Episode 161 - October 31, 2025

You're listening to Biotech Hangout, a live and unedited weekly discussion of all the latest news in our industry with a group of biotech insiders. I'm Daphne Zohar and my co-hosts today are Bruce Booth, Eric Schmidt, Yaron Werber, Brian Skorney, and Sam Fazeli. For more information about our hosts and guest speakers, or to listen to the most recent episode, please go to biotech hangouts.com.

After years of underperformance, biotech has been rallying, and it looks like it may be more sustainable this time. We've had solid fundamentals, strong clinical data, fewer weak players, renewed M&A activity, and, importantly, successful commercial launches by biotechs. The number of companies trading below their cash value has dropped from more than 200 3 years ago to about 50 now, according to Stifel.

Layoffs across biotech in 2025 have already exceeded last year's total. To some extent, that's sad, but it also shows discipline and a culling of weak programs. Biotech M&A is on track for its strongest year since 2019, and concerns about policy seem to be settling down a bit. The IPO market still seems to be pretty much closed, but Yaron, you mentioned you're seeing more generalist interest. You're on mute.

There we go. Hopefully you can hear me. We've been marketing a lot, and Eric, Brian, and everybody, chime in. We were in Europe last week and did a lot of events this week, and the generalist interest is definitely much more palpable. It's back.

Now, we do need to be very specific. Specifically in Europe, as you know, argenx has been added to the Euro Stoxx 50 at a 1% weighting, which is actually fairly sizable. So, we got investors coming into meetings because they wanted to talk about argenx, and that inevitably flows into things like Ionis or a general sort of sector discussion.

In some cases, people came in to see biotech analysts because they were obviously planning on investing more in pharma. But even in the U.S., we're beginning to see small-cap generalists dabbling in very specific names. At our conferences, we've been seeing some generalists—friends we haven't seen in a while—coming up to us, giving us a hug, and saying, "It's time to at least close my short in healthcare." That's a compliment, and we'll take it.

That's funny. What kinds of companies are drawing attention at this point?

In large cap, people are looking at more growthy names. I would say argenx and UCB, which my colleague Stacy Culp covers very well. People have also been looking at Alnylam, specifically in our coverage universe, and smaller Ionis, which is a little bit more diversified as a commercial company. That's what we're seeing, but I'd love to hear what everybody else is saying.

I'd love to go to Bruce. We were having a fun conversation earlier this week about predictions for the XBI. I think it was at about 112 today. Do you think this rally is sustainable, and what are your thoughts on the IPO market?

I think you summed it up well. There are a lot of tailwinds behind us right now, and after multiple years of retrenchment, I think the cycle is ready to turn. As generalists come back, I think that's going to be a real momentum builder for the sector.

In terms of companies, the reality is that the IPO process takes time. By the time you're able to get a confidential offering and flip public, that can take many months—3-plus months in the process. The markets didn't really feel very good until maybe September. Things had gone up in the summer, but I don't think people thought it was sustainable. Now it feels like this is real.

I wouldn't anticipate a huge amount of IPO activity before the end of the year, just given the fact that it takes you 4 months to file, especially with a closed SEC, and all of that process. I do think the first couple of months of 2026 look like they could be pretty interesting.

The bigger question for the sector is how many IPOs we should have and what type of company should be going public. Being public, as I mentioned in the 20-year blog post, is really not for everyone. I've been part of companies where you quickly regret being public, because solving R&D questions, especially early-stage R&D questions, under the glare of the public markets is not a pleasant place.

It probably costs you $40 million or $50 million to be public for your first 2 years when you think about banker fees, D&O, and all of the other issues. So, if you can stay private, I'd encourage people to stay private. But if you need to access the bigger pool of capital, I think it will likely open up at the beginning of next year.

I want to point out that Bruce put out a terrific series about his learnings over the past 20 years in biotech investing, and we will post that here in the room. We'll talk about some of the themes throughout the show. I think it's a really good point. The other side of it—one argument for going public would be that, if you are public on the back of a positive milestone, it might be easier to raise additional capital and also get true value for the programs that you have.

But I also agree with everything you said about how difficult it is to be a public-company CEO when you're managing data readouts. It's probably one of the most stressful things you could be doing.

Our friend Adam Feuerstein did a very interesting interview with Neil Kumar of BridgeBio yesterday. He echoes exactly what you just said with regard to how tough it is to be a public biotech sometimes, but then you need the money to do the work that you need to do. That's the dilemma.

Yeah. I remember one time Neil had a major readout. It was, I think, his Phase 3 readout, and he was talking about the Odyssey. He was putting out some posts on there—very philosophical—but it's true, it is very stressful. It's also really fun and satisfying when you're able to get a good result.

One additional comment on that, for sure. If you just look at the frequency of $100 million-plus financings in the private market, it's like 6 or 7 a month right now. So, there is actually a lot of venture activity. It may be concentrating in fewer names, but there is a lot of venture funding available for companies that want to get through that clinical inflection as a private company today.

I feel like we've seen this movie before, though, right? When the generalists do come in, when the rising tide lifts all ships, it is very hard to hold back on IPOs. Generally speaking, I don't think venture guys are incentivized to do it. I don't think bankers are incentivized to do it. I don't think we as analysts are incentivized to do it. Do you think this is going to be different? Do you think there will be some gates on the system?

I think everybody is incentivized to go public. It's actually about the discipline not to go public. If you're the management team, when you go public, not only do you have a stock option plan and a 10b5-1 plan, but you lift all of the liquidation preference off your shoulders on the M&A side of things as a private company.

The VCs think that they're getting a path to liquidity, so they're pushing for it. The bankers love it. Seven percent of every IPO—if you can just keep cashing those coupons, that's a pretty nice business. And, of course, that gives you guys a lot of work on a bunch of new names. So, I think everybody's incentivized to do it.

Bruce, you're breaking up.

No, it's the discipline of knowing not to do it.

Who's going to exert that discipline? Where is the check and balance in the system? Or are we just, unfortunately, at the mercy of the market again?

It is a cycle, after all.

There's some discipline, I think, when you get to the point of price discovery, with existing investors being somewhat sensitive to dilution. So, they want to go public, but then they probably also want to offset dilution, which is another important theme that you mentioned, Bruce, in your series: this idea of how important it is that the CEO is aligned with his or her current shareholders.

There's a tendency sometimes to look at the future shareholders, but that was a really interesting point you made there.

Yeah. No, it's a crucial one as you're weighing questions around, "Do I go public? Do I sell now? Do I take the kind of dilution that might be required in the public markets at low prices?" All of those are real, and I'm usually the current shareholder in all those conversations rather than a new and future shareholder or future investor. So, I come at it from a slightly different perspective than a new generalist might.

I think everybody would love to see an outcome like what we just saw this week with Avidity. We started the week with exciting news that Novartis will acquire Avidity for $12 billion. It seems like everybody was happy with that deal. Let's start with Brian and then go to Eric to talk about the deal and also any implications for other companies, like Dyne, for example.

Yeah, great, Daphne. As you said, this was a $12 billion deal for Avidity announced this week, and it had been speculated about going all the way back to the summer. You look at the chart, and there's a big jump in Avidity's stock price as it was rumored to be an acquisition candidate for Novartis. The stock has had a tremendous run this year.

Look, Avidity is really a platform company with 3 discrete assets, and what they're really focused on is delivering oligonucleotides directly to muscle. They do have another platform that's getting spun back out that's more cardiovascular-targeted, but I think the big focus, and certainly all the clinical candidates, are on the muscle-targeting platform. That is what Novartis is paying for.

They have 2 parallel lead programs: one in DMD, but a discrete subgroup of DMD patients—exon 44-amenable patients—and DM1, which is probably the bigger driver of investor focus here. They have a plan to file the DMD program with the FDA in the very near future, and we're looking to see pivotal data from their DM1 program in 2026. They're planning to file for that right on the back of those data, and DM1 is a really big indication.

I cover Dyne, and these 2 companies are very much viewed by investors as similar. I would argue—and Bruce, feel free to jump in and agree with me here—that Dyne's DM1 drug is a little better than Avidity's, but they're a little behind Avidity, too. One of the knocks is that Avidity has this much larger confirmatory phase 3 study than the Dyne study, which is more of an expansion cohort of a phase 2 study. But they'll both potentially be reviewed in somewhat parallel fashion by the FDA.

I've really liked the valuation discount between Avidity and Dyne. Dyne was up almost as much as Avidity was on a percentage basis when this announcement came earlier this week. It's definitely going to be an interesting area to follow as these 2 platforms and individual drugs move forward, and ultimately, Dyne is now competing with Novartis. We'll see if someone else winds up picking up Dyne.

But I definitely think if you're Novartis—and this seems like it was probably a competitive bid to drive the price up to $12 billion, making it one of the largest development-stage deals in the history of the sector—it'll be interesting when we get the merger docs. It's really hard to look at Avidity and not also consider Dyne because they are so similar, both in terms of the platform and the individual programs that they have. I'd love to hear Eric's thoughts on that.

Yeah, maybe one comment, just picking up on your last valuation comment. I think this is the largest deal we've ever seen for a company that has yet to read out a phase 3 result. That's quite remarkable here, right? $12 billion for a company that is ceding all the developmental risk, the commercial risk, and the clinical risks to Novartis. We know Novartis loves RNA therapeutics, and Sam may want to touch on that, but this is unprecedented in that we have a company being valued at this level that has really yet to prove that it has a drug.

I've been a big fan. This has been a wonderful call for us. Daphne, to your comment, is everyone happy? Actually, I could argue that it's a mixed bag for shareholders. Sure, it's been a good run. Sure, it's a hefty premium in the mid-40s for a company that already had good performance prior to the deal, but Avidity was one of the few companies, maybe along with Dyne, that really has a platform, has an opportunity to have a renewable pipeline, and has an opportunity to be first-in-class in multiple very substantial markets.

When you think of the biotech sector and where the next Alnylam or the next Vertex might come from, it's going to come from a company like Avidity or Dyne. So we are giving up that potential for a $20 billion, $30 billion, or $40 billion valuation in the future when a company like Avidity chooses to sell out at this stage. Again, they're ceding a lot of risk over to Novartis, but this is one of the few companies, I think, that had the ability to be a renewable pipeline, a real all-star in our business.

It's one of the changes that we've seen, I think, in the sector: biotechs are able to launch drugs successfully, and there is even that decision or trade-off in looking at M&A at this stage of a company. Those were great points. Actually, I'd love to hear from Sam on your thoughts from a Novartis perspective on this deal.

Yeah, sure. Just to the point of the takeout, at the end of the day, pharma companies are supposed to go and take out good companies like this. That's when the investors on the pharma side celebrate, as opposed to something they cannot get their heads around, which we will get to because there's another M&A story that we'll talk about later.

I know it's a bittersweet pill for my biotech friends, but the issue is that these are the good companies that are going to be the attractive ones, with assets that make a difference to the future patent portfolio issues that some of these pharma companies have. As the guy said, with the RNA-targeting-type assets, Novartis already knows quite a bit about them. It has a deal with Alnylam, with a drug on the market, and a deal with Ionis, with a drug in development, both targeting cardiovascular diseases. It also has a business and understands treating difficult-to-treat muscle diseases, with spinal muscular atrophy, for instance.

This really fits very well with Novartis's knowledge base, at least, and its understanding of manufacturing and getting these things underway into the market. Of course, the company needs a product or suite of products to replace—

What has turned out not to be the biggest drug in the world, because currently that has apparently officially become Zepbound or Mounjaro this quarter. But Cosentyx, which is for autoimmune skin diseases, is heading to about $7.8 billion in revenue in 2028. After that, of course, there is a risk of patent expiry. The compound patent expires in 2028 or 2029, and therefore, if you look at consensus, growth was flat from 2029 onward, or there was no growth.

What I'd love to hear is this: There was somebody on Twitter saying that their technology is passé. I don't know if that's true or not, but I'd love to hear from Brian and Eric in terms of understanding where the tech platform is. Is it passé? Is it already becoming commoditized, like a whole bunch of people out there already have these types of targeting and cell-targeting drugs? No.

I really haven't heard that at all. I think that both Dyne and Avidity were smart and first and quick at promoting this platform. I'm sure you'll see more come on board. There are other ways to target muscle, but none of them are as proven as TfR antibody-mediated uptake. I'm sure it's on the come, but the lead time that these 2 companies have in the field is tremendous.

One thing that struck me about this deal, and in general over the last few months, is how well women CEOs have been doing on M&A this year, with some of the biggest deals being women-led companies. For example, Sarah Boyce at Avidity, $12 billion; Sharon Mates at Intra-Cellular—they sold that company to Johnson & Johnson for $14.6 billion; and Kate Haviland at Blueprint, a $9.5 billion sale to Sanofi. Heather Turner, Laura Shawver, Sophie Kornowski, Jill Mill, Ivana Leebish, and then, of course, you've got Alnylam and Yvonne, Vertex and Reshma.

I actually see here Julia Owens, who is one of the biotech CEO Sisterhood founders. There's now 400 women CEOs in the Sisterhood, and I think it's good to see.

That's—yeah, go ahead.

That's better than good. That's amazing. Congrats to all the women, successful or not, this year for making it to that role.

It's a change from what the industry looked like 5 years ago, 10 years ago. It's a real shift, and this kind of success and pattern recognition is really good for the next generation of leaders.

We had some drama this week with Novo making an unexpected bid to acquire Metsera, aiming to outbid Pfizer, which had a $7.3 billion deal in place, including $4.9 billion upfront and $2.4 billion in milestone payments. Novo launched a surprise counteroffer of up to $9 billion, including $6.5 billion in equity and $2.5 billion in contingent value rights.

One key piece of the Novo deal is that it derisks the upfront payment for Metsera through a dividend. Metsera's board says that Novo's offer is a superior proposal and has notified Pfizer, triggering a 4-day window for Pfizer to respond or improve its bid. I haven't seen whether anything has happened on that, but Pfizer was not happy about this at all, calling Novo's bid reckless and unprecedented, accusing it of trying to suppress competition and violate antitrust laws.

Pfizer also claims Metsera cannot legally exit the existing agreement and is prepared to pursue legal action. Someone also mentioned that Bourla is pulling out his trump card.

No pun intended by mentioning that Novo is not domiciled in America. So, Sam, what are your thoughts on how this is likely to play out?

But congratulations on the brilliant trump card that you just played. [Laughter] Fun.

No, look, the thing is that we all sat there as this news came out at first because there was—I think it was Bloomberg or somebody—who broke it, and not long after the actual announcement came out, we thought, “This can't be true,” because it just doesn't make much sense, at least on paper. So you start scratching your head, thinking, “How are you going to make this make sense?”

Let me take a whole bunch of different sides here. On the side of Metsera, I find it interesting that they say it's a superior deal because there is a real FTC risk here in terms of this not happening and going on for 6 months, 12 months, 18 months. I don't know what kind of discount you put on that risk to apply to the sweetened bid, if you like. It's not a sweetened bid that Pfizer would match, but the deal is bigger than what Pfizer was offering.

There's that angle, where I thought they can't just go—but maybe the fiduciary duty of management is to look at the actual facts and go, “Well, this, on a numbers basis, makes a lot more sense.” So that's what they're doing. But if I were in their shoes—and I am not in their shoes, and these are serious senior pharma and biotech people, so I'm sure they've looked at everything with their advisers—the 4 days for Pfizer, I suppose, expires at the end of Tuesday, because it's 4 business days. So let's see what Pfizer does.

It's certainly not enough time to get any involvement from the administration or anything like that, I suppose, unless the president decides to step in. What's interesting here also is that it's Novo, right? You have that background stuff going on. I don't want to link them; I just want to remind people about Greenland and Denmark, et cetera, in the background. So maybe this gives the administration sufficient reason to say something. I don't know. We'll find out.

In basic numbers, the deal on the per-share front is 19% better. Enterprise value is about 22% better because of the way the CVR works and the math that we've done. But we know it's a better deal in terms of the price. The question is, can they actually get it done? There's too much overlap here.

I know Yaron wants to talk about this too, but in terms of the overlap and what it's saying about Novo, I'll save my little piece and then I'll pass it on to Yaron. One possibility is that Novo wants to scupper the deal. I don't know. Why would you go through all of this to make Pfizer pay $1 billion or $2 billion more? I don't see the point, and what difference does that make to Pfizer?

Then you've got the situation here that maybe Novo actually needs it. The story is that apparently they were one of the bidders. They just weren't high enough, or the company assumed that there was too much risk associated with the deal because of the overlap, which, of course, hasn't changed.

Now, Novo is going in here saying, “We're structuring the deal in such a way that it shouldn't trigger a competition issue or an issue with the antitrust side.” That's actually saying that there is an antitrust side. We have an antitrust colleague at Bloomberg who looked at this and said, “This is just—I just can't see any way that this can escape it,” because the FTC doesn't ever actually have to be notified. They can just look at any deal and go to town on it, right? Go to war on it.

So there's that element. After all that, why is Novo doing it, assuming it's not any of these other things? A lot of people said maybe it's because of its internal pipeline that's coming up, which is a dual agonist, at least in the first instance. GLP-1/amylin is not good enough or is going to have a tough time on the market, and they believe that the drugs out of Metsera are better.

There is data coming out of Metsera that potentially suggests that the next thing could be that Metsera is able to go once monthly, although we have to see some more data on that, especially on the tolerability side, which the companies may have been able to see. Is this signaling—and this is where I'm going to pass to Yaron—that Novo has lost confidence in its own upcoming drugs? If that's the case, then they've made a mistake here, frankly, because if they don't get the deal, they're going to end up with even more questions on their pipeline in the future.

Well, let me maybe pick it up. A couple of things pop into mind. First of all, we know Novo is in trouble. They've essentially vacated the entire board. The foundation essentially took over, and they've already replaced a lot of the management.

What's striking here is that, with a completely new board—it is clearly being orchestrated by the foundation behind the scenes—you have a new board signing off on something like this. You obviously have a brand-new CEO too. These are not trivial things at the board level. Bruce, chime in as well.

Unquestionably, they're signaling that CagriSema is not going to cut it, and that's not shocking to anybody. The potency of the amylin is weaker. It's not long-acting. They had some trouble with their clinical studies, the way the dosing worked and the dropouts. They've lost their edge and their lead, and they're not long-acting.

Metsera's pipeline, in that sense—and that's sort of what we think was also interesting for Pfizer—is one company that actually has a broader tool set that Pfizer saw as attractive as a way to really get scale in obesity and be relevant.

Yeah. One other thing, going back to the deal structure: I was wondering if you guys could think of other deals like this where they're basically preempting, in some ways, the regulatory approval. I was thinking of Illumina and GRAIL. That was one. I don't know if anybody can think of others.

Back in the day—I'm dating myself—Boston Scientific, St. Jude, and Medtronic. Remember that? That was quite the saga.

Mhm. Okay. Well, let's move to policy. Brian, can you talk about the Catalent plant in Indiana and its potential implications?

Oh, yeah, sure. I think we've talked about this a bunch, and I don't want to beat a dead horse here, but this Catalent-in-Indiana situation just seems to be the gift that keeps on giving. It's funny that, amidst all the bullishness that we're talking about in the sector, this has emerged as one of the major headwinds, or certainly a question I get very frequently from investors across all companies: What level of exposure do my companies have to Catalent in Indiana?

This is a facility, one of the largest GMP manufacturing facilities for pharma. A lot of companies outsource to Catalent, and this was a facility that really started ramping up production during COVID. I think there's a bit of looking back and blaming the mandates to ramp up production as maybe leading to some of the problems here.

Over the last year, they've started receiving Form 483s from the FDA. Two weeks ago, they got an official action indicated classification, which is the most severe regulatory notification that a manufacturing facility can get. It's really bled into a lot of concerns, and I think the most exposed names have very clearly been Scholar Rock and Regeneron, both companies that have wound up receiving complete response letters due to the Catalent Indiana facility and the CMC issues that are going on here.

We spend so much time thinking about the clinical development pathway and regulatory pathway—whether a drug is efficacious and safe—but CMC kind of takes a backseat in investors' minds a lot. It's really emerged here as a big headache for the sector. I don't remember a time when there's been such a broad impact. Maybe the Genzyme Allston Landing problems 15 years ago, but that was still pretty Genzyme-specific.

We had a company out on the road this week that's development-stage, and literally in every single meeting we had, an investor asked, “Do you have any exposure to Catalent in Indiana?” So it's certainly been an interesting thing to watch. Regeneron reported earlier this week, and they're trying to resolve some of those issues to get some of their approvals across the board here.

Companies are starting to move to other manufacturers to try to get around what's clearly a problem. If you get a chance to look at the 483s, they're pretty grotesque.

Yeah, it's really interesting, especially when it's juxtaposed with the whole tariff question and moving manufacturing. It sort of limits the ability to find alternatives as people think about that angle of it. I'm curious to hear from Bruce: How are your companies thinking about this, and is it something that's being actively managed and worried about?

Oh, for sure. This is a huge, huge concern. Not only that specific site, but the whole collapse of cell manufacturing—all of that has been front and center for boards.

And I share in the upcoming year-in-review the data from the 270 CRLs in the FDA rejection letters this summer, and about 50% of them are manufacturing-related. I mean, it’s a really big and enormous driver of downside not to have that wrapped up properly. So, it’s very front and center for boards.

Wow. That’s a huge number. All right, let’s talk about data and conferences, specifically Intellia Therapeutics, the liver toxicity issue, and the impact on the field. Eric, can you take us through that?

Unfortunately, this was not a scheduled conference event. This was something out of the blue. The company announced earlier in the week that they had a second case of liver enzyme elevation, in this case a high ALT, associated with their in vivo gene-editing-based therapy for ATTR. This is a doozy. This is a real tough one to deal with.

We don’t know what caused it. Historically, we’ve seen some issues with the nanoparticle, the LNP, that have potentially caused liver enzyme elevations. But in this case, the time course is quite unusual. Typically, if you have LNP-mediated toxicity, you see that arise quite early, and maybe by day 7 or so, it’s already on the mend.

These cases evolved quite late, around day 30, with no warning. Again, in the case announced this week, it was a high-ALT case that required the trial to be paused, per the company, and then subsequently for the FDA to mandate a clinical trial hold. So, it’s really tough.

I mean, this company, to its credit, did the right thing. They’ve already treated a few hundred patients and done so fairly safely, but this is going to be a tough one to get past. There are other therapies for ATTR, and the benefit of this drug, of course, was that it was supposed to be a little bit more convenient—a one-and-done, lifetime therapy.

Obviously, that has a lot of benefit for patients if you have a clean side-effect profile, but it’s not necessarily going to be clear from here on out how they go about developing the drug going forward. This left quite a ripple effect on the field of gene editing. I think many of their other competitors—Beam, CRISPR Therapeutics, Editas, and Prime Medicine—were all down on the week as this field needs to deal with yet another case of idiosyncratic toxicity.

Not all gene-edited products are created equal. Some are very different indeed, and I’d hope that this doesn’t poison the well. But it’s a reminder that we need to be mindful of side effects with these newer modalities.

Yeah, Yaron, I don’t know if you want to add.

I just want to mention what was also interesting about this one, and we’ll go to Yaron afterward for additional insights into Intellia and the broader impact. What was interesting about this one is that the liver toxicity issue was disclosed on X.

An X user posted that he had spoken to someone whose relative was enrolled in the clinical trial. This was a couple of days before, I think, and he put it out there that this issue was likely to be announced or likely to happen. It raises the question of MNPI.

He received significant backlash, and of course, he wasn’t under any duty of confidentiality. He learned about it from someone whose daughter was in the clinical study, but the question of the risks involved in sharing information that you learn in that manner was raised. I don’t know if anybody wants to comment on that, and then, of course, if anybody else wants to comment about Intellia or the field more generally. Did you want to comment?

I mean, on the TTR side, Eric, maybe back to you. Do you remember? I honestly didn’t look. When did the high ALT appear? Was it really quickly, or did it come later on because of liver function?

No, it was quite a bit later—about 30 or so days after infusion.

Okay. You know, the one challenge with TTR is that there are so many amazing therapies now. Between the orals, obviously, there’s Wainua, which is an autoinjector from Ionis, and there are a few others. There’s 8 RX[?] and one more private program. Then, looking at it, I believe Alnylam is also doing a 3- and 6-month injectable, so the unmet need is fairly small.

Since you’re talking about Ionis and argenx, do you want to talk about what you said about their earnings?

Yeah. The good news is that we’re seeing an innovation cycle in biotech, and maybe we’ll start with argenx. Another very strong quarter for Vyvgart, continuing to penetrate markets globally for gMG and CIDP. It’s a really superb management team, and we all take commercialization for granted sometimes, but it’s really jarring to see a company perform and execute that well, given how hard it is these days to launch drugs that well.

They made some moves on their pipeline. Essentially, enrolling patients in dermatomyositis is very hard if you have an IV, and we’re seeing that with brepocitinib from Pfizer. They decided to halt enrollment in their phase 2 study for their second pipeline product in dermatomyositis because it wasn’t enrolling well with an IV. Roche has an oral now that’s going to be filed soon, and all the other drugs are promising subcutaneous administration.

In the meantime, they were continuing to advance Vyvgart in multiple indications. This was ACR week, so there was a lot going on in Sjögren’s. We saw the data from Novartis for the first time, the phase 3 ianalumab, which has a BAFF mechanism. Technically, both of the NEPTUNUS studies were positive, but they sort of got through the finish line. It’s like you finished the marathon and collapsed.

The data wasn’t very compelling from an efficacy perspective. Vera, which is a public company, has a BAFF/APRIL inhibitor that came from RemeGen in China, and they showed their phase 3 data. Vera is now going to do a global study, and the data out of China was really fantastic, showing about a 3- to 3.5-point difference on the relevant ESSDAI scale versus about a 0.5- to 1-point difference from Novartis.

Of course, it was out of China, so there were some difficulties extrapolating from a Chinese data set to a global data set, but they’re starting a phase 3. We also saw more of the FcRn data from Vyvgart from argenx and nipocalimab from Johnson & Johnson. They’re in phase 3, and their phase 2 data looks identical.

Of course, Amgen is in phase 3 with a CD40 ligand antagonist for Sjögren’s that’s going to read out late next year. Amgen is the only company that actually has positive phase 2 data in systemic and symptomatic Sjögren’s. Sjögren’s is a big market. We’re estimating $8 billion to $12 billion, so that’s definitely a market to watch.

I had a lot of other things, but let me turn it back to you.

Yeah. I think Eric also wanted to talk about the CAR-T data sets at ACR.

Well, we had the ACR meeting in Chicago this past week. I didn’t attend, but my colleague Josh did. From the sound of it, CAR-T therapy was all the rage again.

This is a real head-scratcher. There’s an enormous disconnect between what we see and hear at a conference like ACR with regard to physician, patient, and even big pharma enthusiasm for this class of molecules and what investors are thinking. The players here—Cabaletta, Kyverna, maybe to a lesser degree Bristol Myers Squibb and Novartis—have some leverage here. A few other smaller companies do as well.

These companies are trading at very modest valuations, with a high degree of skepticism toward what they’re doing. But when you go to a conference like ACR and see these rooms filled with listeners eagerly awaiting the latest results, the enthusiasm for what’s going on in the field is palpable. I don’t know what’s going to bridge that gap in sentiment, but the data certainly continues to be extremely exciting.

Scleroderma, in particular, has probably been the most difficult rheumatologic disease to treat. It’s a disease where patients develop scar tissue throughout their body, and there’s nothing that can stop the progression of that disease activity. Yet now, for the first time, in data sets from Cabaletta and Bristol, we’re seeing some very favorable activity against this indication.

There is probably no greater unmet need in the field, and CAR-Ts are packing the punch to get there. I think they come with their complexity, and there’s no doubt they come with their cost. We’ve seen businesses being made out of this in oncology, and it’s probably just a matter of time before we see companies make a business out of this in these severe rheumatologic disorders as well.

Yeah. We wanted to move to some broader themes. This week, we were talking about policy and some of the headwinds that companies like Moderna have faced. STAT had an interesting story about Moderna. Its market value has fallen by more than 90%: it was $185 billion at its 2021 peak and is now hovering around $10 billion.

So, Sam, let’s talk a bit about the criticism of them overspending and overestimating sales, and the rumors of a large pharma company buying them out. Oh, I think we lost Sam.

While we’re waiting to get him back, this also struck me as relevant to some of the points from Bruce’s trilogy that he put out around lean growth and boards. Yeah, Sam. Did you want to go first, or should we?

I mean, it’s the second time Zoom has dropped me today. Look, the company was very focused on keeping the assets it had, especially the COVID vaccine, all to itself.

BioNTech shared it with Pfizer, and so there was an enormous amount of cash that came into Moderna’s coffers over the 2–3 years when COVID vaccine sales were significant. What then happened, of course, is that there was what I think may have been overenthusiasm in committing to large Phase 3 trials and a whole bunch of respiratory disease vaccines and other types of infectious disease vaccines. Then, of course, there was a significant effort and focus on oncology, but a lot of it—except for the Merck one, which is a 50/50 deal—is being financed by Moderna. That, of course, is expensive.

What has happened now is that the company is probably going to end this year with about $6–6.5 billion of cash on the balance sheet, and you said a market cap of about $10 billion. So, we have an enterprise value of $3–3.5 billion.

If you think about COVID vaccinations continuing to decline on an annual basis, it’s possible that every year we’re going to end up—maybe this year at the $1.5 billion level, maybe next year at the $1.2 billion level—if that trend continues. Of course, there’s only so much cost-cutting a company can do, given that it has trials ongoing that it needs to finance, particularly the expanding deal and trial set with Merck. What you end up with is very rapidly dwindling cash and a risk that they would need to raise money.

So, in these sorts of circumstances, what does a company do? They’ve made all those commitments. STAT said that somebody had approached them, or there had been an approach by a pharma company, that could be a takeout or a licensing deal. We said that we think a takeout is, at the moment, unlikely because of the variety of pressures on the top line and the bottom line.

I think the jury is still out on whether an mRNA vaccine for cancer is genuinely driving a benefit by directing the immune system to the antigens that they’re delivering, or whether it’s doing what a very nice Nature paper showed: a very broad, nice innate immune activation, which you get with a COVID shot. That has been my forever criticism: There should be a control arm in there, or at least, in the placebo group, an unrelated mRNA to prove that what you’re doing in these vaccines is derived from the cancer vaccine.

All of this is still uncertain in my mind. Maybe the best thing that could happen here is that they partner out the infectious-disease vaccines, where there is some business, and maybe go with a vaccine provider in general. I don’t know what others think. I know Yaron covers it. Yaron, did you want to comment?

Yeah, I could be very quick. This one, I think there was a big pharma that was anticipated to be in the mix. This one doesn’t make a lot of sense to us, and we could be 99% wrong on this one. The underlying COVID business is under threat, and Merck has its own sort of BD priorities. We just, again, don’t want to speak for them, but we don’t think this is going to be one of them.

They do have access to the vaccine, and for another pharma to acquire Moderna to get access to technology that’s still fairly risky and expensive to maintain, I think, is going to be fairly tough. We’re skeptical.

Yeah. It’s interesting because it was such a strong execution play in terms of getting a drug to market, launching it commercially worldwide, and being such a success story on one side of it. Now it looks pretty dire, but I think Stéphane is somebody that people have been skeptical about in the past, and he’s pulled things out that have surprised folks.

Bruce, you talked a lot about management, boards, scaling—all of that—in your trilogy. I’d love to hear from you. Do you want to cover that? Do you want to talk about that?

Yeah. With regard to Moderna, I would just say it’s very easy now to sit in the cheap seats on Monday morning and make comments that they had an AOL Time Warner moment, where they had a bigger market cap than Merck and should have used their inflated equity to buy what you might describe as a real or mainstream business and diversified off of a pretty risky mRNA platform that certainly was instrumental in saving the world from COVID, but doesn’t seem to have lots of hits beyond that.

It’s easy to say they should have taken advantage of it. I think the lesson is that when you have a stock price that the board and management team think is, let’s just say, exuberantly valued, you should take advantage of it. With Lilly at some valuation multiples, you could say that they should be much more aggressive about deploying capital when their price-to-earnings ratio is where it is relative to BMS.

That sort of brings me to the point of, as all of these wonderful tailwinds happen in our space, when are we going to have the resurgence of big-to-big mergers? My prediction is that we will see that in the next 3-plus months. You’re going to see large companies in the mid- to high-double-digit billions being bought or merged with much larger companies.

It’s amazing, today, the spread between big pharma—from $40 billion to $800 billion. It’ll be interesting to see whether some of those companies leverage their, let’s just say, exuberantly priced equity to buy other companies.

Yeah, we’ve got to write this down and remember it, and come back to it if and when it happens. Are there any other comments? Then maybe we can dig deeper into your trilogy and some of the themes in there. I thought they were very relevant, and we don’t often get a chance on this show to zoom out.

I think spending the last 10 minutes zooming out, talking about lessons, would be very interesting. Let’s pause for a second, see if anybody else wants to comment, and then I’ll go back to you, Bruce.

Just on that M&A thing that Bruce said very quickly, I think somebody like Lilly needs to make a decision about how sustainable its top line is, based on the numbers that we’re seeing this quarter—$10 billion for the GLP-1. If that’s sustainable, I think that supports an enormous amount of internal R&D, to the point that they don’t need to do what Moderna should have done when its market cap was $80 billion, $100 billion, $140 billion. I can’t remember how high they went, to have bought some companies.

Of course, as Bruce said, I’m definitely one of the resident commentators here because we’re not even as close as Bruce is to the market in general. But at the end of the day, I think large pharma is doing it. We’ve just been talking about this. Vertex is doing it. They’re not necessarily using their shares; they’re using their cheap cash.

So, it’s harder, I think, for biotech, but even there we’ve seen some. With Genmab and—oh gosh, I forget who they took out. That’s right. Sorry. So it’s happening.

Bruce, did you want to comment on any of the themes from your trilogy?

I would just say it was super fun to reflect on 20 years at the same firm doing the same thing and some of the lessons learned from it. On the people front, one of the things that I come back to is the power of luck in our business. No one wants to admit it, but it’s a super-important part of what we do.

The stochastic nature of the science that we do, getting successful exits, and the overlap in Venn diagrams between talent, getting to a successful scientific result on a new medicine, and a successful exit—that’s a pretty hard thing to get the triple bullseye on. Much more often, there’s a piece of luck around any one of those.

It leads you to the conclusion of staying humble, but also that the celebrity worship we have in our space—and certainly in the tech space around certain founders—raises a lot of questions. There are a lot of really exceptional leaders in our field who’ve rolled the dice a couple of times, and it takes 6–8 years to report out on whether the science works. When those efforts don’t work, it doesn’t necessarily mean they’re not exceptionally good leaders and CEOs. We just have to be mindful of that particular point.

That was one that I got a lot of personal feedback on as well. But over time, not overvaluing the celebrities and focusing on substance is super important.

Yeah, I think a few of the themes that stood out to me—one of them was around CEOs being good at resource allocation and managing the burn and the timelines. I think your point was that the board needs to really understand burn, weigh the trade-offs, and allocate costs accurately.

I would also point out that if the CEO is doing their job well, they’re doing that very proactively. So, once the board has to take an active role in that, it’s usually a sign that something’s not right.

Your other point that I thought was pretty interesting was that the signals that you likely need a CEO change are visible far before you make the decision. You mentioned a few of those signals. What are the ones that you think really stand out in terms of red flags on the CEO side?

The CEO point is, again, one you always know in the rearview mirror: “Darn, I should have done that earlier.”

But you frequently convince yourself not to. You're in the midst of a financing and don't want to change while you're financing, or you're in the midst of a BD discussion and you think it might scare the pharma company away. And so you sort of convince yourself to stick around. Sometimes that works, but most often, if you're recognizing it, then the team probably recognizes it as well: the CEO might not be excelling at what they're doing, or maybe floundering. Frankly, a lot of times, they're overstressed because they recognize they're underperforming, and so that just leads to even more challenges.

So I think the signals around storytelling, fundraising, and traction on the BD—I commented about the 2 different flavors of CEOs: some are openers and some are closers. Very rarely do you have somebody who's great at both of those 2 things. It does happen on rare occasions, but more typically, you need to put a CBO who's a closer next to a CEO who's not. Those kinds of complementary team dynamics, you start to think about a lot more.

But those are a lot of the signals that you see in boardrooms and in traction: How come the B round was really hard, the C round was hard, and now we're struggling to get a deal done? That might actually be a real signal there.

Yeah, I'm curious to hear from the analysts on here: To what extent do the analyst and investor community pick up on those signals earlier and wonder about that, versus being surprised when there's a change in management? I'd say in my case maybe it's mixed. A lot of times, it's obvious way ahead of time. I would say when you know it's going to happen, it usually happens fairly late, and the company would have been better served, as Bruce said, to do it much earlier.

Which begs the question—I think we've talked about it many times—do boards, do most boards, really have a good pulse as to what's going on, and do they really have the right discussions or not?

Yeah, this whole concept of boards and how boards and management are thinking about shareholders—I think that, in our field, boards do a really good job thinking about the company, the culture, things like that. And, of course, patience. I think that's always front and center, but sometimes they don't necessarily have the shareholder hat on as much as they probably should. I liked your other point.

No, I agree. I was just going to say I agree with that entirely. There are so many topics on a board—you could have a whole call on it. Boards not wanting to rock the boat: that just is super common. A lot of the time, boards, especially as they become public boards, have more independence on them, and they all are effectively serving at the discretion of the CEO. So everybody is super supportive and cheerleading; you're supporting the team. Of course, you have tough conversations about certain things, but generally speaking, no one wants to rock the boat around being tough on compensation discussions, being tough on objectives and performance, or digging into the details of cash burn.

How many CFOs have said, “Wow, this is uncomfortable. They're micromanaging me, or they're down in the weeds of this particular discussion of resource allocation”? Boards need to do that. You'd much rather err on the side of a board that knows too much about the inner workings of a business than too little. But a lot of times, especially as they become public, you lose large-owner director roles. I think that's a huge problem in small-cap public biotechs, where there really aren't any large owners in a bunch of those companies' boardrooms. That leads to less discussion about things like dilution and appropriate resource allocation.

That's why I love seeing the big public investors—the Bakers, the BVFs, the Perceptives, and the Avoros—actually playing real roles on the boards of companies they have a lot of conviction around. I think it's a wonderful thing.

Yeah, I also think that this concept of truth-seeking leadership is really important because if you take that approach from the beginning and get the board comfortable with the fact that you're going to share everything—the problems, the different scenarios, and all of that—you end up getting a lot more support and a lot less micromanaging if you're proactive around those things.

Totally.

In particular, that truth-seeking is really important. I mean, it's always important in a company, but I find it super important in those early years, from discovery through early clinical, when you're getting data that doesn't look like what you thought it would look like. You have one type of leader who is truth-seeking and says, “This isn't what we thought. We have a gate around this. There's a go/no-go question. We're going to answer it, and if it's not right, we're either going to shut the program or shut the company down, and you move on, because time from a really great executive is more scarce than capital, frankly.”

You often see what happens is the data comes, and then the hand-waving starts. The hand-waving moves really, really fast, trying to explain, “Oh, we kind of expected this to happen, and this is what we thought might happen,” except the board and the rest of the team never heard that that was what we thought would happen, of course.

And so you get into all of this hand-waving that sort of tries to explain away the morphing of the hypothesis that you're going after.

You know, that's where truth-seeking really helps align everyone around—let's face it, in science, especially in the translation of academic work, a lot of this isn't going to play through the way we hope it will. And I think that's why it's really important in advance to say what you think success will look like. Set a bar for success. Set a bar for, “This is not what we'd like to see, but it's gray.” And then agree in advance: “This is bad. We wouldn't want to see this.” And then you plan in advance for those different outcomes.

Okay, well, listen, this is such an interesting series. We'll have you back on when you talk about your year in review.

Thank you.

Yeah, thank you everyone for a great discussion. I just want to close by mentioning that some of you may have seen on our social media channels that, in partnership with Biotech TV, we're hosting our annual in-person networking event at JP Morgan. I know Bruce, you will not be there, but a lot of other people will be. It used to be called the tweetup, but we still call it the tweetup, the X-up, whatever. It's going to be at Persona on Tuesday, January 13th from 7:00 to 10:00 p.m. We're talking to a number of different co-sponsors. We're going to be making final sponsorship decisions this week and in the next week or so. But if you are interested in sponsoring and have not yet reached out, please reach out to teambiotechout.com, and we look forward to seeing everyone there. It's completely open, and the sponsors pay for the drinks. So, that's a nice thing. Great conversation, everyone. Thank you, everyone, for joining, and we'll see you soon on Biotech Hangout.

Happy Halloween.