第142期 - 2025年5月16日

We started the week with the executive order from President Trump, essentially around the drug pricing story. This has been something that's been brewing in the U.S. for years. A similar thing was tried the previous time President Trump was in the White House, and this time we have it in a slightly more fleshed-out form, with several points made within this executive order. The overall objective is to try to bring down U.S. drug prices, or at least some of them.

Lots of things have been said. Share prices sold off really strongly, then jumped back up again. In fact, I think several pharma companies' stocks are back up above where they were at the beginning of the week.

There are several elements that I'm going to tease out very quickly and then get going with the team here. If you want, folks, you can change this. There was the 30-day ultimatum, which I read as, "Go ahead, come back to us voluntarily," and during that period HHS will also be studying some drug prices to see what they can get. Then there's the 180 days during which negotiations or conversations will be taking place to try to reach a view on bringing prices down.

Interestingly, I would say this ties in very closely to the timeframe for the next IRA negotiations. There was conversation in the executive order about reimportation of drugs from other countries where the prices are lower, which would be interesting to talk about. There was a lot of talk about the unfairness of ex-U.S. prices and how that's something that has to change, but it would be nice to talk about whether there's any mechanism for this to happen. Then, of course, there's the element of direct-to-consumer sales, which we can talk about.

I'm going to turn to John first. You can pick any one of those, or have an overall conversation, and let's just go.

1. The MFN Order Starts Negotiations

Let me just start by saying that what I saw happen on Monday was not a most-favored-nation executive order, but a mostly fluff-and-nonsense executive order, to be crass. It was a very vague, very general, very nonspecific set of process-related steps. I think the market showed this: People were very anxious about this the prior week, things were weighing on the sector, and over the weekend there was a lot of chatter that I was getting from my colleagues in the investment community and in companies.

Then Monday morning comes, the executive order comes out, and it's just a nothing burger at the end of the day. Clearly, this president is hellbent on some type of most-favored-nation mechanism. But this executive order is the start of a negotiation, and I think that's why the investment community breathed a sigh of relief and calibrated what this actually is for what it is. It's the start of a long process, and where it ultimately goes remains uncertain at this point in time.

I do think that ultimately this president, if he has his way, will try to get some type of MFN mechanism in the industry. But it could be done in ways that are acceptable to industry, actually—whether it's done as part of the IRA, when everything is calibrated back at 13 years, or if there's some other mechanism to apply it to drugs that haven't been launched yet, so U.S. companies can calibrate this measure into future launches, not existing launches, et cetera.

There's certainly going to be some ongoing discussion about it, but there was nothing about what happened on Monday that fulfilled people's worst fears. That's why, appropriately, the sector has breathed a big sigh of relief during the course of the week.

I wholeheartedly agree with John's view that this is really a massive negotiation tactic. Although I don't like the stages of grief, I sort of feel like the industry is responding to these blows with a mix of denial, bargaining, and distraction.

Taking MFN alone is probably not as useful as taking it in the full context of tariff threats, biosecurity, Section 232, IRA renegotiation, and then, of course, the Big Beautiful Bill and the health care provisions embedded therein. I think what the administration is trying to do is force pharma's hand to the table and continue to curry populist support, and it's working.

A hundred billion dollars of committed U.S. investment into manufacturing and R&D facilities by six of the top 10 pharmas is a nontrivial amount. We'll see how much that sticks, because pharma can negotiate as well and say, "Hey, maybe we won't make those investments in favor of tariff relief or reduced MFN if this is going to continue coming at us from all directions."

Right? And we do have Matt, so that's great to hear. Matt, do you want to jump in here?

Yeah, thanks, Sam. Good to be here. Look, I think—and by the way, John stole the word that I was going to use, which is "nothing burger."

Sorry, Matt.

No, no, it's okay. John, by the way, one of the reasons that I participate in Biotech Hangout is so that I could be on at the same time as you someday, so that I could call you out for saying that Roivant would never be a great company in a newspaper article.

So—

Oh, man, I've been waiting for this moment for years, and I thought that was very mean of you.

I'm sorry.

Thank you. Anyway—

It's just the one time that John was mean.

Just the one time. Look, on MFN, I think there are a few things here. One of them is a frustrating reality for the industry: For all of the whirlwind of policy changes in the administration that we've been thinking through over the last month and a half or 2 months, this one is complicated because, at some fundamental level, the administration is right.

It is a bad fact for the industry, and for America, that prices are so different here versus other places. In fact, the very thing we are dealing with now, which is massive gyrations in strategy and value based on U.S. drug pricing, is itself evidence of the problem that needs to be solved. We are at the whims of one person's tweets, mostly because U.S. drug pricing is so disconnected from the rest of the world.

If we could somehow fix this problem—even if it meant a temporary or permanent bump along the road where things got reset from a value and return perspective, but then we got to grow in a more equitable and evenly distributed way—I think there's some advantage to that world, although it would be a very painful path.

I do think there are a lot of complicated risks hidden in this discussion. First of all, pharma is going to come to the negotiating table. I think the people most likely to be at that negotiating table are going to be big pharma CEOs and large commercial organizations representing a portion of the status quo and thinking a lot about their business.

I'm a little bit worried biotech won't be as represented at that negotiating table and that our interests are slightly different. We're much more focused on future drugs than current drugs. We're much more focused on the way this plays out in different kinds of markets and in various aspects of the value picture.

I'm a little bit worried about how we get involved as an industry and make sure that the longer-term picture—which I would describe as the biotech interest, because necessarily the vast majority of our companies are either development-stage or earlier in their lives—is represented.

I think a worry for the country and, to some degree, for Trump is that, if gotten wrong, this policy will lead to higher drug prices in the U.S. People will start abandoning other jurisdictions, not worrying so much about MFN, and then just pricing here to try to make up the delta.

I think there are a lot of complicated minefields in the actual negotiation that's about to take place. By the way, it's a much more cogent and interesting negotiation than anything on pharma tariffs, which is mostly, I think, correctly understood as a tax policy debate.

Right? I mean, Matt, pretty much the entire tariff setup is a tax. It's just called a tariff. A tariff is a tax, right?

Can I just say one thing? Can I just jump in on one thing? Obviously, aside from apologizing again to Matt, on the topic of prices, we obviously have discrepancies in many cases between U.S. and foreign drug prices. But let's not forget that this happens up and down the health care system, whether it's MRIs, CT scans, mammograms—I mean, name your procedure. U.S. versus the rest of the world: vastly different prices, much more expensive here.

And so, it is an overall issue from a health care system standpoint. You can’t ignore that. Nobody should, because our overall health care costs in general are higher.

I agree with you, Matt: to the extent that there is a negotiation, it’ll likely be with the larger companies. I’m sure BIO will try to get as involved as possible and represent the smaller-company voice, and I’m sure they’ll do a good job with that as best they can. But it will mostly be with the larger companies, where there’s money at the end. That’s all there is to it.

Well, I think the point about caring about the drugs of today versus the drugs of tomorrow is such a wonderful point. What’s interesting is to contemplate Europe in particular, but really the rest of the world, becoming kind of like Medicaid.

On the one hand, we’re trying to increase transparency and reduce the gross-to-net spread with PBMs in the US, but we might go to a model where pharma is cutting deals with other markets through confidential contracts and other obscurities, where you maximize that gross-to-net and end up like Medicaid, where you have a 50% effective rebate to bring you down to the actual price.

2. The US Price Gap Persists

I’ve heard this argument a lot. I was at the BAML conference in Las Vegas this week, or whatever, and I find it plausible on the one hand. The thing I’m a little dubious of is that pharma companies are going to successfully manage to keep information from the US government on this.

I’m dubious that whatever policy is passed is going to have a large enough loophole on pricing to allow people to say, “Our list price with France is X, but secretly we’re giving them a 50% rebate that we’re not telling the US about.” I’m worried about that line of reasoning because I think the government has ways, and we’re going to have to deal with those ways later, especially for US-domiciled manufacturers, where the government gets all the information.

One thing worth bringing up is whether drug prices were always much higher in the US than in Europe or elsewhere. If you wind the clock back 20 or 25 years, were they much higher? I think the answer is no—correct me if I’m wrong.

To understand how we ended up where we are today, what changed in the process to create a world that managed to get itself into this massive divergence? It’s not every case; there isn’t a divergence in every case. People talk about net prices, and I think that applies a lot to drugs that go through a standard pharmacy. I’m pretty sure Keytruda isn’t discounted by 50%, 60%, 70%, or 80%, for instance. I’m just picking Keytruda for no reason.

What happened in between? Part of it is that we’re dealing with a free market. Therefore, pricing is set between players, and the government has not had an input, whereas in Europe and most other countries, the government negotiates directly. There are no middlemen. But if that’s one part of the explanation, what else has happened here that has allowed this situation to occur?

Well, Sam, one aspect of that is clearly the role of PBMs, the discounts and rebates they command, and how that affects US manufacturer pricing at the end of the day. That is absolutely a factor that creates more of a discrepancy in prices around the world.

Right?

The US health care system is the only health care system in the world where basically no participant who has any control also wants prices to be low, right? Pharmaceutical companies generally like higher-price environments. Hospital systems, doctors, physicians, and providers like higher-priced environments.

Insurance companies under the Affordable Care Act are capped on margin at about 15% by the medical loss ratio rules. So while shocks are bad for them, the only way an insurance company can increase its profit under the Affordable Care Act is by increasing direct health care costs. Their actual incentive is to see a slow and steady rise in health care costs.

The one institution that is actually a concentrated, influential buyer of health care—the government—is, at least as far as drug prices are concerned, heavily restricted in its actual ability to negotiate. The US is the only country in the world where there is really almost nobody out there trying to keep prices down.

One part of the solution, of course, is to give the government some ability to negotiate prices, which is what’s happening as part of the IRA. But at the same time, something that suddenly everyone forgot this week—not obviously on this call, but when I’ve done endless interviews for Bloomberg TV and Bloomberg Radio—is that there’s this net pricing, this middleman, this system in place. Everybody also forgets that the rest of health care is more expensive in the US than it is in Europe.

When I have a relative who got the flu and was hospitalized for 9 days in San Francisco and received a $250,000 bill, you will never see that here. Never. It would be a big bill, but it won’t be $250,000.

When we look at the percentage of health care spending that goes toward prescription drugs, you find that some European countries are higher than the United States, but the pie is smaller. So the actual spend on drugs is lower.

Do you see any way that, by the end of this year, we haven’t had some pressure on drug prices one way or another, whether it’s through the IRA, the next negotiation, or some other way?

I don’t see it happening within the year.

You don’t expect any price pressure?

I think that, with all the things that have to get done to make a change like that, I don’t see it happening.

Okay. And Matt, Nina, do you want to make a point here—not a major point, but a point? Do you think by the end of 2025 there would have been some negotiated prices, not necessarily actual prices, that might kick in in a year or 2?

I think there will be superficial negotiations by big pharma companies trying to forestall worse policy changes, along the same lines as what I would call—this is maybe not a great thing to say publicly—largely superficial guarantees of investment domestically.

Yeah, we’ll come to that. We’ll come to that. I think the places where this is most likely to happen are places where the writing is on the wall and there’s going to be pricing pressure anyway, right?

In the obesity space, I think we’ll see a series of negotiated compromises to try to close the gap a little bit, because the truth is that, between competition and other things, it’s just coming anyway. So I do think this year we’ll see some version of the grand gesture.

Whether those grand gestures will ultimately affect consumers or prices paid depends a little bit on whether it’s a promise to some idea of a plan versus an actual agreement, and also on who’s making those agreements and why. But I think we’ll see something.

Do I think we’re going to see successfully implemented, government-scale MFN policy by the end of this year? I think if it can be achieved by executive order, we will see something, but I think most of us think it can’t.

No. And I think otherwise it would be surprising to me if the legislature could get something through.

The only executive-order path would be through a CMMI demonstration project with Medicare. That was proposed back in November 2020 and was challenged and failed, mostly due to process reasons. But even there, it would take a lot of time to implement, and many of the guidelines for that would be challenged legally.

So again, I think it’s going to take a long time to see any of this get into the industry.

I do wonder if we’ll see—

Sorry, go ahead, Nina.

No, please, do finish your thought.

I just wonder if we’re going to see—actually, the part of this that is ill-circumscribed and difficult to wrap your head around is how the government puts pricing pressure on drugs sold in the US. That’s relatively easy to imagine. The ways in which the government puts pressure on increasing drug prices overseas are harder to imagine.

But I think the current administration has shown us all some patterns by which it’s able to do things like that. I do think we might actually see some of that activity this year. If the government actually winds up caring about this issue and focusing on it, we may find out about bilateral negotiations around commitments on drug pricing and closing gaps as part of broader trade deals, for example.

Right?

I think that’s definitely a possibility.

Let me—Nina, after you. Go ahead, Nina.

I just want to say that I think outright price reform is unlikely to come, but I think the broader business pressures will continue—unless maybe there is some PBM reform legislated in a final budget.

But aside from that, I don't think there'll be direct pricing impacts. The incorporation of Part B into the IRA obviously has its possibilities, but I do think that there will be broader business pressures that are anti-innovation and difficult on the sort of pharma P&L, biopharma P&L.

I sat down with some of our colleagues here in Europe who are closely looking at these trade negotiations, and their view was that there's no mechanism by which the US can put it into a trade deal, apart from gentlemanly conversations or lady conversations—whatever the correct way of saying it is—because it's not actual trade. There is no—you know, Europe doesn't buy the drugs that it sells in general from the US, so you can't really force Europe to raise its prices.

And let's not forget that, at the same time, Europe is being forced to raise its defense budget. There is a limit to how much it can suddenly start increasing. With defense, the US had a lever that was, "I am going to spend less. If you want NATO and your security to be as good as it was before, you're going to have to raise your numbers here."

There is no other lever, except for if the companies start saying, "Okay, we're going to delist from Europe," and in fact do what Matt said: "You know what? Not even drop our prices—raise our prices." That's politically awful, and I don't think it will happen, but that's the sort of thing that could go on.

There's one other element here that my colleague Dwayne Wright has suggested: He thinks that the IRA sets a price ceiling but no floor. So, referencing foreign prices, even though they're sort of lower levels, isn't a criterion in the IRA statute today, but it still allows them to take factors that aren't weighted, providing what would be wide latitude for the cuts. They could push some of those through in November, which is 180 days, by the way, through the IRA, and at the very least declare some victory and move on.

I think the one issue there, Sam, is that this administration is loath to do anything through a Biden-born pathway. I just think there's going to be a lot of resistance from the administration on doing something.

3. Reimportation Faces Practical Barriers

Let's talk about 2 more items here. Reimportation: the possibility and then the reality. How likely is that? People buying it, bringing it in from Canada, shipping it over from Mexico, buying it in France and shipping it over here to the US?

I think it's a very low risk.

I think the silence was telling me yes. I don't know if Matt and Nina agree, but I think it's a very low risk.

Yeah. I think it is, like many of these things, much more likely to be a negotiating cudgel than an actual solution. But I think it's reasonably likely to be threatened as part of the negotiation.

But that favors the tariff debate, though.

It does, but the administration is going to tax its own imports of necessary medicines. No, John, let me ask you this question: You're manufacturing a drug here in the US and also in Europe. Would you, as a pharma company, allow sufficient volume in Europe to then be available for reimportation to the US? Because you control that, so that's the problem, right?

Of course not.

That is the biggest issue.

That's not mechanically true, right? You control it in the sense that you want to ensure adequate supply for Europe. Maybe in a world where the US allowed reimportation, you'd cut off supply for Europe. But if the price in Europe is X and the price in the US on list price is 2X, and you can sell it for 1.5X here, people in the world have an incentive to move it across the border.

So it's true, again, that you could cut off supply, or maybe European countries could restrict exports because they want adequate supply. But the point remains that enterprising people can move drugs if allowed to do so.

As long as the volume is there.

Yeah, if the volume is there and if there are no consequences for the country that's doing that, which may not be the case.

And then the next question, of course, is direct-to-consumer sales. Now, we've already seen some of this before the executive order came out. How many types of drugs can you actually do that for, and how real is that? What are the barriers to that? I haven't even started to think about that part of it because I think it would be interesting to see if any companies actually step up and say, "Right, we're going to do this." Any thoughts there?

I think it's fairly unlikely. I think in the GLP-1 space, there's supply-chain management that needs to be resolved and somewhat of a referral base for patients to get prescribed. But I think the direct-to-consumer companies, like Hims or Ro, that actually have the sort of corporate-practice-of-medicine air cover, are servicing that need.

I think where pharma may continue to occasionally do it is for other ultra-specialty products—for orphan or rare diseases, or vaccines—where supply chain and timeliness are so critical. But I don't see a trend of biotech or pharma wanting to be in the business of practicing medicine and taking on the potential conflict risk of prescribing their own drugs.

We're nearly half an hour, halfway through, and this was the biggest topic this week. If I conclude from everything you've said, legislation will be very tough to get through by the end of the year. There may be some gestures either by the companies or some wins by the administration, which could come through some mechanisms, maybe through the IRA mechanism, before the end of the year.

But in reality, this is likely to fall into the same camp as the effort fell into last time around.

4. Policy Pressures Reshape Pharma

Before we leave policy, Sam—and I definitely don't want to usurp your moderation role—I'd love to hear about a couple of other things in the Big Beautiful Bill that touch on health care, particularly from Matt and John, who are a bit more frontline operational.

I'm specifically interested in tax deductions for R&D in the current year versus amortized over 3 years, as well as the potential elimination of the tax deduction for advertising spend and how that might affect implementation.

I'm going to let Matt cover it because I have not studied those deeply personally. I don't know, Matt, if you have.

Not at the level of having studied them deeply. First of all, I think anybody who tells you they can predict inclusion in current government legislative proceedings is lying. But having said that, in terms of R&D credit amortization, I think that's going to be a super-heavily-lobbied issue, to be honest, because this is not like a matter where there's going to be any layperson opinion. It's just going to be down to the power of the respective tax lobbies versus government policy.

On the DTC piece, my general view is that, as an instrument to try and affect the use of DTC advertising, tax policy is probably not going to be that effective. Ultimately, if what you're doing is increasing the cost of all DTC advertising by 25% or something, I don't think that's likely to have a massive impact on most DTC spend.

I think that is therefore possible, and I suspect in some places popular as an idea, so it could get included in some bill. But I don't think it's actually going to have a big impact on how companies behave.

Yeah, I'm sitting in Connecticut, so I'll reference Chris Murphy's No Handouts for Drug Ads Act, where, I believe at Brookings, there's an analysis suggesting that, from the $6 billion spent annually on direct-to-consumer advertising, $1.5 billion to $1.7 billion of tax revenue could be recouped. So it's not a trivial number that could be recouped.

But look, I think it may be a smart way for the government to raise $1.5 billion. I think most of the people spending that $6 billion will still spend $7.7 billion.

While you've got the mic there, did you want to also just touch on the Orphan Cures Act and maybe the PBM reform conversation?

Yeah, I think we touched a little bit on PBM reform, but there is some populist as well as congressional support for banning spread pricing and requiring more reporting of rebate amounts and pricing structures and contracts.

For the first time in my career in investing, I'm hearing sound bites from friends and family around PBMs, as opposed to pharma being the only devil in the mix. So I think there may be something there, and also restrictions on steerage.

One concern or conflict has been the ability of an integrated payer-PBM to steer to its own, for example, mail-order pharmacy, which may not be the lowest-cost source. So I think there's a bit of analytical momentum behind that as well.

And then on orphan cures, there's been a lot of initiative, and I think it's fallen on pretty receptive ears, certainly in the prior administration, but even in the new one, to exempt orphan drugs from the Inflation Reduction Act negotiations.

That was a big win.

Big win. Big win. It's not yet law, but it feels like it's got good bipartisan support. And at least under the former FDA, there was also generally a lot of support for accelerated R&D and innovation to incentivize drug development for orphan diseases. Hand in glove with that is an orphan drug tax credit, which historically had been 50% but was lowered to 25% for clinical expenses that could be deducted, and it sure would be nice to see that come back to 50%.

There are other things that have been going on, more on the regulatory versus the policy side, where I think it's just going to be a little bit of time will tell to see how Makary and Prasad decide to implement. They don't both necessarily see eye to eye there.

No, there's a lot of that—not seeing eye to eye, at least based on initial commentary before some of the folks came in. We'll see how that pans out.

It's interesting. The other element, of course, on the overall picture here is the pledges made by pharma companies. We touched on that a little bit. I worked it out just with the large pharma. The biggest, of course, was Johnson & Johnson at $55 billion; so far, the smallest has been Merck at $9 billion.

These are very difficult to compare on an apples-to-apples basis because, as you saw today, the latest one to come up this week—or yesterday or today—was $20 billion from Sanofi. But you read the message, and it says that we're looking at putting money in various things. So here it goes: It is $20 billion to 2030. Of the total investment, Sanofi will substantially increase spending in the U.S. on R&D. That's ongoing R&D; that's not new capital expenditure. To accelerate the science, the company also plans to expand its U.S. manufacturing capacity. Fine. How much? I don't know.

Sanofi's investment decisions will be adjusted as the external environment continues to evolve. Very interesting extra comment here: The planned investments are expected to create a significant number of high-paying jobs in the United States across various states.

So I think Roche also did the same thing, and interestingly, Roche came out and said, "Look, actually, if you want to go down that path with the most-favored-nation policy and pressuring us, the reason we want to invest more in the U.S. is because it's where we make most of our profits and where most of the research has been done. But if you then take away those profits, what's the incentive?" They didn't quite say it like that, and I'm not sure how much should be attributed to Roche on this.

Well, I think the reality is the direct quote was, "Should the proposed executive order go into effect, Roche's ability to fund the significant investments previously announced in the U.S. will be in question."

I guess that was pretty clear.

Guess why?

The timing was not inconsequential. No, no, no. But it's also critical because it's simply saying, "You're going to dwindle my cash flow. How can I do it?"

Yeah.

Right. I mean, there's no magic here, except if they're able to suddenly, over the next 6 months, raise all their prices across Europe. But that's not going to happen. These things take a long, long time.

I'm not convinced that these pledges are going to make a humongous difference in terms of new employment. We've seen numbers that they've suggested over 5 years. They end up being 2,000, 1,000, 3,000, which is great, right? But the topline number looks a lot more interesting at $234 billion than the actual reality. Well, we'll see where that $234 billion ends up in actual dollars because, as has been said by some, including, I think it was the AbbVie CEO, there's been heavy lobbying for some tax relief in exchange for billions of investment. So some of those dollars may make a full circle back to industry.

In addition to helping to push for some concessions on tariffs.

Right. Now, one way that companies can manage their margins if this really hits hard is through productivity gains. One way of gaining productivity across the entire industrial and nonindustrial space is through AI. We've seen the CEO of the Norwegian Wealth Fund turn around and say, "I'm not hiring any more people. We're gaining 20% to 30% efficiencies through AI," which is okay. It's a knowledge-based business, but many factories, if they ever come back to the U.S., will probably be manned, if you want to call it that, by robots. So it's not necessarily that they're going to add employment, but AI is a big one.

Nina, you wanted to pick up on the reckoning for AI drug discovery. That'd be an interesting comment. And, of course, that's 1 sliver of what we're—or what you could—do with AI within the pharmaceutical chain. Do you want to take that up?

Sure. And first, Sam, awesome segue to productivity. Well done. I have to say, to the extent that I said "AI reckoning," I probably should have put a question mark after it, because it was really a reflection of seeing the news of pipeline reorganization at Recursion on their first-quarter call; Insilico seeking to go public again, maybe third time's a charm, on the Hong Kong Stock Exchange to continue to fund their activities; and then C4 doing a 60-person, 22% reduction in force, again for team efficiencies.

The question—and particularly looking under the hood at Recursion—is that there are a lot of talented, great people there, but this pipeline reorganization came pretty quickly, 6 or 7 months after they acquired Exscientia. The discontinuation of 5 drugs includes several internal programs but also several from that merger. The question really is—and they announced a big lean-in to analytics on the clinical-development side to drive productivity in drug development, and not just in target and drug discovery—with $450 million of annual burn and $600 million of cash, is there a bit of an existential moment, if you pardon my pun?

Similarly, Insilico is trying to dip into the public markets shortly after raising another $100 million Series E a couple of months ago, and then there are C4's cuts. I believe there's huge, huge power in the models, also predicated on tremendous integration and access to data and the repetitive, recursive use of the models on the data to generate insights and productivity. But in this market, can you continue to do it at a scale where your burn rate is that high and your organization is that large?

Right. You know, I'm a huge fan of AI. I'm trying to see where we can increase our—literally, the word productivity is perhaps a bit overused, but double my capabilities, let's put it that way—in terms of gathering information, nano-information. The question I have—sorry, Matt, just 1 second; I'll come back to the question I have, which is something you can delve into—is this: Are we—I remember the days of SNPs back in the late '90s. I remember a company called Genset in Europe being the one where they had 100,000 sequences looking for SNPs, and they were going to solve everything.

I'm just wondering to a degree whether we're at such an early stage of this, at the very early parts of drug discovery, of this application of this technology, that that's simply what we're going through, and that in the end it will all be part of the system and everybody will take it for granted. So, Matt, over to you.

Yeah, 2 things. One is, I really liked your segue, but how's this for a different segue? Pharma companies talking about the use of AI is like pharma companies talking about making investments in the U.S.

That is, it's a thing they feel obligated to do.

You're so cynical.

Well, I am to some degree. Look, we have a couple of efforts within Roivant on AI in various aspects of research and discovery. We have a really good model for protein–protein interactions, and I think there's tremendous promise in some of these tools.

I think the sooner we can get away from talking about "AI"—capital A, capital I, in quotes—as a thing, the more likely it is that we'll be able to make productive progress, because right now it is both a buzzword and a set of tools, and I think they kind of get in each other's way.

Another issue.

I agree. John, I wanted to ask you, actually, do you want to add a little bit more to this?

Yeah, no, I do.

Supply chain—what about manufacturing? What goes on there?

I think they're wonderful places to integrate AI into what a company does, whether it's on the discovery side, the clinical-trial side, simulations, the whole nine yards. But it has become a bit of a hype word. I'm also cynical about how people think about it, as if it's a thing itself. There's of course enormous overuse of the word when it's really just computation in some cases, not machine learning.

So I think it's a great tool—a great, great tool—and we ought to be using it and embracing it, and we are, as an industry. It will help productivity; there's no doubt about that. But we're far away from being able to type in a disease of interest and push a button and have a small-molecule structure emerge from the computer that is the cure for that disease.

We’re very far away.

Right? You said it now, so let’s stop talking about it.

I think we’re onto something with this. I think computers are going to make a big impact on supply chain.

What about Excel? I think they’re going to matter.

Excel. Yeah, I think computers are going to be big for supply chain. I think someday every person working at a biotech company is going to have a computer on their desk.

Wow. Okay. I love that.

And it will be plugged into the internet.

Amazing. Enough, enough. Let’s talk about something that has also happened—another potential headwind—and that’s the IRA Part B guidance from CMS. It really hit Halozyme hard. Why don’t you take it?

I’ll take it. The issue here has been that if you formulate an IV drug with hyaluronidase to make it potentially subcutaneous, and it works, you spend quite a lot of time convincing the FDA that it’s actually the same drug as the IV. Then you go to the IRA Part B guidance and say, “Actually, no, it’s not the same drug. We should have an extension on this. Darzalex IV shouldn’t be considered the same as Darzalex subcutaneous.” But you just spent all your time saying that it’s bioequivalent.

One of my questions was always: Is this not an obvious situation that’s going to occur? Of course, that then affected Merck’s share price because they’re working on subcutaneous Keytruda, and Johnson & Johnson’s share price sold off on the back of this. It’s an issue for both of them. Now I’m wondering whether I’ve got this wrong and that is actually a completely new drug, and it should have been considered as a new drug. If anybody disagrees or agrees, we could make a comment and then move on.

Honestly, I think it should be considered the same drug. It’s the same active ingredient at the end of the day, and I think we ought to be honest about that. It’s hard to make the case scientifically that it’s a different drug. It’s formulated differently and presented differently, and it’s got certain features that are good and beneficial, but it really is the same drug. Call a spade a spade.

Well, exactly. But that’s not always the case. I’ve had negative experiences with a very anecdotal development plan where we got pushed back and were told that this was not amenable to a 505(b)(2) and had to go to a full-on randomized trial.

But be that as it may, if it’s going to be treated from a regulatory perspective as bioequivalent and substantially the same, even if it has some intellectual-property advantages that allow it to be more convenient, I think this is where we could use a category of “super-generics.” There should still be some sort of premium to an IV generic for a product that increases convenience, reduces the burden on the system, reduces cost, and potentially, in so doing, increases positive outcomes. But it probably shouldn’t be valued like an NCE.

That’s an excellent point. In a single-payer world, maybe people would take account of the fact that you’re reducing physician time and physician costs, et cetera. But so be it. We’ll find out in 2028 whether Darzalex or Keytruda, whichever one comes first, is hit by this.

5. Biotech Turnarounds Find New Life

Now, we had a few other things going on. Something very interesting happened this week: Galapagos wanted to do something and then changed its mind. John—or Matt—do you want to take us through that?

I’m happy to—

Go ahead.

You go, you go. I like this topic because there’s been so much discussion, including on versions of this show that I’ve been on, about companies trading under cash or cash-trapped companies. I think Galapagos is such an interesting example because we’ve gotten to watch the whole thing play out in a very public and specific way.

The thing that happened this week is that Galapagos had previously been planning to spin the rest of the company into a newco and leave the cell-therapy program under its former CEO, Paul Stoffels, in Galapagos. Either way, they’re now second-guessing that decision and have changed their leadership, bringing in Henry, most recently of Numora, and are pushing forward, trying to figure out what to do.

The thing that I think is interesting about this is that I remember being in a room with the original CEO of Galapagos, Onno van de Stolpe, back in early 2020. He was so excited about the deal they had done with Gilead, rightly so, because it had brought in, I think, around $5 billion in cash. But he was also fiercely committed to the idea of Galapagos as an independent platform company running forever on its own two legs without being gobbled up by some form of behemoth.

With the deal with Gilead, he was finally confident that the company had forever secured Galapagos’s independence. Between the obligations to give Gilead US rights to the programs and the standstills and things like that that stopped Gilead from being an acquirer, the company was assured its independence. I think one thing we can confidently say is that succeeded.

Now, with the business largely no longer existing in that form, it still has all of these obligations that render it complex. I think it’s one of these things where it’s a very beautiful picture of the laws of unintended consequences: We now have this shadow of its former organization, with a whole bunch of cash that could be used productively trapped in an interstitial zone between a public biotech company and a Gilead affiliate. I just found it really interesting to watch from the outside.

Matt, do you think there was anything to do with the announcement of the new head of CBER, who has been very clear about questions around cell therapy and particularly about using surrogate markers, at least in some settings, for approvals?

I don’t read too much into it. It would surprise me a little bit if that were the case. Look, I think the path started when they decided to work on these cell-therapy programs. Stoffels was really excited about them. The public markets have not been friendly to companies of that kind for a while.

I think they got on this path and then realized, “We’re going to fund this thing with $500 million. It’s going to need more than $500 million. We’re just setting this thing up to have a difficult trajectory.” Stoffels left before the CBER change, or maybe right around the same time, but it must have been planned for longer than that.

The company was left a little bit leaderless, with a really tough market reception for a program that I don’t think the Street was particularly excited about for the most part. It can’t help that the stance on cell therapy gets even stricter and, at a minimum, was going to make this company even less popular as an independent public company. I’m sure it was a notionally contributing factor, but I doubt it was the thing in and of itself.

Right, right. This brings us to other turnarounds. One of them was CytomX, which presented some data for an EpCAM-directed ADC with a topoisomerase I payload on it. CX-2051’s market cap currently is $312 million. The stock traded at $0.43 on April 7, so whoever out there was brave enough to buy it at those prices should pat themselves on the back, because the current share price is $2, having touched $2.50 on relatively positive data that came out of this. They immediately raised $100 million on the back of it.

This company had traded below cash for 3 years. I think Galapagos probably beats it; I’m not sure. I haven’t done the comparison. But this Phase 1 data in late-line CRC, according to our analysis, looks pretty good. Frankly, the 3rd-line market is currently worth about $1.1 billion in the US, and there are products out there that are looking very good, but this brings a completely different mode of action.

Of course, this is just CRC. Where else can it work? It does use the CytomX technology, so it’s nice to see companies be able to, in some cases, continue and actually deliver. This is technology that I think a lot of people had given up on.

Sam, I want to concur with that. First of all, kudos to Sean McCarthy, who stuck with it all these years as the CEO and kept with it. It’s wonderful to see the result, and it’s also wonderful to see the market respond to good data. That’s a piece of happiness in the week. There’s no doubt about that.

Heavily pretreated CRC has been such a bear, and we’re not seeing much of anything. I think the other thing that CytomX did a good job of in reporting this—and the waterfall looks really quite nice, with quite a few responders—is that they also helped re-elaborate some evidence-based epidemiology on EpCAM and other solid tumors as well. I think there’s perhaps a little bit of a renaissance for the target, unlike another one we’ll talk about. I suspect you’d need the Probody or masking or something to manage the AEs.

So now we also had an M&A deal for a company that was close to cash or below cash. John, Nina, did you want to talk about BioMarin, which was today or yesterday? I can’t remember.

Yeah, no, it was today, this morning. I don’t know much about the target company, but it was good to see BioMarin out there executing on its business development objectives. James Sabry was brought in by Alexander Hardy a couple of years ago, maybe a year ago, and he’s doing his work. He’s doing his job. He’s going out fighting for assets.

This certainly fits in the BioMarin story, so it was good to see them go out there, be a buyer, and bring some technology and pipeline into the company.

Yeah. Nina or Matt?

I was going to make a remark across both of these situations, which is that, as a public CEO, one of the things you start to feel is a little battered by the markets over time. In particular, I feel like our industry operates at times as if investors as a class are the ultimate tastemakers.

Yet I think if you look at many success stories in the industry, they have stock charts that look like these 2 stock charts. That is, they went through long periods where they were violently out of favor, and then they, in one way or another, proved everyone wrong. I think it’s a good reminder.

Yes.

Yeah.

The other deal that we had, which isn’t quite an acquisition, was GSK buying a drug from Boston Pharmaceuticals. That was $1.2 billion upfront and $800 million in contingent milestones.

The drug is efimosfermin alfa. God, they’re hard drugs. They’re all for MASH and liver issues. There are a couple of companies out there that are comparatively differently valued. 89bio has an enterprise value of $514 million, with a drug in Phase 3, and efimosfermin alfa is in Phase 2. There is Akero, of course, at $2.4 billion now, with another similar drug, efruxifermin, that’s also in Phase 3.

There’s been a lot of discussion on the client calls that I’ve been tuned into about whether this is a good asset or not a good asset. What is interesting about it is that this is the second time that GSK bought an asset, a drug, or a company where the drug was licensed in. The last time, it was a drug that was licensed in about 6 months beforehand from China. This time—and I can’t remember the name of the company—it’s been a while. It was 2020, I think, that this drug came from Novartis.

It’s interesting that it fits in with the MASH franchise that I think GSK is trying to come into, along with that RNA interference drug in Phase 2. We think the profile looks decent. I don’t know if anybody else has had a look at it or has thoughts about this therapeutic area.

I mean, I think it looks decent as well. I think the FGF21 story is going to be an important part of the MASH story. There’s no doubt about that. I also think it’s great that MASH is becoming the new black all of a sudden, after being very disfavored.

Madrigal’s success has illuminated the commercial potential in the space, and now we’re seeing some exciting assets, like the FGF21 story, and some very exciting assets on the RNA interference side, including the program that GSK has called targeting HSD17B13, which is a phenomenal genetic target in MASH.

So, lots of fun there, I think, and lots of movement. Of course, the impact of GLP-1s in the space is also going to be important. It’s going to be fun to see this play out.

Nina?

Nothing to add.

Okay. But I think they might have used some computers to identify that genomic target.

There might have been 1 or 2.

Hooked up to the internet.

That’s right. Yeah.

So, of course, talking about RNA interference, RNAi, and so forth, we had 2 deals this week: 1 with a U.S. company and 1 with a South Korean company. John, if anybody’s got to talk about these things, it’s got to be you.

I guess so. I guess so. Well, there were 2 interesting deals. One, I think, was obviously much bigger: the AbbVie partnership with a private company called ADARx. ADARx is a super-cool company led by a former R&D person from Arrowhead, a female CEO, an awesome leader. They did a deal with AbbVie for $335 million upfront.

This is AbbVie’s first jump into RNAi as well, which is good to see. It’s obviously a multitarget deal, from what I can glean from the press release, across multiple areas. Immunology, oncology, and neurology were the areas noted in the press release, so it’ll be good to see all that play out. It’s obviously a good source of capital for ADARx.

The second deal I know much less about. Rznomics is the name of the company in South Korea. It seems to be around RNA editing, but it’s unclear, I must say, from the press release. It’s in the field of hearing loss, and that’s an area that Eli Lilly, of course, has been really keen on, with some pretty impressive success through its gene therapy efforts.

But this is now a different way of tackling it. A lot of the financial details were masked in that announcement. It’s unclear what the upfront was, for example, and so forth. So, it might be a small deal, but it’s good to see dealmaking happening across the industry, and I’m always happy when it’s happening in the RNA world.

Yeah, I mean, there’s a whole bunch—thank you, John—for that. There’s a whole bunch of other comments and things that we could have talked about, but let me just do a round robin. Nina, anything to add?

Just wishing everyone a great weekend, and continued good fight and delivering good things for patients.

And let’s hope that we don’t have as eventful a Monday as we did this week. Matt, I’m tempted to make some comment about Roivant being a great company, but I’m good.

No, this was a fun conversation. I appreciate it. I’m looking forward to doing it again sometime.

Well, it’s only fun when we have John and Matt and Nina-type folks.