# Episode 196 - September 18, 2026 Biotech Hangout · 2026-09-25 · 55 min · https://www.youtube.com/watch?v=DQoowzwdOl0 ## Transcript Josh Schimmer You’re listening to Biotech Hangout, a live and unedited weekly discussion of all the latest news in our industry with a group of biotech leaders and experts. I’m Josh Schimmer. Hopefully Eric Schmidt will be joining us very soon. He’ll be leading us today. We’re very pleased to have Adam Feuerstein, who probably needs no introduction to this group, and the same goes for Paul Matteis. If Eric doesn’t join in a second or two, Paul, feel free to kick things off. Paul Matteis There’s a lot to talk about. I know we were saying there isn’t as much news and that we want to be more thematic. I think we could probably wait for Eric, Josh, to have the conversation and debate around AI that you guys wanted to have, especially because I just want to watch you guys duke it out. I feel like I’m such an amateur when it comes to predicting what might happen with AI. Maybe, Josh, is there any news you thought was super interesting this week that you want to start with? Maybe we can hit some of the news items at the top. You could go, and I could always talk about Xenon or Sionna, and then maybe we’ll get Eric by then and get more thematic. What do you think? ### AI Needs Stronger Guardrails Paul Matteis On the AI news-news topic, for those of you who have been following the OpenAI–Hugging Face incident, they had set up a sandbox, which is a kind of cordoned-off experiment that doesn’t have access to the internet. They had a whole bunch of AI agents working on a problem, and the agents weren’t supposed to be communicating. Yet somehow, they found a way not only to communicate with each other but also to break out of the sandbox and find their way to the broader internet. They hacked their way into Hugging Face, which is itself a kind of open community for AI innovators. Hugging Face had its own AI agents defending against the incoming attacking agents, and the whole thing was completely out of control from the OpenAI team’s perspective. This has caused a broad debate around whether we need stronger guardrails around AI. Fortunately, when it comes to innovation in AI and biotech, I don’t think anyone is particularly worried that these efforts are going to destroy the world. If anything, they’re really helping the world. But this is very relevant because we have started to see a shift in capital, perhaps away from biotech, for a number of reasons, one of which is positioning around this ever-expanding AI trade. We’re hoping investors will perhaps come back to biotech and come back to AI in biotech, because for the most part, I think we can all agree that the companies we work with and engage with, and those advancing medical therapeutics with AI, aren’t at risk of whatever happened with the Hugging Face and OpenAI experience in terms of hacking into other networks and potentially causing significant damage. That’s not to say there can never be bad actors in our world, but they can be found anywhere. Guardrails, perhaps even in biotech, may be appropriate because we don’t want AI agents cracking into competitor companies and stealing proprietary information. It will be interesting to see how this all evolves. Governments—I think the United States and China—have resisted calls to put more guardrails in place because they do see AI as the way of the future. On the other hand, it’s appropriate for everyone to have a little bit of their guard up, whether it’s around trade secrets or otherwise. Josh, what do you think about the debate over whether the calls for regulation from some of the leading AI companies are earnest calls for actual altruistic protectionism, or whether those companies think regulation could actually help them build a moat when you have all these other labs and groups figuring out very rapidly how to do everything they do, but more cheaply? Josh Schimmer My impression is that a lot of the innovators are innovating for the betterment of the world. When they see a risk like this and recognize that there are dynamics that can get out of control and need to be protected against, I think it’s genuine. Think broadly about nuclear nonproliferation treaties and agreements among countries to make sure they remain good actors for the benefit of society. Just as rogue actors can try to get their hands on nuclear weapons, rogue actors can try to get their hands on powerful AI. It’s the start of a dialogue around national security and global defense considerations when it comes to AI. Hopefully, it’s something that countries can unite around in the way they united around nuclear nonproliferation treaties and figure out a way not just for established companies and governments to stay within bounds, but also to ensure that rogue actors are contained. I think Eric is on. Hopefully he’s able to join in and be heard here. Eric Schmidt Thanks, Josh, for always having my back. Hi, Adam and Paul, and apologies to the listeners for my technical difficulties. Did you guys just start on the AI–Hugging Face topic, Josh? Josh Schimmer Yeah, we just covered that one as we were waiting for you. Maybe it’s worth moving on to some of the other topics you wanted to cover. ### The Biotech Market Pullback Eric Schmidt Well, let’s talk about the biotech markets more broadly. Thank you for that. Maybe we’ll wind the clock back a little bit and start with the biotech markets. It’s been a choppy start to the month. I think we’re down about 4% month to date in September and maybe off almost 10% from the highs—9% to 10% down from the highs. I think the XBI is still up about 30% on the year, so nobody is complaining too loudly. But we keep hearing from buy-side investors that the wrong stocks are working: the gene-editing stocks, the Modernas of the world, and the heavily shorted names. Sana and others come to mind, while the “good” names are languishing. I just want to take the temperature of the markets from both Adam and Paul and see whether you guys think there’s a problem, whether there’s something to be blamed, or whether this is just a healthy consolidation in the space. Who wants to start? Paul Matteis I would just say it feels just as much psychological as anything else. We’ve talked over and over on this podcast about the degree to which we need M&A for stocks to work and the degree to which that is a referendum on the business model. Josh, you’ve always had some interesting thoughts about how the sector is less reliant on M&A. When things get a little sloppy on the macro side, some of the macro headlines have been a little scary. We’ve had rates going up, and we’ve had a string of high-profile trial failures, many of which aren’t even in SMID caps. Some of that emotional drift can trickle down into some of the better-performing SMID caps, especially when we’ve gone through a period that’s quieter for M&A. When I talk to people, I don’t actually hear anything like, “Oh, man, things have flipped now,” or, “I’m really worried about the FDA,” or, “I’m really worried about drug pricing.” If anything, I feel like we’re in a better spot on those topics than we’ve been in the past couple of years. It’s just a lot of negative data readouts, some rate-related issues, and a quiet catalyst front. Certain stocks are up a lot. It feels a little bit more like a negative market. I don’t know. What do you think, Adam? Adam Feuerstein I hear the same, Paul. I don’t have much to add other than I think you covered almost everything that I hear. People were seeing fewer opportunities to buy because stocks were getting toppy, so there may be more opportunity now to get into some stocks. I think all the things you said, Paul, ring true. Josh Schimmer I’d maybe add 2 other data points to this. The setbacks of del-desiran for Novartis after the very sizable Avidity acquisition may be putting a chill on appetite for large deals involving assets that aren’t fully de-risked. That may be playing a role as well. If you look a little deeper into the rise in interest rates and what’s going on in the macroeconomic environment, and juxtapose that with continuing to see very aggressive rises in drug prices at launch, the industry is responding to all the criticism about drug spending and drug prices essentially by doubling and tripling down on even higher drug prices. Especially as you see the political landscape shift a little bit as we get closer to the midterms, it’s not unreasonable to have some concern that we may see a partisan or bipartisan push to bring drug pricing back to the table. As we’ve learned in the past, it just takes 1 tweet to roll the sector over. We’ll see how it all evolves. Hopefully, that’s not necessarily going to be a key election driver, given how many other drivers there are this time around. At our healthcare conference last week, John Crowley seemed to suggest that politicians are not necessarily going after drug prices, certainly not for smaller biotech companies. But it is something we'll have to keep an eye on and something that may be naturally adding to some jitters around the sector. Eric Schmidt I would say, you mentioned one tweet, Josh, but also one deal, right? I mean, all it will take is one big M&A deal to get people excited again. I think people are somewhat nervous about the M&A pause. I hate to put it all on one single stock, but I feel like Abivax kind of causes everybody to have major agita these days. I see it's down again today, but it seems like a lot of attention is focused on whether or not Abivax is going to get acquired. Josh Schimmer Okay, well, good stuff. We do have a couple of important news events we want to talk about. Maybe, Paul, I know you're keen to talk about the Xenon news that's also maybe causing some folks angst today. ### Xenon’s Safety Pause Paul Matteis Yeah, sure. This kind of thing doesn't help sentiment because some of the investors I've talked to in the past 12 hours on Xenon have lamented that they thought this was a quieter, safer name to own, where you have this core de-risked aspect of the value and then a bunch of risk-reward upside-biased drivers. I think the perception is that this stock wouldn't go down this much if one of those things failed. Essentially, Xenon has a drug, azetukalner, with very good data in epilepsy. They've been developing it for depression, specifically bipolar depression. They also have some earlier pain programs, which are pretty cool. Their depression data were supposed to come out next year, and they still are. Last night, they announced they were pausing enrollment due to adverse events that were seen in the depression study. I think part of the issue here was just that the disclosure, while ultimately not that confusing when you hear the call and talk to them, made it sound at face value like there was this new major safety issue in depression. It spooked people that the value of this drug in epilepsy could be in question. I think the stock trading off as much as it is—almost 30%—tells you that some people are still nervous about that. What the company says is that the adverse events they're seeing in MDD for this drug—certain cognitive adverse events, like confusion or aphasia, and a couple of reported cases of psychosis—have been seen in epilepsy. We know they've been seen at the high dose in epilepsy before, but they hadn't been seen in depression. I think the depression phase 2 data were actually surprisingly clean with this drug, which led to the pause. In a nervous market, stuff like this gets digested, and people sort of write off depression, worry about increased risk, and worry about whether this means Xenon's not an M&A target anymore in the next 3 to 4 months. Our view is that if you look at epilepsy drugs, a really good analog is the label of Keppra. Keppra is kind of the aspirational drug for most of these companies going after mass-market epilepsy because it was a couple-billion-dollar drug at much lower pricing, and it got escape velocity where it was written not just by specialists but by general neurologists. The Keppra label says everything that I just mentioned Xenon was talking about seeing in their MDD study. We feel pretty strongly that in epilepsy, nothing here has changed. There is no clinical hold; the epilepsy profile is the epilepsy profile. But, again, it's a testament to what we said on the macro side: This is a much more nervous market than it was 3 or 4 months ago. Eric Schmidt Josh, I know you've been following the space closely, and Xenon in particular. Anything you want to add? Josh Schimmer No, good point about Keppra. It is a little confusing. I think we're all still digesting the extent to which we need to read through, because depression and epilepsy do overlap. That was actually one of the things that Xenon highlighted as they were advancing the depression study: A beneficial signal on mood could read through favorably to epilepsy. But on the other hand, whatever led to this heightened concern around the depression indication, it's hard to square that with a seeming lack of concern with epilepsy. I think Paul framed it very well. Eric Schmidt And Paul, I wasn't on the call, but what's the rationale for the pause? What are they going to learn? How are they going to go forward? That's an interesting question because I think some of the people who are close to this company are wondering why they paused it and whether some other CEOs who are perhaps less risk-averse would have paused this at all. I'm not going to name names, but there's no FDA issue here. Paul Matteis Their DSMB recommended that they institute dose escalation or dose titration. I think a lot of these adverse events are seen early in dosing. We've seen with a lot of CNS drugs that the right kind of dose titration can cut adverse-event rates in half. This study was already at 360 patients, so it was at a point where, in my opinion, it was powered to show a clinically significant difference or even a very small difference. I think the idea was, why don't we just not enroll any more patients in this study, pause the next trial and the other trials, figure out what the dose modification might be, and then go from there? I also think, Josh, back to your point about people trying to figure out the read-through to epilepsy, that the other big difference is that the therapeutic index of this drug, and of antiepileptic drugs in general, is usually a lot wider in epilepsy patients than in non-epilepsy patients. You look at some of these ASMs in bipolar disorder, and the side-effect profile is very different. It's a much more sensitive population. What's unique with Xenon and epilepsy is that they have this low dose that has a Keppra-like effect size and a very low rate of drug-related adverse events. It's really their high dose that has some of the things they're seeing in MDD. It's a fascinating side note that with some of these CNS drugs, the tolerability profile is often worse in healthy volunteers or people without the disease, and then people with the disease might actually be better at tolerating some of these side effects. That's also part of my “epilepsy is insulated” narrative. But, yeah, Eric, I think it's unclear if they actually had to pause it. When people hear a pause, their mind goes to a place that implies greater risk. Eric Schmidt No, thanks for covering that. Very interesting indeed. Adam, do you have anything to add on this, or should we— Adam Feuerstein Keep going? Eric Schmidt All right, let's come back to you, Adam, then. I know you had a piece on the NorthX Immunology reverse merger. Maybe it can tee up a broader discussion about reverse mergers in our space, but why don't you first fill us in on NorthX? ### Reverse Mergers Go Mainstream Adam Feuerstein Since we're on X, probably a lot of you follow Sheep of Wall Street, Dan Scheinberg, a portfolio manager at Adar1 Capital. He and an analyst of his have been incubating an immunology company for the last 2 years called NorthX Immunology, which is now developing an IL-13-specific antibody for atopic dermatitis. They went public via a reverse merger yesterday. What was the name of that shell? Aethlon Medical, I guess, is the one they reverse-merged into, and then they obviously did a subsequent PIPE financing. To your point, Eric, lots of reverse mergers this year, right? I think I saw someone say maybe 20 or 21 companies have gone public through reverse mergers. I kind of like reverse mergers, mostly because it gets rid of— we always complain about too many biotech companies and too many bad biotech companies out there. I guess we replace one with another; we don't add any more to the pile, which conceptually makes me happy because there are already too many of them. I don't know how you guys feel about that. Eric Schmidt Yeah, this phenomenon is relatively recent. Up until the last year or so, if you were a higher-quality biotech company, you would not go public via the reverse-merger pathway. You'd almost certainly choose an IPO. But now, today, in a new day and era, we have a choice for companies. I'll put some numbers around it. By my count, we have 21 IPOs this year, including one that's just trading this morning that we're part of, so I can't mention it. I have a few fewer than 20, Adam, on the reverse mergers, but both have kind of performed well, and each has raised a lot of capital. I think the average amount raised in an IPO is about $340 million. The average raised in a reverse merger plus a PIPE is about $200 million. These companies are certainly able to drive a lot of capital to these transactions. They've also both traded quite well in the aftermarket. And I think one of the differences— I think the IPOs are up about 35%–40%, and the reverse mergers that have happened year to date are up about 20%–25%. So both are viable pathways. What's different, of course, with a reverse merger is that at the front end of the transaction, you choose—or you get—a few shareholders and bake in the deal, and they tend to be a smaller, select group of syndicates. So you don't have the big coming-out party that is an IPO. You don't necessarily get the visibility or the big hurrah out of it, but you do get your capital, and you really lock in your capital well in advance, independent of the markets, which is why that pathway is of interest to some. Those with a historical perspective will remember, I guess, back in the day, we had Cougar go public as the first legit company back then, right? And his second company, Puma, went public the same way. But again, up until recently, it was a shunned pathway, and maybe it had a taint around it. I don't know, Josh and Paul, whether you guys think that in this day and era, the reverse merger pathway is anything other than a quick path to an IPO where you lock in some funding. Josh Schimmer Yeah, I now group the reverse mergers with IPOs, because the dichotomy that used to exist—the reverse merger path primarily being used by lower-quality companies—is obviously no longer the case, and they're raising about as much as they would have in an IPO. So at the end of the day, it's not a huge difference. They're private companies that should be public, finding a way to go public: reverse merger, IPO, or a SPAC. We may even see SPACs make a comeback. We'll see. It's also a testament to the incredibly high caliber of private companies, the number of high-caliber private companies that we're seeing. It's a remarkable time in the industry. Adam Feuerstein Yeah. When I was talking to Dan about the deal earlier in the week, he mentioned—I didn't put it in my story, but he mentioned to me, and I've heard this elsewhere, too—that there's a lot of demand for these shells now. It's almost like the public shells can start driving, having a little more leverage and higher demands in terms of how these deals— Eric Schmidt A shell costs? Adam Feuerstein I'm sorry, what did you say? Eric Schmidt Did he tell you how much a shell cost? Adam Feuerstein He did not. We didn't get deeply into the specifics, but he just said that there's a lot of competition, that there are a lot of private companies out there looking to do reverse mergers, and there are only a limited number of shells out there. So you're competing for those shells, and it puts the shells in a little bit of the driver's seat. I have no idea how accurate this is, but I heard a shell can cost $20 million, which I thought was wild. Josh Schimmer You can back into this based on the residual value or ownership that the shell has in the newco, right? So I think you're right. Eric Schmidt I've heard that the price has gone up, and you're correct. I've heard anywhere between $10 million and $20 million. There aren't as many of these as there used to be because they're all getting gobbled up, and I think there are some market dynamics at play. But Paul, how do you think, as an analyst, about a company that goes public via the shell versus the IPO route? Do you care? Paul Matteis No, not really. I think the reverse deals, just as IPOs in the sector, are often clubby, but they tend to be even clubbier, right? Sometimes, from covering a company that went public via a reverse, you'll be remarking that really sophisticated biotech investor generalists will have never heard of the company. I almost wonder if sometimes that's not just a downside in reputation, but sometimes there are hurt feelings when people are like, “Oh, I didn't get the call on that.” Does this have a long-term negative impact? I'm not really sure. But I think maybe when a company goes public via a reverse merger, it can remain anonymous to a lot of the market for longer, even to a lot of the specialists. In the grand scheme of things, if you believe that the market is efficient over time, it doesn't seem to matter, because it doesn't seem to really sacrifice the quality of investor syndicates at all. Eric Schmidt Yeah, I agree with you on that broader point of not having the visibility to go public via the reverse merger. I think it's really incumbent upon the team after the deal to get out there and make its name known more broadly. We've been involved with a bunch of both IPOs and reverse mergers over the course of the past 12 months here, and it does seem like when you go through the IPO route, you have a much more established brand. You get all the media and articles written about your IPO, and you've had the road show to meet with 100 or so clients, including test-the-waters meetings. Companies that go the route of an IPO are almost, again, made men in our industry. Those that have gone through the reverse merger route still have a lot of that publicity and work to be done on the other side of things. So I just urge the management teams to stick with it after those deals are done and make sure they get their due. And you're right, Paul, over time it'll be a more efficient market, but that's not always the case immediately, which is an opportunity. Let's continue with a little bit more of the news of the week. Maybe less important, Paul, but you took note of the Sionna update, and of course they had a RIF as well as an update on their strategy. I know probably not too many of our listeners are that familiar with, or maybe even care that much about, Sionna, but I think this tees up a great discussion around monopolies in our business and how Vertex has been so dominant in the CF space. Why don't you tell us what happened? ### Vertex’s CF Moat Paul Matteis Yeah, Sionna is a company focused on a novel mechanism strategy in cystic fibrosis. It's the market that has built Vertex into a behemoth. They've turned CF for the majority of patients into a livable disease with a long lifespan and healthspan. It's pretty tremendous. Interestingly, a lot of the Vertex work goes back to this cell-based assay. Over time, Vertex was essentially able to use the cell-based assay and PK data for a drug to basically predict which drugs would work in which populations and how well they would work. We've seen a number of companies come at Vertex and say they've cracked the assay, and they've come up short. It felt like Sionna, in my opinion, and I think in the eyes of many in the market, probably had the best chance of any of these companies at challenging Vertex, at least since AbbVie tried, because they had really interesting assay data. They have a chief medical officer who was at Vertex, right? So they have that kind of pedigree. Before the data, I really thought this was going to work, and I thought the debate was going to be more about the implications of the study because it was this Phase 1b biomarker study. But the study failed on the ITT analysis. They showed a very minimal drug effect for their drug on top of the Vertex regimen. This week, they did this post hoc analysis trying to explain why it failed. They put up a number of reasons. A couple of them were harder to get much conviction in. One was related to PK outliers. The other was related to this complicated pharmacodynamic interaction between their drug and a Vertex potentiator. The one that I think people are most focused on is really that the exposures of the Vertex drug seem to go down in patients who got the Sionna drug, and perhaps that masked a Sionna drug effect. It's very hard to interpret. It's a hypothetical, and we know the Vertex drugs are really powerful. Reducing the exposure of those drugs could limit their efficacy, but how quickly you would see something like that in what was only a couple-week study, I think we have no idea. Ultimately, Sionna is going to give it another go, and they're going to try to do a switch study. It's a much simpler trial, but there's a much broader conversation here around how unique this Vertex moat is. I know others want to talk about that. Eric, when you brought up that thematic discussion, I was trying to think about other companies I've covered that have had these special drug franchises that went from mega-high-multiple stocks to ones where competition became this existential bear case. Alexion came to my mind first. But maybe I'll leave it to you to lead the conversation on that, and others can chime in. I can come back at some point. Eric Schmidt Well, just first, maybe a specific question on Sionna versus Vertex. Is Sionna's setback, do you think, more of a Sionna-specific or idiosyncratic issue, or does it really speak to the big moat that Vertex has and whether that moat is impenetrable? We've seen companies come saying they could do something different that Vertex couldn't. I don't know how you don't give a tremendous amount of credit to the Vertex San Diego group. Vertex has been telling people that this assay—this human bronchial epithelial cell assay—isn't simple. Paul Matteis They've been able to recreate the physiologic conditions of this disease in a dish. You don't know their methodology. The Sionna data on this assay, if you believed it, looked tremendous and would have predicted a really significant drug effect. I know people can be different from what happens in a dish, and this could be more nuanced, and maybe the Sionna drug does work. But after a number of these failures, I feel like the null hypothesis has got to be: Believe what Vertex is saying about what they've built until someone proves you otherwise. Eric Schmidt I think we're all somewhat historians of biotech, and you'd have to say that Vertex's acquisition of Aurora, which brought them all of this stuff back in 2001, is probably one of the most value-creating transactions in the industry ever. If you think about what that brought them, it's crazy. Paul Matteis Crazy deal, man. Eric Schmidt It was like a $500 million or $600 million deal when they bought Aurora. Think about that. Think about what's come out of that. It's just incredible. Josh Schimmer What's been interesting about Vertex's approach is how they'll often advance 2 competing molecules within their own pipeline and let them vie for the pole position. We don't see that often in biotech, but if you really want to own a therapeutic category, you have to be willing to cannibalize yourself. I think a lot of companies make the investment, instead of playing defense as a form of offense, in going out and playing offense in other disease categories—sometimes completely different therapeutic categories. How many times have we seen companies venture off into an area that's no longer their domain of expertise, only to struggle? You've seen Incyte and Regeneron both try to move into solid-tumor oncology. I don't think Regeneron has had more success relative to Incyte, but compared to the expectations that each of the companies and their investors had, you see this time and time again: Companies decide to give up innovating in their own space, sometimes to their own peril, because that leaves the door open for another company. They're making their own calculation. They're calculating that an offensive maneuver is going to be more value-creating to shareholders than defense, and it's always very nuanced. Adam Feuerstein Well, interesting point that you raised, Josh: Sticking to one's knitting might be part of building this moat. Interestingly, Incyte is actually kind of coming back to MPNs and probably now doubling down on that area of medicine that created Jakafi. Then Paul brought up Alexion earlier. We all want moats. We all want these everlasting businesses where we have to use an old term from one of our friends, domain domination, and where the competition is almost futile. Other than sticking to our knitting, how do we get there? What made Vertex truly special? Yes, you're right. They continue to focus on CF and more CF and iterated before anyone else was able to innovate. But is that the only lesson here, or are there others? I feel like people are stumped, Eric, trying to figure out how—if we all knew what it was about Vertex that allowed them to do this, then there probably would be a competitor, right? This is what's so hard to figure out. Eric Schmidt I don't know if it'll ever be repeated, what Vertex has done. It's the combination of the disease and the work they've done, and it's just so hard. I always think about the other super-value-creating transaction that I think about, which is when Gilead bought Triangle. That brought them the antiretroviral combination therapies, and that sort of set them off on HIV dominance. But even there, there wasn't a moat, right? There were other companies that were competing and have continued to compete in HIV. Obviously, Gilead has been very successful—probably the most successful HIV company—but it's not the only one. I can't think of another disease or indication where you have this Vertex situation. I don't know if you'll ever have that. Well, it's also not a huge mystery, right? It's a single indication. It's a genetic mutation, so there are only a limited number of pathways one can even contemplate to innovate around it. They found a very complex approach, as Paul pointed out, so it's hard to replicate, but they also set the bar incredibly high. So, whether this can be seen again, I think you're looking for this type of dynamic or situations with similar enough dynamics. The other point here is that a company like this often would have just been acquired by pharma, and we wouldn't be so impressed by this big franchise that they've built because it would just be buried in many other lines of pharma revenue. Vertex also stayed independent as part of what they've accomplished. Not to diminish it, but it's amazing on the HIV front. You pointed out Gilead, and yes, they've had competition, but for the longest time it's primarily been Gilead and GSK—decades now, just like a duopoly. How come no one else? In HIV, you would have thought we'd have far more competition, but it gets to the way you approach innovation, the way you approach the patient community, and the way you attack a therapeutic category to really establish that dominance. You just don't see it that often, and I think in part because it's a unique set of circumstances that come together to create this. Paul Matteis I think it is interesting to note that both in HIV and CF we're talking about multimodal therapy; we're talking about drug combinations, right? If you have 2 or 3 components of a 3-component regimen, that does give you a little bit of a competitive advantage. We've seen multiple companies in the CF field fail because they didn't quite have all the necessary parts, and it's hard to get those necessary parts. So the moat is deeper when you have 2 or 3 drugs at once. Certainly, I think that's one lesson learned from HIV, maybe HCV too, as well as CF: Domain domination can happen a little more facilely there. The other point to make is that both Gilead and Vertex had a lot of time when nobody was looking at these indications—or maybe less so in HIV, but certainly in Vertex's case, nobody was thinking about CF for probably 5 or 10 years while they were behind the scenes working through all these cellular assays and coming up with some good modulators. That wouldn't happen today, right? Today's environment, with China and other fast followers, is almost immediately upon the first signs of success you'd have 2, 3, or 4 competitors. So, I don't know, to Adam's point, whether we will ever see this again. It may be that we won't because the world is much more competitive than it has ever been. ### Rare Disease Rises Again Eric Schmidt Any other thoughts on this topic? Okay. Well, let's move on to a couple of other updates from this week—some news in the rare-disease space. We had a drug approved, Scholar Rock's apitegromab. We had another drug approved, Ultragenyx's MPS IIIA product, which was developed in partnership with Abeona. And then, Josh, you had some news on the development front from Rocket in Danon disease as well. I don't know if we need to recap any of that. I'm happy to spend a few minutes, or you can, Josh, but I think these updates in the rare-disease space are worth discussing. Oh, by the way, this is also the 10th anniversary of eteplirsen's approval at the FDA. Ten years ago, the regulatory environment shifted in a major way with that approval of eteplirsen, the first-ever drug for Duchenne. In some ways, we're still dealing with the repercussions from that. Josh Schimmer And the confirmatory study is still not done. Adam Feuerstein Indeed. Eric Schmidt Unbelievable. Right. Adam Feuerstein So, let's talk about rare diseases and what's going on in the space. Josh, I'll turn it over to you to give us your thoughts and how you've spent some time here. Josh Schimmer A lot of time. It was super exciting at the beginning, with some of the breakthroughs and innovators, and the space got so crowded and so complex and arguably lost its way with the innovation, with a number of setbacks, including efficacy setbacks, safety setbacks, manufacturing setbacks, and regulatory setbacks too. But we're kind of coming out of all of that altogether. Essentially, we have new programs in the cell-and-gene-therapy and rare-disease space that are really generating phenomenal results. I just met with a company developing an optogenetic AAV gene therapy, essentially to treat blindness, and patients are starting to see again, thanks to the persistence of those in the field and the unique power of gene therapy. For some reason, we're still stuck with AAV vectors. If you'd asked me 10 years ago whether we'd still be talking about AAV vectors today, I would have said, “Not a chance. That's such a limited technology.” But, on the other hand, it's a powerful and differentiated technology. There are emerging drugs to treat pain and overactive-bladder-type conditions. In the rare diseases, the ones that you just mentioned, we're starting to see a return to regulatory flexibility, which is essential—critical. Kudos to those in the field who persevered, because a lot of investors just exited this whole space out of frustration, and a lot of companies exited the space out of the same frustration. But there's been this diehard group of wonderful people continuing to grind away because they realize that, just because there are some obstacles in the way, doesn't mean they should stop trying to deliver these therapies for patients. So, we're now in the phoenix-rising-from-the-ashes moment for this space. It is incredibly exciting, and it's much smaller than it was. I think there are tons and tons of lessons that have been learned around CMC, regulatory, data, natural history, and comparator arms. It's really exciting to see these updates marking the progress that the field has been making somewhat quietly, but I think it's just going to get louder, louder, and louder. Eric Schmidt I love that there's a community around this space, as you mentioned. I really do think that people in the rare-disease field probably collaborate and cooperate with one another, sometimes even in the same indication, which is bizarre to the rest of us. But people do really put the best interest of the patient ahead of, sometimes, even commercial benefit. You saw that with Abeona, for example, which did not have the resources to put forward its MPS III program and ended up giving that—essentially selling it—to Ultragenyx because they knew that Ultragenyx could probably take it forward economically and from a resource standpoint when Abeona couldn't. So, that's wonderful. But from a return-on-investment standpoint, Josh, you bring up an interesting point, which is that we haven't seen rare disease take off in terms of an opportunity. Many of the companies in the space have struggled. Pharma has gone from in to out to in to out in terms of its interest in the rare-disease space. In theory, at least, you would think this is a ready-made opportunity for a great return on your investment, right? You can go after a defined genetic population. You can get your drug approved in a very short period of time, with just a few patients treated in phase 3 studies. You've got all kinds of biomarker opportunities. You have, as you mentioned, today at least, a seemingly very friendly FDA, and hopefully it stays that way. Yet, again, we just haven't seen the commercial successes. We haven't seen the Rockets and Sareptas grow up and become major players. I'm just wondering about the group's thoughts on why that might be, or any other comments you guys have about that. Paul Matteis I can jump in on that point. It was like watching a train wreck in action. I had a front-row seat to how sloppy and excessive the innovation was, because this was at a time, in part through the bubble, of excess funding, limited discipline, and limited appreciation of all the challenges—some unforeseeable because it was all such new territory. There are myriad challenges, looking back, that I don't think most of us realized and appreciated, ranging from all the things we talked about—CMC, regulatory—and then, at the end of the day, the one big contrast and point of frustration for me is that, if you take a drug that, with the recent price creep of new product launches, can easily cost $300,000 to $600,000 or more per year, and that patient is on the drug for 5 years, 10 years, or 20 years, that's a per-patient value that can be well above $10 million, potentially substantially higher than that. You look at the prices of cell and gene therapies. They've been in the hundreds of thousands of dollars or the low single-digit millions. You're not capturing the same value. I never really heard any discussion about that or any realization that a market that can be very lucrative for a chronic therapy—a drug with 500 patients on it, if it's priced high enough—is actually the nucleus for a real business model because those patients are going to be on that drug for a very long period of time. Whereas in gene therapy, when you're only capturing $1 million to $2 million per patient times 100 or 200 patients, you no longer have a viable, sustainable business model. I think that was one of the big prices and lessons that the industry had to learn. Now, as we're seeing it regain and recover, we're not seeing as many, “Here's a gene therapy for an important unmet medical need that affects 100 patients.” Now we need to figure out how to bring those forward, how to fit them into the capitalist drug-development model that we have. One of the ways to get there is to raise the price even higher, to make it more commensurate with what the value of an annuity stream would be. But everyone is so scared to do that. No one wants to be the one that comes out with a $10 million product all at once, even though the lifetime value of a patient on a chronic therapy could be way above that. So, we're still trapped in that kind of reimbursement dynamic. That's also been a factor. Josh Schimmer Well, thanks for that. I realize I've been saying MPS IIIB when the approval was for Sanfilippo syndrome, which is MPS IIIA. So, apologies for that misstatement. But, Adam, I know we're not going to discuss rare diseases without getting your views on what's going on here. Adam Feuerstein Oh, you want to end it with me? Is that—you want me to say something mean? No. Look, you brought up eteplirsen, and while it's great and all, I think it does raise issues with both the rare-disease community and these drugs, particularly how we confirm or prove the benefit of these drugs. I know the difficulties of testing them in small patient populations and the need for regulatory flexibility, but there has to be some kind of balance there too, right? At the end of the day, you want all these feel-good stories, sure, but you also want drugs that are safe and effective. I think we have instances—examples—where drugs are out there and you're not really sure whether they work or not. We have to figure out a way to make sure that patients are getting drugs that work for them. Josh Schimmer Don't you think what the FDA is doing now, Adam, with the confirmatory-study expectations is a big step forward? Adam Feuerstein I think so. I do. I think that's helpful, right? Adding a stick to the carrot, so to speak, and making sure companies follow through on their commitments. If you're going to approve a drug for accelerated approval, you have to have that confirmatory study well underway—however you define that—and make sure those studies get done in a reasonable amount of time. Just as importantly, if those studies don't confirm the benefit, then what do you do? I think you remove those drugs from the market. I think that's part of the problem here: We haven't seen the FDA willing to be the bad guy in some ways as often as they should. There just seems to be a lot of excuse-making when these confirmatory studies fail: “It's the study, not the drug.” Well, at some point, it's the drug. Josh Schimmer Well, this has been a tough conundrum for many, many years—at least 10 years, to be exact. I'm not sure we're going to solve it here, but it was a good discussion nonetheless. Thanks for those comments, Adam. I don't know what you would do, whether you pull Exondys 51 or not. Thankfully, for DMD patients, I think there's a much better— Paul Matteis Yeah, that is good news. Exactly. Sure. So, we can let the market dynamics play out, and hopefully patients with exon 51-skippable mutations will see a better therapy soon enough. Speaker 2 Okay, we just have a couple more minutes. I don't know what we want to talk about. Josh, do you want to talk about some of the measles stuff that's going around? Josh Schimmer Oh, goodness. Adam Feuerstein Oh, Eric. Well said there, Eric. ### Vaccine Backlash Returns Eric Schmidt Yeah, measles is going around. There's a lot of controversy, and there are folks who have—there's even debate as to whether people who died “with measles” died of measles or not, which is just beyond misguided, frustrating, and disappointing. You saw RFK Jr. back in front of his old group, the nonprofit group that was very anti-vaccine, and they obviously welcomed him back. It's so disappointing to see all the damage that's been caused to the FDA and the CDC, all in pursuit of pseudoscience-type, paranoid thinking around science and innovation. Josh Schimmer On the other hand, you have to acknowledge that vaccines have some limitations. Net-net, they do far more good than harm. But it’s actually a very interesting time now, maybe coming back to Invivyd, which we hadn’t necessarily been planning on talking about but is relevant as part of this discussion. Invivyd is developing monoclonal antibodies as prophylaxis against respiratory pathogens, and very recently they signaled that HHS and the FDA are going to give them an accelerated approval path to bring their COVID prevention antibody to market. That’s important because there is a lot of vaccine hesitancy around COVID, and some of it is for good reason: There can be side effects, vaccine efficacy seems to have waned, durability seems to have waned, and reactogenicity is an issue. In this setting, a prophylactic monoclonal antibody could be a superior option in terms of safety, efficacy, durability, and tolerability. So why shouldn’t we embrace change when it comes to vaccines? All the pro-vaccine people who are so dug into this technology perhaps would benefit from expanding their own apertures and considering that maybe this is a time to think about moving to an alternate technology—one that may not have negative sentiment, one that will need the support and protection of the scientific community to keep it immune to whatever anti-vax rhetoric may emerge around a protective antibody. A lot of change is all happening at the same point in time, but the ultimate message here is that it’s all about innovation, even in the vaccine-related spaces. Eric Schmidt Well, I hope we don’t have to move or get forced to move to new technologies just because of the MAGA movement. Look, I’m all for bringing in new stuff all the time if it’s better, but we do have vaccines, right? And they’re working extremely well. In this day and age, nobody should be dying of measles. So let’s just first call a spade a spade. Josh, I think you were trying to recall the very inappropriately named Children’s Health Defense organization. Paul Matteis RFK Jr. is now back in touch with it after trying to distance himself from the anti-vax movement. I don’t quite understand it. I thought that we got through this earlier in the year, when it was very clear that, politically at least, it was a liability for RFK Jr. to be associated with the anti-vax movement to the degree he was. Obviously, we know who he is and we know what his stripes are, but for much of this year, he’s been put into a bit of a closet with regard to his anti-vax statements. Yet in the last couple of weeks, it seems like he’s come out of that closet. I think STAT News’ Adam Feuerstein did a nice piece on how he appointed some new folks to a vaccine advisory panel, and we’re seeing him go back to the Children’s Health Defense organization and tout the anti-vax sentiment, all while people are dying in Pennsylvania. So, I don’t know. Maybe this will come out in the wash and it’ll be seen as a political liability heading into the midterm elections, and we’ll be done with it again. But it’s all a bit of a worry. Adam Feuerstein It’ll be interesting to see if any of this comes up next Thursday. The Senate is holding its first confirmation hearing for Heidi Overton, the FDA commissioner. So we’ll see if this comes up. Eric Schmidt Well, thanks for flagging that. That’ll definitely be worth the price of admission as well. Okay, I think we’re at the top of the hour and out of time, but let me just close by thanking our listeners. Adam Feuerstein, Paul Matteis, and Josh Schimmer, our co-hosts. Adam Feuerstein, Paul Matteis, and Josh Schimmer. And thank all of you guys for listening in to another edition of the Biotech Hangout.