# Episode 138 - April 11, 2025 Biotech Hangout · 2025-04-18 · 60 min · https://www.youtube.com/watch?v=YMwp47Qy4o0 ## Transcript Chris Garabedian 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 insiders. I'm Chris Garabedian and my co-hosts today are Brad Loncar, Eric Schmidt, Paul Matteis, and Tess Cameron. For more information about our hosts and guest speakers or to listen to the most recent episode, please go to biotech.com. Never a dull moment these days in biotech. Let’s start with the markets. I know some of this was talked about last week, but it’s continued into this week. Brad, maybe do you want to frame this in terms of how you’re seeing the markets? Then I wanted to go to Eric on the fund dynamics. ### Markets Lose Their Safe Haven Brad Loncar Obviously, as everyone knows, it’s a roller coaster, and it all came to a head when the White House paused the increases for 90 days for everybody except China. That day, the markets rallied and the Dow was up 2,500 points. But it was weak yesterday, and it’s weak today. For people who don’t follow markets, one thing to note that I think matters a lot is that bond yields are rising. That’s pretty concerning, actually, because you would expect the opposite. During volatile times, the U.S. is usually a safe haven, especially fixed income, and the fact that the dollar is weakening and bond yields are going up suggests that people are pulling their money from the U.S. and taking it elsewhere. If that’s a long-term trend, obviously that would be very concerning. I don’t want to dive too deeply into politics. I know there are a lot of people who are against the tariffs, and there are people who see value in them. I think one thing that most people would probably agree with is the suddenness of all of this. The U.S. has always been the steady hand in terms of financial markets and a place to invest your money. One thing to watch closely is the fact that all of this has been so abrupt, with so much whiplash. If people start pulling their money from the U.S., not necessarily even as a directional bet, but simply because it’s not as steady and the rules of the game aren’t as durable as they used to be, that would be a very bad sign for the financial markets. Ultimately, that all trickles down and affects every sector, including ours. Chris Garabedian Yeah, absolutely. Eric, biotech is unique. It’s driven a lot by specialty funds and specialty managers. They’re not going to go away; it’s the raison d’être to invest in and follow biotech. But people who have money allocate it differently, and they can choose not to invest as much in biotech. What are you seeing in terms of what’s happening at the fund level? ### Biotech Funds Face A Reckoning Eric Schmidt I like Brad’s comment that the rules of the game are shifting. Literally, the earth is shifting underneath our feet within biotechnology today, whether we want to admit it or not. We’ve got these massive changes at the FDA. Certainly, that agency is going to be very, very different from what we thought it might have looked like just a few months ago. I’m sure we’re going to talk more about that, Chris. We’ve got the potential for tariffs and the potential for an economic downturn. We’re seeing a lack of funding at the NIH and, more broadly, at the scientific level. What we thought was the game from an investment standpoint before is no longer the game. This week, for example—and if Paul is joining us, I’m sure he’ll vouch for this—all of our incoming calls from biotech investors had very little to do with specific companies, timelines, data points, or individual stock outlooks. They had everything to do with the macro. Everyone has suddenly had to put their macro caps on and become an economist, political scientist, or international tax specialist. We’re all doing things that are probably way outside our swim lanes and that make us very uncomfortable. Hopefully, we’ll survive over a period of time by doing that. We need to adjust and react to the earth that is moving, but none of us really like doing that, that’s for sure. When things swing this badly, the conversations often turn to, “Who’s not going to survive?” For better or worse, this sea change happening on Wall Street is going to leave certain funds unable to continue, certain companies unable to raise capital, and probably certain sell-side shops unable to support their teams of analysts and bankers. This industry is probably shrinking as we see it right now. Maybe we’re slow to appreciate it, but if this keeps up for much longer, I think the shrinkage will be very dramatic. Unfortunately, I know that’s a bit of a downer to start today’s discussion, but that’s the tone of Wall Street. Paul, did you want to chip in on that? Paul Matteis I don’t disagree with anything, Eric, and I have a little anecdote from this week that puts into perspective how hard it is to be an investor right now. I was in San Francisco doing meetings, and each meeting opened with the same sort of 10-minute sigh about how much of a bummer this market is. About 45 minutes into one of them, we were all looking at the TV that was about 30 feet away in the lobby of this office, and we were saying, “Is that the NASDAQ up 8%?” The guy who works at a hedge fund felt like he had to run back to his desk. Just think about that for a second. Obviously, it has nothing to do with fundamental companies or anything like that. The market swings are making it really challenging for people. Eric, I’m definitely trying to entertain the conversation with people about what types of stocks could do better in this market. I think we saw, in the couple of days after the Peter Marks news, this semi-flight to safety: “Okay, I want to own stuff that’s commercial or late-stage.” That felt like it became a very short-term consensus trade quickly. I do feel like there are going to be certain types of criteria that investors will be more stringent about with small stocks. Talking to people about whether a company has a catalyst, it has to be a data catalyst in this market that really disproves 1 or 2 bear cases and is truly value-creating. I don’t want something that’s merely proof of principle. I want something that is firmly proof of concept or firmly derisking. With companies that have been platform companies and are burning a lot of cash, I think there can be this spiral where the cash needs are high, then the stock goes down, the implied dilution is greater, and then the stock goes down more. I’m finding investors to be more sensitive to those types of names. The tariff piece makes the whole flight to commercial biotech more challenging because, in my discussions, no one even has any idea how to model this kind of stuff right now. But this is just a window into the conversations I’ve been having, which often don’t have a good answer. Tess Cameron I think, Paul, just to pick up on one piece that you said, which is the clear catalyst: What is a catalyst? I’d be interested in hearing the thoughts of others, but I think there’s very little forgiveness for even a minor confusing point in the data, even if it’s really explainable and very logical. I think that could understandably create a lot of anxiety for companies about what that means in terms of how they’re thinking about upcoming data and what they should release. Our days of individual patient-level data coming out in quick succession would not play well in this market. I think it really tends toward companies being in a position to ideally release pretty full, robust data sets and really being able to contextualize those appropriately. Even if you do that, and there’s anything imperfect or difficult to explain about those data sets, you want to make sure that you’re talking very, very closely to your top holders. There’s not going to be a lot of forgiveness from people who aren’t super close to the story and willing to bear through some of those imperfections, even if they’re not fundamental. Chris Garabedian Yeah, Tess, that’s a good point. I know we’re going to cover Lexeo later, which might speak to this point a little bit with their data and the stock reaction, but I want to bring it a little bit to the private side. ### The Newco Funding Paradox Bruce Booth put out a blog post. He’s always very timely with his posts in highlighting that, despite all the uncertainty and challenges we’re facing, this could be the best time to really focus on new company creation. We hit a 10-year, or more-than-10-year, low in terms of new company creation. But this is also counterbalanced by the fact that we've got more dry powder than we've ever had. There have been more fund closures. There have been articles about funds closed in the last few years with more than $35 billion of capital to be deployed. And so we're still seeing private deals, but it was a little bit of a controversial take to have a silver-lining perspective on this. If you take a strictly long-term view, it makes sense. But at the end of the day, VCs have to exit, and that means they have to get to data sets that will either elicit an acquisition, or they'll have to be patient with the IPO market. Presumably, if you have more data and are clinical-stage and further along, it'll be easier to do an IPO if the window is healthy and open. But it's not stopping these VCs. Look, I ran the VC funds for Perceptive Advisors, a multistage public-equity investor, and we have to deploy capital, right? We have an investment period. We've raised a lot of money. When we do capital calls, we need to pick our investments. So when you see these billions and billions of dollars that have been raised, they have to put that money to work. Now, they don't have to put it into newcos. They can invest in Series Bs, Series Cs, and Series Es. But I think the idea is, hey, this could be a good time to invest in new companies. Now, I read Bruce Booth's full blog. I don't always have the luxury of reading Peter Kolchinsky's blogs because they're pretty long, Tess, and I know you help a lot with those, but Bruce's blog is more than bite-sized. But I think one of the issues at play here is that, on the venture side, we have to reverse-engineer valuation. You really are pegged to comparables in the public markets. Until we start to see the public valuations of biotechs get healthier, it's hard to reverse-engineer how everybody's going to make money along the way—from the seed investor to the Series A, to the Series B, to the crossover investors, to the IPO investors. And that gets really challenging when valuations are not healthy. And particularly so, Bruce was making an argument for discovery, and I think the economic model gets further challenged with discovery. We're all happy when we see the likes of Flagship and companies that go into early technology. ARCH has more of a business-model, platform play versus the technology-platform model that Flagship likes to do, but those require a lot of capital to de-risk and get something ready for the clinic. So I do think we're an ecosystem that is very reliant on these public-equity valuations and the IPO window, and I think we really need to see some signs of life there. I think we're at peak uncertainty right now, but there are still private deals happening. One of them we supported was Viridian, which is in the Graves' disease and thyroid eye disease space. I know you guys had a Series B that was an RA company. Imbria is in the hypertrophic cardiomyopathy space. We saw some other deals: Neuron23, later stage; Atsena, later stage; and RayzeBio is another Series A, over $100 million. So we are definitely reading that money is being deployed on the private side, but I think we're all pretty anxious about when those exits will come and what we need to show to have an exit. I don't know—any further comments, Tess, coming from the private side of RA? Tess Cameron Yeah, no, definitely. I think everything that you said makes sense. I think a key point for funds that are deploying both public and private capital, right, is that the opportunity cost of that private capital went up pretty significantly with the market drawdown, right? So, as you say, I think every fund, whether you're exclusively private or a mix of public and private, does kind of shift the bar in terms of that private-capital deployment. I think something that we'll just have to watch is: How does that shift the type of newco formation that we see? And how much does that involve starting from scratch versus—we've seen a lot of asset in-licensing. I do think that for any newcos that are starting from scratch, it's a very different profile from the type of newco that was started from scratch a few years ago. ### Royalty Capital Opens Another Door Brad Loncar Hey, Chris, I just wanted to quickly mention, too, in terms of what smaller companies can do. I think there's another option out there that's been around for a while but is really going to be at the forefront over the next year or two. I was at a conference this week and did a bunch of interviews, and one of the most eye-opening ones was with one of the royalty companies. Everyone, of course, knows Royalty Pharma, but there are a lot of midsize and smaller players in that space, and their phones are ringing off the hook right now. With the IPO window closed, and if you're not getting a big pharma deal, another option for smaller companies—even in earlier stages of development—is available. This is no longer just a business for somebody that has a Phase 3 success or is already commercial and is trying to monetize it. There are a lot of these royalty companies that will take some development risk and invest in an asset early on in development for future royalties. It sounds like they have lots of cash available right now. If I were a smaller company trying to exhaust all options, I would look at that too. I think we're going to be seeing a lot of those types of announcements over the next year, year and a half. Chris Garabedian Yeah, Brad. I mean, just to follow up on that, it reminds me a little bit of venture debt, right? Silicon Valley Bank filled a role there for less-de-risked companies seeking venture debt. On the royalty side, when there's no clear clinical proof-of-concept evidence, is it that they're just getting better and better deals, and so it's a numbers game where they're willing to take a bunch of zeros? Usually, you see that more in play when something's de-risked: This has a higher-than-average likelihood of getting an approval, and we can do our probability-adjusted cash flows on this based on the clinical data. But when you go preclinical, before proof of concept, how are they managing that risk? Brad Loncar Yeah, I mean, they're just investing like a hedge fund would in a stock. They're doing the same thing in individual programs, and I think that makes a lot of sense. For a long time—literally decades—various people in our industry have tried to figure out vehicles that you could create to just invest in an asset if you don't love a whole company. I think that's essentially what these folks are doing. Another really interesting thing that they're starting to do is, look, we have too many companies out there. Everyone knows the negative-enterprise-value problem. There are good companies out there that are experiencing that, but there are a lot of—I think Adam coined the term—“zombie companies” that, for the sake of the overall health of our industry, all need to get cleaned up. The royalty companies can do that very efficiently in a way that gives cover to the boards of directors of these companies. They could basically acquire them, distribute the cash to their shareholder base, and then, for all of the preclinical or very early clinical assets that are still left in these companies, they have something to eventually license out if anybody wants to pick it up and continue to develop it. But, yeah, they're investing in programs and taking risk just like we all have in individual companies in the past. It's just a more micro way of investing in the sector. Chris Garabedian Yeah, I think you need that critical mass. It reminds me of seed investing, where you know that a majority will probably fail and never get to an exit, but you're hoping that the few that you do bet on will succeed. So, yeah, it'll be interesting to watch that trend. Tess Cameron Yeah, yeah. And I think maybe just one comment, because we have some of our portfolio companies, including some primarily later-stage companies, that have done those royalty deals. It's so important to think through the nuances, or understand the nuances, of them, because I think, Brad, what you're talking about is royalty deals that are a bit more like equity, right? You're basically taking assets, and you have upside in those assets and downside in those assets. Sometimes, the way that these deals get structured, especially by some of the bigger players that also do a lot of debt deals, is that the royalty deal is basically debt, right? So the company wins, the royalty company wins to a certain extent, usually with a cap, but if the company loses, they still have to pay back the royalty company. So it's a really interesting concept, and I think one that would have to be deployed with that concept of upside and downside in mind. Chris Garabedian Yeah, great point, Tess. All right. Well, look, the markets—I think every week we're going to be monitoring this touch-and-go market, both public and private. ### The FDA Hangs In Balance But the FDA is a big part of that, and what's happening at the FDA. Eric, do you want to kick us off on what's the latest this week, and any perspectives further with all the changes that we've seen? Eric Schmidt Yeah, obviously, from a macro standpoint, this week's stock weakness probably had a lot more to do with tariffs, and the threat of tariffs more broadly, including tariffs on biopharmaceuticals, than on anything else. But the FDA discussion that arose and came to the fore last week, with Peter Marks's dismissal in the background, at least, continues to percolate. This week, for example, we saw a number of former FDA leaders, including Janet Woodcock, come out very vociferously against the change and very fearfully in terms of what might transpire going forward. She wasn't the only one. Of course, we continue to hear from RFK Jr., our secretary of HHS, making comments. I think he went on TV and essentially admitted that he's been interfering, to a certain extent, with COVID vaccine approval from Novavax, and he said some untruths about that vaccine and about single-antigen respiratory vaccines in general that are just not correct. That was a very disappointing revelation this week. And then we're starting to at least see Dr. Marty Makary, who's the current FDA commissioner, come out and begin to perhaps institute some of his agenda. It was a very minor pilot program that he put forth on preclinical testing. It's an initiative that's been going on at the FDA for many months, and he may have brought it to the fore, but perhaps he's starting to establish his presence there. So, lots of changes. I think, in terms of the investment community, we're still very anxious here. We think the FDA is, for the most part, hanging in the balance. I don't think there are too many of us who are already willing to say the FDA is truly, truly broken, but I think a majority of us do think that severe damage has been inflicted on the FDA and that the damage will probably continue to be inflicted on the FDA so long as the leadership in our government is unwilling to stand up for science, is unwilling to stand up for an independent drug-review process, and is unwilling to protect the nonpolitical appointees, giving them the freedom to make scientific judgments. So, that's a very tenuous position, and I'm curious to hear how others have reacted to this week's news. Paul Matteis Maybe I can chime in, Eric. From a societal perspective, I agree with everything you're saying, and we talked about it last week. All the vaccine stuff is super disconcerting for a variety of reasons. I did talk to some investors this week who are maybe less pessimistic just as it relates to a lot of the non-vaccine companies. I think we've seen a big basket of development-stage biotech companies trade up and down on the perception of regulatory flexibility. We're all guessing, right? Maybe there's an argument that this FDA could be even more libertarian for those types of companies. We did see, in Dr. Makary's opening remarks internally at the FDA, at least the way it was covered, discussions about things like cell and gene therapy. I guess these thoughts are maybe a little bit more stock-specific than, again, society-specific, right? The lack of independence of the FDA is not good. But as it relates to the sector, I feel like there's more of a polarized view out there, at least from my conversations with investors. Some people are very, very worried about delays and all kinds of unpredictability, whereas others think maybe certain stocks here are on sale because of perceived regulatory uncertainty around a previously agreed-upon flexible path. If it's for X or Y severe rare disease, is it really that likely that path will change? To be honest, for certain stocks, I'm maybe more in agreement with that view, too. Chris Garabedian Yeah, I'll just say that we have a unique kind of venture model. We play a pretty active role in a number of our investments. Literally, I'm on weekly meetings with a lot of management teams, and we also rely on a lot of advisers and consultants who work with other biotech companies. I'd probably put myself more in the optimistic category of what's happening at the FDA. Again, no one likes to see discontinuity. No one likes to see uncertainty. But I can tell you that we have a lot of data points where we've been very, very frustrated with FDA guidance: the delays, the inability to move forward with programs, and overweighting animal tox data over healthy-volunteer dose exposures. This isn't unique to one division; it's across divisions. Brad was here a couple of weeks ago, I think talking about how the majority of their companies go outside of the U.S., and more and more firms are saying, “Hey, should we get clinical data outside of the U.S.?” This predates all of these changes. If you really look at some of the changes in the FDA, a lot of changes were made going back over the last 5 years—changes in the hierarchy and a lot of changes at the division level. This is very disruptive, and I think we've got more uncertainty. But I'll just say this: even though it was a small communication around phasing out animal testing and relying on other means, including a statement about using clinical data to allow for easier paths in the clinic in the U.S., I think this is a good sign and signal. There may be more pragmatism applied to doing the right clinical programs and not handicapping a lot of biotechs, because we're facing this with multiple companies across our portfolio, and we're hearing the same from others. Again, it's only one data point on animal testing, about antibodies and organoids, and who knows when this will be fully implemented. But if it's a signal of intent, I think it's a good development and a good sign. I kind of wish we could all go to sleep for 6 months and wake up and figure out where the market is, what guidances we've seen, and who's in place at the divisions. I think you said it last week, I believe, that there were some documented changes at the division level, and that's the most concerning thing for discontinuity. But some divisions have remained intact. So, again, I'm less “the sky is falling” and more “let's wait and see,” and let's see what purposeful communications are coming out. Tess, what are your thoughts? You guys have a big portfolio, bigger than ours. On this FDA communication about animal testing, what's your interpretive lens on that? Tess Cameron Yeah, I think it's really encouraging. It's actually an area where some of our venture partners and some of our companies have had discussions with the FDA about this before, and I think we've been a bit hamstrung by the classic feedback of, “Bring us the package, and we'll let you know if it's okay.” I think the FDA has historically expressed openness and some flexibility on animal-testing requirements, but without really specific guidance about what is required. In the absence of that guidance, what are you going to do, right? You're going to do what you think gives you the highest probability of being able to move forward, which typically means that you're going to do the work that biotech companies have been doing for a long time. I think it's encouraging that they're going to think through it. As you say, I think it's very practical that they're considering this guidance. On the point about the FDA more broadly, I share some of the concerns about independence. Hopefully, now with Dr. Makary in his seat and having a strong medical background, he's really going to approach issues from a scientific and data-oriented perspective. But I think some of the personnel cuts are concerning. Your point about waking up in 6 months sounds wonderful, because I think that could resolve quite well. There's a real opportunity here to bring in great talent, try to modernize, and bring out guidance in areas where perhaps the development path could be more efficient. That opportunity needs strong talent and experienced people in place to manage it. We actually wrote a letter—Peter Kolchinsky from RA Capital and Peter Rubin of No Patient Left Behind—to Senator Cassidy, who's in charge of the Senate Health Committee and plays a key role in oversight of HHS, to make sure that they're really living by their commitments. We've been disappointed with how that has played out from a vaccine standpoint, since that was a key part of why Cassidy ended up voting yes for RFK. Chris Garabedian We’re hopeful that those discussions between Cassidy and RFK are more productive in the future. But we wrote a letter to him with a view to making the point that there are some key employees who have been let go, I think before Dr. Makary was even in place. Some of those employees are key to assessing programs, negotiating the PDUFA program, and managing and supporting reviews. I know there was press about people who are doing reviews not being let go. But those people rely on pretty critical roles in other departments that maybe weren’t directly working on reviews. So I think those are all things we really need to watch. The PDUFA issue was a little more concerning, perhaps, because there was also some concern. I think Pink Sheet came out with an article saying that there were concerns about defunding PDUFA, because essentially you need to put forward enough budget such that PDUFA funding is never going to be more than 50% of total agency funding. Otherwise, there are concerns about regulatory capture and other things. There’s a trigger that you need to hit in order to receive PDUFA funding. Pink Sheet shared information from a source that suggested we should be concerned about sub-trigger funding. Is Congress going to authorize only an amount that would essentially mean that PDUFA funding is at risk? That would be very concerning. Having the employees who were responsible for negotiating the user-fee program leave—those are key employees who should probably come back, since that’s a critical function of the FDA. So I think we’ll have to watch very closely from a personnel standpoint to see who gets put in place, and make sure they’re experienced individuals who can help keep reviews on track and keep earlier-stage feedback on track. We’ll be watching that very closely and hopeful that Dr. Makary is going to bring some of those folks back, or at least bring experienced new people in. Brad Loncar Yeah, that’s great, and Peter did a great job of clarifying this whole concern about the user fee. He posted and got a lot of pickup on that, so I’m pleased that he clarified it for our industry colleagues. The biggest concern for me was the project managers. They’re often the true liaison, informally, with sponsors. The rumors that project managers might have been part of the cuts—that’s a real glue for sponsors to get clarification in between guidance meetings, or even when there are minutes needing clarification from a reviewer. I don’t think they’re getting rid of the role. The question is whether they’re going to maintain a good liaison role through project management with sponsors. That would be something to watch. Chris, can I pose a question to the panel? It’d be interesting to hear from Eric and Tess what you guys have heard—what have people been hearing from their companies about the FDA? I only have a small sample size—we’re talking about a couple of weeks of big changes at the FDA—but so far, the companies I’ve talked to have said that their interactions have been normal and timely. Maybe I haven’t talked to a company where its counterpart is completely changed, but it’s just been interesting. We talked about this last week: Denali filed for accelerated approval for Hunter syndrome. They interacted with their counterparts at CDER the day before that submission and the week before. Has anyone heard anything different yet? Eric Schmidt I definitely have. I think there may be a little bit of selection bias in the feedback that you’re getting about interactions with the FDA, perhaps. But the things that we’ve heard are nothing terrible. What we’ve heard are things like, “The senior reviewers aren’t there anymore. We just have junior reviewers who are looking at this,” and we got a bunch of feedback that was very conflicting from the junior reviewers. Normally, you’d be able to escalate this and have someone you could talk to, but now we don’t actually have the right people with the experience to escalate that to. That was an example. We’ve talked to other companies where leadership failed to attend meetings. You prep for these FDA meetings forever with the hope that, if anything is misinterpreted or not well understood in that meeting, you have leadership there to help resolve issues quickly, and that wasn’t there in one of the meetings that our company attended. Another company was going through an escalation process where they were essentially told, “Don’t go through this escalation process, because there’s no one at the ombudsman’s office who’s actually qualified to help you.” I don’t think we’re getting to a level where it’s, “My gosh, my whole review team turned over and now I can’t proceed with this file.” The FDA is working very hard to help keep up those commitments, but the quality of feedback, the quality of interaction, and the ability to do things like escalate feedback that you don’t agree with are all being challenged in a very short-staffed environment, particularly one that’s short of senior staff. Tess Cameron Yeah, I’ll just share that across our portfolio, it’s a mixed bag. We’re hearing a lot that they’re getting that feedback and the communication right, but we’ve also had a situation—we know of a private company that didn’t even have a pre-IND meeting. The FDA refused the pre-IND meeting request and said, “We’ll review it with the IND.” There’s always been this perception that the FDA can feel stretched at times, and that they’re overworked and overbusy. Now, with staff cuts, I think they’re prioritizing what is worthy of granting a meeting and how much attention they’re going to put on certain companies. Again, I talked about the conservatism we’re seeing, and it’s definitely influencing us in terms of whether we should even bother requesting a meeting with the FDA, given the kind of turmoil that’s going on. We’re always thinking of pivoting to the UK, Australia, or somewhere else to keep our programs moving. We have 1 program where it’s justified to request a Type A meeting, and we’re just trying to figure out whether we should or shouldn’t at this very moment. I think there is this feeling that they’re scrambling, and everybody at the FDA has the right intention and is trying to keep things moving. I just think they’re overstretched right now and can’t work the way they would in a normal, 100% efficiency circumstance. ### Tariffs Reshape Pharma Manufacturing Chris Garabedian All right, let’s maybe pivot to the tariffs. That was the news of the week, Eric, as you mentioned. Let’s talk about perspectives on that. Paul, do you and Eric want to comment on that? Then, Tess, I’d love for you to comment on some of the pharma CEOs who are trying to bring manufacturing back as a result. Paul, do you want to start with your perspective on the tariffs and taxes, et cetera? Paul Matteis I feel like my perspective, Chris, is that all the investors I talk to don’t really know how to invest within this issue. We can look at companies’ supply chains and where drugs are made, where patents are domiciled. There are obvious standouts, right? IP is domiciled in Ireland. We can try to do model exercises with different ways that tariffs could be calculated, but I think it’s really tricky. To me, the tariff conversation, going back to what Eric was saying earlier, feels almost more about market volatility and the fact that biotech is a super-high-beta sector. If the market swings, it’s going to swing a lot in either direction. I think people are having more trouble investing around that aspect of it. But as it relates to the fundamentals, we all know it’s bad, right? Beyond how to model that, I think it’s tricky. It’s also tricky when you talk about companies bringing back manufacturing, because if you’re a company, how do you plan? No one knows whether these are really going to go into place and be around for 4 or 5 years, or if it’s going to be chatter for the next 2 months. As an investor, I feel like the top line is just more uncertainty and more volatility. How do you play defense around it? Chris Garabedian Do you have anything to add to that? Eric Schmidt I’d agree 100% with Paul. The session we just had on the FDA—that is our industry front and center. If the FDA doesn't get its act together and isn't able to function, we're in biotech, especially the smaller innovative companies, we're dead in the water, right? But when it comes to tariffs, number 1, they only pertain to the commercial-stage companies, the much larger biopharmaceutical companies, as opposed to the innovators. Number 2, they pertain a lot less to the biopharmaceutical industry than they do to other industries that have much higher costs of manufacturing and do much more manufacturing overseas. So, on a relative basis, you might think that high tariffs might benefit the biopharmaceutical industry in terms of having less negative impact on us than on almost any other sector that I can imagine. That said, Paul's right. I think some of the larger companies are thinking about their manufacturing infrastructure. What I'm hearing is that they're much more likely to wait it out for the next 3 or 4 years, not knowing what might happen after the Trump administration. Of course, it would take at least 3 or 4 years to bring your manufacturing from one geography to another, so I don't think that's likely. I think a lot of them are looking closely at their tax accounting in particular, and also looking at their manufacturing accounting and trying to maximize the math between those 2 equations—either shifting IP to different geographies and/or reducing or increasing the cost of manufacturing associated with different geographies, such that they can have lesser P&L exposure from whatever may come with regard to tariffs. Of course, we don't even know what we're solving for yet because the Trump administration hasn't been clear on that front. Chris Garabedian Yeah. Hey, Brad, I did listen to the Bessent interview that Matt Klein did, and there was a good, nuanced discussion around pricing and what it means, where the U.S. has largely been the high-margin market. There could be some positive implications. Again, the worst scenario is that most-favored-nation pricing goes to the lowest price, but there are also scenarios where this could be beneficial. I wonder if that's why the pharma companies we're seeing are saying, “Hey, we'll work with you. We'll bring manufacturing back.” Eli Lilly, J&J, and Novartis are kind of leaning into this. Maybe they view it as negotiating leverage to protect their pricing power to some degree. But Brad, any comments on that? And then, Tess, I'd love to hear from you. Brad Loncar Well, at the risk of having an unpopular opinion, I have to say I personally support the pharma tariffs. Number 1, I think there is a real national security angle to this issue, and I think it's going to be—not a carrot, but a stick—that's going to solve that problem and get companies to move back here. You're seeing that immediately. I mean, we saw it with Novartis yesterday. I think the number was like $25 billion or something. The reality is that we—the United States or the White House, however you look at it—have the ultimate card to play here because we are the market for this industry. There's not even anything that's in second place. Everything else is a distant third or fourth. So, we have the ultimate cards at the negotiating table. The reality is that there are so many places around the world, like Ireland and other places throughout Europe and Asia, that make small fortunes by enticing companies to manufacture and do business there, to domicile themselves there, and to domicile their IP there. Then those same countries pay a small fraction, or don't pay at all, for the drugs that our industry creates. I think our industry has had this coming for a long time. Like I said in the beginning, the abruptness of it is chaotic, and maybe there's a way to do it more smoothly or something. But from an overall macro perspective, I agree 100% in principle with bringing more of this to the United States because we are the 100-pound gorilla in terms of the market that supports this industry. Chris Garabedian Yeah, good comments, Tess. Tess Cameron Yeah. Thank you, Chris. I would absolutely agree with Brad from a national security angle, in terms of having more production in the United States. I think an area that doesn't get nearly enough press on this is the generics industry, where I think there have been a lot of shortages over time. Some of that comes from so much price pressure and so much ex-U.S. manufacturing that any kind of supply-chain snafu can really create shortages, and it can result in a real detriment to patients. So, I think that's an area that's really important. I think tariffs are probably not necessarily the way the administration should go in terms of bringing manufacturing back for the generic sector, simply because the margins are so slim, right? Maybe there should be a bit of a different approach between branded pharmaceuticals and generic manufacturers. I would put generic manufacturing in the category where I think there's probably the most acute security concern and domestic-supply concern. That's point number 1. I think, too, on these manufacturing announcements, it's a smart, intelligent way to curry favor. Whether they actually happen is going to be another question. Novartis, Eli Lilly, and J&J, as you mentioned, have all come out and announced these multibillion-dollar investments in the U.S. I don't know if everyone remembers the first Trump administration. I think this happened often, but there's one that I remember in particular, which was Apple. Apple promised, “We're going to build these 3 big plants, and we are going to invest $1 billion in this fund for advanced manufacturing.” It sounds really nice and creates these nice headlines. I'm sure Apple built a bunch of plants, but were they just going to do that anyway? They put it in a press release, and I don't know if the fund ever happened. I think there's an aspect here of what is PR and what is real, and what are you actually going to do. To this point about manufacturing and tax being wrapped up in this, it's like, well, you can move your manufacturing, but are you still going to have these issues? Your IP is over in another country, and that is really an artifact of a time when the corporate tax rate in the U.S. was 35%. It's not anymore; it's 21%. But how do you unwind that? It is incredibly expensive and difficult to unwind all of this IP stuff that's really from another point in time. Eric Schmidt I haven't yet seen any solutions or thought on how that can happen. Certainly, moving manufacturing over to the U.S. would help with the value add that you can do in the U.S. and move some of those profits away from Ireland or Switzerland, but it doesn't solve the whole problem. Chris Garabedian Yeah. Well, yeah, this is another one we've got to look at and take a long-term view on, to see how it plays out over the next 6 to 12 months and, ultimately, years, to see how this evolves. ### The Data Readouts Test Conviction So, let's move to the data readouts. I'm going to ask our co-hosts to be quick on the topline. We'll do it rapid-fire. There were some data readouts. Paul, if you want to cover Lexeo and Rhythm, and then, Tess, I know there's some CNS data that's come out this week as well. Paul Matteis Sure, thanks. On Rhythm, they had positive phase 3 data for their drug setmelanotide in hypothalamic obesity. I think the interesting point of discussion for this podcast is that, for any companies listening, this was sort of a management-team masterclass in setting expectations. They were very firm for a long time. They didn't wait until the last minute around a certain effect-size hurdle that was conservative to the point that I think they really did have investor expectations pricing in a meaningful regression from phase 2 to phase 3. Then they beat that hurdle, and in one of the worst markets I can remember, their stock has significantly outperformed and was up a lot in a couple of bad market days. From a drug perspective, it's an important drug because this is a really challenging population. Most of these diagnosed patients had brain cancer and tissue damage to the hypothalamus, and as a result, they don't respond to GLP-1s. The data really helped, I think, underscore that, with the placebo arm having a bunch of GLP-1 patients and yet the placebo still gaining weight over a year. So, interesting company, super-interesting product, and I think, as we talk about the types of stocks that investors are more interested in in this market, having a de-risked asset is a nice place to be. As it relates to gene therapy, I'd love to hear Tess and Eric—any quick comments, or you too, Chris, of course—but just as it relates to how public-market investors are looking at gene-therapy companies right now. Lexeo put out some data where, from my perspective—and I cover the stock, so maybe I'm biased—there weren't really any surprises. They're developing a gene therapy for Friedreich's ataxia. The biomarkers in this indication have noise. They measure frataxin protein; this gene therapy does not make a lot of it, but the argument is you only need a little for benefit. There’s dose dependency, but there’s noise, right? There are variable baselines, and they also look at left ventricular mass index, which is a validated biomarker. If you believe their agreement with the FDA, that’s going to be their endpoint in their pivotal study, although I think a lot of this FDA guidance is getting discounted by people right now because of uncertainty at the FDA. But the LVMI data looked good, right? Again, the caveat is that the baselines are very variable. Not all patients with FA actually have elevated LVMI. So we saw a stock move there where the stock traded down 25% to 30%. It was sort of hard to explain. It seemed more to me like selling on a liquidity event versus anything newly wrong with the data. But I also think with gene therapy right now, outside of the perceived uncertainty at the FDA level, there’s been more of an investor reckoning and a little bit of a shoot-first, ask-questions-later across the gene therapy space. What is the commercial model? Are any of these companies viable takeout targets, or do they have to build a business themselves? What does a business with no long-term terminal value look like unless you really are redosing products? That’s not a Lexeo-specific comment, but I feel like there are just a lot of overhangs in that space now. I think Sarepta’s DMD gene therapy having the setback it did has had a negative read-through into the space, if anyone wants to add anything there. Eric Schmidt Well, I think the only thing to add, Paul, is that I, too, thought the data were certainly favorable. I don’t cover the stock like you do, but to Tess’s point earlier, it’s an event, it’s a milestone, it’s a trigger, and there’s no such thing as good triggers in today’s market. It’s bad and worse, right? So it’s just a time period when companies are very much at risk if they say anything. Chris Garabedian Yeah, I’ll just say, we were investors in Cargo, which was a cell therapy. Broadly, cell and gene therapy—even broadly, genetic technologies—even if you look at Intellia’s valuation, I think there still is a big overhang there. I think the Sarepta data had something to do with it. I think Peter Marks—I mean, all of it is just a tough area, and I think everybody wants to see it swing back first before they feel it’s safer to jump back in the water. I do agree with you, Paul, that the liquidity event in this environment, where funds need to sell, might have been a factor as well. Tess, any comments on that, or do you want to touch on some of the other data from this week? Tess Cameron Yeah, maybe we can touch on some of the other data. Maybe just quick hits from AD/PD and AAN, and please, others, jump in for anything else that stood out. At AD/PD, we got an update from Alzheon. They had their APOLLOE4 Phase 3 study that they presented. This was an RCT of their drug, an oral beta-amyloid inhibitor, and they were looking at APOE4 homozygotes—people who have both copies. I think they saw overall that the results were not statistically significant. Of course, I always want to get Eric’s view on this. There was a subgroup, Eric, that was the MCI—the mild cognitive impairment—group. They were looking at a patient population that included both MCI and mild dementia. I think the question that they’re going to have is whether there’s enough of a rationale there to move forward in a smaller group of patients. We know that going earlier in Alzheimer’s is important, but are the results robust enough? They did see separation in CDR-SB in that prespecified subgroup. I think it wasn’t statistically significant on CDR-SB, which is typically a registrational endpoint. So, more to come, I’m sure, in terms of where that could go. Another update that we got was on trontinemab, which is the brain-shuttle drug that Roche is developing for Alzheimer’s. I think the data continue to look pretty interesting in terms of the first brain shuttle. Most important there is that they had an additional number of patients. If you recall, there was a cerebral hemorrhage case that happened. At CTAD, they disclosed that and have since tightened the criteria for enrollment. As a result, they didn’t see any more of those, which was positive. The thesis for trontinemab is really that it can get to faster plaque clearance with lower ARIA. There are a few different types of ARIA, but one that we often look at because it tends to be more related to symptoms is ARIA-E. At one of the dose groups—I think the 3.6-mg dose group, which is the high-dose group they had—there continued to be no cases of ARIA, which is really encouraging. That’s one of the reasons that the currently commercially available beta-amyloid drugs have seen less uptake than maybe one would have expected: because of these rates of ARIA that require a lot of monitoring and can also result in pretty serious symptoms for a smaller subset of patients. Maybe just quickly at AAN, I think one that stood out to us was inebilizumab, which is a CD19 antibody that Amgen is developing in myasthenia gravis. Everyone was pretty disappointed in the data that came out last year, where they were looking at MG-ADL scores of about 1.88 placebo-adjusted, which was not viewed as particularly competitive versus Vyvgart. But they came out with longer follow-up, and that score continues to improve. At 52 weeks, it got to −2.8. So I think that’s showing up as a drug we really need to watch in that space, and certainly more competitive than the first data release. Chris Garabedian Great, Tess and Paul—great job covering a lot of data in a short amount of time. There are 2 things I wanted to highlight from folks who are frequent guests. Daphne, who leads this Biotech Hangout, was nominated for the STAT list that STAT News puts out. It’s kind of like who the major players to watch are. I have to say I was impressed that STAT—I feel like the other side, if you will, dismisses any journalism of biotech—but I was surprised to see STAT highlight Marty Makary, RFK Jr., Mehmet Oz, along with folks like Scott Gottlieb and others. It showed me that they do want to cover the current administration and what they’re saying, and hopefully to be objective, because I think we need to keep the dialogue open on both sides to have credibility, rather than have the other side just tune out and go to alternative media, Twitter, or independent journalism. So that was nice to see. But congrats to Daphne on that. Also, there was a post by Mihal Preminger, who’s departing a very significant role she’s played at J&J, leading external innovation there. She’s probably one of the more prolific folks out there as a champion of our industry. I don’t know what she has planned next, but we all are endeared by Mihal and how much she contributes on this Biotech Hangout and just for the industry at large. We’re at the hour. Brad, I’ll come to you. Any final comments, either on Mihal or Daphne, or overall for going into next week? Brad Loncar No, of course. Best wishes to Mihal. Mihal should be like the mayor of Kendall Square. I feel like she knows more about Kendall Square than just about anyone out there. She gave me a walking tour once that was really amazing. But best of luck to her, and I echo congratulations to Daphne on the STAT thing. Chris Garabedian Great. All right. Well, thank you all for tuning in to this episode of Biotech Hangout and we'll see you on the next one. Have a good weekend. Thank you, Chris. Thanks everyone. Bye. Bye.