第130期——2025年2月7日

Tim, you mentioned that investor sentiment is improving. Is the market beginning to settle in with the new administration, including RFK, and some of the broader macro uncertainty around tariffs?

Tim Oppler

1. Market Sentiment Turns Less Negative

I think so. If you go back to the J.P. Morgan Healthcare Conference, we had a pretty good Monday, January 13, and the market went down. The XBI was trading around 86.5. Since then, the XBI has traded up pretty nicely. It hit a high of 94.7 today. It's down a little bit, around 92.

The market is up, and Paul and I, as he was saying, are at this conference in Utah. We had a ton of investors, so it was a nice opportunity to chat with a variety of different types of hedge funds and long funds and see where the mood is. Paul, I'd love to hear what your impressions are. Brian, what are you hearing in the market? I would just say that things were less negative. I hesitate to use the phrase positive, but things were really negative at the start of January, and that seems to be shifting.

I ask people, “Why do you feel better about the market?” A lot of people talked about RFK's confirmation hearing as being somewhat comforting. I also think Trump is now talking about pulling back a little bit on these tariffs. It's more carrying a big stick than actually using the stick. I think there's also a sense that Trump is really committed to taking interest rates down.

Yesterday, the new Treasury secretary came out and said, “I'd like to see the 10-year Treasury yield come down.” That's obviously very good news for biotech.

Yeah. So less negative is the new positive. Paul, do you have any comments, or Brian?

I think maybe a little bit less negative. I still feel like, in my coverage—and I bet Skorney could echo this, or maybe not—that there's more defensive investing than really wanting to take on risk in some of these beaten-up, still-super-binary, high-science names, right?

I feel like if I'm looking at the spectrum of beta or risk in my coverage, there's still a lot of small companies that have interesting science but are more speculative, where it's harder to generate a lot of interest. Then you have this Neurocrine trade down today, which is a little bit tough. I think that was a name that was well-liked and maybe a little bit crowded, and it might have some broader concerns on the payer or Medicare side that people are talking about.

Maybe it's not as bad as January. We've had some good news events, too, and some successful financings on the back of those news events. So, probably improving, but it still feels like, if you're indexing it to the past 5 years, it's below average. What do you think, Brian?

Yeah, I kind of agree with that sentiment, too. I definitely think it's more of a less-negative situation, but coming from a basis where, I think, Tuesday of J.P. Morgan, when we were on our second day of consecutive 2.5% declines after some pretty sizable M&A, it was starting from a pretty negative base.

I got a sense that investors are trying to keep their heads down and do a little bit more risk-off. Obviously, people still view catalysts as tradable events, but there are definitely more defensive plays. You see dividend-paying stocks and large caps performing pretty well.

As much as we've been up since J.P. Morgan, we're still trailing the S&P by 12%. I don't know that we're looking at positive sentiment. We've talked about this a ton of times, but to Tim's point about the de-escalation of tariffs, at least from what Trump is saying, there's just this massive sensitivity in the sector to whether there's a chance the 10-year sees a steep incline in rates.

As we saw maybe 14 months ago, there was this huge tailwind from the idea that we were going to see the 10-year decline. As much as that sort of macro trade is on, that seems to be a big sentiment driver for the market.

So, if I listen to you guys and sort of listen to myself, I would say that I'm saying sentiment's gone from 2 out of 10 to 4 out of 10. Paul, I think you're saying 2 to maybe 2.5, I don't know. Brian, maybe a little better. Would you agree with that, or am I just being delusional?

Yeah. No, I think maybe from 1 to 3. That's how I'm different.

Yeah. One of the issues we have right now is the lack of generalist interest. I want to come back to a conversation I was having with Tim yesterday. Tim, you mentioned that you're seeing a reemergence of wall-cross PIPEs, and wall-cross PIPEs were very much in vogue around a year ago.

They concerned me at the time because they tend to preferentially advantage specialists. Last year, when we were seeing a bunch of these, I spoke to a couple of friends who are top-tier specialist investors in biotech. One of them is actually on the show. I won't mention his name because he's a friend.

One of them said, “Hey, it's my job to outperform the market, and I'll take any advantage I can over generalists. Generalists aren't my problem. I don't have to look out for them. I have to do better than them.” Another felt that these practices, like wall-cross PIPEs, were borderline unethical and that the SEC should look into them. But he also admitted that he's not going to turn down an opportunity to see the data and participate.

My question is whether these inside-baseball types of deals hurt generalist interest in the sector and, over the long term, maybe hurt the performance of specialists as well. I'd love to hear from you first, Tim, and then from the others.

Tim Oppler

I mean, it's such an important question for our sector. The reality is that a lot of companies are able to access capital because of specialist investors, and if specialist investors say, “Hey, we want to do it with a PIPE with this discount or this particular twist or turn,” that's the price of doing business.

From a macro perspective, I do think that you have to worry about how specialists tend to be preferred. The reality is that generalists are not participating as much as one would like in our sector. I personally think that there are a set of relatively deep issues with how our sector works that are keeping generalists away.

Not the least of which is that AI looks pretty shiny, and you don't have to have a Ph.D. to buy NVIDIA stock. But at some point, things are going to turn in our sector's direction, and I do think that we should think hard about this business practice.

Does anybody else have comments specifically on wall-cross PIPEs?

Oh, sorry. Go ahead, Tim. I think you cut out. I thought you were done.

Tim Oppler

Oh, yeah. No, I was just saying that that's my view, and it's a feature of our sector, but it also has its downsides.

Yeah. I guess I would say, jumping in here, that I feel like generalists are so far from being involved in the type of stocks that are wall-cross PIPEs, it's not even an issue right now, right?

Generalists are maybe—you could get them into a Regeneron or Amgen—but getting them into $2 billion or less market-cap companies, we are so far away from grabbing their interest there that I don't think it's dissuading them at all.

And what about other practices? Abe, it looks like you want to comment.

Yeah, I was just going to comment as an operator. Daphne, I'd love to hear your thoughts on this, too. In markets like we're operating in today and trying to raise capital, I do believe that optionality is so important.

Although these wall-cross PIPEs may somewhat divide or segment the types of investors that can be involved and will be involved, I think the reality of the situation is that, for raising capital in this environment, you have to preserve that optionality. It's just the world we live in right now.

It's probably not appealing to all investors, but I think as an operator, you have to, as I said, really preserve that optionality.

Yeah. I think the question is, what does it take to get generalists to come back into biotech, into the smaller biotechs—the sub-$2 billion companies? It's such a complex set of factors. First of all, you have to really understand the data, and you have to understand the catalysts.

I think there's so much complexity in the industry that it seems like the deck is stacked against any generalist investor, so I don't really know if I have an answer to that. I do agree with you that it's important to have options as an operator, to be able to have options for how you fundraise.

So, I think this is more of a question more broadly about how we get generalists to come back into the sector, and obviously M&A is one of those. I'd love to go back again to Tim to talk about big pharma earnings and what they were saying about M&A.

Yeah. And, Daphne, before touching on that, I've often thought that there are just way too many companies that announce a complete response letter in Phase 3, and investors are all surprised.

Biotech companies that are public are subject to all sorts of SEC disclosure requirements that are probably not that relevant to what investors actually care about. So many companies, when you go in and do your M&A diligence, you discover that there's something pretty unpleasant that got said to them by the FDA in correspondence that they're just not disclosing to investors.

The quality of disclosure about what really matters—how are you doing on data, how's your science, and how are you doing with the FDA?—is actually not that good in our sector. And if there's one thing that I think could improve generalist access, it would be to take away some of the edge that specialists have.

The specialist edge is figuring out what's actually going on: getting on the phone and doing doctor calls, going to clinical sites, and finding out if the company's telling the truth or not. And while that's great if you're a hedge fund, I do think it tends to work against the overall story in the sector. I don't know if others share that view, but the quality of disclosure, I think, could be better.

I think, like Tim, it's interesting. I've had some interesting conversations about regulating the sector and regulating management commentary in the sector. And I think the challenge is that there's just so much subjectivity in our sector.

A lot of the exercise in vetting a company is vetting not just your trust in management, but management's interpretation of the FDA, or interpretation of clinical data, and whether X or Y is cherry-picked. In this sector, we feel like there are many times where companies have said something that's misleading, and there's no consequence to it, because ultimately I think interpretation of data, interpretation of science, and interpretation of regulatory feedback is often super-duper subjective.

When I talk to the occasional generalist who's looking at a mid-cap biotech company and wants a thousand-foot view of it, the reality is that the controversies driving the stock might be related to some sort of esoteric biomarker and whether it truly does or doesn't correlate with progression as well as the company is saying.

I just think these types of minutiae are, again, so subjective that it's really, really hard. Like what Skorney was saying, we're so far away from generalists doing these sub-$2 billion market-cap companies. To some extent, maybe that's a good thing. I don't know.

We're all, as analysts, when we recommend names, we're supposed to think about suitability. I'm not saying all small- and mid-cap biotech should be off-limits to generalists, but if you go back to 2015, when there was tons of generalist interest in things like gene therapy as a concept, some of the people buying those stocks probably really didn't understand their true risks. And that's not a good thing either, because look at the outcomes there.

Yeah, yeah. I would also echo that and say, look, generalist interest largely becomes cyclical. There's an element of FOMO when the sector really starts working. That's what will drive generalist interest.

I think it's just a sector that has been down on its luck for 5 years now, and without an inflection—and launches that will pay out in big share-price increases, or big innovations that result in big share-price increases—generalists could just afford not to be involved.

Only when it starts outperforming do they have to be involved, right? So it's really a bit of a FOMO trade, and it's really only when you get that outperformance that you sort of force that interest to occur.

2. Big Pharma Reopens M&A

I think that's right. And so, Daphne, coming back to your other question, what's going on with pharma. We are going through pharma earnings, and you might recall that when J&J did their earnings—they're usually the first out of the chute—they said, “Hey, Intra-Cellular Therapies was kind of a one-off. Don't expect us to do other $10 billion deals.”

And the commentary at the J.P. Morgan conference from the various large pharmas was, “Yeah, we'll be doing M&A this year, but think of more like smaller add-on-type deals.” So it was very electrifying, I think, when we started to hear much more open discussions of larger M&A coming out during the earnings period.

Pfizer said that they've got $10 billion-plus to do M&A this year. That was a surprise to me. Merck has also been talking up their capacity to do M&A, as have a number of other companies.

And so I do think that the M&A outlook continues to look positive. I will say, I'm a banker, one of many bankers, so I only see part of what's going on in the market, but I will say, just from the less-visible pipeline that we're seeing—both our own, but also from other groups—it's going to be a strong year for M&A in 2025.

So that should be a big positive for the market, on top of what's going on on the political-slash-macro side.

Yeah, and you mentioned Intra-Cellular Therapies. That would be the largest acquisition of a biotech company since the Karuna–BMS deal, and the 4th multibillion-dollar acquisition of a CNS drug developer in the last year or so.

So let's talk about some CNS news that we had this week. Paul, you can start with GH Research, which met its primary endpoint in a Phase 2b trial for a short-acting psychedelic drug in treatment-resistant depression. Take us through the data.

3. Psychedelics Clear A Clinical Hurdle

Yeah, sure. Thanks, Daphne. GH announced data from its Phase 2b study. It wasn't a huge trial—it was 81 patients—but it was randomized, placebo-controlled. They evaluated patients at an 8-day primary endpoint and then also looked at durability and redosing out to 6 months.

If you take a step back, I think the psychedelic space has come an extremely long way in 5 years. 5 years ago, there was still uncertainty around the FDA path of these things. We did have Spravato get approved. Some of the early companies had less-experienced management teams. I think we're seeing more experienced drug developers join the C-suite of these companies.

We've also had data now from multiple randomized controlled trials, whereas a lot of the historical data was open-label, or cases, or anecdotes. And so, for GH, this was a really big data set because we only had open-label data before it.

The difference from placebo on the MADRS, the approvable endpoint in depression, was a whopping 15 to 16 points, and usually companies are powering Phase 3 studies in this space for 3 points.

On the durability side, they showed that redosing appears to be safe, and they can get this pretty high remission rate over the long term. Their treatment paradigm in the open-label study was different from many studies I've seen because I think a lot of companies are conscientious of not overdoing it on the redosing and trying to make sure that a patient has truly relapsed.

Sometimes you might have a restriction where you can't redose until there's a depressive episode for 4 to 6 weeks. In this paradigm, I'm not saying they were redosing twice in a week, but at their scheduled visits, if the patient wasn't in remission, they just redosed, which was kind of a bold move. Overall, the data are really impressive.

The biggest caveats here, which I know, Daphne, you wanted to opine on, and it's interesting to hear your perspective, are, first, there was pretty obvious functional unblinding in this study, given that the placebo arm just didn't improve at all. This is a fact of a lot of these psychedelic studies, but this was a more extreme example with the lack of placebo response.

Second, GH is ultimately changing the medical device that's administering this in future trials. That always introduces risk. They have a clinical hold with the FDA on this device that they think they're going to resolve. But I think investors are going to want to see pharmacokinetic data that shows that you can really bridge these data into the next study.

Broadly speaking, our view on psychedelics has improved a lot. Notwithstanding the factors that I mentioned at the outset, Spravato, J&J's esketamine drug, requires a 2-hour patient visit every other week. The drug only worked in 2 out of 4 randomized controlled studies, and yet it's annualizing at $1.2 billion.

So I think that really lays the framework for a real commercial paradigm for this space, and there are reasons to be excited. Daphne, anything to add on your end?

Yeah, a few things.

So first of all, when you have a drug approved for depression, these are among the most widely prescribed and commercially successful drugs of all time. And that's because of the huge unmet need. So I think that it is very important to have these drugs. I think also the general sentiment toward psychedelics has improved quite substantially now that we're seeing randomized controlled studies and, like you said, strong management teams.

They do have this issue of functional unblinding. Also, commercially, having to have sort of a shaman there while the patient is having a psychedelic trip can have commercial implications. But as we're seeing, you're still able to get some great commercial traction.

The point of functional unblinding, I think, is only one of many challenges in neuropsychiatric drug development. So even drugs that don't have a functional unblinding issue have other nuances that one really needs a lot of experience and scar tissue in this field to manage well. For example, some issues include challenges with patient selection.

And there are ways to manage this by selecting the right sites, very closely scrutinizing patient enrollment, excluding patients that have big improvements from screening to baseline, and excluding patients that might have adjustment disorder, for example. This was a big issue during COVID, where patients may have been enrolled who were reacting to the pandemic rather than having proper MDD. There are a range of other ways to manage patient selection. And there are some intriguing biomarkers in development which I think will be very helpful once they're validated.

And then another big issue generally is that of high placebo responses. Obviously, we didn't see that here in the GH Research study. And those can be managed by limiting assessments and other patient interactions, or having only 1 active dose, so there isn't an inflated expectation that the patient is highly likely to be on active. And of course, that's assuming that you don't have to deal with hallucinations or other major unblinding issues and things like that.

So I think that it's a very nuanced space. It requires experience, but on the other side of it, lots of M&A interest and successful launches when you see them. I'm not sure. Actually, I'd love to hear from Abe. And, Abe, maybe you can tell us about the Axsome Therapeutics migraine drug approval and what you think about shorting the launch thesis in this case, given Biohaven.

Yeah. So, good news from Axsome. AXS-07, brand name Symbravo, was approved. I think a couple of interesting things here. One, we can talk about aspects of the migraine market, where the opportunity might be here, but also, it's always great to see organizations overcome CRLs. I think it was mentioned earlier in the discussion.

We know that drug development is not a linear process. We also know that the NDA submission is not a linear process. So the fact that this was just a CMC issue, and that organizations can overcome those things and ultimately get products to patients, is always great to see.

My view on the migraine market is that it is still a large and underserved market. We saw the emergence of CGRPs and CGRPs being able to provide patients with added benefit over triptans. But it still seems to be that CGRPs aren't meeting the needs for all patients. And I think that's been pretty clear, although there have been some successful launches, such as the Biohaven launch, as you mentioned, Daphne.

One of the dynamics that I think is really interesting here, in my opinion, when you look at the Axsome case study, is that I do think this market opportunity will be somewhat of an evolutionary tale, just given the data that they have based on the approval and then the data that might be coming later this year.

One of the challenges is going to be the data set. I think today really supports those patients that are going to be unresponsive to triptans. Triptans, as we know, aren't great drugs. And I do think that there's a payer dynamic that the market is going to wait to see, to see how access will evolve for a drug for which most patients have to step through triptans.

But the other data set that I think will be interesting will be the data set that I believe is coming at the end of this year, which is looking at patients that are more unresponsive to CGRPs. I think that could be an incremental shift, not only in terms of how payers may view this compound, but also how it may open up the overall clinical utility and patient opportunity for the compound as well.

So a lot remains to be seen here over the coming months. I think that, yes, there is a general sentiment, especially as I think about the dynamics around this launch, that this will be a show-me launch from an investor perspective, knowing that payer dynamics are going to be a major gatekeeper to the uptake of this drug.

Given the fact that the prescribing universe is relatively broad in migraine, this will be a show-me launch and, as I said, might also have 2 stages of evolution: the data set that ultimately allowed for the drug to be approved, but another data set that's coming at the end of this year that may open up the market further for patients that are unresponsive to CGRPs. I'd love to hear others' thoughts on this. Paul, I know you know this space relatively well, but any other thoughts? I'd be open to them.

I mean, migraine's a huge market. It's just one that's very capital-intensive. I don't know the amount of resources that Axsome's putting into this relative to Biohaven. I mean, Biohaven's spend was really substantial, right? And there were a lot of tailwinds for CGRPs, with 5 companies in that category.

So it's probably something that might be difficult. I don't have skin in the game there. I don't cover the stock, but it's a big market. Pfizer's bet on Biohaven was getting this market more into primary care, and so it's a huge opportunity, but one that requires a lot of muscle, I think, to do right.

Brian, did you want to say more about Neurocrine? You started to touch on it in the beginning.

Well, I think Paul was talking about Neurocrine. I hadn't mentioned it, but I'm happy to jump in too. I'll let Paul take it—we both cover it.

4. Neurocrine Exposes Payer Pressure

Yes, Brian, I want to hear your thoughts. But I think Neurocrine yesterday—so Neurocrine yesterday really surprised people because they missed numbers, and Neurocrine is a company that has done a great job of consistently beating numbers and consistently guiding conservatively and beating numbers. And then they guided 2025 below consensus, and this is for their drug Ingrezza for tardive dyskinesia, which is ultimately an enormous success story.

I think when this drug launched, people thought it was a $700 million drug or something, and it's going to sell $2.5 billion at the low end of guidance this year. So you've got to put it into some perspective. But this is also a stock that had been kind of a safe-haven growth stock in a tough market, where it's a mid-cap, it's profitable, and they're launching another drug for a rare disease that should go relatively well.

And so, in the context of this, I think that there's actually just a broader conversation here that I'd love to hear other people's perspectives on, because there are the Neurocrine-specific factors with this drug, where they've got greater competition from Teva. But I think one thing that's interesting that we put in our note after catching up with the management team is what they're seeing: greater payer pushback without really a significant change in contracting dynamics in their market.

And so what I mean by that is that in this tardive dyskinesia market, Ingrezza is on some formularies and it's not on other formularies. And that's been a specific, or an intentional, strategy to not overcontract and overgive back on price. I think historically, the results tell you that's worked out really well for Neurocrine, and it hasn't been an issue.

But more recently—and I think we don't know exactly when this trend started, but let's say sometime in 2024—plans have been pushing back more. Instead of making a physician jump through more hoops, there have been a greater number of outright nos, right? And I would imagine, given the guidance and given that it's February, that this continued significantly into January.

And so I think the implications of that for the sector broadly are sort of up for debate. Maybe it's something specific to this category. Maybe tardive dyskinesia just hit a tipping point where it's a $4 billion class, and that's a lot more than payers had really bargained for. Or it could be something related to small molecules.

And I think that this could be an indication of a broader Medicare Part D issue, where these highly expensive specialty drugs for the non-Medicare Advantage patients—there's much greater cost-sharing or payer liability under the IRA. And what that means for a lot of these drugs broadly, I think, is an open question: How are payers going to manage that? And they're probably going to manage it differently in different cases.

This is something in a totally different area that we talk about a lot with investors in the TTR space, with BridgeBio, Pfizer, and Alnylam. But the print for Neurocrine kind of put my radar up a little bit more for this, because, for those who don't know, under the IRA, for Part D drugs, for the catastrophic coverage portion of cost, which is essentially all the cost of the drug after the donut hole—

Payers used to eat 15% of that catastrophic portion. Now it’s 60%. Again, this is for the half of Medicare patients who are not in Medicare Advantage, but that’s a huge change. If you’re talking about a drug that costs $100,000, the liability could go up by $40,000.

Anyway, I just think it put my radar up. Skorney, do you have any other thoughts? When you were looking at this yesterday, what did you think about Neurocrine? Is this raising your eyebrows, too, more broadly, about payer dynamics changing this year for certain types of products?

Yeah. I guess I would have a slightly different take. I thought the number they printed was fine. It was slightly below consensus, but I think it was in line with expectations. I think it was really the guidance, as you brought up, that people are freaking out about.

They gave $2.5 billion to $2.6 billion. If it was $2.6 billion to $2.7 billion, I think the stock would be fine. It’s just that change from 20% growth to sub-10% growth. I think people would be okay if it was in the teens. That is the big question.

There are a lot of factors going into this year in terms of changes, obviously, including the Part D redesign. When you look at all the large-cap companies, Bristol Myers Squibb actually went through, in a lot of detail, what they think the initial catastrophic coverage costs would be under the redesign. I would tell everyone to look at Bristol’s slide deck and examine Eliquis, which I think is not as expensive but is a reasonable comparable to try to understand how this could potentially impact companies exposed to it.

I always think it’s funny. Every time I do a follow-up call with Matt and the team, they give me reasons why I should be more conservative on the numbers, but then they classically wind up beating and raising throughout the year. I do think that’s an interesting dynamic.

Clearly, there is payer pushback with this catastrophic coverage. One of the things—I know you were there for our JPMorgan meeting, Paul—I was asking them about was, “Okay, but what about the erasure of the out-of-pocket cost for patients? Does that drive utilization?” That’s the big question, right?

One could argue that payers are being tougher here because they see the potential for utilization to really grow in a lot of these markets, because the out-of-pocket costs for patients are much more limited. That’s kind of the back half of your question. There aren’t many companies that are really committing to saying, “Oh, yeah, utilization will really increase. We’ll have this front-end-loaded hit to revenue, but in the back half, maybe we’ll really see a shift in utilization.”

It’s just something we’ll have to watch out for. I think it’s obviously an overreaction to see the stock where it is, given that they also have a nice launch in Crenessity. That’s sort of how I view it.

Great. Tim, do you have any comments on any of the topics we’ve been talking about before we move on?

No, I think we’ve had a good, robust discussion.

Great. One other thing that caught my eye this week was this merger of 2 companies that, at the end of the merger, are going to have over $700 million in cash. Some commenters were asking, “Why not just return the cash?” This is Alumis and Acelyrin. Brian, you were, I think, covering this, or you had some comments on it. Can you comment?

Yeah, sure. I cover Alumis. I’m familiar with Acelyrin, and we cover Amgen. I’m very familiar with the autoimmune disease indication as a whole.

It was a pretty busy night last night to begin with, so to have this was a bit of a shocker. I don’t know if Tim has any knowledge of the history of transactions, but it’s a pretty unique transaction. I don’t really recall ever seeing two companies with decent balance sheets, one much bigger than the other, merge and combine cash in such a way.

From the Alumis standpoint, you’re looking at a stock that was $6 and change yesterday, with just about a $380 million market cap. They’re bringing $400 million in cash and issuing 45 million shares. It’s almost their full share count in issuance. If they tried to do anywhere near this size of a financing through a follow-on offering, there’s no way they could do it anywhere near the $6.50 price. They probably couldn’t do it because there would be restrictions on near-100% dilution.

If you do the calculation as if they were doing this as an offering, it winds up being like a $9-per-share offering. I think it’s very beneficial, certainly from the Alumis standpoint. It gets them a wealth of cash that gets them through a number of catalysts. One of the big problems I hear from investors is that they just don’t have catalysts until 2026. We’ve seen companies like this, where balance sheets dwindle quarter to quarter, really get into a death spiral. I think this offsets that, and it’s definitely unique relative to other transactions to raise money that I’ve seen.

Just to comment a little bit, of course I was not aware of this particular deal, but it reminds me very much of the merger of EQRx into Revolution Medicines. You may recall that, at the time of that merger, everyone was saying, “Why is EQRx giving Revolution Medicines its capital? Wouldn’t it be better to return that money to shareholders? After all, shareholders know what to do.”

The reality is that people at EQRx were very smart. Revolution Medicines has done really well, and it’s been a great transaction for those shareholders. If you look at this situation, what you see is that Alumis has 2 very expensive clinical programs. They’re going into psoriasis and lupus, and those are not cheap areas. It reminds me of the previous comments on migraine.

With the capital coming from Acelyrin, I think there’s an opportunity to really supercharge Alumis. I view this as almost like a capital raise for Alumis. Of course, Acelyrin does have some good things in there, and hopefully those will also see the light of day.

I should mention that I commented before that I saw M&A being pretty robust. One of the reasons is that I’ve been aware of the Bain–Mitsubishi Tanabe transaction, and that transaction was literally announced as our Hangout kicked off. I saw it on Endpoints News at 11:06 this morning.

Mitsubishi Tanabe has just been sold for $3.3 billion. Hats off to Bain: they’re picking up the rights to Radicava, which has the potential to be a billion-dollar drug for the treatment of ALS in the U.S. To reiterate, it’s going to be a pretty interesting year for M&A based on what I’m seeing. That was one of the transactions I’ve been aware of.

Oh, that’s a great update. I hadn’t seen that. Brian, Amgen recently launched a biosimilar version of Regeneron’s Eylea, and it looks like they generated about $31 million in sales in the last quarter of 2024. How is Regeneron reacting to this? Any thoughts on the dynamics between those 2 companies?

Yeah. I always tell investors that these guys are sort of arch nemeses in the biotech space. They have a lot of overlap in multiple areas. There’s been an ongoing battle in the PCSK9 space, both on the commercial front and on the legal front. They certainly don’t have the nicest things to say about each other.

It’s very interesting that Amgen, amidst a range of other biosimilar producers that have targeted Eylea, is really the only one that’s been successful in getting an approval and then a subsequent launch after a legal decision late last year. They’re on the market with Pavblu, which is the biosimilar. There are a lot of nuances in how they got around the intellectual property that the other companies that have filed biosimilars have not been able to navigate so far.

Regeneron’s stock has really taken a significant hit over the last 6 months or so as a result of both this and a bit of a slowdown in the launch of Eylea HD, the high-dose version of Eylea that Regeneron is trying to get patients to switch to.

Regeneron, I think, is one of the more colorful management teams. Len and George have been the founders and have been running the company for, I think, 30 years plus at this point. They are certainly very opinionated guys, as you all know.

Interestingly, with their earnings this week, Regeneron kind of reached a point where I thought, “Oh, this is really a maturing company.” They announced the issuance of a dividend and that they were increasing their share repurchase program, which is something you really see larger, profitable pharmaceutical companies doing. There’s been a big question as to what Regeneron was going to do with this big cash balance that they’ve generated.

They're sitting at about $18 billion in cash, in a very unique position with very little debt. I think that was a very positive signal, and then it was very funny: people just kept asking questions about the Eylea dynamics, and it frustrated the CEO, Len, so much. He basically said, “Stop asking questions on Eylea.” The Bank of America analyst came on with a question about Eylea, and he pushed her back in the queue and said, “We’re not taking that question.”

I got a lot of humorous emails from investors at that point about the dynamic of showing maturity by issuing a dividend and doing a buyback, but then simultaneously telling all investors, “Don’t worry about your most profitable product. Let’s look at the pipeline, and that’s what you should focus on.”

Amgen reported $31 million in Pavblu sales. That’s 9 weeks into launch. A lot of the feedback over the years in the ophthalmology space was that biosimilars wouldn’t really take that much hold, and there would be this sentiment that you would want branded medicines that are expensive and have an ASP-plus-6 benefit for ophthalmologists over cheaper alternatives, but also have less frequent injections. It seems to have turned a little bit, and it certainly seems, even from a Regeneron standpoint, that they’re a bit threatened by the Amgen Pavblu launch. Amgen sounded quite excited, so it’s interesting to watch these 2 guys go at it in a Regeneron sort of core focus.

Just to add to that, Eylea is a $9 billion product. Successful biosimilar entry is a big deal. Most people don’t remember, but one of Biden’s initiatives way back at the beginning of his administration was to make biosimilars reimbursed at ASP plus 6%. If you can get your pricing right, you can actually create strong incentives for ophthalmologists to switch to a biosimilar, which I think Amgen obviously figured out. There are a lot of other ideas that are in development as well, so we should expect to see the Eylea market become ever more competitive in the next couple of years.

5. Management Credibility Comes Under Scrutiny

One of the things that’s fascinating to me—you touched on this, Brian—is this idea of management and what builds credibility and what destroys credibility. You talked about, on the one hand, guiding conservatively. I think it was Paul who mentioned—or maybe it was you, Brian—that guiding conservatively then builds credibility, and when management tends to outperform, that’s comforting to you.

I also think companies not saying nice things about each other is fascinating, and being defensive and shutting down questions is also really interesting. I’d love to hear from Abe, and then others, about this whole concept of management credibility: things that really destroy or build credibility. In particular, I think this idea of being defensive and also bad-mouthing your competition is one that’s always been interesting to me. Abe, do you have any thoughts on that?

Sure. I would agree with your overall outline of that. I think guidance, and conservative yet realistic guidance, is something that always builds credibility with management teams. Obviously, that takes on a bit of a different tone when you’re guiding toward, call it, development milestones as a purely R&D-stage company versus commercial milestones, because commercial revenue, prescriptions, and so forth are a bit more accessible to the investor audience than what’s ongoing with development. You really are the holder of that information.

I do think that one of the biggest challenges we’ve seen in many organizations as they go from R&D companies to commercial-stage companies is actually preparing for being a commercial-stage company as a management team. You have to be able to effectively guide commercially, which in my opinion is just different from how you guide from a development perspective, because there are so many different things that you are thinking about and that you’re in control of. There are also things such as reimbursement and access that you’re partly in control of, but we also know that legislation and policy can shift beneath you.

I’m a strong proponent of there being no reason ever to talk negatively about another company in your space. It always surprises me when it happens. Quite frankly, I may be a bit altruistic here, but we’re all doing this for a specific reason: one, to help patients, and two, to continue to provide returns to investors. Talking negatively about other companies in the space just seems to go against both of those things.

I think back to my days at Cerevel, and Daphne, you’ll know this really well. Paul, you’ll know this really well, as we thought about working with Karuna. It’s interesting now, as you guys know, I’m working with all the Karuna folks. We always believed that muscarinics as a class were more important than the individual programs at the end of the day, because we saw this as a huge opportunity for patients and a huge market opportunity. So it does surprise me that that occurs.

And then defensiveness: I think at the end of the day, there are some folks who feel that they have the right to push people in certain directions. It’s also a bit surprising to me because I don’t think it’s beneficial in the long run. But we know that there are certain dynamics that drive that, both on an individual level and through the history of the company with a given audience.

Yeah, maybe I could chime in for a second. I’m sure Brian relates to this, but when a management team is defensive and you’re skeptical on something, to me, it usually makes me feel like I’m onto something. The converse is often true. I’ve launched on stocks without being supportive, and the company has been super cordial and excited about engaging. Those have actually often—or at least in a few cases I can think of—been not-great stock calls for me, where the stock actually did great, and I think the company’s willingness to engage really reflected their confidence in what they were doing.

If you take a step back, what I’m looking for as an analyst, and what I think a lot of investors are looking for, is that when you ask the hard questions, it’s not a gotcha. You just want to know that the company has thought through everything. I relate back to another example, Abe: the Cerevel-Karuna dynamic was really a good one. I think back to Steve Paul’s comments after the first muscarinic Phase 2 RCT, where he was really excited but also said, “Hey, we have to be a little bit cautious here. This is 1 study. The extrapolatability to Alzheimer’s is still unclear.”

I hear that and think, “Okay, that’s comforting. This person is thinking about this as a scientist,” versus other times when an early result is framed as, “Oh, my God, we’ve cured this disease,” and now you can extrapolate to this, that, and that. I’ve talked to investors about this too, especially when we talk about the CNS space, where trial conduct is so hard.

Broadly, investors want management teams that can, of course, sell the bull case and sell the upside case, but also management teams that convey that they’re a little bit paranoid and are going to check every single box to make sure that they don’t get unlucky or something like that. Brian, you and I are both 2 sell-side analysts who are willing to not always be positive. You, maybe even more than me—you and I were talking at J.P. Morgan about this. What’s your experience when you’re trying to poke and prod at certain things in companies, and how do you interpret feedback or receptivity?

You know, it’s funny. I think you need a track record with management to understand those dynamics. There would be some CEOs where, if they got defensive, I’d be really worried. There are other CEOs where I’m like, “These guys are just naturally defensive, and they’re always fighting over my comments.” So it’s not necessarily a read. The body language and the tone of management can be very specific to management.

It’s always funny to me—the type of management that I like and appreciate and say, “Oh, this is what I want in a CEO,” versus what investors will like. Even though there are some management teams I’m very friendly with that are flashy, I kind of hate the concept of flashy, upselling management teams. If you ask me who I want to speak to as a CEO, it’s someone who’s very straightforward, presents the bull case and the bear case, and has a good handle on all of those dynamics, but it’s not necessarily the same CEO that everyone else likes.

It is a very interesting dynamic, how it kind of takes all kinds. One CEO is loved by an investor, but another investor can hate that CEO.

Yeah, totally. I agree with you. I think companies need to know that if Brian or I ask a question that might feel tough or have some underlying element of skepticism embedded in it, sometimes it's a question that he or I thought of and came up with in our diligence. Often, it's something an investor is asking one of us.

I hear this, and Skorney, I wonder if you hear this too. I hear companies too often almost blindly blaming this concept of skeptical hedge funds or people trying to create narratives as a reason for tough questions or skepticism out there. I think they'd be surprised to know that a lot of folks who are long on names or even big shareholders of companies are still asking themselves the tough questions and asking analysts tough questions, because that's what makes them a great investor.

I think even if you love a stock in biotech, it's hard to love a stock and still ever feel 100%, or even 90%, right? The stocks that I love, I think there's a 75% chance I might be right and there's a good risk-reward, but there's 25% of me that's still terrified about X or Y, because that's the way this sector goes. So I think knowing how to engage with that, and knowing that most analysts and investors who are asking these kinds of questions are not coming from an actual place of an agenda—they're just trying to figure it out—is probably the best approach.

Yeah, I mean, it's science, right? It's a method of inquiry, and that's what the sector is underpinned by. So I think it's no surprise that everyone in the sector should have critical questions, and it doesn't mean you're trying to knock the stock down. It doesn't mean that you're a short. It may be that the person's short, and it may be that they're trying to find holes, but it could be people just checking their position, right?

And look, I'm not an investor, but the best investors that I know, who perform the best on a regular basis, seem to really want to understand where they could be wrong on something that they're long. So getting them over that hump is very important. I hate when CEOs sort of frame it like, “Oh, it's the shorts trying to push us back.” No, it's not. It's the entire investor base really wanting to have all these nuanced questions answered.

Yeah. Maybe just one comment on this. I would agree with many of the things that you're saying, Brian and Paul. I think the best place for a management team to be is to hold the same level of objective skepticism that the rest of the world does, right? At the end of the day—and I think this might be one of the themes that you're pushing on, Paul—there's a certain skill and a certain pattern recognition that evolves with great management teams. It's not just understanding what the bull case is; it's also understanding the bear case.

But within understanding both of those cases, it's understanding what you're going to do next as a management team in terms of your overall strategy. I often find that if you think about it that way, you're not defensive, because that's just what you should be doing for your job. Being asked the questions that either push you down one path or the other is just a natural sequence of what we do in terms of scenario planning and understanding what our paths are going to be as a company.

At the same time, that takes time. It takes time for the management team to build the right rapport within the team, but it also really is the relationship that's built with sell-side analysts and investors, and really understanding the management team and how they think, whether it's a CEO or the entire team.

Yeah, and I think a lot of these points are also relevant as a CEO engages with a board. The idea of showing that you're aware of the issues, that you have a plan, and that you're not hiding or being overly optimistic about the issues is really important for the board and for other parties, including the team.

It reminds me of a discussion we were having with Josh Schimmer. He actually had a name for CEOs that never want to acknowledge that anything's wrong. He called them the “everything-is-awesome CEOs.” That was pretty funny, and maybe we can find that and reshare it here because I thought it was helpful.

But I agree, and I think this is a really good discussion. We often come back to this topic of leadership, credibility, management, and the whole interaction between management, investors, and the rest of the community, including, by the way, journalists. Management teams that are very defensive and get angry at journalists when they write something that's not entirely positive also, I think, have negative implications for the company.

So I think we only had a couple of other news items, and we're getting close to wrapping up. I'm not sure if any of you guys saw that Hims Super Bowl commercial, but it was really obnoxious in many ways, especially the virtue signaling. They basically are stealing the work of other companies, selling an unregulated compounded version, and also saying super-negative things about the industry. In many ways, I think it's very parasitic. The advertisement is promoting the drug with no fair balance.

So what happened, actually—I think it was yesterday—the Partnership for Safe Medicines wrote to the FDA expressing concerns over the commercial. Let's see what happens with that. I don't know if any of you guys saw it, but it was a really frustrating commercial. Did you guys see that?

Definitely, I haven't seen the commercial. I would say that, in general, most people in our industry are pretty skeptical of this compounded market that's crept up around these incretins. I tend to take the other perspective. The compounders are actually very tightly regulated. If you listen to commentary from Novo and Lilly, you would have the impression that there are guys out there in their garages just whipping stuff up and selling it without much consideration.

The reality is that it's not only a highly regulated sector, but the pricing of the drugs available online is allowing access to these drugs to reach a whole other group of people who otherwise would not be able to access them. So I'm not saying that the commercial is fine. In fact, it's sort of obnoxious in general in how they approach people.

I'm not defending them as a company, but my impression overall is that there is a place for this market. Lilly and Novo have just been going to great lengths to essentially knock these guys out, including using organizations that sound like they're—how should I say—independent organizations that are actually being indirectly funded to discredit compounding.

Yeah. Well, watch the commercial. They're basically talking about how the drug industry is taking advantage of patients and all this stuff. You have to see it. Maybe we'll link it.

Yeah, no, I'm not defending it. I'm just saying I actually think compounding has been one of the more interesting developments because it's allowed patients to really go out and get access to drugs online on their own, really for the first time in a major way since our industry has been going for the last 20 or 30 years.

Yeah. We should talk about this more broadly at another time because I think there are some really interesting aspects to this, including the idea that a company will be investing years and millions, even close to $1 billion, in R&D, and then other companies could benefit through this kind of loophole. I know that it's temporary, but I think it's an interesting topic to come back to.

I agree that there's a place for compounding, and in this case, where the drugs were really quite expensive and they had shortages, there was a reason, a rationale behind it. But you just have to see this commercial.

Anyway, I think we had one more thing. Maybe we can go around and just do closing comments. Tim, you had mentioned something about Jay Bradner's interview with Paul on China or something like that. So maybe you can wrap up with that and any other closing comments.

Yeah. Just to give a couple of interesting tidbits. Paul did a very interesting interview this week with Jay Bradner. Bradner said engagement with the FDA is business as usual. He is not concerned about the FDA commissioner going wildly off the rails. He said that there's tons of free cash flow and firepower for M&A in big pharma.

He said it's really the supply-side dynamics. He pointed to CAR-T, saying there's one—it was great to have one good one, and now there are another 200. How many of these do you need? He said that Chinese science is going from being nonexistent to a fast follower to now being really innovative, and he sees China as an important competitor.

There's a very interesting story also in the Journal today about Chinese competition. Those were a couple of the things that came up in Paul's very interesting interview.