# Episode 145 - June 13, 2025

Biotech Hangout · 2025-06-18 · 60 min · https://www.youtube.com/watch?v=-b4TrxRb5iY

## Transcript

Josh Schimmer

You're listening to Biotech Hangout, a live and unedited weekly discussion of all the latest news, or at least some of the latest news in industry. I don't think we can cover all of it. There's too much going on. I'm Josh Schimmer. My co-hosts today are Eric Schmidt, Paul Matteis, and Yaron Werber. For more information about our hosts and guest speakers, in addition to our disclosures or to listen to the most recent episode, please go to biotech.com. I can probably speak for all of us when I say we shouldn't construe our discussion as investment advice. Investing in biotech companies is obviously not without risk—a lesson many of us have been learning lately.

I also think I speak for many of us when I say I want to quickly offer our prayers for the world—for the peace-loving people in Israel, Iran, the Middle East, the United States, and beyond—in these very tumultuous, quite unprecedented times. We've got a sell-side analyst sweep here. What an honor for me to host some of the best in the business, as well as Eric, who's actually the legend of all of us and can proudly claim both me and Yaron as his disciples.

I think, Paul, it might be 3 against 1. You're going to have to bring it. All right, let's start off with the biotech state of affairs. I'd love to get everyone's thoughts and general sentiments. Are we finally at a bottom? We keep asking if we're at the bottom. Is this it? All right, let's start with who's optimistic from here.

### Biotech Finds Its Bottom

Paul Matteis

I am. I think—I mean, I feel like so far, right? I assume everybody here saw that Bloomberg article, and it's probably covered elsewhere. Actually, it was covered widely, right? Because a reporter asked Trump about the trader phrase TACO—“Trump always chickens out”—the joke being that, as a trader, you should be buying dips on tariffs and any macro news because things alleviate.

At least in my conversations with investors, I think there's a growing school of thought that therapeutics has played out the same way. You probably should have bought the dip when RFK Jr. was first appointed. That's a stock comment, not a political or public-health comment, but that's potentially the reality. Same when Peter Marks was dismissed from the FDA. Same on the tariff day.

So, I think we're going to talk about MFN, and my only point of caution is that a few of the CEOs I've talked to in my coverage universe who are very involved in pharma are more worried than the average investor. They're coming from the place that pharma's not going to get out totally unscathed. Some concession has to be made.

But it feels like things are improving. It feels like the FDA is really open for business. We've seen companies without a buyer successfully launch drugs really, really well. We've seen some small companies, like microcaps, be able to recapitalize themselves. We've seen M&A, with premiums that are more modest, which I interpret as a good sign that maybe we're actually seeing mid-cap companies as more willing, realistic sellers.

I feel like there's a lot to like, even if MFN is still the bogeyman. I'd be curious what others think.

Josh Schimmer

All right, Eric, are you on? I like it, though. I like it, though.

Eric Schmidt

I'm not sure I can jump in. I'm not as brave as Paul. There's no way I'm going to go all in on biotech. But what he said certainly resonates, and I think I'd add that we're just seeing good fundamental news.

We had a bunch of conferences this week, whether it was EULAR or EHA, and ASCO had ended last week. The data sets coming from those meetings are really favorable. We had an FDA approval, as Paul alluded to, that no one expected to happen this week. It was kind of a surprise approval, so that was great.

We got study results even outside the medical meetings that continue to pile up in a positive way. This had to be, maybe even coming off last week's ASCO, the best 2-week string of events that we've seen in the industry in a long, long time. At least in my recent memory, I can't think of a better 2-week stint for fundamental news flow.

At the end of the day, that's what's got to drive it, right? We can't just hope that investors are going to bid up these stocks based on nothing. There has to be fundamental progress to support it. I'm pretty pleased with how things have progressed on that front. Yaron, what are your thoughts?

Yaron Werber

Yeah, look, I agree. Paul, I totally agree. I'm probably a little bit between both of you. I think we've hit the bottom, and I really like the turn here. I think the valuations are stretched to the downside. The expectations were as bad as it gets.

Biotech is probably not going to go into a bull market. There's no structural bull thesis here, but the news flow is good. We've had a lot of positive data. We think we're going to talk about some of it. We're seeing M&A, and sentiment's only going to get better. We don't think MFN is going to go through.

There's some positive movement, at least from both what Prasad is saying and Marty Makary. So, yeah, we're constructive. I would say we're constructive, probably not bullish.

Josh Schimmer

Anyone think there's another leg down with MFN, or is that generally incorporated into sentiment?

Paul Matteis

It feels like there are specific stocks that, depending on how this looks, could be more or less hit. Unless you think it's a broad impact to the sector, where we're talking about a disaster scenario for all drugs, I feel like there are definitely fears priced in. People are maybe on the sidelines of certain names or don't want to go more overweight.

I feel like there's some of that priced in, but the single-stock impact to me is still kind of the wild card here. For example, I cover Alnylam. I'm very bullish on vutrisiran. That's not a counter-consensus take. What if MFN is centered around Part B drugs? That suddenly means Alnylam is trading close to all-time highs.

By the way, I'm not sounding the alarms on Alnylam at all. I have no edge in this. I don't know if it's going to center around Part B or not, but I do think there are nuanced scenarios with MFN where certain stocks could get hit more than others. I think that's probably priced in across the sector in the XBI, but the single-stock impact is still a range of outcomes.

Josh Schimmer

Do you all think, as sell-side analysts who generally have a predilection for biotech because I think it's often easier to spot those undervalued assets, that we have a skewed perspective of the index? We kind of cherry-pick our coverage universes and, in doing so, tend to align ourselves with those companies that we think are most undervalued.

That's fine, right? We don't need the entire XBI to go up, as long as we have a good, strong collection of names that really are performing well and we have the ability to identify which ones those are going to be. But do you think we all approach this industry from too narrow a lens to see the big picture, and that big picture is actually not as rosy as we think it is?

Eric Schmidt

Well, it seems like that's a prompt for one of us to take the other side of the coin here and argue that MFN is going to be the detriment of all of us. So, yeah, look, I'll sound the word of caution on MFN, at least. I hope I'm wrong, and I think the points that Paul and Yaron were making—that sentiment's already pretty poor and, naturally, has more upside than downside—are valid.

But am I worried about MFN? I absolutely am. The administration is going to take its pound of flesh out of drug pricing. That's a no-brainer. There's no doubt that Trump, despite his threats and tantrums and willingness to settle for something less, is still going to get something that he will settle for.

There's no doubt that drug pricing will be impacted in a negative way by MFN. To me, that does put us on a little bit of a slippery slope, much like the IRA did. We are still suffering from that legislation and the curtailment it put on long-term drug revenues. We're going to have to deal with that.

I'm not saying it's going to be terrible, but there is something to be said about this populist rise against our industry. It was crazy to me to see Bernie Sanders and RFK Jr. mentioned in headlines this week as agreeing on direct-to-consumer advertising and hoping that it is shut down.

When you have the right and the left colluding almost on an issue that probably stirs up as much popular support as anything these days, our industry is on the defensive, and we better be careful, or else this could be more than just a pound of flesh. That's the worry.

### FDA Flexibility Meets Vaccine Turmoil

Josh Schimmer

Why don't we move on to some of the regulatory and related updates, starting with UroGen? Bit of a surprise, somewhat surprise approval. Eric?

Eric Schmidt

Yeah, I guess yes and no, right? There's no doubt the drug UGN-102—what are they now calling it? ZUSDURI? I can't pronounce this word. There's no doubt it worked. It always was viewed as an efficacious drug.

They didn’t have a great Phase 3 trial design. There was no substantive control arm in that design, so that got them in some trouble at ODAC last month. As many of our listeners know, the ODAC panel vote went against them, 5–4. That was a close vote, but it was unfavorable.

The FDA probably did what we all thought it should have done, which is turn around and approve the drug. This is for low-grade, intermediate-risk NMIBC. Josh, you know the indication better than anyone on this call, so feel free to chime in here. They priced the drug at about $21,000 per dose, so it could be as much as $100,000-plus per course of therapy.

We expect that ZUSDURI is going to go up against interventional procedures like TURBT surgery and will probably be best suited for patients who either are elderly and can’t really tolerate surgery or have a highly recurrent nature to their disease. It will probably do well in that subset. I think there are 59,000 total patients with low-grade, intermediate-risk NMIBC. It’s certainly a large market, and hats off to the team at UroGen for persevering and getting this one over the goal line.

Josh Schimmer

Thoughts on what it means more broadly about the FDA, as we’re all, to Paul’s point, wondering whether it’s going to be rosy or gloomy?

Yaron Werber

I’ll let someone else opine on that. I’m not sure I have a strong view. At least from my perspective, it shows the FDA is continuing to be flexible. It was a narrowly negative ODAC, and one might have thought that they would, again, from a very dogmatic perspective, just say no, highlighting some of the concerns that the reviewer had raised.

But again, in many ways, it feels like, for the most part, business as usual. Maybe where it’s not business as usual is RFK Jr. tearing the ACIP committee to shreds and replacing it with a mishmash of specialists I wouldn’t necessarily have thought would belong on an ACIP committee. There’s a psychiatrist, a nutritionist, an ER specialist, an OB practitioner, and some very noted vaccine skeptics.

This, I guess, in my mind, feels different from that knee-jerk reaction many had when Drs. Makary and Prasad were announced as heads of the FDA and CBER. I think those appointments are actually starting to look quite strong, even though one might have looked at their track record and had some concerns. Is there anyone who’s optimistic that this new ACIP committee is going to make sound, thoughtful decisions that are in the best interest of public health policy?

Josh Schimmer

Seems like a disaster, doesn’t it?

Eric Schmidt

Kind of.

Paul Matteis

I don’t know what the bull case is. My wife and I are expecting a kid in 3 weeks. I’m hoping we can get some vaccines in the next couple of years. I don’t know.

Josh Schimmer

I’m concerned. I’m concerned for the world. What do others think?

Yaron Werber

What comes to mind is trying to have a dessert menu full of pastries without a pastry chef. People who make steak cannot make pastry. Vaccines are a very specific breed of therapeutics. This is not like a regular drug, so that’s definitely concerning to me.

Some of them apparently have ties to RFK relating to the Merck litigation. I don’t know if I have the facts correctly, but that’s kind of what I’ve been reading. That’s also raising some concerns.

Eric Schmidt

Yeah.

Paul Matteis

Yeah. The only thing I wanted to add is that there does seem to be this increasing narrative out there around the FDA being in a good place, and Makary and Prasad being pro-industry and pro-drug approvals and exerting the flexibility we just talked about on UGN-102.

But this is not okay, what’s happening in vaccines. It’s not okay to say, “Well, the FDA is functional, but…” and then point to the disaster that’s going on in our public health system around RFK Jr.’s agenda for tearing apart the vaccine world. We need to be very mindful of this, Josh, and I think you’re right to raise it as a big problem. It sounds like it’s only going to get worse before something, unfortunately, happens to stop it. Most likely, that something is going to be a public health crisis.

Josh Schimmer

From what I’ve seen, this one, to me, is the one most across the line—or at least threatening to be—given the potential impact if the committee really does start to unwind vaccine practices and not really appreciate the important nuances of herd immunity, immunocompromised individuals, and the what-if scenario of, “Well, what if you got the infection and not the vaccine?”

I’m not sure obstetricians, ER doctors, psychiatrists, and nutritionists are really going to be the best people to weigh all those factors. We will obviously see. There’s not much we can do about it other than raise our voices and our collective concern, and then hope that, ultimately, good, sound decisions will be made.

Maybe on to another topic for the group to opine on. We’re starting to see a continued amount of investor activism against boards. We’ve had ADAR1 send a very interesting letter to the Keros board. Deep Track has obviously been battling Dynavax.

It raises the question, particularly in tough times, when companies have lost investor mandates: Are boards doing enough and meeting their fiduciary duty consistently? Are shareholders being too aggressive? Does any of this even matter? Paul, maybe we’ll start with you and get your thoughts.

Paul Matteis

I don’t think these investors are being too aggressive at all. Look at what happened with Third Harmonic, and look at the reaction not just on the Street to the stock, but also at the perception of that team and the discipline they’ve had. Again, I didn’t cover that stock—my colleague Alex did—but my sense is that those executives will have welcome roles leading another startup because they made the right decision.

I don’t think—I don’t want to pick out companies on this—but we’ve seen a number of times where a company goes public and has a lead asset that is 90%-plus of the valuation, along with some earlier-stage programs that investors didn’t really spend much time on. The lead asset fails, and the company has excess capital that it’s ultimately going to spend on projects that weren’t really the premise of getting the money in the first place.

That’s their right. They have the money, and that’s their right. But understanding that every situation is nuanced, I can totally understand why some investors are making pushes in certain situations like this. I have no problem with it.

Josh Schimmer

You’re on. How about you?

Yaron Werber

I’ve actually been speaking with a few people who are involved in these situations, and what we’re hearing is that some boards are concerned that if they unwind the company, they’re going to admit defeat and open themselves up to litigation.

While we all think they have, let’s say, $100 million on the balance sheet, they have commitments that they need to unwind—contracts with employees and facilities. They also need to keep some D&O insurance in case of litigation. So the $100 million is never $100 million.

But I do believe that companies should make decisions faster to terminate programs. It’s okay. We all know most programs won’t work. They need to be equally skeptical about what they have, even if it means that the alternative is to shut down, and they need to be better stewards of capital.

It’s going to be much better for the industry, and we can use those shells to take the next slew of companies public, given the state of the IPO market. I think it’s the right direction.

Paul Matteis

I just want to point out how amazingly quickly this trend has occurred. Josh, you’ll remember that you and I were writing about zombie biotech companies just 3 or 4 weeks ago. I think it was a note that we published back in February, and we were calling out many of the companies that were trading well below their cash balance, had the recent blowups that Paul mentioned, and were still willing to spend their inheritance on projects that investors hadn’t really supported with the funds they were giving those companies.

This wasn’t happening 6 months ago. No one saw any of this happening, and now today it’s almost commonplace. It’s almost a fait accompli that when a company has its main project blow up and has $300 million, $400 million, or $500 million of cash, the company, as Third Harmonic did, either waves the white flag and says, “Okay, we’re going to return capital,” or someone scoops in and tends to do it for them.

I find this to be efficient capitalism. We had way too much capital held out in these shells of companies that no investors were supporting, and I honestly love the trend.

Eric, since you were in a company—and I guess your own, too—if you guys were in one of these situations where you’re trading at a negative enterprise value, the lead drug failed, but you have a second clinical-stage asset and, as the CFO, you truly believe in it, but Wall Street doesn’t...

Josh Schimmer

What do you do? Do you go with your belief, or do you listen to investors who, when you're on the inside, you probably feel like know a lot less than you do? Yaron, you want to try?

Yaron Werber

I think it really depends on a few factors. What's the level of real support and conviction around the table in that asset, and also at the board? You could see that in some cases. We have to remember that these people then have to go find another job. So there are situations where the people around the table who've already been successful and are very employable find it easier to make the decision—they'll find another role.

The people who've been less successful probably have other considerations. If there are mixed feelings around the table and the chances for success, then where's the balance of power, and what is the tempo of the board? If everybody doesn't believe in the second asset, then it'd be a much easier decision. But it's complicated.

Eric Schmidt

Well, I think the onus is on the company, right, to prove to the world, or to convince the world, that any asset—whether it's the first asset, the second asset, or the third asset—that you're willing to spend shareholder resources on will give you a reasonable return, right? I think the problem we've had is that there are too many companies trading well below their cash balance who failed at convincing the investing public that what they were doing made a lot of sense. Some are still failing to convince the investing public that what they're doing makes a lot of sense.

We can blame that on a downturn in the market. We can say the market's inefficient, but to me, that's a slippery slope. Josh, I know I'm going to engage you in this debate, but saying, “Oh, it's just a bear market, and investors aren't listening, and investors are the ones tuning out all this great science, and they're the ones that need to change”—I think that's a tough place for a management team to hide.

Josh Schimmer

Yes and no. I think the markets have proven themselves time and time again to be inefficient, and a little market inefficiency is not a big deal. Maybe it costs a little bit more dilution, but we often see market inefficiencies that are far more profound and disruptive to companies.

I think at the end of the day, one of the big challenges here is that so much of this is subjective, right? The probabilistic analysis that we do to predict the likelihood of a drug succeeding is as much an art as a science. So it is entirely plausible that management teams and boards, especially with more information than investors who not infrequently think they know more than they do, will have a very different sense of probability. And then who do you defer to in that case?

Do you defer to a single agitating shareholder, even if a powerful one, or do you fight back, or ultimately do you wind up compromising? This certainly seems like something that's increasingly important in our industry—in part an industry that has struggled, in part an industry that wants some of that capital back in order to redeploy it and/or simply correct some valuation discrepancies in these very negative enterprise value companies, and is trying to generate at least some immediate return on the capital.

All right, maybe on to another topic: an emerging theme that we were going to talk about when I was on a couple of weeks ago but got pulled off, and that is the topic of psychedelics. Paul, I know this is a space that you're quite interested in. We do have some upcoming data for Compass. How are you feeling about the Compass program and psilocybin in treatment-resistant depression, and then perhaps more broadly, the psychedelic field in general?

### Psychedelics Become A Real Drug Class

Paul Matteis

Yeah, I think this is a space I've become so much more excited about. If you played me a recording of that statement when Compass was going public, I might not have believed it, because this space has come a tremendous way.

If you go back to when Compass went public—which, look, it was a promising story—there were a number of academic studies around psilocybin, but there were still an enormous number of questions in this area. One was the FDA regulatory hurdle and what they're going to want for safety and trial design. Two, are these products even commercially viable? And three—and this isn't a Compass comment, but more of a whole-space comment—I think most of the companies in the first wave of this space were led by very untraditional management teams, which sometimes can be okay, but oftentimes, at least in certain cases, management teams had less drug-development expertise. They were trying to pioneer programs that are probably more complicated than average. So that's where we were.

I think where we've gotten to, and what's made me a lot more positive on this area, is first, the success of Spravato commercially. That's Johnson & Johnson's esketamine drug. It's not an easy drug to use. It's 2 hours in a patient, it's given every other week, and the efficacy is not amazing. I'm not saying it doesn't help a lot of people, but it only worked in 2 out of 4 of its clinical trials, right? So it's not an amazing drug, and yet it's selling well over $1 billion and growing fast. I think that could ultimately be a $3+ billion drug.

For a company like Compass, or companies like GH Research, MindMed, or atai, which has a 5-MeO-DMT study reading out this year too, it feels like the market has been validated. It feels like the FDA has become a lot more on board with this space, with the approval of Spravato and also with a number of these companies having pretty rigorous regulatory discussions around things like trial design and functional unblinding.

I think ultimately the bottom line is psychedelics feel like they're going to be a real commercial drug class, right? They're going to be premium products that are used predominantly in treatment-resistant depression or anxiety. You could be looking at something that is a $5+ billion class. I don't think that's crazy.

As it relates to Compass, the setup around their phase 3 study is nuanced because, for that stock, I think the investment debate does continue to center more around the commercial setup versus whether the drug works. For context, they're going to have their phase 3 data likely this month from their first of 2 phase 3 trials for COMP360, which is their psilocybin compound. This study is placebo-controlled, and as a result, it's generally expected to succeed—not just because the drug works, but also because in any placebo-controlled study of a psychedelic, you have some level of functional unblinding.

We're also going to get more limited disclosure at the top line because they want to preserve the integrity of their second phase 3, in which the control arm is not a placebo but a subtherapeutic dose. So I think, as an investor or as an analyst covering Compass, I'm bullish into the data because I think the data are going to be positive, and I'm confident in that.

But I think ultimately you have to be realistic that the investment debate here is more around how this is given—8 hours in a center. They have a trained therapist with the patient at most sites in these studies. It seems plausible that that's not going to be a requirement in the real world. So certain things there are the longer-term investment debates that aren't going to be resolved by these data.

The context is this space felt a little science-projecty a half-decade ago, and now it feels like there are a number of real companies and it should be taken seriously.

Josh Schimmer

What do you think? Any guesses on the magnitude of the MADRS benefit in the Compass trial?

Paul Matteis

It's a good question, man. For context, again, they're only going to be disclosing the placebo-adjusted effect on MADRS. I think what we've seen across these psychedelic studies specifically is that the magnitude of the placebo response is enormously variable. In some of the Spravato studies, even though there was “functional” unblinding, you still saw a healthy benefit in the placebo patients. That benefit might just be from participating in a trial, coming into a clinical center, or some level of spontaneous resolution.

You contrast that with the GH phase 2 study, where the placebo didn't improve at all. That could be due to a variety of factors, one also potentially being functional unblinding to some degree. For psilocybin, you should have functional unblinding, which should attenuate the placebo response. But the experience for the patient—even the person on placebo—is potentially more involved, right? You might get some therapeutic benefit from being at the center, being in the room, and all the interactions and stuff like that.

So I guess what I'm trying to say is they could put up, Josh, a 4- to 5-point difference between drug and placebo in the topline, and some could say, “Oh no, that's half the effect size of 5-MeO-DMT in the GH study.” What I would say is, well, we have to see what placebo did before we can really interpret that.

But I think in that ballpark, that 4- to 5-point range, that's a likely base case for me if this works, or better. I do think ultimately this probably will have a below-average placebo response as far as MDD studies go. I'm fairly confident that the drug works, so I think mid- to high-single digits is probably the right range.

But again, there's a lot of nuance, and we're not going to know some of the key details needed to really make that cross-trial comparison when the press release comes out.

Josh Schimmer

Yeah, I think that's a great summary. One of the early questions was, who's going to figure out how to deliver this, right? You think of most psychiatrists' offices: it's a room to see a patient in and a waiting room. Where on earth are you going to find a room or suite of rooms to deliver this care to patients?

All along, Compass has kind of said, “Oh, it's building itself. It's building itself.” And lo and behold, it's absolutely building itself. I am literally looking out my window across the street at what used to be a convenience store, and now it's an interventional psychiatry and behavioral health clinic.

Paul Matteis

That's crazy, man.

Josh Schimmer

Is that right? What on earth is going on here? But I think it reflects the fact that psychiatrists realize they've partly been practicing pseudo-medicine because they just haven't really had anything meaningful to offer these patients outside of some modestly efficacious medications that also have some pretty significant side effects. Maybe not life-threatening side effects, but certainly life-altering side effects.

Now that they have within their grasp something to provide patients that could really transform their lives, why wouldn't they adapt their practice and clinic and figure out a way to deliver these a little bit more intensive-type monitoring therapies, ideally with the benefit of really transforming lives in ways that they aspire to?

So, yeah, I'm very much looking forward to the Compass data and a stream of catalysts. A lot of this has been in the works for some time, and now we're starting to see the latest-stage clinical trials read out. To your point about Spravato, it's not the easiest therapy to administer because you have to keep going back to the office on a weekly or every-other-week basis. There's the time to administer it, the travel time, and the travel costs, and yet it's grown like a weed.

Paul Matteis

It's amazing, man. It's really amazing. I think the last thing is just that a lot of these centers have figured out how to turn this into a business, like that clinic across the street from you.

Josh Schimmer

Massachusetts General Hospital, right? If anyone's ever been in MGH, it's so big—

Paul Matteis

And, you know, it has so many different groups, it almost feels like being in an airport in that lobby. And yet they've figured out how to turn Spravato, as I understand it, into a revenue driver, right?

That's going to have to play out with all of these individually. There's some concern that with the longer-duration psychedelics, you might not be able to flow as many patients through the center in a day, but it's actually unclear if that's really going to impact the economics. Without going down that rabbit hole, the money piece of it always helps.

Josh Schimmer

Yeah, indeed. All right, let's move on to some of the other important news of the week. Starting with Avidity, Eric, what did we learn about FSHD and their regulatory path?

### Avidity And Insmed Advance Their Programs

Eric Schmidt

Yeah, kind of a multifaceted update from the folks at Avidity on their AOC 1020 for facioscapulohumeral muscular dystrophy, or FSHD. This is obviously a disease that has no approved therapies and is quite progressive, so there's a lot of unmet medical need here.

I guess what we heard was, number 1, that the FDA is open to a potential accelerated-approval pathway, though maybe there's still some work that needs to be done there. Number 2, the company has started its confirmatory Phase 3 study, an outcomes-based study. And number 3, the Phase 1/2 extended dataset, including longer-term follow-up, looked really good.

The Street seemed to focus on number 1, maybe not getting quite what it wanted from the accelerated-approval discussion the company has had with the FDA at this point. Clearly, the FDA is open to accelerated approval, but I think the company is still working out some of the supportive datasets it needs to file on a DUX4 biomarker endpoint.

I expect they'll get there, and I expect that when they do file late next year for accelerated approval, the drug's going to be approved. But what I think may have been missed by Wall Street investors, with the stock having been down this week, was the really consistent data we saw in terms of clinical and, for that matter, biomarker outcomes from the Phase 1/2 study.

I was very impressed. This is a slowly progressive disease, a disease that can move down stochastically, sort of randomly. In a relatively small cohort of 35 to 40 patients, over the course of 12 months, to see that consistency across multiple different physician- and patient-reported clinical benchmarks of disease, as well as objective biomarker benchmarks of disease, tells me this thing works.

To me, our probability of success for this drug should go up meaningfully higher as an investment community, and we just haven't seen that priced into the stock. But Paul or Josh, I know you guys know this one well, too, so chime in.

Paul Matteis

It just feels like, again, like we said earlier, this is one of a number of catalysts that we've gotten in the past month or 2, and obviously in the 6 months before that, in the Peter Marks days, where we're getting regulatory alignment with a degree of flexibility. I mean, totally—CBER, not CDER, right? But we saw uniQure's alignment in Huntington's recently.

This one is one I've been watching closely, not just for Avidity and this FSHD program, which could be a really big drug if it works out, but also for the DM1 space. There's an odd, atypical scenario there with Avidity pursuing this full-approval path and Dyne pursuing an accelerated-approval path on a DMPK biomarker with clinical data.

It feels like the receptivity here probably has some positive read-through to the potential receptivity there, and we should know soon. Josh, did we lose you?

Josh Schimmer

You did. I was talking to myself on mute. I was just moving on to the Insmed data update. Big week for that company, and Will Lewis, the CEO, is on quite the run.

The data for their TPIP, an inhaled prostacyclin analog for pulmonary hypertension, looks quite good, delivered as a once-daily administration in contrast to United Therapeutics' blockbuster Tyvaso, which is 3 times a day.

Let's see if anyone knows a little bit of history on this one. If you recall, Tyvaso is a 3-times-a-day inhaled prostacyclin. At one point, it was competing with another company that I think was delivering inhaled iloprost 4 times a day or more. Anyone remember what that drug was and what company was developing it?

No crickets. It was CoTherix's Ventavis. It's perhaps a reminder that for these inhaled therapies, which can take up to 10 minutes for each session to inhale, the ability to reduce the number of times a patient has to do that can be very powerful in terms of claiming market share.

What's also interesting about Insmed now is that this is getting to be a pretty large company. It's close to a $20 billion market cap. Adam Feuerstein from STAT was commenting on that, wondering whether this is a company that's just too big to be acquired, and whether that's a bad thing or a good thing for biotech.

Are we ever going to stop talking about pharma M&A as an important driver of stock performance and maybe start getting behind these companies that might ultimately become perhaps the next Regenerons, or even bigger? Anyone have any thoughts as to why we're so M&A-obsessed as opposed to large-company-building-obsessed?

Paul Matteis

Yeah, I agree with you. We need Vertex, Regeneron, Celgene, Alnylam, argenx—the companies that can become large. But these companies all had one thing in common: they had a sizable first product that then allowed them to develop a pipeline underneath and become large-cap companies.

I think the obsession might be warranted for the smaller companies that really need a bigger partner. But for those who can really make it on their own, I'd say, fly the flag and sail across the ocean. Acceleron, to me, was one where I still believe it was a shame that it was acquired. Again, no offense to Merck, but I think they would have done fantastically on their own.

We probably need both. That's kind of the way I'm thinking about it.

Yaron Werber

Yeah. And I would say the more large biopharma companies we have, in theory, the more acquisitive they will be, perhaps, of the companies that don't necessarily have the type of assets or portfolios to turn into a very large acquirer on their own. Sorry, Paul, you were going to—what were you going to say?

Paul Matteis

Well, yeah, I think the interesting M&A piece—and you guys, I'd love your perspective on this, too—is that it feels like investors, and stocks in the space, are not really valued on DCF.

Like they are, but they aren’t, right? It’s almost like I feel like, as a sell-side analyst, I have to have one. But I also know that when I talk to people about valuation, it can often be a little bit hand-wavy, right? Peak sales, multiple comps, things like that.

And so I think, in the context of that, the possibility of M&A, even if that possibility is a couple percent, almost just helps put a company into a different valuation conversation, right? Josh, you and I, and I think Yaron, actually, too—and Eric, you might have even covered this at one point when you were at Cowen—like Ionis, right?

Ionis has built a pretty impressive company. They’ve got a number of programs. They’ve got a number of shots on goal. It feels like, because that company is seen as an extremely low-likelihood M&A target, it’s not going to get that valuation premium that many people hope it should.

And so, right or wrong, I feel like it’s not just about investors feeling like they need an exit. It’s also just feeling like, for biotech, for the risk that you take on, you almost need a couple percent chance of that dream case at least to sort of justify everything else. That’s my gut feeling.

Josh Schimmer

Yeah. Any other thoughts on that? Well, how ironic that Ionis is the one company that binds us all together.

Eric Schmidt

That is awesome.

Yaron Werber

Well, Ionis—we all wait for the next 12 to 18 months, when the golden age of Ionis is coming. Well, we have another 18-month window.

Paul Matteis

And they’ve got a lot going on, man. They’ve got a lot going on. They’re smart drug developers, but it’s just fascinating how the psychology of these things can be an overhang for a very long time.

Josh Schimmer

I mean, Paul’s comment is so interesting, right? We build these DCF analyses and think that’s the right way to value really any company, and then we throw in the towel because it doesn’t seem like companies actually trade around DCF fundamentals. So there seems to be something a little wrong or off about that.

If a company isn’t worth the cash that it can likely generate, akin to almost any company in any other industry and how they’re valued, shouldn’t it be? What’s a reason not to?

Yaron Werber

Look, I don’t know if you can hear me. What I struggle with with a DCF is that everybody does a DCF in a different way, and so much of it is the long-term value. I don’t even know how people look at working capital, right? Because that should be a part of the DCF.

And, of course, what we all use as a discount rate is highly sensitive to what we think about the future cash flows. And forget about capex. There’s just so much subjectivity that I think DCFs are so challenging.

In some ways, if you think about it, if you’re trying to model a financial company, a bank, how do you possibly figure out what its earnings are going to be in 5 years? Impossible. I would argue, at least with biotech, you can figure out what the 5-year outlook looks like, and then you can apply a multiple based on growth.

So I tend to think that a P/E is a better way to do it. We do these DCFs, but I just don’t have a huge amount of confidence in them. That’s just our view.

Josh Schimmer

Eric, what’s your approach?

Eric Schmidt

Well, I guess, as you know, Josh, for these development-stage companies at least, I think valuation is a fool’s game. I agree with Yaron; it’s kind of garbage in, garbage out.

What really, really, really matters is whether the drug works or not, right? And that’s a black-or-white outcome. Drugs either work, and they’re probably worth more money than their weight in gold and will grow and grow and grow and succeed and change medicine and benefit patients, or they don’t, and they’re zeros.

So we should spend a lot less time as a community working out models that are fictitious and a lot more time doing due diligence on what’s going to work.

Josh Schimmer

All right. Maybe next topic, Yaron. Do you want to take us through the Ascendis CNP data?

### Ascendis Challenges Voxzogo

Yaron Werber

Yeah. And chime in too, Josh. You’re an expert here. So, for the audience, this is Ascendis. They tested their TransCon CNP—that’s their drug—just filed for achondroplasia on November 30, and uniquely, they decided to also bridge it, marry it, to their own growth hormone.

Growth hormone is not the standard of care for patients with achondroplasia because, as you know, they have an FGFR3 issue in their bones; their bones are not normal. So if you give them growth hormone, they benefit, but it’s not fixing the underlying issue. So they put them together.

Yaron Werber

There was no control, so we had to look at historical controls, and everybody came off the TransCon CNP alone. The data was very provocative: 21 patients showed essentially an increase in the annualized growth velocity and also in body proportionality.

As many people know, patients with achondroplasia have abnormal body proportions. The data was very intriguing. It looks better than TransCon alone in the past, or Voxzogo. BridgeBio has an oral FGFR3 drug, infigratinib, which looks really, really good. We’re waiting for the phase 3 data later this year, but frankly, the combination now looks even better than that.

And it looks like, even on body proportionality, the data continues to get better. We’re only looking at 26 weeks now, and that data already looks as good as the 52-week data from the previous therapies.

The next step is to do a phase 3. They’re going to do CNP alone, plus or minus growth hormone. They’re not going to test growth hormone alone because that’s obviously not approved there.

The big question is going to be, ultimately, as we all know, patients who have short stature are kids. They’re only usually on it for 2 years, not chronically for life. And so naturally the question is going to be: Should a patient be on growth hormone with CNP for a year? Is it chronic?

There is some data out there historically that suggests that patients typically benefit for 1 year on growth hormone with achondroplasia, and then they don’t lose the benefit, but after 2 years they don’t really benefit further.

So it’s going to be a 1-year study, but it will be interesting to see whether the FDA is going to say, “Hey, just like—remember for Voxzogo, the FDA said we really want to see your 2-year data to get you approved.” That was the first CNP replacement. Whether the FDA is going to want 2-year data here, too, I don’t know.

Josh Schimmer

Yaron, it’s interesting because my impression was that the BioMarin 2-year data stems from the historical issues where growth hormone in this disease might have a short-term benefit but taper out over time. Isn’t that right?

Yaron Werber

That is totally correct. Absolutely.

Paul Matteis

Yeah. Okay. I actually have a question because I cover BioMarin, and it’s been such a tough story. It’s stuck in an Alexion-like universe of the undisprovable bear case, with Ascendis and the pipeline lacking and all this kind of stuff.

How do you guys think about the Ascendis launch? I feel like there are really 2 credible sides of it. The one side is just, hey, we’ve got a once-weekly drug that maybe is clinically better, maybe not. Why would anyone take a once-daily drug?

And then, on the other hand, you look at the growth hormone space, right, with how the once-weekly originally launched. You look at hemophilia with long-acting therapies, and then you think about just the global nature of this achondroplasia market. You could also, I think, make a pretty strong case that Voxzogo might be much more resilient than people think.

And I only cover BioMarin. I don’t cover Ascendis, but I just get the sense from the investor community that this is a super-polarizing topic, and I’d love to hear your guys’ perspective.

Josh Schimmer

And it seems like a common theme that we encounter in biotech, right? When you have an incumbent, entrenched player and there’s something shiny and new coming along that maybe investors and even the physician community is enthusiastic about, everyone’s nervous and very paranoid that the entrenched player is going to rapidly lose market share.

Oftentimes they don’t, for various reasons, but then sometimes they do. So how on earth do you really know when that entrenched player has some stickiness versus not? Aside from just trying to do a lot of diligence, I guess in this case, at least for the checks that we have done, for this patient population with specialists, we hear not that much enthusiasm—a little nonplussed—for Voxzogo because they lament that it’s a daily injection.

It’s a daily injection for kids who don’t want any injections, nor do parents ever want to have to inject their kid with a needle. I think that goes without saying. And on top of that, they’re a little underwhelmed with the efficacy that they’re seeing with Voxzogo.

And so, when we did the checks, we certainly picked up a high degree of enthusiasm for BridgeBio’s infigratinib, assuming that it stays safe and competitive on its efficacy profile as an oral option for kids. I think anyone who’s ever had to inject themselves with a needle probably realizes that it’s not ideal. If you have to, you do it. That’s fine—probably better than having a disease go untreated.

But if you could have a pill instead, in many cases that actually, from a patient perspective, would be preferable. And then you magnify that quite substantially when it comes to kids, of course, who would certainly prefer a pill to a needle. So our checks do suggest that Voxzogo does have vulnerability, and it’s probably why, Paul, you point out that that’s been an overhang on the stock.

Is it possible that this becomes a setting where BioMarin can kind of defend its territory by highlighting long-term safety data, et cetera? Nothing's ever absolute. And I think one of the things we struggle with the most is when it comes time to predicting not just the size of a market, but how it's going to split among different agents and how the introduction of new options into a field can potentially expand the field by bringing more patients onto therapy, with or without necessarily cannibalizing others that are already there.

But I think, from our view, the feedback that we've heard on infigratinib has been very positive, primarily because the doctors that we've spoken to like the profile, the efficacy, the tolerability, and very much appreciate it being an oral option. Yaron, I'm not sure if you've heard something different.

Yaron Werber

Yeah, totally. That's the drug that we've been following. Our colleague Tyler, as you know, covers BridgeBio, and we've been following that program through Ascendis, thinking that could be the winner. What's interesting is that they're going to have data late this year, as you know, so they're going to be on the market—I don't know—late next year.

An oral option could be really great for new patients. I guess the question is, do you switch? We think BioMarin is obviously going to lose share, and then the question is going to be, what do you do when the CNP/Skytrofa data shows up? And does that change things again, as to the 2 weeklies that they say they can co-formulate?

So that'll be interesting. And then, of course, there's hypochondroplasia and all the other indications, right? BioMarin is talking about $1 billion going to $5 billion. So that's good for everybody.

Josh Schimmer

Right. And

Paul Matteis

Well, it's just crazy that BioMarin gave long-term guidance a couple of weeks before the Ascendis data, right? I mean, that's tough timing, tough luck for them.

Eric Schmidt

Yeah, agreed.

Josh Schimmer

Well, maybe at another point, Paul, I would love to hear your thoughts about whether BioMarin can block Ascendis through the International Trade Commission, right?

Paul Matteis

I don't know.

Eric Schmidt

Well, there's like 2, so obviously I have no idea. I feel like IP stuff is so hard. I mean, look, Ascendis challenged the BioMarin patent in Europe, and that patent—the key patent—was narrowed, but there are still claims, right, that have kind of an argument probably on both sides as to whether Ascendis infringes it.

We've done some patent calls, and they've said, “Hey, BioMarin's got a real case here.” But it's always so hard to handicap. I feel like, for BioMarin stock, it certainly doesn't give option value to the scenario. But blocking is really, really hard in the US.

One nuance here—and again, I know maybe we want to cover other topics—but I just think this is so interesting. Since you guys cover Ascendis, I was really surprised that Ascendis got priority review, because, again, going back to your comment, Yaron, we've been talking about whether Ascendis is going to need the 2-year data for approval. Instead, they get priority review, and to me that suggests that the FDA is not looking at that as merely a convenience product, right?

That could also feed into this IP piece as well. If Ascendis can make—and they're going to make—their argument about their own data, but if they can actually make a regulatory-based argument that it's not just a me-too, that probably makes it more challenging for BioMarin to block them. Did you guys think anything of that priority review?

Yaron Werber

That was definitely interesting. I got to tell you, we immediately thought that BioMarin has now kind of set a new precedent that the FDA is comfortable with this mechanism and that they're not going to require 2-year data. But you bring up a good point. The priority review might be another angle.

Josh Schimmer

Yeah.

### CAR T Gains Ground In Autoimmunity

Josh Schimmer

I think we're in the final minutes here. I do want to touch on some of the EULAR updates, in particular Cabaletta Bio's CAR T for myositis, scleroderma, lupus, and lupus nephritis, which had a very strong showing at EULAR.

This is one of those scenarios, maybe not unlike the psychedelic field, where it feels like the buzz in the patient and physician community is far, far greater than the buzz in the investment community. Anyone have any thoughts as to why that may be the case in this context, now, for the CAR T field, which has not been the smoothest ride, but it does seem to be leveling out in a way that does appear poised to deliver meaningful value to patients? Eric, I know this is a field that you've kept an eye on. Any—

Eric Schmidt

Well, I mean, I guess, look, I'm a big fan of what Steve and his team are trying to do at Cabaletta, as are you, right? I believe that they're showing something that's never been seen before in these very, very severe and difficult-to-treat patients with all sorts of rheumatologic disorders. So good for them for fighting this cause.

I also understand, to some extent at least, why investors are not yet on board, and it's because of the capital issue, right? I mean, we just saw the company take in—unfortunately, it was forced probably to take in—$100 million at a fairly low valuation, and that's going to be very dilutive for their future shareholders.

So that's the mindset we're in right now with Wall Street. Maybe this is a short-term inefficient market, as we were talking earlier today. Maybe we should have more enthusiasm, but it's a little bit like a vicious cycle right now for all these cell therapy companies, knowing that they're going to need to spend on manufacturing. They're going to need to spend on expensive studies—maybe not large studies, but still expensive studies—to get to those milestones and to get closer to market, where they can start to make money. That's my only consideration. But, Yaron, I don't know if you have different thoughts.

Yaron Werber

No, I agree. I mean, this is still early, right? But 7 out of 8 responses across several types of myositis were definitely very encouraging. They're working through the kinks. These are refractory patients. You know, that market is a growth market.

There's a lot of innovation there with the FcRNs. There's an anti-BDCA2 antibody. There are upcoming Phase 3 studies from Bristol, from Roivant, and from, you know, Matt Gantz, our colleague on the show who's featured routinely. That data is potentially coming in September. So patients are going to start having a lot of innovation.

CAR T is going to be a great option for those who are pretty refractory, and that data is definitely encouraging. And again, kudos to Steve. I know it's not been easy, and he's doing a nice job shepherding through.

Josh Schimmer

I trained in rheumatology and can certainly attest to the unmet need in myositis. And then probably one of the absolute biggest needs in rheumatology, and just in general, that investors, for whatever reason, just haven't given the time of day is scleroderma, systemic sclerosis. That can be a very, very, very troubling disease, with high morbidity and mortality. Some of the early data coming out of the CAR T experience is very promising.

One of the things that I always find interesting is trying to find those potential sleeper programs where maybe there is some early, exciting proof of concept, and yet investors are just preoccupied with other later-stage programs and missing a big opportunity. Another one that comes to mind, actually back to our conversation on psychedelics, is COMPASS and PTSD. No one ever talks about PTSD.

Paul, I'm not sure if you have a view as to that unmet need and the potential role of psilocybin, but that data has been—

Paul Matteis

Yeah, I mean, look, it looks like it works, right? And there's also just a number of other studies in PTSD, too, that sort of support this reset effect of psychedelics. COMPASS has, I think investors just look at, on paper, what's the biggest market, right? Depression is just so much bigger that I feel like if people feel like PTSD might just be more of the upside thing. But I'm with you, man.

Josh Schimmer

Yeah. And similar to scleroderma and lupus, right? Lupus does have a number of treatment options for patients to cycle through until they get to new innovative therapies, whereas scleroderma and PTSD have really nothing approved for them, and as such perhaps—