn't quite understand is how they get away from or not having to prove the contribution of components when you have like, like three MRNA's and one of the ones they're moving forward with is actually one that expresses three mRNA's that creates three T cell engages which are of course secreted against BCMA, GPRC 5D and FTRH. I think if I recall correctly all 4B cell in myeloma. I don't know what the side effect profile of this thing will look like because each of those have got slightly different side effect profiles. So let' where they go. The area that I thought would be interesting is if you could target these intracellularly. But then even there I don't know to intercellular targets. I still don't see how then you get the cell becoming a production factory leverage that you would get in vivocarti makes a lot of sense. That is what you know LNPs are used a lot for at the minute or there are two, two ways of doing is LNPs and lentiviral. So if they can make it work, that's great. I think it's interesting. Last thing I would say on this is David Berman very interestingly kept repeating that we won't be putting an enormous amount of money in some of these things. Some of the earlier stage antigen based MRNA's if the intismoren trial in melanoma doesn't work out, which of course he said he fully expects it to work out. Just lastly to say that we have some worries about that trial reading out in the potential second half of this here over.
- [54:05]
A
Yeah, feels to some extent like when you're in MRNA hammer everything looks like a nail. But the question is which is the best fit for that hammer? Maybe we can go close out with a number of data updates tests are going to take us through including exciting update for definium space that we've spent a lot of time on the psychedelic space. As we watch the field of psychiatry really start to transform from kind of a chair and a couch type practice to interventional psych. You're also going to cover absci between them and Varadermix. The hope is that maybe someday I'll have a great head of hair just like the VARADermics CEO.
- [54:50]
C
Absolutely. Okay, so let's take these through pretty quickly. I think Moonlake, you know, showed their drug Sal Sonal. Oh my goodness, Sonolocumab in hs. So they shared an update on that data. They had week 52 data from their trials, VELA1, VELA2, and they reported for high score 75, 67.2% of patients, patients, you know, reaching that at week 52. And, you know, we have about, I think bimakizumab, which has, you know, really become one of the, you know, one of the important drugs in that space, I think is around, you know, 60%. You know, I think they were, you know, also, you know, slightly higher on high score 100. And, you know, I think this likely suggests that they have a, you know, drug that looks, you know, pretty similar to bimakizumab. You know, they also looked at the safety profiles and you know, those were, you know, those were comparable, those were comparable as well. So that BLA submission is on track for, you know, for, for later this year. And, you know, we'll, you know, we'll, we'll, we'll see what happens with the company. But moving forward with, you know, a drug that looks, you know, competitive relative to the, you know, lead, you know, lead therapy in hs. Not sure if there's any other comments on that one. Maybe. Moving on then to Merck. All we know is the trial was positive, you know, great news. So, you know, they, they met their, you know, primary and secondary endpoints in ulcerative colitis. You know, this is obviously a mechanism that we are all watching for and, you know, we're looking forward to data in the fall on that. You know, Josh, why don't you actually, you know, take definium here since you've, you know, been so close to that space.
- [57:01]
A
Oh, sure. Positive phase 3 data for LSD in MDD. A very robust efficacy signal and generally well tolerated and, and looks like another psychedelic coming potentially to market for patients. I think one question we'll have to sort through is the FDA certainly seems amenable to approving psychedelic therapies for treatment resistant depression. Are they ready to move to mdd? Although in the study there were a number of refractory patients as well. Certainly a tremendous amount of enthusiasm for this space. As noted, psychiatry is changing in front of our eyes. It used to be that residency programs for psychiatry were nearly impossible to fill and you'd almost take anyone with a pulse. From what I understand now the residency programs in psychiatry some of the most competitive to get into and the psychedelic wave is driving force behind that. Do you want to finish off on appsi?
- [57:59]
C
Yeah, sure. So what appsci was showing is they were showing a antibody they have that is a half life extended antibody, you know, targeting prolactin that they, you know, that they're, that they're advancing and they shared, you know, data showing, you know, showing some of the initial clinical. I think it was the sad results, you know, for this, for this medicine as well as a 100 million dollar offering that they did with Eli Lilly adage BVS Columbia thread needle invis Red Mile. So you know, certainly excitement around this, you know, around this, this drug. So anti prlr and they're focused on androgenic alopecia so getting Josh, you know, some more hair and endometriosis. And you know, I think an interesting, you know, point just to highlight on this one is this is actually an example of inspiration from China Biotech where hope Medicines, China Biotech has actually studied prolactin in endometriosis and in androgenic alopecia and shared some of those results. And Absai said, okay, cool, that's a really interesting finding. Let's go forward with a program that they think can be really competitive there where they, they've really focused on optimizing that half life so that Josh, you don't have to worry about taking, you don't have to worry about taking a pill every day. So I think we close on a great example of just how we can be inspired by innovation that happens in a lot of places and work on improving it. And that can happen here just as much as it can happen in China.
- [59:51]
A
My fingers are crossed. What a treat to be able to host a session with three of my favorite, favorite people really in all of Wall street and biotech. Eric, Sam, Tess, thank you for your thoughtful commentary. Thanks everyone for tuning in and we'll catch up again soon.