第132期 - 2025年2月21日

You're listening to Biotech Hangout, a live and unedited weekly discussion of all the latest news in our industry with a group of biotech insiders. I'm Brad Loncar, and my co-hosts today are Eric Schmidt, hopefully, Tess Cameron, Tim Oppler, Luba Greenwood, and our special guest, Adam Feuerstein. For more information about our hosts and guest speakers, or to listen to the most recent episode, please go to biotechhangout.com.

Well, I'm sorry to say, I think this is going to be “pick on the biotech sector” day. Albert Bourla was booed at an event at the White House yesterday, and I think that's kind of the tip of the iceberg of negative things that happened and the conversation about our sector this week.

We're going to kick things off with a really cool discussion about a story that I know everyone read. It was excellent, and Adam wrote it. It's the story about zombie biotechs and how, when biotech companies crash, they oftentimes think of creative ways to use their large cash piles that still exist.

Adam, I'm going to kick it over to you. Again, everyone read that story, and it raised a lot of emotions and opinions on both sides. Just give us a brief summary, and then let's jump into a discussion about this topic and how people feel about it.

Yeah, thanks, Brad, and thanks for having me on today. It's not a new topic, and it's something that I think we've all talked about in the past.

By biotech zombies, and Eric has used the term as well, as have others, we're talking about companies that trade at a negative enterprise value. Essentially, their assets are worth less—the equity in the company is worth less—than the cash they have on the balance sheet.

Oftentimes, that situation arises when companies have significant setbacks. In biotech, they have clinical setbacks or setbacks with their pipelines. It's indicative of this overall issue that we have in biotech.

I track about 700, give or take, public biotech companies, and about 200 of those trade at a negative EV in some form or another. That's the army of zombies that we're talking about.

The question is what to do with these companies and why they continue to exist, and whether those companies can turn themselves around or whether the capital—the money those companies have—should either be returned to shareholders or used in some more productive way.

All right, let's open the floor for people to jump in and tell us what you think.

Yeah, maybe I'll jump in. I thought there were some really good discussions online, on X, about this. There was a good exchange involving Daphne, John Maraganore, and a few others about how you know when something is a zombie.

Maybe it looks dead on the outside, but can you always tell? We've seen some incredible zombie transformations where we're like, “Wow, that company maybe looked like a zombie for a while, but it really wasn't.” I thought it was great that John mentioned Alnylam.

As an investor, we're always looking to find companies that look like zombies but aren't, because those can create pretty interesting opportunities. I point to Taysha as probably one of those. I think that company had been trading below cash for some time, and we, along with other investors, were able to see an opportunity with its gene therapy program for Rett syndrome.

Voila, the company has reemerged and is back to life. So, Adam or others, how do you know if something is a zombie, or if it just looks like a zombie on the outside but really has a lot of life in it?

So, Tess, I love your perspective, and I think that's a great question. A lot of the time, it's actually very hard to tell. I also think that many investors are very quick today to write off companies that, if they actually looked hard enough and looked at the data, are not really there. Maybe they're zombie-esque, but they're not quite there.

You're absolutely right. There were so many great comments from John and others. There's another one on X talking about Jazz Pharmaceuticals, Pharmacyclics, Neurocrine, Immunomedics, and a number of other companies that you could have called zombies at the time but that have done very, very well.

Of course, these are just some. One could argue, “Well, that's good that you're calling out 10 companies, but what about 100 of the other ones?”

I do have to say, being on boards and an investor in some of these companies that one may call zombies, one of the things these companies do is—they are forced to—

Truly focus and have a hyperfocus. What you have is the team that's usually left standing in many of these so-called zombie companies. They're really determined, and they do miracles.

They also focus on just 1 program, not 2, 3, or 4. A combination of very strong teams that remain, plus hopefully some investors, Tess, like you—it's great to hear that you're working on that and picking out some of these companies and putting money into them so that they can come out stronger than they otherwise would have.

I expected a defense of zombies coming on this call, given you guys' backgrounds. You can point to companies that are exceptions and that are not really zombies, or are just temporary zombies, whatever term you want to use.

I think some of the ones you raised are not in those categories. For instance, I wouldn't put Immunomedics in that category. I don't think they were a zombie. I think that was actually a case of an activist investor coming in and throwing out an incompetent management team because they knew the drug was working.

That's not a zombie. That's not a zombie example. But these are hard things that the industry has to grapple with, and when you look at it in the aggregate, there's a lot of money that is wasted—whether that's because of arrogance, greed, or people who don't want to give up their positions and think that they know better.

The example that I used in my column this week was CARGO Therapeutics. That's no fault of that company. No one is saying that the company shouldn't have been formed in the first place. There was strong scientific rationale, and it had very sophisticated investors who backed the company, but they backed it for a very specific reason.

That experiment was run, and the experiment failed. I'm not the only one saying that CARGO should be shut down. I talked to many of the company's largest shareholders, and they want the company to be shut down because they said, “This is what we funded. It didn't work, and we're not interested in whatever else they're going to be doing.”

I just think that, yes, I'm sympathetic, and I understand that you can pull out examples. But in the aggregate, I think the industry has a problem with a lot of these companies.

Adam, like anything else, there's a whole degree of how much this irks people based on how hard of a pivot companies are going for. You have the truly ridiculous examples where a company crashes and then rebrands itself as an obesity play.

Right.

But on a more legitimate scale, you brought up Galapagos, which has to be a record for the largest negative enterprise value ever. When Paul Stoffels did his first deal, and I have the highest respect for him, it was a CAR T deal.

Yeah.

The investors in that company really hated the deal. It was a totally different area from what the company had been founded on and had worked on forever, through the Gilead transaction.

I think those are really the cases that get people fired up. It's like, “I invested in you to do this, and now you've taken our investment dollars”—which, for large investors, can be difficult to get out of—“and now you're doing something that I'm totally not interested in.”

Yeah, and there are ways. Like you said, it's not just about shutting the company down. You can find a merger partner. In the case of Galapagos, I haven't really followed all the details lately, but the SpinCo that they're doing…

I mean, there are other ways of unlocking shareholder value in some of these companies. Part of the problem, I think, is that we just have so many redundancies. We have so many companies trying to do essentially the same thing, and doing it badly, that you can think of a situation where maybe there are assets from several different companies that can be rolled up together.

I know it's easy to say that. It's much more difficult to do those kinds of things. But I think it gets to the broader idea that we need some consolidation, at least on the public side.

Tim—

So, Adam, maybe just sharing something that builds on that—and Tim's ears are going to burn here, because this is something that we talked about a lot—is this whole idea of an investor mandate. You bring it up with CARGO Therapeutics: Do you have a mandate from your investors? When that money goes to the company, it's not like all the company's money is purely theirs to decide what to do with. Technically, I guess it is their decision, but that money came from investors, right? So do you have a mandate from your investors to do what you should be doing?

Sometimes you get companies that are below cash, but their investors still love what they're doing. We'll talk about Solid Biosciences in a bit, but they were trading below cash for a fair amount of time. We were still holders, and a lot of their other investors were still holders, because we liked what they were doing.

So what's a way to test whether you have that investor mandate? Tim, Peter, and I had brainstormed about this before, and Tim had some really great thoughts on this. What if you do something where you basically say, “Look, what we wanted to do didn't work. You can either get your shares bought back and get your money back—we'll give you X dollars per share—or you can stay with us on this next journey to do whatever”?

Investors can walk with their feet or not, and those who stay get a larger stake in whatever that next journey is. We see this with some of the reverse mergers. What I love that some reverse-merger companies are doing now is that the shell is basically saying, “Hey, existing holders of the shell, you can get a dividend, have your shares bought back, or something like that.” The new investors are functionally the people putting in the PIPE.

That's how it should work. People should choose. You want your investors to choose you, not force yourself on them. That's just a thought, and something that we talked about with Tim a lot.

No, I totally agree with you. Those sorts of solutions certainly work. I'd love to hear Tim's take. I think Tim's on this call. Tim, do you have a take on this?

Yeah. Adam, if anything, I'm even more sympathetic to the cause of the shareholder than you are. Companies definitely don't spend enough time thinking about their shareholders, and there are obvious agency reasons for that.

I'll tell some stories. Twenty years ago, I was advising Royalty Pharma. There was a huge battle on their board: Half the board thought the idea of buying pharmaceutical royalties was stupid, and that they shouldn't continue to do that, but should just cash out and return the cash. The other half didn't. So we advisors came up with a structure where people could choose to stay in or not.

Half of them cashed out, and talk about a mistake. That company's value went up 100-fold from that point. It was a great idea to buy pharmaceutical royalties.

On the other hand, in the last couple of years, every time I push this idea—and Tess, you, Peter, and I spend a lot of time talking about this—in fact, I pitched it to RA Capital companies. You and Peter were fine, but you have colleagues who are in the weeds on individual companies. It's very hard for them to say, “Hey, we want to return cash,” because it's so hard to get cash.

I have been completely unsuccessful in getting a company in the last 2 or 3 years to voluntarily agree to return cash to shareholders. They will do it with a gun to their head. I almost wonder if, when we fund these biotech companies, we should create incentives for management where, if you give the money back, you're going to get a big bonus or something.

Basically, if you give your money back, there's less money around to pay management, right? No one wants to talk about that. But agency factors are very important in actual real-world behavior.

All right. Adam, awesome piece. We could talk about this literally for the whole hour, and I know people will continue to talk about it on Twitter. Thanks a lot. You're going to stay and join us for some news items, and I'm—

Yeah, I'm still here.

Yeah. I'm going to start with you. Stoke signed a rest-of-world deal with Biogen on its Dravet program. Tell us about that.

Yeah. Tuesday morning, Stoke struck a partnership with Biogen for essentially ex-U.S.—ex-North American—rights to its Dravet syndrome drug. It seemed like it had a mixed reaction. I didn't think the deal was so bad, but the market disagreed. The stock went down after the deal.

One of the big overhangs with Stoke, as it goes ahead to run this Phase 3 study, was the recognition that it needed to raise money to fund the study. It was one of the reasons why the stock had been depressed going into this. So they did raise the money. It's a nondilutive way to raise money: selling off a portion of the drug's commercial rights. They kept the North American rights—the U.S. rights.

We can debate whether or not that was a good deal. I thought it was, but I also talked to some people who thought that it wasn't. The idea is that this is now an encumbered asset that's essentially dead money, or a company that now just has to go through the paces of running the study, which will take at least a couple of years.

And, of course, they were also on a lot of people's buyout lists—I think yours included.

Yeah.

So whenever you—

Yeah.

—sign a partnership rather than getting—

Right.

—acquired, those types of investors sell and move on. So there probably was a lot of that, too.

All right, let's move on. Tess, I'm going to go over to you. We had some Duchenne news. Solid seems to be the company on Sarepta's heels in terms of the microdystrophin gene therapies. I know that RA is an investor in Solid, but tell us about their data. It had a very positive market reaction.

Yes, absolutely. Thanks, Brad. This is a company with a pretty long history. It was founded back in 2014 to develop a gene therapy for Duchenne muscular dystrophy, and it has seen a lot of ups and downs. They were certainly trading like a zombie company for a while.

They released data earlier this week from a small number of patients—just 3 patients—who had been dosed with their gene therapy. What they showed was average microdystrophin expression of about 110%, which is pretty remarkable. When you look at that compared to Sarepta's gene therapy, I think Sarepta showed around 34%. Pfizer's was upwards of 34%; Pfizer's gene therapy was discontinued for safety reasons. I think it might have been closer to 50%.

So, high microdystrophin expression. One of the things that was really interesting was that they also showed some data suggesting the potential for some kind of cardiac benefits. It's obviously still early, but they looked at LVEF for their 3 patients as well.

So this was certainly, I think, a positive update for them. The next step—and what they’re doing—is really talking with the FDA mid-year about next steps and the potential for accelerated approval.

All right. So this actually brings us—there’s another angle to this story that brings us to, I think, another state and the mechanics of biotech discussion.

I went over there on Tuesday and interviewed Bo Cumbo about this news. Before I did, I put a shout-out on Twitter saying I was going over there and asking whether anybody had any questions. There was an overwhelming response regarding the way that Solid raised money off of this news.

We’ve talked about this before, and I know Adam has written about this before. It’s one of these situations where they announced the news on Tuesday, but in the days leading up to announcing it, they confidentially got together with bankers and a handful of institutional investors and locked in a raise before even putting the data out there publicly. I think they raised $200 million at $4 a share.

I asked the CEO, Bo, about this, and he had a very thoughtful response. His response was, “Look, biotech has been terrible lately, especially in the gene therapy space, and you can’t count on a good stock reaction sometimes, even when you have good news lately.” He felt that, given the position they were in, locking that in with those institutional investors beforehand was the right thing to do, and I think that’s a fair argument.

But I would also say that there are 2 counterarguments. Number 1, you could argue that those institutions have a vested interest in getting the lowest price possible, and so their feedback on the data might not be what the overall market’s feedback was. You might be leaving money on the table. For example, the stock has traded north of $6. I think it’s in the mid-fives right now, and they diluted a lot at $4 and maybe could have done that at $5, $6, or $7.

But I think the bigger issue, at least the one I’m interested in, is that our industry is the only industry that does raises like this regularly. A lot of generalist and retail investors have, I think, valid concerns about the fairness of our industry. A lot of people are saying, “Why did somebody else get an early look at this data, and why were they able to invest at such a low price when I don’t have that same opportunity?” I think there’s a valid argument on that side too.

I’ll put this topic out for discussion too, because I think it’s another important issue about what it means to invest in biotech.

Yeah.

Who wants to start first?

Yeah. I’ll share some thoughts. I think, obviously, as you shared, Brad, we were certainly investors in the follow-on that they did after the data.

I think Beau raises a really good point: What is the market reaction going to be to data? What are the key things to present and share when you’re doing a data release? Sometimes that’s not really clear, right? In particular, in the market environment that we’re in, where you have a data release, you certainly want to be able to raise money to get to that next stage. That investor feedback can be really helpful to enable the raise.

Importantly, for Solid, they did share the data, and then they did the pricing later, right? There was some time for the market to see that data. But importantly, it’s always a demand-and-supply question. They also had to raise a very large amount of money, and they had a number of investors they were talking with.

An important thing to remember about investors is that we’re very, very competitive with each other, right? What’s the way to outbid other investors? It’s paying a higher price. Investors are always able to do that. When there’s a lot of demand, that’s what you see: investors bidding up the stock. That’s what we see in the market every day.

I think the price reaction we see in the aftermath of that follow-on is really a reflection of the company being in a position where they have good data and are also well-funded, right? That dynamic is a really important one to remember. Yes, every investor would like the lowest price, but you’re constantly being tested on what price you’re willing to pay because you can always get outbid.

That dynamic is ever-present, and we see it continuing to happen in financings on a pretty regular basis.

Adam, this raise was very similar to a PIPE. I know that you see the retail Twitter comments whenever we see—

Mm-hmm.

—a situation like this, when there’s—

Right.

—data in a PIPE. What’s your take?

I think part of this reflects just the uneven playing field right now in terms of the capital markets. As Tess said, companies have to raise money. They’re sort of at a disadvantage because it’s difficult to raise money, so they’re at the mercy of investors and funds.

I like a lot of these deals, and I think maybe Tess can speak to this. I wonder, when RA goes out to build positions in a company, how much are you building a position in the open market versus going to a company and saying, “Hey, we’ll give you $100 million, but we want it at a discount”? You go in and basically put a term sheet on the desk and say, “Take it or leave it.”

I think we’re seeing a lot more of that, and that’s what the PIPEs are doing, right? You’re not going out and just buying on the open market. You’re going into these companies and saying—

There are some benefits for the companies that do this well. Companies want a good, stable group of shareholders. I’m not saying it’s all one-sided, but it is indicative of where the market is right now.

Yeah. Maybe just 2 other points to add onto that. One is that it is actually very difficult to build a meaningful position on the open market in many biotechs simply because of volume, right? There’s very limited volume.

That’s point 1: Often, for an institutional investor to build a meaningful position, that does require a financing. Point 2 is, Adam, what you say about PIPEs: Gee, it would be nice if it were that way, but again, there’s always the risk of being outcompeted by peers, right? That’s what creates pricing tension and allows companies to really bid things up.

As an investor, you always have to be careful when you’re going to a company and saying, “Here’s what we can pay,” right? What if you have a peer who comes in tomorrow and says, “I can pay that, and I can throw on another 10%”? You’d better have been really true to what you said your pricing sensitivity was originally.

I think that pricing tension really continues to exist for companies. While investors are certainly in a position where a lot of companies are trading at very discounted values, we’re still very much in competition with each other. Companies should always think about that as they’re considering these different financings.

You continue to see a lot of companies testing that and saying, “Look, I’m going to put data out, see how the market reacts, and use that to raise money.” You may have other companies, particularly when the data is a little bit messier, where they might see some benefit to testing that a little bit beforehand to understand whether there is a path forward, right?

For many companies, they may be in a position where they’re saying, “Hey, I could raise money off of these 3 patients, but what if that’s not a good idea and investors aren’t excited? They should really wait until they have 10 or something like that.”

I think that's where some of these discussions can be very helpful for companies in making that decision.

And Tim, what's your banking perspective on this? Of course, again, like every issue, there's a whole spectrum of how these look. On the PIPE variety, we've even seen some where those institutional investors have been given blinded data that nobody else sees, weeks or months ahead of a big data or medical meeting announcement. I think those really bother a lot of retail investors. How do you feel, from a banking perspective, about how needed these things are to get these deals done?

I think Tess's comments should be taken seriously. What I mean by that is, we are in a free market, right? The company is going to do what's in its self-interest, the investor is going to do what's in its self-interest, and yet they choose to do these types of transactions. And there's a reason, which is retail investors can't come in and look at 4 data points or whatever at some biotech company and figure out what to do, but they sure love to jump in once RA gets a crack at it, right?

If you think of the IPO market, oftentimes IPOs are underpriced and sort of jump on the first day. These PIPE discounts are kind of the same thing, where you're essentially inducing the investor to come in, do the work, and participate in the deal. Tess, your points about the competition are just right on. Yeah, it's highly competitive, and we see that on the banking side all the time.

What's so funny is you'll have a company where there's no interest, right? No one wants to put money into XYZ company. You're out as the banker knocking on doors. No one wants to listen to you. You can call your friends, like Tess: “Hey, Tess, should you look at this?” She's like, “You know, Tim, I love you, but we don't love that company. Sorry.”

Then, all of a sudden, one party's in, and pretty soon you've got 50 people who want to jump in. So it's a very interesting dynamic, and I do think that there's a method to what appears to be a bit of madness.

All right, let's move on. We had some sad news this morning. Bluebird is doing a take-private acquisition. Adam, tell us about some of the details and your thoughts on that.

Yeah, so Bluebird is selling itself to a couple of private equity firms. I think the deal, minus the CVR, is about a $30 million deal. Not very surprising, to be honest, given the financial difficulty, because I'm sure you guys have talked about Bluebird and the gene therapy situation there, probably on the Hangout in the past. But I know we've certainly addressed it at STAT and on our podcast.

The company was in a very difficult financial position. They had loans and loan covenants that, from what they said in the release, it seems like they had exhausted all other options to raise money. So they had to do this—essentially what amounts to a take-under.

There's a little upside in the CVR, which is based on potential sales of their gene therapy products going forward, but it's a pretty high bar to meet. I mentioned this on Twitter, Brad, and I know you have the same kind of historical perspective on this. Bluebird was, at one point, really at the vanguard of gene therapy.

It was a company that, if you go back to 2013 or 2014, really could do no wrong. They were sort of proving that gene therapy, at least from a scientific basis, was something that was possible and could cure patients of these horrible diseases—in their case, sickle cell and beta thalassemia. But ultimately, they ran into the buzzsaw of the business case and how you turn these breakthrough scientific achievements, that everyone is proud of and everyone points to as the reason to be in biotech, into a successful business venture. It turns out that it's very difficult.

I see Eric—

Oh, oh.

—has joined us. Eric, you've covered this company for many years. What do you think will be the story of Bluebird at the end of the day?

Well, unfortunately, this isn't the ending that any of us would have liked. As Adam just articulately laid out, it's been a long, slow decline that nobody should be surprised about in terms of the unhappy ending today. But there is one silver lining: I think Bluebird's products are going to persist under new hands and ownership, at least for those patients with CCALD, thalassemia, and sickle cell disease who sorely do need these options.

There may not be that many patients Bluebird can serve in the future. And of course, many of us, including Adam and myself, have written about our skepticism toward the margin structure, the business opportunity, and the profitability of these drugs. So we'll see if they can do any better in other people's hands. But at least for the time being, the products will be out there and available to those who so choose.

And Eric, you know this well: the problem there is this fundamental issue—can you make the margins, as you mentioned, and the business case for this particular kind of product? If you look and dig in more granularly into Bluebird, they made a lot of mistakes. If you look back, they had some scientific hiccups and setbacks around 2015 with their first construct, which ran into some trouble, and they essentially had to do a lot more work to figure out how to get it to be effective.

They had manufacturing issues, too. So there were things that were specific to Bluebird. One of the big things is that they just spent so much money.

Even when people were saying to them, “Why are you spending so much money?” they just did. I think there was this resistance on the part of management. They believed in the mission and didn't heed the call of investors saying, “Maybe throttle back.” All those sorts of things contributed to the demise of the company, on top of the difficulty of making gene therapy work as a business.

There's another angle to this story I've never heard anyone mention, something we talk about a lot lately that I think is interesting to note. I actually think this is one of the first companies ever, in part, to be wiped out by Chinese competition. I remember ASCO 2015 very well: everyone was waiting with bated breath for Bluebird to present its BCMA data, and the announcement came out. At the same time, it was like, “Hey, there's some Chinese company working on the same thing.”

Nobody knew that, and today the Chinese company is worth $7 billion, while Bluebird is essentially going bankrupt. If that Chinese company didn't exist, Bluebird would own the BCMA market right now and probably be worth $7 billion or $8 billion. I think that's historically the first example of that actually happening. So I think that's interesting, too.

And Brad, just to jump in on that, if there's one thing we should all be learning in Western biotech, it's that one could probably be a little more efficient about how you run a biotech. I remember talking to Bluebird management over the years, and there was just such confidence that they were doing the right thing.

They're all great people. I'm not saying there's anything wrong with them, but they were very confident that they had it figured out, and they didn't. If there's one thing that I think could be very disruptive, it's for biotech companies to start competing on efficiency.

Tess, I know at RA you preach this a little bit, right? Why don't we try starting the next Bluebird with 15 people and see if we can do that? I actually think you could do it, and it could be a much better business model and a way to outcompete the Chinese.

Okay. I think that's a very good point. Lastly on this, I don't want to get into this, but in the spirit of picking on the biotech model today, I thought Angelica Peebles, the CNBC biopharma reporter, brought up another thing that really irks people: the CEO of this company, over time, cashed out about $80 million, and over the course of the company really never succeeded over the long term.

And it's a free market, but that also bothers a lot of people. Lastly, one other negative item in the news, and then we're going to go to greener pastures. Tim, Septerna, which was an IPO just, I think, in November, is very similar to the CARGO story. It has already crashed and burned, and I think reminded people of the risk of the biotech sector. Is there anything—any learnings—from this one?

I don't think Septerna did anything wrong, right? They discovered that they had a significant bilirubin side effect with one of their drugs, so it's one of the risks that we all take in biotech, and unfortunately they got hit by it.

Yeah. And maybe just add an extra caveat that my colleague Jake is on the board here. But this is, I'd say, a growing list of companies that, shortly after their IPOs, have seen some kind of toxicity, right? It just reminds us, like, my gosh, small-molecule drug development is really hard, and until you see it in the clinic, there's a lot that you don't know.

I think what's interesting, and what Septerna highlighted in their PR, is that they've got multiple attractive PTH1R agonists—that's what they said—that they're planning to accelerate. They're planning to get one into the clinic later this year. It just reminds us of the importance of having backups, right?

I remember when I was working with Carl DeCicco back at Foghorn, he really preached that and reminded us that Eliquis was—gosh, how many drugs had to fail before Eliquis, which was the backup of the backup of the backup, actually made it into clinical trials and made it to market? I think that's just a reminder of how important it is. We talk about efficiency, right? But efficiency shouldn't come at the expense of good risk-mitigation strategies for valuable targets.

All right.

The other problem here, as Tim and Tess both mentioned, is that this is a recent IPO. Unfortunately, this is at least the second, maybe even third, IPO to have blown up in the last 6 months since going public. That just really wears on biotech more broadly than even the relevance to the few investors who might have owned this security, and casts a pall over the industry when you have companies that are so fresh and new losing money this early.

I just want to chime in here. The sentiment out there is terrible right now in biotech, probably a lot worse than the XBI stock performance or anything else you might be reading about in the papers. It's because of these types of transactions that just go south so soon. Of course, people are crowding into the same set of names and seemingly losing money hand over fist on a daily basis. It's hard out there.

Our clients are hurting. I'm sure others on the call are hurting, too, and we have to be doing something different in terms of our investment strategy. I'm not sure we're on the right path right now.

All right. We have a lot still to cover. I'm going to try to go through some of these quickly. Let's talk about happier things, of course.

Tim, SpringWorks has been in the news. German Merck, Merck KGaA, is in talks to potentially acquire them, and at this point, that's not a rumor. The companies have confirmed it in the media, but it does seem to be taking a lot longer than people maybe expected. SpringWorks had earnings yesterday, and they released the earnings but didn't have a call or anything, so I think that says something.

Tell us anything you can about that, and just overall M&A sentiment. I saw a headline in the news a day or two ago that said that the Trump FTC might not actually dial back the pressure on big mergers like people were thinking. What are you hearing in terms of all of that?

I don't have any specific information. If I did, I couldn't comment on it. But what I can say is that, interestingly, in my PhD dissertation, I looked at the following question: If there's a credible announcement of a merger—that such-and-such company is in talks, so this is credible, not some rumor that was in social media—what happens to the stock next?

What I found was—and I looked at about 150 of these over the years—that about half the time the merger happens and the stock goes up, and about half the time the merger doesn't happen, and of course the stock goes down. So you saw SpringWorks pop up, which is the right thing, but if you were a merger arb and wanted to ask whether you could make money by buying SpringWorks right now, the answer would be that there should be no profit opportunity.

I don't know what's going to happen with Merck KGaA and SpringWorks. Obviously, Merck KGaA has made an offer, right? So now it's going to be up to the bankers for SpringWorks and the board of SpringWorks to decide whether this offer is good enough or whether they're better off continuing to operate on their own. They have to figure that out.

How much time is it going to take? People see the announcement and are like, “Okay, this is going to happen tomorrow.” It usually takes 2 to 4 months, and the reason is that the bankers are probably going to keep shopping SpringWorks to make sure that they have the best and highest offer. They're going to torture Merck KGaA, which is unfortunately now out in the open saying, “Hey, we want to buy this company.” The bankers are going to use the leverage that they've got.

Hey, Tim, from a disclosure standpoint—I don't know if you know this—Merck KGaA had to come out and acknowledge that there was this interest in the company and that this was happening.

Correct. Yep.

I guess it was some German securities law. If the deal falls apart—let's say they can't reach terms and Merck decides to walk away—do they also have to disclose that? Do you know how that works?

I don't think they do. We have the same rules in the UK where, if you're AstraZeneca and you receive a big offer from Pfizer, you can't just sit on it and not tell investors about it. It's so restrictive over there because of this thing called the Code, that you've got to actually be really careful if you're Pfizer about making a merger overture because you don't want to trigger the Code.

So I would assume that Merck KGaA could just go on its merry way. There's going to be incredible pressure on the board of SpringWorks right now, right? It's out in the open, and whoever their bankers are, they're working day and night to see if they can get an alternative offer. I would think that there are multiple bidders in the picture, just because SpringWorks is an attractive company.

It's fair to point out that SpringWorks' assets are probably not going to get picked up by a large pharma, and that's because large pharma are, in general, focused on big indications in oncology, and SpringWorks is going after midsize and smaller indications.

Great. Let's keep moving. Tess, I'm going to go over to you. M&A is something we'd love to have as a spark to the biotech sector. Another thing we watch closely, especially in the middle of earnings, is how drug launches are going. A really high-profile one is BridgeBio with Attruby, and of course Alnylam might be in the space as soon as next month, too. Seems to be going okay, right?

It sure does. It seems to be going well. This was a launch that I think had a lot of eyes on it. There were a lot of people who were pretty skeptical about another small molecule for ATTR cardiomyopathy. BridgeBio really impressed, having over 1,000 unique prescriptions since FDA approval, which was really recent. They've just been on the market for a couple of months at this point.

I think this speaks to a broader trend of companies being able to commercialize on their own. That's something that's traditionally been really hard, and there's been this “short the launch” kind of philosophy around smaller biotechs. But we're seeing some real successes. It's probably a little bit too early to call that completely for BridgeBio, but it's certainly looking very strong out of the gate.

And Brad, I want to jump in on your question on M&A. You asked me the same question. Like a politician, I just didn't answer it. We think M&A is going to be pretty strong. I saw the point on the FTC. I think that's going to be okay for most of what we worry about.

But one thing we were recently looking at at Stifel was how many of these launches are going well, and we saw the same thing Tess just said, which is that there are a lot of launches that are going well. What we noticed is that in almost every case, a company that has a good launch gets bought. That was very striking. Try to list out the companies that you know had launches that beat consensus and didn't get bought. Not many. There are some, but not a lot.

Right. All right, let's keep going. You can't have a call without talking about obesity. Eric, I'm going to go over to you. Adam's colleague, Ling Chen at STAT, wrote a really great piece on the obesity space, and her point was that, from a patient perspective, not everybody is looking for overly dramatic weight-loss percentages.

I've always felt strongly the same thing. Whenever we have new data, everyone zeroes in on the weight-loss percentage. But I think there are other factors, like tolerability, that are a lot more important, and that's where I go straight to when I see new data.

Tell us your thoughts on that, and then, of course, we had some news just this morning. The FDA announced that there's no longer a shortage, and that could affect the compounders like Hims. So tell us a little bit of a roundup of what's going on in obesity lately.

Sure, Brad, and I may leave that second part of your question to Luba to cover from a more legal aspect. I know she's been following it very closely and probably has much more insight than I.

On the STAT News article, we couldn't agree more. In fact, my colleague, Prakhar Agarwal, who covers the obesity space here for us at Cantor Fitzgerald, has been singing the same tune. It's quite surprising that every time a new dataset, phase 1 or phase 2, comes out from a novel GLP-1 or combination partner, the first thing people do is go toward that percentage weight loss, and they analyze it in excruciating detail and treat a 20% reduction in body mass quite differently from a 21% or 22% reduction.

It just doesn't make much sense, right? As you said, tolerability is very important. The other thing that's very important, of course, is convenience, and I don't think patients know whether they're losing 20%, 21%, or 22% of their body mass. I think they certainly know if they're injecting themselves on a weekly or monthly or maybe even, in the future, quarterly basis, and I certainly know that they realize whether they're feeling like crap or not on a daily basis because of it.

I think this whole space has a long way to play out, and as we start to separate the winners from the losers here, it'll probably be much more on those 2 latter points—tolerability and convenience—than it'll be on efficacy.

I'd also like to add to that point. I'm happy to cover the legal aspects as well. I've been talking to and looking at some of the data provided by companies like Hims that are providing a lot of the drugs, the GLP-1s, from compounding pharmacies.

What's interesting is that tolerability and convenience are actually divided between men and women. Female patients seem to be more interested in the overall weight loss, although you're right: does somebody really know if it's 20% or 23% weight loss? Men care a lot more about tolerability and some of the side effects, such as muscle loss. That's been interesting as well, and I'm curious how that will affect sales and development of future drugs.

Luba, not to put you on the spot, but now that the FDA made this announcement this morning, what are the repercussions for Hims? Do they have a certain time period that they're still able to do this—

Yeah.

—or what's their status right now?

Yeah. So I can tell you they knew that this was coming, and not just because of what Novo and Eli Lilly and others have been saying. Lilly and Novo have filed lawsuits to force the FDA to declare that there's no longer a shortage and to stop distribution of GLP-1s by compounding pharmacies.

This is something that Hims anticipated and knew was going to happen, and has played behind the scenes to, I'm sure, not make that happen. But this is a major blow now to sales, and I'm sure that they're going to try to figure out a way to push back.

If the FDA has basically said that's it, and that's their final decision, that is going to be their final decision. They can't continue selling drugs from compounders.

Just to point out, there's a bit of a subtlety here that's not at all obvious. If you go through the compounding rules, let's say, Brad, you've got some type of disease and there's an on-patent drug that for some reason isn't going to work for you because the—

No, that's right. It's dosing.

Yeah.

Yeah, you're right. I mean, dosing, yes, of course, or if you have an allergy to a particular ingredient. But the majority of sales have been because there are 2 factors under which you can make the drug through compounding. So you're right, there's going to be a percentage of those people who still can get it, but certainly not for the mass production that they've had before.

Just to point out, if you go through Hims—go to it and actually try to get your own obesity prescription—what you'll see is that it will very rapidly try to qualify you as a nonresponder to currently available doses.

Their business model shifted about 2 months ago to what they call customized compounding. So, Luba, you're right. They've anticipated this. They're 1 step ahead. The issue that they're going to run into is going to be on the patent side.

Yeah.

Right? So it's fine to, as you kind of hinted, have some prescriptions that involve alternative dosing, but at some point, if they're using dosing rules to essentially dodge compounding regulations, they may find themselves in a lawsuit over Novo's patents that they're going to have a tough time with.

Yeah, absolutely.

I saw another really interesting obesity headline this morning. I can't remember where, sadly, but I saw that Eli Lilly has apparently already produced about $500 million worth of its oral therapy that it licensed from Chugai, and that's before the data.

I think that really goes to show what a big pharma game this is. They're putting $500 million of drug supply at risk if there's a chance that the data doesn't turn out to be as strong or successful as they thought it would.

That's a tough thing for smaller biotech companies to do, and we've talked at length about some of the acquisitions that haven't happened yet. I think it just goes to show the investment that's required for even larger companies to potentially compete in this space.

And Brad, before you exit obesity, we should probably mention that while we've been speaking about it, Betaville has a Viking Therapeutics takeout rumor. There you go. On a Friday, of course. On a Friday.

All right. Let me just scan to make sure we didn't miss anything that was absolutely critical. I think we got everything. We're at the top of the hour. There's actually enough material to do this for a second hour, but we'll stop there with some of the main news items.

I'll give everyone an opportunity to speak up with any closing remarks if anyone would like to do that. No? Okay. Well, thanks a lot to our co-host and to Adam for joining us today, and thanks a lot to the listeners. I look forward to doing this again a week from today.

Thank you, Brad.

Thanks, Brad.

Thanks, Brad.