第131期｜2025年2月14日

We often like to start off with market sentiment. Before we jump in, it was a big earnings week. I wanted to highlight a news article by Adam Feuerstein that was posted, entitled “Biotech Is in a Dark Place.” He basically highlighted that it’s been a long slog over the last several years, and we’re not really seeing major signs of optimism. Interest rates remain high.

He highlighted a few things, and notably, he thought that we just took too many biotech companies public, with 700 public biotechs. He felt that we should almost impose a rule where we have to delist 3 of those before we let 1 new IPO come. The idea is that 200 or so are trading below cash, and that this isn’t the sign of a healthy market.

Interestingly, there was an exchange on X where Jason Kelly, the co-founder of Ginkgo Bioworks, was challenging him a bit and wanting to instill more optimism by citing Lilly and Novo’s successes and value creation. There are exceptions to the rule, always, but I’d love to hear either of your thoughts on this and on market sentiment. Yaron, I know you guys have a sector performance sentimentometer, so any comments or thoughts on this sentiment and anything your data is showing to either support or rebut that?

1. Biotech Sentiment Nears A Bottom

Yeah. We do 2 different products. You mentioned one is the sentimentometer, which is a big survey. We get 150 to 180 investors chiming in every quarter, and we’ve been doing this for around 15 years. We also, at the beginning of each year, do sector performance notes. We do 2: one using J.P. Morgan and sector performance in the interim after J.P. Morgan as a predictor for the year, because it’s a big conference. Then we do it for our Cowen conference, because that’s probably the second-biggest one.

Maybe I’ll chime in really quickly on both. History is a sage adviser, and it’s not always perfect, but it’s a lot more predictive than not. We started this year flat, and you would think, “Is that good or is that bad?” Well, in the last 24 years—we go back to 2000—we only started flat 3 times, and usually when we do that, we’re kind of flat to down. Then we outperformed right after J.P. Morgan, and then we gave it all back.

If you look at our sentimentometer and overlay that on top of it, we started last year the same way. People were very much hiding in large caps. By the end of last year, into the election, we were at an all-time high in enthusiasm for small caps. Investors were looking for performance. When you look at the sentimentometer historically, that was an outlier, so you knew we should be correcting somewhat. Then we hit the wall with the election.

The good news is, the sentimentometer is now back to “winter is coming” or “winter is here,” and it reversed drastically. Usually, it takes about 2 quarters to bottom. I think we’re getting back to people being pretty freaked out for a good reason, right? We’re hearing, “It’s never been this bad. It’s over. The VC model is broken.” When you start hearing things like that, to me it feels like we’re getting to the bottom slowly.

RFK is an unexpected wrench in the system, and now there are concerns that he’s asking for resignations from the FDA center and office heads. Inflation is up. But look, a lot of it is getting factored into stocks. Everything I’m looking at, a lot of stocks are down 50% for no reason. I know the indices are flattish, but the indices are a little misleading these days.

On the macro side, I think we’re getting closer to the bottom. Things bottom faster, but it might be another 3 months until we bottom. That’s kind of where we are.

Yeah. I just had a question for Yaron. Yaron, what’s the composition of the investors? Is it generalists mostly? 50/50? How does it hang?

No, that’s spot on. That’s a great question. As always, it’s mostly sector specialists, 90% from the U.S., and long-short. Long-only and long-short. Probably more long-short than long-only. There are just more of those around.

Okay, that’s interesting. Look, I know we like to beat up the XBI because it’s not a perfect index. Josh has deliberated on this quite a bit and explained it. But it is an index where, when Daphne was talking about generalists last week, it is an easy index to use to see how the sector is doing.

I’ve just got it open in front of me on my Bloomberg. Somebody put it out saying, “5 years of nothing.” It’s correct. It’s exactly 5 years of nothing. At the same time, the S&P 500 has doubled. So it’s not difficult to be pessimistic when you look at this.

If you plotted this back to 20 years ago, it actually doesn’t look that bad. But who on earth invests over a 20-year horizon apart from a few super-long-onlys who are mostly investing their own money? I don’t know how that works.

Yeah.

From an inflation perspective, we just had the CPI this week. It’s been a very interesting week. Things that people expect to go down have gone up. Things that people expected to go up have gone down. CPI printed with surprisingly fast gains in the headline and core CPI indices.

We’ve looked at that, and I think a whole host of other economists have looked at it. Initially, when everybody thought, “Oh, that’s it, it’s going to be a major pressure on the Fed to raise,” which we keep talking about because we want them not to raise. Actually, we want them to cut interest rates so that we don’t have to worry about the micro pressure on our sector.

But our view is that it’s a January effect, and I think that’s been pretty widely spoken about. However, that doesn’t change the fact that maybe this impacts the next decision that the Fed makes, but it doesn’t change the dynamics of 2025. If these tariff talks and a whole variety of other things that are quite inflationary continue to pressure sentiment, then we may see an interest-rate rise at some point.

Yeah, it’s interesting. Trump has made comments to the Fed, and the Fed is independent. They do what they think is right and best, and they’re nonpartisan. Trump is trying to urge them, saying, “We need to reduce interest rates.”

I think we’re almost near peak uncertainty right now, with the first 100 days of the new administration, and I think we’ll start to see impacts over the next several months. That will reduce some of that uncertainty, good or bad, whatever side of the ledger that falls on. Markets thrive on more certainty and will respond accordingly. It’ll be interesting to watch.

Speaking of a buy-side survey, Yaron, I don’t know if you saw this, but Daphne highlighted an article about Armistice Capital. I was not as familiar with Armistice Capital, but when I looked at their holdings, they have a lot of biotech, and they tend to be larger-cap biotech. They made the news because The Wall Street Journal had an article that basically stated that, instead of giving redemptions, when you’re a hedge-fund investor, typically you can pull your money out whenever you want. In this case, they said that because of thinly traded assets, they issued IOUs instead of giving those redemptions.

This is after a fund that has performed pretty well over the last year. They have holdings in the top 10, like PTC, Supernus, argenx, Incyte, and Cytokinetics. There’s some disconnect here in terms of why they would issue IOUs, unless they’re holding a lot of private names. I’m not sure if the redemptions were higher, but do you know anything about this or have any comments on this Armistice news?

I want to believe that it’s an anomaly and not the beginning of a trend for biotech hedge funds, but I’m curious if you saw that.

Yeah, we did. I think, again, we don’t have any information other than what’s in the article. It’s almost like there are 2 different portfolios there, in a way. There’s a portfolio that is liquid. There’s a portfolio of a lot of warrants and illiquid assets.

I think that was part of the issue. A lot of this, as you know very well, is that these funds do deals and PIPEs, and they take a lot of warrants, which are unbelievably profitable. These things work out, right?

Yeah.

But they're illiquid. And so the issue is, when you suddenly have all these redemptions, what do you do?

Yeah. Yeah, I mean, it's interesting if they really are holding that many. They have 250 public names. They have consumer names as well, but you'd think there would be enough diversity, and that it's not even that concentrated at the top with names that—I'd be surprised if they didn't hold direct equity.

Anyway, it's interesting to watch. It just shows the dynamics in the market. And actually, the idea of outflows and people taking money out of biotech, that's not a bullish sign, but it might be specific to this fund.

2. Biotech Earnings Reward Innovation

It was a big earnings week, and both of you have covered some names. Yaron, do you want to start with Ascendis and Exelixis?

Absolutely. And one of the things, as you can imagine, with this—we've been talking about difficult markets—is that I feel like there is an unbelievable amount of innovation going on. Now there are many companies in the small- and mid-cap space, actually in the mid-cap and upper end of the mid-cap space, or even younger large caps, that are turning profitable this year.

This year, BeiGene and argenx are going to be profitable. SpringWorks, which we might come back to in a minute, is going to be profitable early next year. Legend and Ascendis will turn profitable late this year into next year. These are all on a cash basis, obviously. Ultragenyx will turn profitable in late 2026 into 2027. So we're in the middle of an innovation cycle.

Ascendis is about to launch Yorvipath, or they just launched Yorvipath, for hypoparathyroidism. They're off to a really strong launch in the U.S. They've done well in Europe last year. They're also going to be filing their CNP, their TransCon CNP, which will compete with BioMarin's Voxzogo. They'll file that this quarter. It will be important for the FDA to accept that. Hopefully, that will add a nice launch, because biotech needs them.

For Yorvipath this year, we're waiting for the AstraZeneca phase 3 trial for ineboparatide. That's their version of the daily injectable PTH. That should be coming imminently. We think it's probably going to be a year and a half behind and a little bit of a me-too. But that's Ascendis, a stock that many people like now.

Exelixis, as you remember, has CABOMETYX, which is a little over a $2 billion brand globally. It's a TKI for renal cancer and HCC. They should beat numbers this year as they launch in neuroendocrine tumors, and they recently won their case against the generics, so we know now that they have protection until 2030.

But now they have a new cycle with zanzalintinib, which is the next version of CABOMETYX. That's in phase 3, so they're finally going to flip the card this year, with early data in head and neck cancer and then phase 3 in colon cancer. The early data so far has not shown ample differentiation against CABOMETYX, and so the stock is kind of in a holding pattern. People are hoping it's going to get acquired, but it's probably not going to get acquired. Whether it goes up a lot or not depends on how zanzalintinib does. So this year we're going to see a lot of data from zanzalintinib, and there's going to be a lot going on in biotech.

I've been curious to get your thoughts on this. It used to be that biotechs would want to delay getting to profitability. There are always exceptions, but they would want to delay it because, once you're a commercial-stage company, you're valued on your revenues. But once you hit earnings, you're really judged on the pennies you're delivering to the bottom line. It moves away from the promise of a pipeline or the promise of an engine that can produce continued growth.

Vertex famously remained unprofitable for many years, pouring more and more into R&D, and ultimately that paid off. You could use Amazon in a different sector as an example. Any thoughts on this as you start to highlight these companies that are going to turn profitable?

Absolutely. Sam, chime in. You're right. We're in the middle of a transition. Some companies have been profitable for a while—argenx and BeiGene—but they're finally getting to a point where they're unbelievably profitable because they're going to have market-leading positions: argenx with the FcRn, and BeiGene with the market-leading BTK drug Brukinsa.

Legend, with J&J, launched Carvykti three years ago, and they'll be profitable next year. Again, it's a function of success. Ascendis launched Skytrofa growth hormone two or three years ago, and they'll finally be profitable. Ultragenyx has been a long story. They'll turn profitable in two or three years based on launching 4 additional products. SpringWorks is probably the fastest one. They launched essentially last year, and they'll be profitable within 2 years. Of course, with SpringWorks, we'll come back to whether they'll even be around.

I think there's just a lot of pressure because companies can't continue to raise money forever anymore.

Yep. Sam, any comments on that?

At the end of the day, nobody wants to own a profitable biotech company whose profitability is going up at 10% a year. That's not why we invest in it. If you've got a situation like argenx that can show a significant ramp, or if you're better off continually investing in R&D, then I think that's the way to do it.

I think we'll get to Moderna in a minute. They hit profitability by—I don't want to call it luck—but for 1 or 2 years, and then, of course, it's all about R&D investment now, right?

Yeah. Primarily, if you end up driving cash-flow profitability, your stock currency will go up as a result. Then it's really about how you use that currency—your stock currency and your cash—to acquire and build, whether it's an internal pipeline, R&D spend, or external acquisitions.

It will be interesting. And, yeah, Moderna had that black-swan event that led them to a market value of over $100 billion. Why don't you give us an update? What's the latest on Moderna?

3. Moderna Needs A Cancer Win

They were one of the stocks I was talking about that was all over the place today. At one point, the stock was halted because of volatility. Headlines really have a lot to do with how some of these shares trade into the open.

They reported for Q4 today. There was nothing really new in there for me from a numbers perspective. They had clearly guided before, and maybe that's why the stock is a little bit up now: They didn't change their guidance, which they only really gave a few weeks ago at JPMorgan.

For 2025, people were wondering whether 2024 was the bottom, but now 2025 could be the bottom. They have a massive range in terms of revenue guidance, which is 1.5 to 2.5. Consensus is still a little bit ahead of that, so they need to come down.

The elements that really got people confused today were the clinical hold on the norovirus vaccine and perhaps softer-than-expected commentary about the timing of their CMV vaccine. Maybe you keep adding to it: The flu vaccine, in terms of the combination, which I have a strong belief in, could be a major thing for them—having a COVID-flu combination vaccine available.

They may need to wait for the phase 3 data for their flu vaccine to come through before they can get that through the regulators. So there are a lot of uncertainties there, but I don't think any of them were really that new to me. The clinical hold was new, but that was easily explained.

What we're all waiting for now is the timing of that cancer vaccine. To me, that's what is going to change the trajectory for this company.

Yeah, and Bristol had some news on that. Do you want to cover that?

They did. It wasn't obviously a cancer vaccine; it was Opdualag, which is a LAG-3 and PD-1 combination. It has worked very well in metastatic melanoma, in that it gives you very similar efficacy with a better side-effect profile compared to ipi/nivo, which is the Yervoy-Opdivo combination. That was the standard of care until Opdualag came along, and it failed in adjuvant therapy.

I've been talking to somebody whom I have 100% trust in on the KOL side with regard to melanoma, and there are several reasons this could be the case. But let's put that aside. It's not good news for Bristol.

What it means is that this was potentially something that was going to change the bar in adjuvant therapy for melanoma, which is, of course, the key data set coming out first for Moderna.

So, at least to a degree, a negative has been taken away. On the other hand, this is a trial that I think most people expected to see some positive impact from, and it didn't work out. So you have that same situation now for Moderna.

They had a phase 2 trial that was small and controlled, but the control arm, which was just Keytruda, didn't quite look as good as Keytruda should have looked. So you've got this thing at the back of my mind and your mind going into the data coming out at the end of this year, possibly next year, as to whether this is going to hit.

Yeah.

They've made a big bet on it with Merck, right? I think Yaron covers Moderna too, right, Yaron? I'm not sure.

I cover BioNTech. My colleague has the luxury of covering Moderna.

Right. Oh, okay. All right. Well, you've got the winner at the moment on an enterprise-value basis.

That's right. And remember, they've been diversifying the whole time. They were also lucky in terms of profitability.

Not so much anymore on that side.

Yeah. Sam, you want to cover GSK, their earnings this week as well?

Yeah. Obviously, it was actually a good week for them in terms of the numbers that came out. Earnings were last week, I think, if I remember correctly. What was very interesting in a particular comment during their earnings related to Moderna was that they referred to the RSV vaccine market as a 2-player market.

I don't think that's arrogance. When you look at the RSV vaccine sales from Moderna, you believe that perhaps that's the right way to look at it. And that's one of the challenges for Moderna. So that was the comment I was going to make in relation to Moderna from GSK's side.

I don't think they've ever said this so clearly before, and I think that comment is based on the kind of conversations they're having with payers at the minute. That just creates an extra headache for Moderna and makes it even more important that this cancer vaccine trial reads out positively.

Yeah. Yaron, one of the leading indicators that everybody's looking for is the IPO—the health of the IPO market. It's something that needs to be sustained for a couple of quarters, but if you can comment on recent IPOs and the IPO queue. Sam, I know you've followed Aardvark's IPO as well. Yaron, why don't you tell us what the state of the IPO market was?

4. IPO Appetite Faces A Test

Yeah. The IPO market—companies in general, let's start with the quality—has gotten tremendously better, right? They're all more mature. A lot of them have data. They're in phase 2, more innovative, and those are always going to be the ones to go out first. So, inevitably, you're seeing earlier companies, but with really good pedigrees.

If you look at the end of last year, there were several very high-profile IPOs that did very well. And then recently, with Aardvark and Sionna, both fairly differentiated—one in obesity, one in CF. Obesity, you can argue, has got some competition. CF, it's really Vertex, and there's not a lot of competition. So these are sort of the cream of the crop.

But if you look at the landmark IPOs from the end of last year, without any news, they've all done really poorly. So we look at Septerna, down 50% this year alone with no news, down 60% from the highs. Upstream Bio is down 54% this year, down 74% from the highs.

So what's going on with the market? People want to invest in new assets, but then they start getting burned because of valuation or because of the pedigree, and then they start getting pretty worried. This is the triumvirate that we're seeing, and this kind of speaks to why I'm thinking that we're probably going to have to bottom at some point in the next few months.

People are concerned about anybody that needs to raise money at some point in the future. Well, that's 100% of biotechs—almost 99%. Anybody that's going to have competition—and there are going to be various levels of competition. And then people start worrying about market opportunity, which is really too early to start discussing. That's usually a discussion much later on.

Anybody that has no catalysts or any inkling of competitive data who will need money later on is absolutely getting penalized right now. Let's see how the IPOs do 3 months after they go out. The good news is, there's a great reception. The question is, what's the staying power?

In general, Yaron, are they raising enough money in the IPO to get to a catalyst event before diluting at a lower valuation, potentially? Are they feeling like, “All right, we've got our cash. We'll prove to the market with our data, our catalyst”? Or are some of them, you think, going to fall short of that?

So the good ones—and that's, you nailed it on the head—the good ones, you look at Septerna, absolutely. You look at Upstream, absolutely. You look at Metsera and Sionna; they've absolutely raised enough money.

I think it's a self-fulfilling prophecy, right? As these go lower and lower because people get worried, they begin to wonder, “Well, if you open up a model of most of these companies, they're going to have to raise hundreds of millions of dollars between now and 5 years from now,” and they start getting worried. That's just a function of the times right now. That will reverse.

Yeah. Sam, the obesity market remains hot. Do you want to cover Aardvark here?

Yeah. Aardvark is one of these IPOs Yaron was just talking about, and unfortunately, the complete opposite of the Metsera IPO. Metsera was, I would say, a—I don't want to call it plain vanilla in a negative way—but a standard obesity play: GLP-1, GIP, amylin, all the variety of mechanisms in its portfolio. So that's done really well.

Aardvark came out with a more nuanced approach, of course, starting with some of the more genetic weight or hunger issues, let's call it that. That's the Prader-Willi syndrome, or PWS, and they have a hypothalamic obesity indication also.

They came out with an IPO. They raised around $94 million. They'd gone out looking for, I think, $16 to $18. They priced at $16, and unfortunately, it's trading at $13.80 or $13.70 now. That just went out yesterday.

They have a differentiated approach to a market where there is a competitor that's already out there with a $2 billion valuation, and that's Rhythm. So for people to benchmark them is not that difficult, although Rhythm is much further ahead with its drug for PWS, and it's filed with the FDA.

It's a different mechanism of action. They have similar kinds of data, obviously from much earlier patients and a much earlier trial, in terms of Aardvark. They do have ideas for obesity in general. I'm a little bit more skeptical there, but you do have a blueprint to compare it to.

Because they're different mechanisms of action, you would think that you might be able to do it with 2 different approaches in this setting. It's a very small, rare indication, but the IPO has not done as well as Rhythm. So what's going to turn that around?

They didn't raise the hundreds of millions of dollars that are required. I don't know how much more they need, but certainly not enough from the IPO to get through to the end of their play, I'm pretty sure.

Do you think there's less likelihood for M&A on these more niche, rare obesity indications, given everybody's trying to get the big-ticket, high-prevalence indications? I'm just curious if that blunts a little bit of—Rhythm is a great comp—but I'm just curious if we're discounting M&A for these more niche obesity indications.

I would for now, because when you look at the data that they've got, it's very early. They do show, with a fixed-dose combination of ARD-101 plus a DPP-4 inhibitor, that they could enhance the effectiveness or efficacy of a GLP-1.

The issue is that you need a meaningful trial to prove it, and you need to do that in a way that is meaningful beyond comparison to the triple G that's coming up, beyond comparison to tirzepatide. These are issues that have to be dealt with, and I just can't see an easy way for these to become M&A targets until they've got some really hard, good-quality—

Replicable.

Obesity data.

Yep. All right. Yaron, you referenced SpringWorks earlier. Do you want to elaborate on that?

5. Biotech Deals Find Selective Winners

Yeah, absolutely. And, Chris, to your last question, Rhythm has been an orphan sort of obesity play for a while, and they're still independent, you know.

The stock’s been volatile, but it’s finally doing pretty well. The product looks really good, covered by my colleague Phil. SpringWorks, as some of you might know, is a company that’s got 2 neuro-targeted oncology drugs.

The first one is for desmoid tumors, which is actually more of a sarcoma, but it’s got a little bit of a neural component at times. The second one is a MEK inhibitor, now approved as Gomekli for neurofibromatosis type 1 plexiform neurofibromas. That’s going to compete with AstraZeneca’s Koselugo, because Koselugo got approved 5 years ago and sold $31 million globally last year, pediatrics only.

Gomekli from SpringWorks has a better label for adults and pediatrics, and much cleaner, with far fewer warnings. It’s also a fully owned MEK inhibitor, so that should do pretty well. It’s about to launch in the U.S. and then, late this year, in Europe. Last year, Ogsiveo got approved for desmoid tumors, too, and it crushed the numbers in its first year. I think consensus was around $45 million to $50 million, and they put up almost $170 million in the U.S. alone. They’re going to be live in Europe late this year.

This is management that I think has historically talked about getting acquired. The question was always that these are orphan oncology assets, originally spun out of Pfizer, so who would really buy them? It’s always been a discussion of an Ipsen, a Jazz, Servier, or Exelixis, but the issue is that this would end up being a $5 billion deal, and we’re talking about consensus estimates of, let’s say, $1.5 billion in sales for this portfolio. So all those companies are too small to do this deal.

Well, now there have been rumors, and Merck KGaA confirmed that they have been in discussions. SpringWorks, by the way, is reporting next Thursday, so we anticipate a deal is going to get announced probably Tuesday or Wednesday ahead of that. Merck KGaA would make a lot of sense: a $60 billion market cap, $21 billion in global sales, a neurology and oncology company, and one that needs assets. They’re globally oriented and could take these assets globally.

We think it would make a lot of sense. The stock is trading nicely up from $32 post-JPM, where there were no expectations for an M&A, and we do think it’s going to make sense. We’re expecting a deal next week.

Yeah, you know, it’s interesting to watch the trajectory. SpringWorks has done a phenomenal job from when this was a Pfizer spinout, with Bain investing early on. If you look at the peak of the market, they hit $90 a share in February 2021.

It just shows you that even the most successful companies, with some more dilutive financings—obviously, they’re at a higher value—but even their recent multiyear peak of over $60 still isn’t where that peak was. Just a contextual data point for the last 5 years or so.

With that, Sam, you also had another—Xilio and AbbVie. Do you want to talk about that?

Yeah, so that’s an interesting one. In talking about companies trading below cash and nobody caring, it doesn’t mean they don’t have anything interesting. Xilio had an enterprise value below cash—well, obviously, a negative enterprise value—and when they announced the deal, the share price went up like 117%. It’s come back a little bit now. But if you add in the cash that they’re getting from AbbVie, they’re still trading below cash.

There might be a fair reason for it, so let me just describe what the story is here. This is another masked T-cell engager. We talked about Janux last year, and we talked about Vera more this year, with the data coming out. Both of those stocks went up, and then they retraced a little bit.

Here, Xilio has done a deal with AbbVie, but it’s an option deal. In other words, Xilio is going to be doing the work with the masked T-cell engagers, which is their technology. They can mask the CD3-binding site, the antigen-binding site, or even another version of their T-cell engager that brings with it the costimulatory molecule. They can also mask that.

The deal is to do discovery work with AbbVie, so it’s not on any of their particular pipeline assets, from what I understood. That, of course, means they’re likely to be spending the money they just got from AbbVie. When they spoke on their call for the deal, they said they only have cash through the first quarter of 2026. That’s only 12 months, which means they’re going to have to raise again.

That would clearly need some news or some reason for investors to want to go in, which, of course, the AbbVie deal might help with. Are we at the beginning of a renaissance in the masked T-cell engager world? Having watched CytomX and Bristol Myers Squibb for a long time, I don’t know. I don’t want to make pronouncements like that until we see updated data from Janux and Vera with longer-duration follow-up and genuinely see whether higher dosing can give them higher efficacy. I think there’s still some wood to be chopped here for the masking world. That was an interesting example of a negative-enterprise-value company—

Yeah.

—that managed to get a deal with a meaningful pharma company.

Well, I’ll just add that we had a company we invested in, Landos, that was public and trading at a negative enterprise value, and we did get a 200-plus percent premium from AbbVie. They are definitely shopping and not averse to going for public companies that they feel are undervalued and fit their pipeline well.

Last topic before we move to our special guest from BioCentury. Do you want to cover AnaptysBio and its drug in RA?

Yeah, again, that’s been quite interesting. As some of you know, we have a very active anonymous client chat at Bloomberg. When the data came out, a lot of people were questioning it and whether it was good enough.

In the end, this was an RA data set that came out, and the share price speaks for itself. The stock was trading at—I can’t remember now—maybe $12 or $13, or thereabouts, and now it’s just over $20.

What is the approach? Anaptys’ drug is essentially a PD-1 agonist, which immediately scares the bejesus out of me a little bit. You’re doing the opposite of what you do with immuno-oncology drugs, which is to tamp down the T-cell response, and that worries me a little bit, of course, as a principle.

The data were reported in rheumatoid arthritis, so the theory is that you’re calming down the T cells that are causing an immune reaction. You’re basically creating an immunosuppressive environment with a PD-1 agonist, let’s put it that way.

The data were reported, and there was lots of soul-searching and lots of questions. When we look at it without any position—we don’t cover the stock, either—it seems decent. In terms of the 12-week data, it seems comparable to what we’ve seen with current agents, particularly Rinvoq.

You also have to dissect out the patients who have already had experience with prior drugs and current therapies, but the data look comparable. The thing that really confused people is what happened between week 12 and week 14 of the trial. It’s not really worth going into the detail here, but that caused a lot of soul-searching among analysts and questions on the call.

What’s interesting—and I’m going to give 1 hypothesis for this and then stop—is that Lilly had a similar approach. When we compare the Anaptys data to the Lilly data, it looks quite similar, but Lilly decided to discontinue that product.

Yeah.

Now, is it because Lilly thought the profile of its drug was not good enough, or was it simply because Lilly has a lot more—

Shots on goal at this point.

—strings, yeah—

Yeah.

—strings to its bow than Anaptys does, right? You want to do obesity, you want to do Alzheimer’s, you do oncology. Did you need this one, too? Maybe it’s one of those 2.

Yeah.

Time will tell, but I think the data were better than some folks were worrying about.

RA has been one of the more elusive I&I indications and still has a lot of unmet need and a huge opportunity for those that become best in class in that category.

Let’s move to the policy front. I’m really happy to welcome the longstanding Washington editor of BioCentury, Steve. Steve, you’re going to have to tell me: is it Usdin or Uzdin? Can you hear us, and are you on stage?

Yes, I can. You can call me anything, just not late for dinner. I say Uzdin, but I’m not particular.

Great. All right.

Steve, you’ve followed what’s going on in Washington for a long time, but also, over the last several months, with the new administration, and you’ve written a lot about it.

So, our audience is always trying to keep on top of the industry. I mentioned earlier that we’re probably near peak uncertainty. There’s a lot of speculation, and we can try to guess what’s going to happen. We know some of the actions that Musk has taken with DOGE efforts, but these new confirmations have not really been in place. We haven’t really seen what they’re going to do other than the cuts.

Maybe give us a high-level view as you see it, as we sit here today, of what’s happening. I think this audience is probably more interested in FDA, followed by NIH, followed by HHS and broader applications. We’d love to hear your perspective, and we’ll have an exchange around it.

Great. You hit the right word when you said uncertainty. Everything is uncertain, right? There are a lot of moving pieces. At a high level, the way I look at it, there are pluses and negatives—or you could call them opportunities and risks—and then there are uncertainties.

On the opportunities side, companies are going to take advantage of policies that advance onshore manufacturing of pharmaceuticals in the United States. I think we’ll see a lot of moves in the coming year for companies to onshore a lot of pharmaceutical manufacturing. I think there are going to be fixes to the IRA Medicare drug-negotiation program, although it’s not clear how far they’ll go. There may also be PBM reform.

The industry is likely to get immediate expensing of R&D costs restored, along with a return to traditional antitrust enforcement. Bipartisan legislation to restore pediatric priority review vouchers was introduced 2 days ago, and I think that’s likely to go forward.

On the negative side, there are going to be staffing cuts across government. FDA is not going to be completely immune from them. DOGE has proposed really large cuts at FDA, and RFK Jr. has talked about cutting some of the scientific leadership as well. We don’t know how that’s actually going to translate into action or how quickly that will happen.

Over the long term, I think it’s clear that there’s going to be an erosion in staffing. For example, there are rules that say you can only hire 1 new person for every 4 people who leave. There’s going to be a more or less aggressive return-to-office campaign, which is likely to drive some long-term FDA employees to leave. Then there’s just a tremendous amount of anxiety and poor morale at FDA right now about what’s going to happen. We don’t know. Maybe when Marty Makary comes in, he rights the ship. We’ll see.

Yeah.

Uh, there's al-

Yeah, so I’d like to—

I just—yeah.

Please go ahead. Continue.

Just really quickly, a couple of other things. There’s an enormous amount of anxiety at NIH about short- and long-term policies that could dramatically impact biomedical research. Obviously, NIH is the foundation for a lot of what the industry does.

On the uncertainties side, there are opportunities for tremendous positive changes and reforms at FDA. There’s likely to be some kind of commission created to recommend reforms at FDA, and that could be tremendously positive. There’s also a chance of intentional and inadvertent policies at FDA that really erode its ability to function, its ability even to meet PDUFA deadlines, and its credibility with the public. We don’t know which way it’s going to go.

Another big uncertainty—and then I’ll finish—is that we don’t know whether Trump will revive the most-favored-nation international reference-pricing policy proposal that he made in the first administration. RFK Jr. alluded to it during the confirmation hearings, and I think that’s an uncertainty that’s going to be hanging out there for the whole administration.

Yeah.

Very astute analysis, Steve, and it sounds like you’re going to be kept busy over the next year or more with some of these really hot topics. You covered a bunch of them really well.

6. FDA Faces A High Stakes Overhaul

What I’d like to drill down on with this audience—and I also welcome Yaron and Sam to weigh in as you see fit—is FDA. The greatest concern, and I’ll just speak for myself, but I think it represents a portion of the audience, is the idea that we don’t need all these extra programmers or other services. These are reviewers who spend a lot of time, with user fees paid for by the industry, looking at data and analyzing it.

We’ve all dealt with meeting requests, getting written responses only, and getting delays. This is not an agency that’s known to have tremendous efficiency. We know, and we interact with, FDA folks who are always working really hard. That’s not to say that there isn’t a need for a hard look at potential reform and doing things differently. We’ve heard this coming out of the hierarchy for a while.

I think we lost Chris. Yaron, can you hear Chris?

Oh, good. Yeah, I lost him. I was wondering if it was on my end.

No, Steve, I think we just lost Chris for a minute there. I’m sure he’ll be back very soon. Steve, clearly Chris is worried about the FDA situation, so how do you think that’s going to shake out? What is your best guess in terms of how that shakes out?

We really don’t know. I think it’s clear that FDA is going to experience cutbacks. It’s not entirely clear where they’re going to come from. If you had a 10% cutback in FDA staffing and it all came out of, for example, the Center for Tobacco Products, then that wouldn’t really impact the biopharmaceutical industry at all. If you have 10% of the review staff leaving, that would mean you would start missing PDUFA deadlines, and you would have really serious problems.

One of the other things to look at is the top of the agency. One of the key levers that Marty Makary is going to have, and that will really be an indicator of where FDA is going to go going forward, is who is going to replace Patrizia Cavazzoni as director of CDER. The CDER director really has more influence day to day over the things that are vital for the biopharmaceutical industry than the FDA commissioner does.

Right. Just thinking about this, in your analysis—and I don’t want to get political about this or force you to be political about it—if you think back to the times that you’ve been looking at FDA, would you say that in most of these public offices, particularly FDA, there is fat to be cut without really cutting into bone or muscle?

Yeah, but it’s very difficult when you’re outside an organization like that to make intelligent comments about how it should be organized or whether there’s fat or there isn’t fat.

Here’s what I do know, and this would apply to any of the businesses for anybody who’s on this call: If you were to go into a business and say, “First, we’re going to fire 10% or 20% of the people, and then we’re going to do an analysis to determine who’s needed—and, if necessary, we’ll hire people back,” you would think, “That’s kind of backwards,” right? The first thing that you should do is go in and do a careful analysis to determine who’s needed, who’s not needed, and who might need to be in a different place or doing something different. Then you start acting.

The problem is not determining whether or not there’s fat at FDA that should be cut. It’s whether you make that determination before you start cutting people. That’s the real concern.

Right. Yaron?

Well, yeah.

Sorry, I dropped off. It sounds like you guys did hear the question for the FDA, but Yaron, do you have a follow-up question?

Yeah, no, I was just going to maybe make a comment, and then, Steve, it’s a question at the same time. Look, if a board of directors forces the CEO to immediately fire 10% of the company, the board still holds the CEO accountable for performance. When the president is going to force FDA to shed whatever number of people, who’s still going to guarantee the performance of that agency? That’s the problem.

I think you can have a certain amount of confidence in Marty Makary. We really don’t know a lot about what his intentions are or how he plans to run FDA. But we can assume that he didn’t go into this wanting to fail.

He’s going to learn really quickly, and he’s already being told by insiders that one of his important jobs is going to be to identify the people who need to be protected and to exert his influence to protect them. I think Makary, and I think others in the administration, are going to feel a responsibility—I mean, ultimately, everybody in the country feels a responsibility—and will have to make FDA succeed.

So I think that if there are serious problems that occur, they will be inadvertent. It's not like some agencies where people are going in and saying, “Well, this agency doesn't have an important mission and shouldn't exist.” I think it's more that there's a tremendous scope for people to be careless and to do things in an inadvertent way that have consequences.

One of the problems with FDA, and one of the concerns, is that it takes a very long time to train a reviewer. I've heard from people at FDA that they're really not productive until they've been there for 2 years, right? So if you get rid of people and then determine, “Well, we're missing PDUFA goals; we're having problems as a result of that,” you can't turn that around immediately. It's going to take time, and that's going to cause damage.

Well, there's also—

But again, because—

Yeah, a lot—

Mm-hmm.

There's also a lot of people at FDA, as we all know, who do research, and the question is: Are those the people who are going to get targeted, and maybe not the reviewers? I don't know if you have an opinion. But then, secondly, there's also a question—and Vivek brought a lot of these things out publicly—is the FDA too slow, too bureaucratic, too regimented in the way it reviews drugs, and so they relax the bar on the efficacy side?

Well, that's a 2-part question: Are they too bureaucratic? Are they too slow? Absolutely, they could be faster. Absolutely, they could be better. And I think most people at FDA—many people I know who are there—would acknowledge that, and they have ideas, positive ideas, about how FDA could be improved.

I think there's a real chance that Makary will get in there and ask people who are there, who actually know how things work, “What are the top 10 ideas that you have, or the top 3 ideas you have, for improving the way that FDA functions?” If they do that, he could be very successful. That was basically what Scott Gottlieb did when he got there. He asked the center directors and the staff for ideas, and then he promoted the ones that he thought were going to be the most effective.

There's a great opportunity. If you want, we can talk about some of the low-hanging fruit. There's a lot of low-hanging fruit—things that could make FDA more effective and better.

About the efficacy standard, the only thing that I would say there that I think has some real chance of happening is around ultra-rare diseases. Patrizia Cavazzoni has just recently left. Janet Woodcock and others are really pushing hard to persuade Congress and to persuade FDA to create a different standard for extremely rare diseases, because the kind of paradigm around regulatory flexibility isn't working effectively.

Yeah, let me add. This is a great conversation because I do think there's a little bit of a paradox, right? I think the administration wants to really reduce inefficiency in regulation, and this is across the board, across agencies. It does seem that the ultimate goal is to make things easier, faster, and more efficient—to get drugs through. Maybe the safety bar goes up, or even postmarketing commitments, but on efficacy, it goes along with the right to try.

I think with the bipartisan support, as you just mentioned, on ultra-rare diseases and pediatric priority review vouchers, there does seem to be a will to get drugs to patients that need them more efficiently. But I think that—and Yaron, you mentioned this—if a CEO is asked to fire 10% of their staff tomorrow, it's the timing, right? It's the idea that that is likely going to have unintended consequences from acting so quickly, as opposed to having a 3-month goal or a 6-month goal to reduce it, where you can actually go in and have the trust and belief that they're going to keep the right people, that they're going to really understand how to consolidate and how to improve processes. And by just cutting staff, I think you lose that opportunity. The other thing I'll say—

Well—

Yeah, I'm sorry. Go ahead, Steve.

I'm sorry to interrupt really quickly. The real question about FDA is: What is the goal? Because it's irrational to go in there and say, “Well, the goal is to cut staff,” especially since most of the drug-review staff are paid for by industry user fees, so it's not as if cutting those staff is going to save taxpayers money. So if the—

Yeah.

And that's where I think you have competing factions within the administration. You have some factions—DOGE, for example—whose metric for success is the number of people they can fire, okay?

Yeah.

And then you're going to have other factions who are going to go in and, hopefully, Marty Makary is going to be in this group, who are going to go in and say, “No, the goal is to ask how we can get more safe and effective drugs to the American people in the most efficient way.”

It may not be that firing people is the answer, right? So there's going to be a tension between those factions, and there's an overall kind of ideology—and it's not just DOGE; it's also coming from OMB—that regulation is bad, that federal employees are bad, and that you have to do something to eliminate them. Whereas people who are in the biopharmaceutical industry obviously don't oppose strong regulation from FDA. They need that for the industry to thrive.

So the question is, can they carve out an area where there's some nuance around that in this administration? I think there's going to be a tug-of-war, and it's really unclear at this point who's going to win, or if there are going to be some wins and some losses.

7. NIH Faces A New Mission

Yeah, let's pivot a little bit, in the time we have left, to NIH. I'll start by saying this: I think many of us in the industry—I have 33 years in the industry—have been a little frustrated with the quality and the throughput that NIH puts out.

We all agree that we need that government grant money. We need government research for basic research to fuel the biotech industry. I don't think anybody argues with that. But when you look at a $50 billion budget, and you look at some of the leading venture funds, for example, that do new-technology startups, that's a lot of capital being deployed for this early research and drug discovery.

Yes, it's riskier, which is why the government should do that versus more commercial, private investors. But I think most people would say, “Wow, I wish there was a better way to have almost like an industry partnership to drive and guide that use of dollars.” So I think most people would say, “Wow, there is a lot of inefficiency there.”

Nobody likes to see research projects in the midstream get cut or stopped. That's not fruitful. But I think we're just unsure what this looks like on the other side. And is there any sense, from Bhattacharya—I know you highlighted an article that he published—of what the mission is there? Is it to say, “Yes, we're going to cut the administrative fees,” but have they articulated a goal for what they want NIH to ultimately deliver to our industry?

No. It's still unclear. And you could look at it, again, as threats and opportunities. If you look at the things that Bhattacharya has written over the years about NIH, he's had criticisms of NIH that I personally agree with and that I think most people on this call would agree with: that it's too risk-averse, that the age of people who receive first grants is too high, that too much of its research is me-too research, and that it isn't going in directions that are going to lead to real innovation.

So we're certainly not getting $50 billion a year of science out of the roughly $50 billion a year that we're paying for NIH. On the other hand, he's made a lot of statements about COVID-19 that are not based in science and that suggest that he may try to take steps to reverse some of the most important work that NIH does on infectious diseases.

As far as the relationship with industry, one of the things that he has said, and that RFK has said consistently, is that they believe there's too much influence from the pharmaceutical industry across public health agencies, especially at FDA and at NIH. That's an issue of concern because, obviously, the interface between NIH and industry is essential. What's the point of doing all of this research if it doesn't end up creating products that are going to advance the health of the American people?

So there's a lot of angst at NIH. There's a lot of concern that there are going to be moves that will damage the ability of NIH to fund cutting-edge research, that it's going to disrupt it, and that there are going to be cutbacks in the amount of money that goes to NIH. Some of the immediate things that might impact would be disrupting research relationships and collaborations that industry has with NIH-funded researchers.

Perhaps it might change the ability of industry to get SBIR funding, which is really important for some of the small biotechs, especially. But again, we don't really know until we get a little bit farther into it. I would say that the red flags are more serious at NIH.

And then, going one more step—and I know that it's not directly related to investments that people are making—the concerns about what's likely to happen at CDC, I think, are also warranted, and it could have public health implications.

Yeah, although—and correct me—but I saw Scott Gottlieb just did a shout-out and was really supportive of the new director of pandemic planning. Is that correct?

Oh, yeah. It's an interesting situation because there are some really competent, good people who are being recruited into the administration for some critical jobs. And then there are people who you really wouldn't want to see near the levers of power. So it's complicated.

Yeah. Well, I know you've also reported on the sentiment. We know that anytime there's a change in administration, this is a bigger change because you've had a little bit of bipartisan support against the new regime coming in. This really is more of a sea change, so I'm not surprised that sentiment across these agencies is down.

It reminds me—I’ve done a lot of M&A and had to integrate people—and you get 2 responses. You get the response, “No, we can't change. Everything is really good, and you're going to ruin everything.” And then there are those who are willing to step up and say, “All right, what do you want to do? Let me help.” Those are the ones we usually end up keeping, and the ones who end up leaving on their own or get dismissed are the ones who aren't willing to be part of that change regime for the better. There are a lot of good skill sets.

I appreciate, Steve, that your reporting remains objective and that you have that balanced view that you've shared here. We don't like to raise alarms before they're notable, but I think there are some concerns we all have with FDA, the staff cuts, and so forth. Yaron, Sam, any final questions as we wrap here for Steve to close?

No, I'm all good.

Or comments.

Maybe, Steve, a 10-second question for you. A year from now, are we feeling better, the same, or a little bit more anxious about what happened at FDA?

I think a year from now we'll either be feeling a lot better or a lot worse, because that's about the timeframe when these things are going to play out. We really don't know. It could go really well. It could go really badly. But I think that's the right timeframe to think about things.

All right.

We'll have a good sense of things in about that timeframe. We'll also know within that timeframe, for example, and have a good idea of what's going to happen with the user-fee reauthorization. Is that going to go forward? Is it going to be revamped into something better, or is it going to get blown up and cause real problems?

Excellent. Steve, thanks for joining us. Your insights are really helpful to our audience.