Episode 155 - September 19, 2025

The biotech sector has had a nice recovery since April’s Liberation Day, with the XBI up over 40%. Our colleague Tim Opler at Stifel put out a bullish report arguing that biotech is poised to outperform. They calculate that the aggregate enterprise value of the entire public global biotech sector is up 89% since April’s lows. The case that Stifel makes for biotech outperforming cites a number of factors, including interest rates: We saw 1 cut earlier this week, and more cuts are anticipated.

M&A activity is accelerating, and this was one of the major points they made: Major pharma companies are holding $1.2 trillion in acquisition firepower as they face $180 billion in revenue at risk from patent cliffs, meaning blockbuster drugs that lose their patent status by 2030. One interesting point they made is that annualized M&A is tracking to be around $186 billion, making it the strongest year since 2019 despite the lack of mega deals.

1. Biotech Cleanses The Herd

We’ve heard a lot about the biotech winter. In fact, there was an article in the Boston Globe this week. We’ve heard a lot about that over the past few years, with companies and programs shutting down and layoffs across the sector. But Stifel points out that the upside of this is that there’s been a healthy cleansing process, eliminating weak companies and leaving, by their estimate, 82% of public U.S. biotech value concentrated in firms with strong data sets.

They have a really nice analysis where they look at the strength of the data sets of different companies. The number of publicly traded biotechs has dropped by over 20% in the past 40 months through events including bankruptcies and acquisitions, while billion-dollar companies have expanded significantly. Again, this makes the argument that there’s a healthier distribution, with fewer negative-enterprise-value firms.

Of course, there are still a number of headwinds, including continued policy uncertainty, which we’re going to touch on, but there are many positives as well. Josh, I want to start with you, and I’m curious to see if you’re seeing an improvement in investor sentiment and, overall, what you’re seeing out there.

Yeah, things are looking up. We had run our own analysis looking at the individual components, on a weighted basis, of the XBI—the index that’s gone pretty much nowhere for the last 10 or so years—and suggesting that biotech is fairly uninvestable for generalist investors, as we’ve talked about plenty of times on this show.

What’s really interesting is that if you break down the XBI by its individual components and play each one out using consensus estimates, the XBI itself looks like it’s going from an index that has never, ever been anywhere close to profitable on an aggregate, weighted basis to one that is now, because of some of the dynamics you just pointed out and that Tim pointed out, maturing in a really interesting way. It’s now just on the cusp of profitability, with meaningful inflection over the next 2 to 3 years. That’s driven by maturation of the industry, companies having really excellent product launches, and culling of the herd to some extent.

The XBI includes about 120 companies, and we’re reinvigorating it with high-quality, profitable companies. Within a couple of years, you could envision the valuation of the sector in total being quite appealing to generalist investors, again, for the first time ever. Why would anyone ever want to invest in an unprofitable sector—a sector that, by the way, was unprofitable for decades?

That’s actually changing in front of our eyes. I think many are getting the sense that something is really different about the industry in a very fundamental way. It helps that the IPO window has been closed for so long that we haven’t added more speculative names to the ecosystem. As the IPO window opens, I think we’re going to have plenty of high-quality private companies move through that window to join their publicly traded peers, again, in a much healthier way than in the past.

I’m also rather bullish on the sector in general as a result, obviously with all the headwinds that we all know about and that we’re going to have to address. I think we probably have different views on M&A. It’s been a high-volume year for M&A, at least for publicly traded biotech companies. We tend to focus on those more than the private transactions.

Aggregate deal value is still pretty light because there’s still a lot of cleanup M&A happening, and that’s totally okay. But I think we look for forces other than M&A to really drive the sector in total, because it’s really hard to move the needle using that. It’s a lot easier to move the needle when you create sound, fundamental business models that make the sector profitable and attractive for a larger audience.

Yeah, it’s a really interesting point. If I look back a few years ago, we were on this same program talking about the fact that the business model in biotech was broken, or was broken. The idea that it relied so heavily on M&A, I think, was a major problem. But seeing biotechs grow up and be able to launch drugs successfully is really something I think is very positive for the sector.

So let’s go to Matt, just get your general comments, and then Luba will talk about a couple of the M&A transactions we saw—one M&A deal and one in-licensing deal this week.

Yeah, thanks. Look, I think I am—sorry, can you hear me? Okay, I’m just making sure.

Yep.

Great. I feel like I’m halfway between host and guest today because this week I’ve had my head in the sand. We put out some good data. What I was going to say is that it’s hard to feel bad in a week when you’ve put out good data, so I’m all optimism.

2. Biotech Builds Beyond M&A

I actually agree with a ton of what Josh just said. In particular, I have long thought that the M&A focus of the biotech investment community is bad for the sector in the long term, because it encourages crowding and groupthink. Everyone is playing this shell game of trying to figure out what other people are thinking instead of trying to figure out what’s going to work as a business.

The thing that I found really exciting about the last 24 months has been the emergence of companies like Madrigal, Verona, and argenx. Some of them have been acquired, but they’ve launched products successfully, turning biotech from being unprofitable, as Josh described, into a more heterogeneous set of business models, with more people actually trying to do what everybody in every industry has to do, which is build a business around their thing.

It’s fun to be a part of that, and it’s fun to watch it happen. Seeing it work successfully across repeat examples is probably the biggest source of my optimism.

Yeah, and we’ll come back to your data a little bit later. Thanks for joining us on what we know is a busy week for you.

Can I just comment on what Matt just said? Matt, congrats as well on those results. But you—I always get the most side-eyed look from you when I suggest that M&A in biotech is anything but an amazing thing for the sector.

To your point, what we wind up doing is depleting those companies that could drive profitability, that could be bellwether components of the XBI, and that could make the industry appealing even to generalist investors. We cheer these short-term victories, but it’s hard not to see how they come at the expense of the sector overall, because it has taken a lot longer than it should have for the XBI to be a profitable type of index.

This isn’t a comment on the XBI and the direction it’s headed in, because it’s its own separate security. But the sector needs profitability in reasonable amounts to draw the generalists, and without that dynamic, we’re just trading among ourselves, with the same frustration and wondering what it’s going to take for the sector to really start to inflect.

We keep hoping that M&A is going to do the trick, but in many ways, we’re hoping for the wrong thing, right? Because it’s that M&A that sits on the sector and prevents it from being more profitable, more business-minded, and more focused in general.

So, Matt, I’m so glad you said it. Anytime I bring up something that is even remotely critical of M&A, investors are shocked that I could ever suggest something like that. But I think you’re spot-on. It’s a short-term win for questionable long-term productivity.

It’s also just boring. At some level, not everybody on this call lives only as an investor in biotech, but in the industry, if the only thing that’s considered is getting bought—and I think M&A is great for the right situations; we’ve sold things and we buy things all the time—if the only way to win is to get bought, it’s just boring.

It’s not that interesting. You don’t get to build fun businesses. You don’t get to think about creative ways to create value that fall outside of the narrow “package it up and sell it to a big pharma company” kind of outcomes.

I think a sector with more heterogeneity, more different business models, and more creativity is just a more fun sector to be a part of.

Yeah. Okay. Let's go to Luba. Luba, first, any thoughts generally on what's been happening in the sector? And then I would love to hear you cover the deals this week.

Yeah, absolutely. So I completely agree with the M&A comments. Although I do have to say, we do have a few sectors in healthcare that have very limited M&A options, and that's medical devices and diagnostics. None of us want to be in that sector. It's not all that fun.

But I do agree fundamentally with the issues with M&A. I'm highly bullish on the sector and what's happening right now. We're fundraising, and it's a great time to do that, especially if you're a clinical-stage company. I think there's been a lot of cleanup in the public markets, as everyone has just mentioned.

One more thing to add is that we're already seeing some generalists coming in, and we're also seeing some new funds focused on the public sector coming in as well. That's all good news, and I think it's all trending in the right direction.

3. Big Pharma Chases New Biology

Now, to cover a few deals, speaking of M&A, I'll start with what we saw this week. Roche is acquiring a company called 89bio. It's a transaction worth up to $3.5 billion. It is in the cardiometabolic and liver disease space, which shows again how hot the space is.

Just digging into the deal and the details of it, Roche is actually paying about $2.4 billion upfront, or $14.50 per share in cash. On top of that, shareholders have a way to earn additional money, up to the $3.5 billion total, through additional milestones. They set 3 milestones, and they're all commercially based. One is to get to commercial launch in cirrhotic MASH by 2030. The other 2 are to get over $3 billion in global sales and over $4 billion in global sales.

What does that tell you? Number 1, it shows that Roche sees blockbuster potential here, specifically in FGF-21 therapies. The way they structured it is a pretty classical milestone-based deal structure that Roche has done before. I was at Roche in M&A prior to that, and we liked these structures. They limit the upfront risk, but you can get quite a bit on the upside, especially if you do see blockbuster potential.

And why does this matter, and why are people excited about this? The drug, which is currently called pegozafermin, is in late-stage development for MASH. We've already seen, as I believe Josh just mentioned, that Rezdiffra, which is a resmetirom drug, was approved for noncirrhotic MASH. Cirrhosis still remains a pretty major unmet medical need.

If you're looking into FGF-21 analogs, like 89bio's drug, or if you're looking at Akero's EFX drug, they're showing pretty encouraging data suggesting that there is fibrosis regression and even benefit in cirrhosis. So there's quite a bit of upside on top of the drug that's on the market today. This is where Roche is really playing into the field.

If you're taking a step back and looking into why Roche is doing this, they have had a very big push into metabolism recently and cardiometabolic pathways. They acquired Carmot Therapeutics. They just did a pretty large deal with Zealand Pharma that was in obesity. So they want to play in the broader cardiometabolic space. They also think that you can combine FGF-21 and GLP-1 to increase efficacy beyond obesity, in fatty liver, and beyond.

Good news if you're an investor listening: if you're an operator, this validates FGF-21 biology. It shows a signal that big pharma is still trying to consolidate all their metabolic assets. They're still playing in this field. It's still hot. It's still big.

Roche in particular is betting on MASH to move beyond early fibrosis into advanced disease, and they think that you can get multibillion-dollar annual sales with this. The only risk here, of course, is that the Phase 3 readout is not expected until 2027, so execution risk is still high. But it's good for the future of MASH and metabolic disease.

Yeah, and you pointed out the CVR. It's interesting that it's a tool pharma companies like to use, but it doesn't sound like the market's attributing a ton of value to the CVR or to the likelihood of achieving it, based on the current value. So that's sort of an interesting point. I guess the milestones seem like they may be a little more challenging as they were laid out. Yeah, I agree. Okay, let's go on to Novartis's licensing of Monte Rosa's programs.

So, I love this because people talked last year, and over the last few years, about I&I, immunology, preclinical work, and AI. We're always worried when we start hyping up certain areas, such as I&I and AI drug discovery, that there's nothing to it. For those people who are in this space and are excited about it, this deal is actually great. It's further validation that AI drug discovery is meaningful, that platform technologies are meaningful, and that there's still quite a lot of interest in preclinical to early-clinical immunology assets.

Just to give you some background, Novartis struck a licensing deal with Monte Rosa. It is valued at about $5.27 billion, although that's the total value that one could get. It shows that there's still quite a lot of interest in next-generation small-molecule degraders in the immune-mediated space.

Again, they don't get all $5.7 billion upfront. Monte Rosa gets $120 million, which is still pretty good. In return, Novartis gets an exclusive license for an undisclosed target that is currently in discovery. This target was developed using Monte Rosa's AI- and machine-learning-powered platform, which is a molecular-glue degrader platform they call QuEEN.

In addition to this program, Novartis has an option to license 2 additional programs from Monte Rosa in its preclinical immunology pipeline. If it all goes well, with option and maintenance fees and commercial milestones, Monte Rosa could receive $5.7 billion. But right now, it's getting $120 million upfront.

This is not the first deal. Novartis has doubled down on these deals with Monte Rosa. Last year, they licensed another molecular-glue degrader targeting VAV1, called MRT6160, and that program is already advancing in the clinic. So this is very exciting. Novartis is looking to get to the same place with this deal as it got to with the earlier deal.

For investors, operators, and others in biotech, here's why this is exciting and important: if you're in the protein-degradation or molecular-glue space, pharma is betting very heavily on that space and especially continues to do so. AI drug discovery is really paying off for many companies, especially if you can come up with novel drug targets and take them through discovery and early testing and into the clinic.

Again, these are big numbers, but the upfront is still fairly modest—$120 million to $250 million for these types of deals. For Novartis and other pharma companies, it means they can keep the risk low and look to Monte Rosa to deliver on discovery. Once they do and hit their preclinical milestones, Novartis can step in and help with development and commercialization.

What's good for Monte Rosa? It gives it cash, of course, credibility, future investment, and partnerships. It's exclusive on these particular molecules, but it's open to potential partnerships with others. What's exciting for the company is that it can also use the financing to advance multiple programs into Phase 2.

4. Failed Data Sparks Debate

Yeah. Thank you, Luba. Those are really helpful insights on those deals. So, let's move on to data. Earlier this week, aTyr Pharma announced that its Phase 3 study of efzofitimod in pulmonary sarcoidosis did not meet its primary endpoint. Matt, I believe Roivant ran a Phase 2 study in this indication that also didn't show benefit. Any thoughts on the aTyr study and learnings for others considering this indication?

Yeah, thanks. We had a failed study ourselves with an anti-GM-CSF antibody in sarcoidosis just about a year ago, a little less than a year ago. If you're not familiar with sarcoidosis, this is a tough disease, and that makes me glad that people have done work in it, including aTyr.

There are a couple hundred thousand patients, and they're very sick, with high morbidity, high mortality, and really no options. These patients are treated with the normal range of immunosuppressants and steroids and things like that, but mostly with no good treatment options. So, first of all, failed study or not, good on aTyr for giving it a go. It's an area that desperately needs successful development.

One of the interesting things about the aTyr study that failed was the primary endpoint, which was a true steroid-sparing endpoint. They were trying to show a difference in steroid reduction in patients on drug versus placebo, on a placebo-adjusted basis. They may have been powered for a 3-milligram delta or something like that, or that was their target, and they showed, I think, a 7- or 8-milligram delta relative to placebo.

We see this across a whole bunch of diseases, especially in autoimmune disease, where there are FDA-established endpoints that are often these composite scales subject to placebo responses. It's just very hard to find a good way to study disease progression, and doctors really want to get patients off steroids.

I thought it was an interesting choice of endpoint, and I think aTyr did some interesting things, including starting with a relatively high baseline level of steroid burden for the patient population, which probably made the study harder to enroll in, to maximize their probability of succeeding here. It's disappointing that they didn't.

I'd say the most common piece of pushback I've heard on the study is that I think the drug, mechanistically, is a little bit unclear in terms of how it was going to work in the disease. But they had reasonable human clinical data going into this study, so obviously it was a disappointing outcome.

This is definitely one of those situations, maybe like Abivax earlier this summer, where I think the general consensus was that the study had a real uphill battle and probably wasn't going to work. I heard it come up a lot from investors because it was the kind of thing where, if it had worked, I think it would have had a pronounced effect on the stock price. So, disappointing that didn't happen.

Disappointing outcome to the study, but interesting study design and an interesting focus on steroid-sparing as a clinical benefit.

Yeah. One interesting point here is that, as you point out, it was a closely followed study, and there was a lot of discussion—a battle of longs versus shorts, sort of.

On the short side, there were a few very active accounts, particularly on X, or Twitter, and one of them was Martin Shkreli, who posted in late July that he believed the study would fail and that the stock would be down 80%. He pretty much hit it on the head. I know that short sellers are viewed as the bad guys by many, but I think a thoughtful short analysis can be helpful to longs, for example, in understanding the weaknesses of a data set, even if one is going to be long.

It may also be helpful to management in understanding parts of their story that aren't resonating. I feel like these short sellers and skeptics are sometimes maligned too much. I actually think that they have a very important place in our ecosystem. I'm curious what you guys think about that.

I would say they can. On the other hand, we've seen some very aggressive, very visible short reports that actually cause confusion among patient and clinician groups. That's a very unfortunate repercussion of these groups laying out their short theses, oftentimes with a mix of accurate information but also some misleading information.

It can be important and valuable for checks and balances in the industry. But on the other hand, when it starts to interfere with companies that are really trying to do what's best for patients and only causes confusion, we saw that recently with the company Iovance, where I think some FAERS database cases were taken out of context without all the right information surrounding them to assuage not only investors but, more importantly, the patient and physician community. It can be dangerous.

Yeah. It's also dangerous for the shorts when they do that because they get killed afterward.

As an issuer, a healthy short thesis in your data is, to me, almost entirely upside, right? A healthy, healthy short—

A healthy short volume drives rapid price discovery on good data.

Which is great for the issuer and for the longs in those situations. The other nice—quote-unquote nice—thing about shorts in biotech is, look, as long as the company they're shorting doesn't need to raise money before the data, ultimately science will come and be the reckoning of the question. They'll be right or they'll be wrong, and the world will move accordingly.

I think it's an interesting dynamic. I also think it's interesting that Martin Shkreli's a very popular figure on Twitter, and his analysis is fun to read. He's a good writer and a really thoughtful guy. It's interesting to talk about him in this context now because, obviously, his history in the industry also gets talked about a lot.

Yeah. He's been spot-on for a few of these, and he's got a huge following. It's interesting.

5. Data Expands Biotech Value

So, Matt, you announced positive data this week in your Priovant Phase 3 VALOR study. Tell us about it.

We did. Thanks. In the past, when I've gotten on and talked about our own data, there's been some Twitter back-and-forth on whether it was appropriate to have a host promoting something that happened in—

Yeah, I think you're a guest. You're technically a guest.

I'm a guest. I'll take it, because I'm going to say good things about it because I'm really pleased with it.

Look, this was a great result for us. We had acquired brepocitinib, a dual inhibitor of JAK1 and TYK2, from Pfizer a few years ago, at a time when JAK inhibitor development was at a local nadir, with the sort of black-box class warning showing up and people unsure where the field was going to go. Our view was that some baby had been thrown out with the bathwater, as it were, and that, at a minimum, there was a huge opportunity to continue to use these very powerful mechanisms in severe orphan diseases where there were not very many other options.

Dermatomyositis was our first lead indication. It's an interferon- and IL-12/23-driven disease where both JAK1 and TYK2 were going to be helpful mechanistically, and, bluntly, there really hasn't been a novel therapy successfully developed in a very long time. IVIG had a positive study, and IVIG from Octapharma—Octagam—was approved a few years ago, but IVIGs have been used for a long time. They're not really novel, and it's the graveyard of drug development.

There have probably been 9 or 10 failed studies in the last couple of decades of major mechanisms. We ran this study eyes wide open. I think there were a lot of questions about conduct, about placebo, and about how it was going to develop, and we just saw beautiful separation. We saw a great treatment delta and a really good set of outcomes across skin and muscle disease.

Dermatomyositis is a pretty devastating inflammatory disease of both the skin and the muscle. We saw really good benefit across both the standard measures and patient-reported disability indices and things like that. Really nice data.

Because of the way we ran the study, which had a mandatory steroid taper in it, we were also able to show that we were able to deliver meaningful clinical benefit against a backdrop of significantly reduced steroid burden, which, after the entire conversation, is something doctors care a lot about. It was a really great week for us, and a really great week, we think, for dermatomyositis patients. We're excited to carry this one forward.

Yeah. And now it's Priovant—sorry, Priovant is private, and you guys own it. The Roivant stock price, I think, is very typical of these hub-and-spoke models. It didn't get the same type of value appreciation that you would have expected if this were a wholly owned Roivant program and you were more of a traditional biotech.

I obviously know a little bit about this because I founded a company that had a very similar model to Roivant and PureTech. I'm curious about your thoughts on that.

Yeah. Look, first of all, this effectively is a Roivant program. Priovant is effectively a 75/25 joint venture between us and Pfizer. We own 75%; they own 25%.

It's really our program. The Priovant team has done a phenomenal job running it. A stock-price reaction, I guess—it's hard to call. There was not a big short thesis going into this data, in part because Roivant had a pretty big market cap and a bunch of other components to it, including a lot of cash.

I think part of the price-discovery pace here is going to be on its own course. We're a little bigger in market cap than some of the other companies that have data readouts. We had run up a bit into the data for a variety of reasons, including developments elsewhere in the business, so I think it's a little bit hard to pull all those pieces apart.

That said—and this is the commercial part, and I'm sorry—I think our setup from here forward is as good as it's ever been, or better. We now have this program, which is exactly the kind of drug that Josh and I were talking about earlier—companies have launched these successfully in our space. We have more data coming for this drug, and we have data coming in our FcRn franchise.

I care relatively little about the stock-price reaction this week and a lot more about what it means for the next months and years.

Yeah. And you didn't raise money on the back of the data, either. I mean, you didn't raise money on the back of the data.

Which is a positive.

Yeah. Okay, great. Can I just weigh in on this? I think Roivant and a small number of similar companies highlight—

A couple of shortcomings of the investment landscape. One is that Roivant, Matt, to your credit, has put the ROI in Roivant through your performance to date, and yet probably struggled to get credit that you'll be able to do so again in the future, right?

We all recognize that past performance is not a predictor of future performance, but given the Roivant track record, you'd think there'd be a little bit of, "Well, let's give this team some benefit of the doubt that they're going to continue to really generate value."

The other challenge that you see when you have these hub-and-spoke models—or even if you don't, if you just have a very deep pipeline of attractive programs—is that, for whatever reason, investors become increasingly reluctant to ascribe value beyond the first 1 or 2 assets.

It leaves these companies that have very promising portfolios with a cost of capital that's probably higher than it should be, which can make it challenging for them to fund all this incredible innovation. You wind up having to make choices that you might otherwise not have wanted to make, just because, again, you're not getting full credit for that portfolio.

It's an interesting dynamic to me. It's a bit of a shortcoming from the investment community not to see a little bit forward beyond the "What have you done for me lately?" or "What's on the very near-term horizon?" and to think a little bit longer term, and a little bit more holistically, about a company and its valuation.

Yeah, I think we've seen a lot of that. That's also been across the board in biotech: this idea that you just have to focus on the key program and get to data. That's partly been a result of the market. But it is interesting that companies that are able to advance multiple programs and maybe don't have as much need to fundraise because they're generating cash elsewhere, I don't think the market knows how to understand them as much.

Anyway, let's move on. Josh, I know you track a lot of companies that are private, and you've talked a bit about the quality of the private companies that are out there. There are a couple that you've been tracking that announced data this week. Can you tell us more about them?

Yeah, with the IPO window having been closed for so long, private companies are forced to mature and generate data that otherwise would have been generated in a very binary way in the public markets. We're seeing a very different private-company biotech ecosystem.

One of the data points this week was the team from Areteia, a wonderful team that actually pulled dexpramipexole out of Biogen. It failed in ALS, but what they saw in that trial was an interesting signal of a significant reduction in eosinophil count. Naturally, they repurposed it for asthma—eosinophilic asthma—and, after working on this program for some time, came out with positive Phase 3 results. So it's basically an oral option to treat eosinophilic asthma, which remains a very large unmet medical need. Nice to see that data point. It wasn't tremendously surprising because they had done such a good job characterizing it. But now we've got another private company that has positive Phase 3 data, and they'll have to figure out their own strategy going forward.

Then, a very different company called Apollo Therapeutics. They're based in the UK, which might actually be an interesting segue into UK innovation and what's been going on lately. It's another really wonderful team. They've formed a number of partnerships with some of the leading academic centers in the UK to tech-transfer some of the more promising programs.

What they just announced was positive data in atopic dermatitis for their IL-7R antibody. The top-line results sound quite good. We don't have all the details—just the active-treatment arm, not the placebo arm. But again, it's reflective of what we're seeing in the private-company space, with companies being forced to hit milestones and derisk before they come to the public markets. I think ultimately that is very healthy for the public markets at the end of the day. I'm not sure if we want to talk about what's been going on in the UK here or save that for later.

6. The UK Biotech Hub Problem

Yeah. No, no, this is a perfect segue. We can talk about that. Over the last week, 3 big pharma companies announced plans to leave the UK in some form or another—not fully leave, but abandon different projects. Merck is abandoning a planned £1 billion London research center and withdrawing from existing UK R&D facilities in the Francis Crick Institute and London BioScience Innovation Centre. AstraZeneca announced plans to forgo a $270 million UK vaccine facility. And Lilly announced it's reconsidering plans for UK Lilly Gateway Labs.

In general, these companies and others have criticized the business environment in the UK, which we can talk a little bit about. It's important to point out—and I think you touched on this with Apollo—that the UK is home to leading scientists, universities, early-stage investors, and, of course, a couple of major pharma companies. It has all the ingredients of a biotech hub like Boston and San Francisco, but it really hasn't been able to pick up steam in that direction. It raises interesting questions about what's held it back.

The issues have a lot to do with overregulation and what's been pointed to as anti-business policy. We had some really interesting discussions with UK company founders and investors who have been expressing unprecedented bleakness about the UK life sciences environment. Lastly, it's a tough place to develop and sell drugs, and there's also the pull factor with Trump administration policies pulling companies to make manufacturing commitments in the US.

So I think let's split this discussion into 2. The first part is the UK drug-pricing model and some of the US policy stuff around manufacturing. Then, the second, which we can do following that, is this idea of the UK and why it hasn't been able to be a biotech hub. What's missing? Let's start with the first one, and maybe, Josh, you can talk about the UK drug-pricing model and some of the policy stuff.

Yeah, they're at the extreme end of conservatism in terms of paying for value when it comes to innovation. I think the challenge, though, is that there's a reason innovation is priced as high as it is, and that is to incentivize more innovation. It's interesting because you point out the UK really hasn't hit its stride when it comes to bioinnovation, but on the other hand, they're not interested. They've made that very clear through NICE's efforts to really limit the amount they spend on drugs and, as such, the amount they're willing to commit to innovation.

It's becoming a serious issue, as we know now, with the US looking for other countries to start paying their fair share for the innovation that they do benefit from. There are all sorts of factors here, including China in particular as a country that is likely willing to provide lower-cost innovation for the globe. China's not quite ready to do it on a broad scale like the US has been building over the last number of decades, but there are a lot of colliding forces at play when it comes to drug price and drug spend. It's certainly not unreasonable to ask countries that are going to benefit from innovation to pay their fair share.

It gets into the broader framework as well, like ICER's framework for how to ascribe value to drugs. At least from my perspective, which I think is a little bit different from what others might have, the question isn't around value. The question is: What's the right framework of pricing to incentivize more innovation? That's really the only justification for these high drug prices. I see very few policymakers, think tanks, or ICERs of the world—the NICEs of the world—ever sit down and talk to investors or analysts, who ultimately are the ones who are going to be making the decision to allocate capital to new R&D outside of the realm of profitable biopharma companies.

But that's really all that matters. If you create a system that doesn't reward innovation, there's going to be no innovation. If you create a system that does, there will be. And if you create a system that over-incentivizes innovation, we'll have too much innovation. But that's not the lens through which you hear these drug-price discussions ever talked about, which I find a little frustrating.

Can I just say, first of all, I think you don't have to look that far back in history to see a lot of innovation coming out of the UK, and obviously there are a few big pharma companies that have done a lot of work there. Cambridge is still a biotech hub. I don't know that it's totally clear with Oxford, either. I don't know that it's totally clear what the history there is.

To me, and I'm not close to any of these decisions, this looks a little bit like the UK as a place is just getting a little bit unlucky in a game of geopolitical chess, in part. It's true that drug prices are comparatively low there. They're not that much lower than other important places in Europe, but it's just that they are at the intersection of a relatively small commercial market where investments had been promised.

I feel like part of what most of big pharma is trying to do is prove to the Trump administration that the US is getting something in exchange for the bargain that is critically financially important to them. Nothing speaks louder in the current political moment than shifting dollars of investment, especially big-sum-dollar investments. I feel like the concentration of this activity is as much a signal to the US as it is to the UK.

Yeah. Unfortunately, I don't agree with you on that point, although I think luck has nothing to do with this. I just want to go back to Josh's point that, outside of drug pricing, the UK has done very little to understand what type of environment to create to incentivize company building and investment, and to build real innovation hubs.

When we say that—and I've spent quite some time, and I do want to call out that I have been on the board, for example, of Abcam, which is a truly outstanding company that was just bought by Danaher—that's an outlier. I'm on another board of a private company called CLM, an amazing British company. That's also an outlier. Other than those 2 and a handful of others, it's a challenging environment.

Again, drug pricing is one thing, but the environment that creates everything from the regulation of how boards are structured to the investment environment, to having incentives for investors, to also having incentives for company founders and company builders.

Everything from tax incentives to how boards and companies are structured. So the UK has a significant issue, and I would love to hear your thoughts, Daphne. I know you've built a company yourself that is on the UK stock exchange. What are your thoughts? I'll also be happy to chime in on the issue with the biotech hubs in the UK. By the way, it's not a recent phenomenon; they've had issues going back years and years.

Yeah, absolutely. I'll also note that Michal Preminger has just joined us from the audience. She was recently at J&J, and before that she ran the Harvard tech licensing offices and knows a lot about biotech hubs. We'll hear from her as well after I say a few words, and then maybe Luba—I think you wanted to comment.

I think you make a great point about these incentives for business. The way I look at it is that a lot of regulation in the UK is around protecting the downside, as opposed to incentivizing the upside, and you see that across the board. For example, you talked about boards. They frown upon board members having shares in the company, when you would think that would align interests, but they worry about conflicts of interest, which doesn't really make a lot of sense. There's a lot of regulation around protecting the downside, and I think that's important, but they've missed the upside part.

They have this UK Takeover Panel, which is meant to protect UK investors. I would guess that panel has probably cost investors in the UK billions of dollars because of the way they were overconcerned about the ability to do deals and whether companies would leave the UK. What it ends up doing is making it less interesting for investors there. But I do think it's really interesting because there is such great science, great entrepreneurs, and great early-stage investors. This idea of overregulation, tax incentives, and all of those things has really been holding back the ability to build companies there. Of course, the stock market there is also very challenging.

For example, we raised money and listed on the main market, not on the AIM. We raised about $200 million in an IPO, and there are some amazing, very smart investors there. The problem, though, is that the UK government is not really incentivizing investment in the UK. I think it's a really interesting question: What are the elements that create these biotech hubs like Boston, Cambridge, and, for example, San Francisco? I'd love to hear more from you, Luba, and from Michal on that point.

Yeah, absolutely. As you know, I'm also on the board of MassBio, so we talk about this quite a bit. We also meet with similar hubs across the world, including Basel, Cambridge, and Oxford in the UK. Of course, science is number one, and the UK has that in its hubs. Number two is access to capital. Number three is often being accessible to hospitals and to amazing talent—people who don't just start up companies but are able to build and scale companies, and not just in the CEO function but in CFO and other functions.

I can tell you, looking at UK companies, I think there needs to be additional training, just because of the regulatory level and how companies are run in the UK. There aren't that many CFOs and finance people who can go and be part of a startup because they think very differently. They think in a way that is not helpful to a startup in the UK.

There is a lot of talent in the United Kingdom, which is something you need and something we have here in Boston and across multiple different areas. Everything from science to law to business to finance—we have that. But a lot of that talent is not actually trained to start up companies or to be in a cross-functional startup environment and build a company for growth. That is certainly one area where the UK needs help with training.

What makes a hub very successful? I think if the government was open to toning down the regulation and incentivizing investors and talent that can go into startups, it would be a whole different world for the UK. I would love to know what you think. I know you've been in this for a long, long time.

Yes, of course, and I'm happy to share the experience of serving on the MassBio board with you. Maybe I'll add a number four to your list. Number four is the presence of pharma companies in the same environment. When we talk about the Cambridge ecosystem, the idea is that you can very easily, as a young company, do what we call the walk and, within 25 minutes, visit every pharma company. You get access to the expertise and an understanding of what will happen downstream from where you are right now, as well as what regulatory and development considerations you may want to incorporate into your plan early on, including the choice of first indication—all of those amazing things—and, of course, the cross-fertilization in terms of talent.

For the UK to alienate and lose the presence of big pharma in that ecosystem is a real challenge, especially because the ecosystem is already very distributed. We do have the Golden Triangle in Cambridge and Oxford, but it is a very different phenotype of an ecosystem, and yet there are really amazing opportunities. I can say, just from the J&J experience, that J&J has an innovation center in London that serves all of Europe. The UK ecosystem is definitely a top performer there in terms of early-stage companies, and again, the challenges of growing and so on that you already mentioned.

I wanted to take us back to Cambridge and the Massachusetts ecosystem and highlight an article, or a white paper, that Peter Kolchinsky wrote this week about The Massachusetts Paradox. He's highlighting his concern about an environment in which there is clearly a lot of support for biotech in Massachusetts, but it is also home to some of the most aggressive, let's say, politicians and representatives who are pushing policies at the federal level that are very harmful to biotech and biopharma in general.

It's a 12,000-word article that he's encouraging each one of us to read because it includes both a description of the issue and what we can do about it as an industry. It is a test case, but really with inspiration, I think, for any ecosystem around the globe. We can ask ourselves: If in Massachusetts, where we are responsible for so much of the economic growth and prosperity, we are still kind of unable to advocate and get our representatives to support us, how could any other ecosystem expect to do so?

I just want to encourage people to take a look at it. I think it is fascinating, and it's important for us to be educated about those topics. Maybe we can take one of the next Biotech Hangout sessions to dig in once people have read it.

Yeah, we can share a link to that.

Yeah, I'm going to put a link in the chat right now.

7. Policy Raises New Uncertainty

Yeah, that's great. Okay, so we're almost at the top of the hour, and I know we wanted to touch on a few other policy updates. Josh, do you want to hit, real quick, the J&J pricing announcement on their bladder cancer drug and the impact on CG Oncology, HHS, and ACIP?

Yeah, a bunch going on to cover quickly. J&J got approval for their TAR-200 gemcitabine-eluting pretzel, Inlexzo. The price is pretty high. The first year of therapy for a full course would be close to $750,000. That falls to about $150,000 in the second year because the frequency of administration of the therapy falls in the second year. But it's another signal in terms of the direction that drug prices can continue to head.

On HHS, there was the HELP Committee meeting that brought in Dr. Susan Monarez to talk about her firing as head of the CDC. I would say it was maybe a 4-to-1 balance in terms of those who were very concerned about the direction that the CDC is headed with its leadership, relative to a couple of Republican senators who geared their questions more toward Dr. Monarez and her own integrity, which would seem to be fairly unimpeachable. We'll see what direction this heads in.

There's certainly increasing pushback against RFK's decision-making and policies, and that kind of dovetails into the ACIP meeting that was going on yesterday. I haven't been able to watch as much of it today, but it's a very new ACIP committee composition. Many of them are clearly approaching questions around vaccines with far more caution than the prior ACIP committee did.

I think the biggest challenge is that there's just not perfect data to answer the myriad of questions that have been raised about vaccines and vaccine policy. A lot of vaccine policy comes down to expert judgment. We've replaced a very pro-vaccine and pro-science panel with a group that is fairly defensive about being characterized as anti-vaccine.

Many of them were asking reasonable questions around safety, etc. It did illustrate their lack of expertise in the subject matter and, at times, made for some very cringy moments. But I think the big challenge here is that a lot of the discussions are out of the realm of what data can clearly illustrate. Everyone has to extrapolate based on the available data, and some are more comfortable extrapolating favorably, while others are very uncomfortable extrapolating favorably. That's just creating a lot of noise, confusion, and uncertainty. It's not a great look, but I guess from some lenses, it's at least an understandable look.

Yeah, it's interesting because the quality of the advisers is also going to have an impact. I've been a little bit disappointed, not just with regard to vaccines but in other areas. The advisers that they're bringing in have conflicts. They're not pharma companies; they're not pharma representatives, but they have their own personal conflicts, and I think that's a real problem.

Anybody else have comments on the policy points that Josh just touched on before we wrap up the show? Okay, so let's just go around and see if people have any closing remarks. I mean, I think in summary, this feels like maybe there are some green shoots. People are feeling more optimistic about biotech. One missing piece is the public markets. I mean, the follow-ons are strong, but not really IPOs yet, with 1 exception last week, which was, I think, okay. But it seems like sentiment has improved substantially since our lows of April. I'd love to hear from the others, and then we'll wrap up the session.

I would just add that biotech looks like it actually has the makings of a business model, and that's what it's going to take for the sector to thrive from here. One of the main reasons this is a fun industry to be in is because, ultimately, you run experiments and generate data, and it matters for patients. That's what dominated my week. It's exciting to be a part of that, and I feel great about what we've delivered for dementia patients and what I hope that means long term. That has painted my week with optimism and is a fun reminder of why we do what we do.

Yeah, I couldn't agree more. I think there's an optimistic outlook, and we all are quite optimistic. One of the things, actually, when we talked about the hubs, I was going to mention one: The one thing that we have here in Boston, and also in California, is that we're hyper-optimistic, even when the fundamentals are not 100% there. That's what drives innovation and that's what drives change for patients. Matt, I'm in a similar boat as you are right now, looking into how our patients are doing, and they're doing so well in our trial. That's what's important, ultimately.

Yeah. If it wasn't for the optimism, none of these drugs would ever get developed. I mean, I think all of us are really focused on developing new medicines for patients, and that optimism over years and years, and in very challenging circumstances, is what enables us to deliver these new medicines. So, yeah, I think it's a very important piece of it.

Well, anyway, thank you all for joining today, and Michal for jumping up from the audience. I hope you all have a wonderful weekend, and thank you for joining us on Biotech Hangout. We'll see you next week.