第150期——2025年8月1日

We'll start with the top news. This week, policy and politics are at the forefront. Yesterday, President Trump sent letters to 17 CEOs of pharmaceutical companies, calling on them and all manufacturers to take the following specific actions within 60 days: extend most-favored-nation pricing to Medicaid—that's MFN, which I'm going to call it going forward; guarantee MFN pricing for newly launched drugs across Medicare, Medicaid, and commercial markets; repatriate increased revenues from abroad to lower drug prices in the US; and provide for direct purchasing at MFN pricing through a direct-to-consumer model.

Of note, the letters do not outline any statutory or regulatory authorities that the administration has to enforce these demands, even though they did say they plan to enforce them. Sam and Brian, we'll start with you. Do you want to comment on this?

1. Most Favored Nation Pricing

Sure. I'll have a go, and then Brian will, I'm sure, add a whole bunch of stuff to it. Four elements, Daphne, as you quite clearly highlighted. Number 1, extend MFN to Medicaid. I think that's going to be a relatively easy lift for pharma, because Medicaid prices are some of the lowest, and they should be able to match that.

Number 4, provide direct purchasing at MFN pricing—whatever that price ends up being and whatever formula is used for it. Again, pharma companies have already started doing some of this. By all accounts, they should be able to cut prices by 30%, 40%, or 50% without really hurting their P&L in a direct-to-consumer setting, given the sort of rebates that they give away to insurers.

Let's say there's a mechanism through which that can actually happen and they start doing it. It's the 2 elements in the middle that are a bit of a complication for me. On the one hand, guarantee MFN pricing for newly launched drugs. That's the MFN story that's been going around for a while now: let's get new drugs launched at a good price in the US, which is great.

The good thing here is that it says newly launched drugs, so it sounds like there is at least an acceptance that this can't be done retroactively. All the products that are on the market would stay at the sort of prices they are. The question then is, what happens if somebody comes with a new GLP-1 and launches it at a lower price? What happens to all the other products that are on the market? For example, that's up for discussion.

And then, of course, the bit that I really can't get my head around is, “Return your increased revenues from outside the US to patients in the US and taxpayers.” How are you going to enforce that? What is the point of MFN if you then raise prices and deliver the revenues that the administration is looking for by pushing ex-US prices up? What is the incentive in doing that if you're then going to ask them to send the money back, assuming you could, and assuming you had a legal basis to do that?

All of this put together, I'm still trying to understand. On the one hand, you're trying to tell pharma companies to bring their manufacturing footprint into the US and continue to invest in US R&D. At the same time, you want to hit them with reduced profitability. The argument has always been, “You make most of your money here. Bring your drugs over here, sell them over here, and make them over here.” But at the same time, we don't want to pay for it. That sounds like a not-well-thought-through process.

The last thing I'll say before I pass on to Brian is that the goal is set for September 29. This is getting very close to the next negotiation dates for the IRA. Our Washington analyst, Dwayne Wright, believes that in the end it'll be implemented through the IRA by just pushing harder on the price negotiations.

Yeah, that was a great overview. Sam, I think I was on the Regeneron call today, and Leonard Schleifer, the CEO, was one of the 17 who were written a letter. Trump crossed out their formal title and wrote their first name. I think Trump missed the ultimate power move: actually just putting the wrong names. He should have written Leo, Dan, and Arnold instead of David, Leonard, and Albert.

Look, I think it's funny when Trump laid out MFN maybe a month and a half ago. This has obviously been something coming from even his first administration, and IPI was the prior iteration. Conceptually, I don't think it's a terrible idea. There are huge disparities between what the US pays for drugs and what other relatively wealthy countries pay for drugs. The UK is sort of the prime example of these massive disparities in drug pricing.

Conceptually, I think it's a good idea to try to find more common ground, or at least a GDP-adjusted common ground, between the 2 prices. As Sam highlighted, I think the problem with a lot of the ideas behind the Trump administration that are superficially good is that they're so aggressive and not necessarily well thought out. They create much more chaos than the simple explanation would have.

Regeneron brought up on their call this morning the fact that they don't make the price of Eylea ex-US. They've partnered that out. So they don't really have an ability to do anything other than be forced to pay a much lower Eylea price, because Bayer has no real incentive to raise the ex-US price. There's no equilibrium in terms of profitability there.

If someone controlled worldwide pricing, that's a little bit of a different story. But I think it just kind of signals—and we'll get into this a little more when we talk about the FDA—that there are so many things being tried. Maybe a lot of it is in an effort to find better negotiation, but if any of these are implemented en masse, it's going to create so many disturbances across the sector. I think that chaos is really what I worry about the most.

Definitely. I would just add that I think we've not been able to find a legal framework through which this could be easily implemented. If the administration decides to go full combat zone on this, then I suspect that HHS will bring all its power to resist it from a legal perspective. We have a whole bunch of legal brains in our group who tell me that.

The other element, of course, is that we've just been hearing from these pharma executives how wonderful and productive their conversations with HHS have been with regard to direct-to-consumer, and then they wake up and get this letter. I don't know if the right hand is aware of what the left hand's doing, or whether this is just something we're going to have to get used to and cope with, but we don't see the risks of this that easily, except for a couple of things that we talked about: the IRA and direct-to-consumer.

Well, there's bipartisan support for drug reform and meaningful drug reform. If the industry, or those companies that were called out, want to dig in their heels and fight back, I think that was kind of the point Trump was making in the letter: play ball with us, because if you don't play ball with us, it's potentially going to be much uglier for the sector.

Then, of course, in the background, you have China emerging as a low-cost provider of innovation. If you're going to try to force countries around the world to pay a higher price, you're going to have to figure out how to make sure that they're not going to get a better price out of comparable therapies coming from China.

I think the industry is somewhat lucky that China isn't at the stage yet where it's ready to step in as that across-the-board, low-cost provider of pharmaceuticals. But China is changing by the minute in terms of its competitiveness, so we'll have to see where this all goes.

Yeah, China—we're going to come back to China in a little bit. Paul, go ahead. Sorry.

I was just going to say, I think in the backdrop of this, the investment community is still massively discounting this becoming a reality. When I look at certain stocks I cover that have big ex-US price discrepancies, and what this could actually mean for them—companies like Vertex or Neurocrine, which doesn't have a big ex-US presence, but Ingrezza is sold in Japan—this could be super meaningful.

I still feel like most investors are looking at how tariffs played out. The first offer was something that decimated the stock market and was seen as extremely recessionary, and then how it ultimately played out over time was considerably more benign. I think that is at least where the reality is as it relates to how the sector is trading on this, and we'll see if that ends up being right or wrong.

But you saw this letter come out yesterday, and the market was under pressure, but it wasn't at all like Day 1—the Liberation Day trading that we saw.

Keep in mind, though, the nuance that companies are expected to submit their pricing data overseas to the U.S. government. So, when you have one company selling a drug in the U.S. and a very different company selling the same drug outside the U.S., it may be difficult to get that other company to disclose their prices. So there may be some nuances that would pertain, perhaps, to a Neurocrine in contrast.

There’s so much we don’t know that we need to better understand if and how this is going to play out. But I don’t think many are, at this point, arguing that this is a good thing. Although the offset here is, if you can get higher prices ex-U.S. and reasonably protect your U.S. prices, then there’s a plausible—perhaps not likely, but plausible—scenario that some companies can come out of this ahead.

Yeah. Josh, if this is applied—if there’s some sort of negotiation at the end of the day, and this is applied to new launches, and there aren’t that many existing drugs getting hit hard—I mean, you could argue that that’s bullish for certain drug areas.

I think that, directionally—just one second—I think directionally it’s where the administration is going, but my sense is that it’s not written in stone. And so, the investor perspective of, “Let’s wait and see how it actually plays out,” is probably correct.

I spent some time in D.C. with advisers to the administration, as well as Dr. Oz. I’m happy to comment on that in a minute, but go ahead, Sam.

Can I postulate a possible future? Let’s say the agreement is in place that new drugs will launch at the most-favored-nation price. However, we all know that new drugs almost always launch first in the U.S. So I’ll postulate this, and Josh, you guys can shoot it down or modify it or say it’s not possible.

I’ve just got a new drug. I’m bringing it to the U.S. market. The price that we would use in our models would be the average of what we think the drug should get relative to the other drugs that are on the market in the U.S., plus a premium because it extends survival by 500 years. Therefore, instead of $300,000, now, in this new world, I’ve got a new launch. I’m going to price it at $600,000, say, right?

And then wait 2 years, which is about the sort of time it usually takes to get the European launches going, and then launch over there, maybe at a slight premium, and then bring it down to a premium to what the history would have been. Then, in the first 2 years, I’ve baked enough in there to make up the difference for the next 3 or 4 years. Does that make any sense to anyone?

Like the practice in Germany, right?

I think what you see now with high-priced drugs in the price band that you’re talking about is something like Vyvgart, right? The price is actually basically the same in Europe as it is here, and roughly they’ve just given up on European access. I mean, when you look at argenx’s sales, such a huge percentage of that is coming from the U.S. I think when you’re talking about that price band, that’s what most companies will do.

I think the tough questions here are for the GLP-1 manufacturers and things like that, where it’s a more complicated situation. The one thing I’d say—I don’t have a lot to add to this conversation, to be honest—is that I think this whole thing I hear a lot, “We don’t know what legal framework the administration could use to accomplish this,” represents a fundamental lack of creativity and imagination relative to what the administration has done to higher education, or what they’ve done in the tariff sphere or in other places.

I think if the administration got really serious about this, they would absolutely be able to find tools to make life unpleasant, including via the regulatory agencies, via the FDA and HHS and other places. I think there are a lot of tools the administration has, if they really decide they care about this, to put real pressure.

What’s interesting, and Matt, even in your comments, is that we kind of focus on Europe when we think about most-favored-nation. We don’t think about China, despite Chinese prices being a fraction of European prices. It’s an interesting dynamic. I think we’d all definitely love to hear what you heard in Washington, though.

That’s true. CAR-T is much cheaper in China than it is in Europe. That’s absolutely true.

Yeah. So, what I heard in general was that the administration is actually looking to collaborate with industry. They want proposals from industry. They are going directionally in this path, but they are open to ideas, and they’re also open to hearing what’s flawed about their proposals. I found that to be very reassuring.

In terms of Oz, who will be involved in the implementation of this, I had a chance to meet with him and hear from him a little bit. Some of the themes that he was commenting on were that CMS really wants to work with industry in a collaborative way, and CMS is really targeting fraud, waste, and, in particular, middleman inefficiencies—PBMs, 340B misuse—while ensuring that vulnerable populations access innovative therapies.

By the way, one of the ways of enabling MFN would be to eliminate the middleman in the U.S., because that doesn’t exist—that whole framework doesn’t exist—in Europe for ex-U.S. CMS is committed to sustaining early-stage biotech—not just CMS, but everybody I met in Washington—and CMS in particular through reimbursement clarity and regulatory support. They really want to hear from innovators.

Another theme that I heard from everybody I met was a major concern around China, China’s IP theft, and its threat to U.S. biotech leadership. So this is a big theme for the administration, and I think that this is kind of the bullish piece of it. But we can come back to China. Actually, maybe we’ll go to China now and then come back to Prasad afterward.

In terms of China, there were some deals, but I think the key thing on China is that it now accounts for 30% of global clinical-trial starts. It’s nearly matching the U.S. share, which is 35%. In 2023, China’s drug assets represented 24% of the entire global biopharma pipeline, and that’s up from just 2% a decade earlier.

Most concerning is Chinese companies copying IP and then moving to fast-track development. So they’re basically able to read about something either in a patent filing or in a publication and then move much faster. They can get multiple companies working and, with the regulatory framework, obviously surpass their U.S. counterparts. And that’s coupled with pharma companies then going and doing big deals in China with cheap me-too programs.

As I said, I spent some time in D.C. also talking to economic advisers to the administration and proposed some ideas. I think these are really early, but they seem to be open to them. One concept would be introducing regulatory, reimbursement, and funding-related penalties to protect U.S. intellectual property. Another general theme was around incentives for M&A that only apply to U.S.-based biotechs—for example, amending the Internal Revenue Code to allow U.S.-based biotech companies to retain their NOLs following dilutive financings and M&A transactions, which would make those companies much more attractive.

Those are some ideas. I know we’re going to come back to the China deal, but anybody want to comment on that before we go to Prasad, which was the other big news of the week?

This is Brad’s favorite topic. Come on, Brad. What do you think of those proposals?

On MFN or on the China stuff?

No, on the China stuff—the ones that Daphne just spoke about.

2. China Challenges Biotech Leadership

I think the tax thing should definitely happen. I’m in the minority. I think that something politically big is going to happen with China over the next 2 or 3 years.

I don’t like the GSK thing and all of the deals that are happening. I don’t fault anybody for doing those deals. Everybody’s acting in their own self-interest. But the thing that you have to take a step back and look at is that our industry’s relationship with China is the exact opposite of every other industry.

Every other industry is outsourcing the stuff that doesn’t matter—the cheap manufacturing. I always use this analogy: It’s that iconic slogan on every Apple product, “Designed by Apple in California.” Nobody cares that iPhones are being made in China because that’s not the valuable part of the equation of what Apple is doing. The valuable part is inventing new technologies.

Our industry is doing the exact opposite. We are outsourcing the innovation part. The GSK drugs—if they had that label, it would say, “Designed by Hengrui in China.” And if you’re GSK, you’re doing what’s in your best interest because they can do R&D. They can get to a Phase 1 proof of concept on those drugs literally years faster than they could if they did their own R&D. So I don’t fault them for doing what’s in their best interest.

But if you’re a politician—and most politicians think our industry is too technical and don’t understand it yet—another thing to keep in mind is that the semiconductor industry has gone through this, and it took politicians years to understand the semiconductor industry. We’re next, and we’re even more technical than that. So it’s going to take them a little longer to understand our industry.

But when politicians—whose job is to think about the long-term competitiveness of the United States—look at GSK, I mean, obviously, it’s an Anglo-Swedish company, but their job is not to think about the long-term competitiveness of the United States or what could happen geopolitically further down the road.

That is the job of a politician. So, when politicians start to understand that we're outsourcing the innovation part and the science part of what we do, they're going to freak out, and they're going to make changes that make it a lot more difficult to do business with China, just like has happened with the semiconductor industry.

I'm in the minority on that opinion, but I do think it's inevitable that something like that happens unless our relationship with China somehow magically gets better. I think the odds of that are practically zero. So, I think something big is going to happen on this over the next 2 or 3 years.

Yeah. I don't think you're in the minority, Brad. I think you're spot-on, and I think it might happen sooner. Can I say, I think this is a conversation that I hear all the time, and I agree with you on a lot of things about China, but I think, again, all of this discourse that says, “Oh, we're outsourcing the innovative part to China,” is missing a transformation that's happening in front of our noses.

This is not the innovative part anymore. Generating 50 CD19 T-cell engagers, each one a novel molecule, and generating Phase 1 data for 50 T-cell engagers, each one a novel molecule—it just turns out that's a commodity good now. We built an industry in the United States that was designed to think of that as the innovative thing, and it's not anymore. I feel like that's an adjustment we're all going to have to make, because even if you figured out how to block it from happening between the United States and China, it turns out there will be other options. It's just not that hard to generate a new T-cell engager now, so people are going to be able to do it. I do feel like that's a change we need to start reacting to as an industry.

I agree with that.

But what you're describing is what's going on today. What they're doing right now is not super-innovative new inventions. By the way, another thing that's important to know about all of this is that China is actually on thinner ice than we are, because we talk about China's biotech sector as if it's unstoppable and inevitable. They're on thinner ice than we are because they are 100% reliant on succeeding in the United States to even have a biotech sector.

One of the biggest disappointments of the last 6 or 7 years is how China's pharmaceutical innovation, and what they pay for drugs, has never materialized. We talk about them as if they're unstoppable, but they're not. They're on really thin ice if we make major changes here.

The thing I would disagree with, Matt, is that we're basically funding their knowledge. At the same time, we've stopped funding our startups that are working on discovery and early-stage science. That 30% of deals going to Chinese companies means it's not going to U.S. companies. There are companies that don't exist today that would have existed under our traditional way of doing this.

The challenge is that if we keep funding these Chinese companies' growth—if we're paying for their college tuition, so to speak—there will absolutely be, in a couple of years, if not sooner, a new phase where we have funded their knowledge to the point that they're innovating on everything. Given the way the regulatory structure is today and their costs, you can have 5 people there for every 1 here. It's simple math based on what salaries cost.

It's the same with manufacturing. Everything—I always say that when it comes to China, everything we have here, they could have 5 there for the same cost. It's going to be really hard to regulate this by just making FDA rules looser and saying, “We'll be able to compete hand in hand with them.” I don't think so.

Anyway, we could talk for hours about this. I'm going to stop, but this will go to a new phase where they're out-innovating on things that are truly new, and we do not have the ability to keep up because things are so much cheaper and quicker there that it's impossible to change the regulatory structure here to level that playing field. Exactly. Yeah.

Do you have one more second on this or not?

If it's something new, go ahead.

Let me see. Can I provoke and say, replace—cross out China, just as President Trump did on his letters—

—and put Europe? If this was Europe, which I would love it to be, but it's not—

What would we have, the same constraints? Would we have the same issue?

Yeah. I think the biggest issue is around theft of intellectual property, and if there were a way to tie that to, for example, regulatory or reimbursement or other aspects, I think that would be a good deterrent. I don't think that's as big an issue in Europe, and I also don't think they're doing what China is doing in terms of speed.

But let's move on, because we have a lot of topics to cover. One of the other big news items of the week, of course, was Vinay Prasad, FDA CBER director, stepping down after some controversial decisions, including reportedly overruling his reviewers 6 times in about that many weeks. He was only 3 months into the position, which translates into around 8 Scaramuccis for those who follow that. All eyes are on who will replace him at CBER, with rumors of a potential restructuring at the FDA to spin out the vaccines division and combine CBER and CDER.

Skorney, you predicted Prasad leaving, so let's start with you.

Yeah. I certainly felt that the actions he took and the response, particularly on the MAGA side of things and the MAHA side of things, was particularly aggressive. A lot of us have been following Vinay for the last decade. He is a person who rocks the boat. Whether you agree or disagree with him, he is loud and pretty forceful with his views.

I just think he tried to do too much too quickly and rocked the boat too much. Ultimately, that drew the eye of the MAHA crowd and, according to reporting, maybe Trump himself. He is gone, and I think it has a lot to do with him coming in and taking aggressive tactics on a number of applications.

Most notably, it's probably his response to the Sarepta controversy, with 2 DMD deaths on Elevidys, a third LGMD death with a related product, and another DMD death on Elevidys—not from the same liver toxicity, but from potentially related immunosuppression and a resulting infection that resulted in a patient's death.

I think it's a very positive development for stocks. Given the concerns that industry had over him, particularly holding programs to a much higher bar than we're used to from Peter Marks, but arguably a bar that we'd never really seen before in the industry at the FDA, his removal has been viewed by investors as a net, at least near-term, positive for stocks.

A lot of these companies with small or more ambiguous data sets, but in indications that are very tough to develop drugs in, might be given more leniency under an FDA that doesn't have him running CBER and serving as CMO and CSO.

So, was he too lenient with how he handled Sarepta, or was he not lenient enough because of how he handled Sarepta and a bunch of other applications?

I think it had to do a lot with the inconsistency with his review team. The idea of overruling your team, and also inconsistency with previous guidance—I think that was one angle. The other was political. And actually, I'd love to come to Matt. You mentioned that Doug Ingram has a history of fighting the FDA on things and winning. I'm not sure how much Sarepta was behind any of this, including the political pushback.

Yeah. Obviously, I'm not either. Doug at Allergan was heavily involved in the Botox marketing lawsuits. Obviously, he was involved at Sarepta when Elevidys was first approved and in mobilizing the patient groups.

My honest view is that it would be a little bit surprising if you had a coordinated campaign from Laura Loomer, the Wall Street Journal op-ed page, and all the patient advocates and everything else, and it turned out that Sarepta had nothing to do with it. Especially given his history, my view from the outside is—I'm not a conspiracy theorist—but it seems like there's something there, right?

Can I just say, man, not to diminish Doug's role in regulatory success, but I would also note that Sarepta has managed this enormous regulatory success through 3 different CEOs. It's too bad Chris isn't on today because he's one of them, but Ed Kaye and Doug are the other two.

I just wonder: Is it the person in that seat who is responsible for this, or is it someone else? Because I would argue that it's more likely organizations like MDA, PPMD, Cure Duchenne, and a lot of us could probably even call out specific mothers who have had direct influence on ultimate decision-makers within the FDA around DMD drug approvals.

And it sounds like that may even be the case to some extent, based on some of the reporting in this case as well around the reintroduction and even Vinay’s ouster. So, I think it’s a signal, and this goes for advocacy groups at large, but the DMD advocacy groups are extraordinarily powerful.

I agree.

Between Peter Marks now and Vinay Prasad, who even wants that job?

Yeah, it’s a great point.

George does, maybe. [laughter]

Right?

And I think what I continue to hear from colleagues is still generally positive sentiment about Commissioner Makary. So, the 5th FDA listening session, with about 60 industry CEOs and senior executives, took place in New York right after Prasad left, and George Tidmarsh, the new CDER director, had joined him at that one.

What Makary talked about was in line with previous sessions: streamlining FDA operations, eliminating redundancies, reducing duplicate testing, and regulatory flexibility. He kept talking about that, enhancing postmarket surveillance through centralized adverse-event databases, incentivizing U.S. manufacturing via a Gold Card, rejecting certain foreign—e.g., Chinese—data, emphasizing rare-disease placebo trials, and more timely agency responses. So, Matt, you were at this one. What did you take away from it?

Yeah, overall it was a benign, helpful, favorable session. I think, to your point about the administration generally, he came across as open-minded. I think he came across as genuinely interested in figuring out ways to make the agency more effective. If a third of what he said came to pass, it would be all good for the biotech industry, and I think he came across as serious in the attempt.

The 2 things that were notable: Prasad had departed the night before, and the name Prasad was not mentioned once in the 3-hour session, which I thought was notable. It was an interesting experience sitting in that room with about 100 people in total, and it just never came up.

The other thing that was interesting is that there was a specific discussion around CDER and CBER alignment. I think he made it pretty clear that something he thinks is useful is getting CDER and CBER much more closely aligned with one another. He had George sitting right there. George had obviously been appointed interim head of CBER in addition to his role as CDER director, immediately prior to the session.

I thought that was also an interesting note, especially in light of what had happened. Whatever the expression is—lemonade from lemons—it almost made the sequence seem intentional as part of bringing the 2 centers closer together.

3. Policy Pressure Hits Biotech

All right. So, we have a few more policy-related things. Sam, quickly on tariffs, and then we’ll go to Josh on other drama around RFK.

Yes. So, tariffs: August 1 came at midnight last night. We had the 15% tariff handed out to many countries, including countries that had done deals. The European Union is at about 15%.

At the beginning of it, last week, there was obviously a bit of a to-and-fro between different groups as to whether pharmaceuticals were included or not. I think the final bottom line was that pharmaceuticals were included. Then, overnight, we had the 35% tariff—I can never remember what the exact number is, because I’ve also seen 37% mentioned somewhere—for Switzerland, which of course impacts Roche and Novartis.

There was a question as to whether that includes pharmaceuticals or not. Semiconductors don’t really matter so much to Switzerland, but pharmaceuticals clearly do. My understanding is that pharmaceuticals are included, but of course, whoever wants to correct us online, follow up the conversation and do it.

Then, of course, you’ve got everything else that’s going on. All that’s in place, but it doesn’t hit until next week, so there’s still time for these to be corrected. We’ll see how that pans out. That’s where we are with tariffs. As regards overall pharmaceuticals, I don’t think there was another element to tariffs to cover, was there?

No. I think an important practical consideration is that most U.S. small- to mid-size biotech companies don’t have the capital or capability to move their manufacturing, and many rely on CDMOs. So, until there’s sufficient and affordable U.S. capacity at CDMOs, it’s going to be tough for smaller companies to comply. But 15% is not unmanageable.

Manageable, yeah. It’s manageable.

So, Josh, you wanted to talk about other RFK drama.

Yeah. Look, there’s something in the news nearly every week. A couple of news items: one, he wants to restructure the U.S. Preventive Services Task Force, which makes recommendations for medical screening, apparently viewing them as too woke. Admittedly, they are quite woke. I don’t know what “too woke” means.

He wants it to have fewer doctors and nurses and more dietitians and therapists. Hopefully, that will be smoother than what he’s done to the ACIP panel, which is still very contentious.

The other interesting move that he’s come out with, not surprisingly, is overhauling the vaccine injury program and wanting vaccine-injury victims to be compensated “quickly and fairly,” which is obviously going to mean a lot of litigation for his litigation friends. I think it’s going to be very difficult, though, to prove vaccine injury.

It’ll be very interesting to see if this whole “Do vaccines cause autism?” question makes its way into the discussion. It’s not much of a debate. I think most everyone who understands the literature doesn’t view it that way, but it’s that fringe view that vaccines are associated with autism. Imagine it making its way into Supreme Court litigation around vaccine injury. Lots more to come out of HHS.

Yeah. And a few weeks ago, you guys talked a lot about some of these panels, and I think there’s definitely some concern around the experts they’re choosing there. There was also some news yesterday that the Senate Appropriations Committee rejected the administration’s proposed funding cut to the NIH, advancing a measure that would increase the budget by about $400 million. I didn’t have much time to dig into that, but it seems to be good news for the biotech ecosystem if it plays out.

4. Biotech Deal Structures Evolve

So, let’s move to some deals. Matt, you wanted to talk about the GSK–Hengrui deal, and then Josh and Matt will talk about the BMS–Bain spinco.

Yeah. On GSK–Hengrui, I don’t have much to say beyond the conversation we already had on China before.

Yeah. So, we can move on. Let’s go to the BMS–Bain spinco.

Look, this is a deal structure that my company, Roivant, has a lot of familiarity with. It’s what we did with Pfizer with Telavant and Priovant. The thing that I thought was interesting about it—other than I think TLR7/8 is a promising class—is that it’s a little bit interesting to see it go into this sort of structure.

Obviously, lupus is an increasingly crowded indication. The deal that was done, I think people followed along, but Bristol did a deal with Bain where they took a collection of assets—the lead among them is a Phase 3 TLR7/8 program, mostly in SLE—and put it into a spinco. Bristol kept about 20% of it, Bain presumably owns the rest, and made a $300 million financing commitment along with royalty obligations back to Bristol.

Look, I think this continues to underscore that, even as Bristol has had a pretty good run relative to where they were, these companies are recovering and figuring things out, but they have a lot of P&L pressure. They need to work on their portfolios, and they need to make tough decisions.

Obviously, I think it’s good for all of us and good for the industry if those tough decisions involve creative partnership structures that allow those programs to continue to be developed. I was happy to see it, and I expect we’ll see more and more similar things happening from them and from others in the future.

Yeah. And Bain did the Sarevile one, and that was very successful. They’ve been very successful in that.

Daphne. Yeah, go ahead.

Just a couple of things on GSK–Hengrui. Just a couple. In terms of size, it was the 3rd-largest deal ever in terms of buyer dollars. The biggest one was Daiichi Sankyo–Merck, at $22 billion; Recursion and Roche was $12 billion, which was 40 targets, et cetera.

I think there’s 1 point we need to bring out here, and that is that GSK has basically bought a whole bunch of options. What it highlights is that they’ve taken the right to products that Hengrui takes through Phase 1, and at that point they make a decision. The exact point that we just talked about was that they can do these Phase 1 studies and that early-stage development much faster and much cheaper than we currently can. That’s what we need to fix.

What GSK is getting is good human data, including non-Chinese patients, for a fraction of the cost in the end. Of course, Hengrui is making a profit on that, and GSK gets the option to take the program at that point. That’s what I think is attracting people there.

It’s also unfair to say there’s no innovation. I mean, one very specific example: where did that come from?

Let me just address that point.

Yeah. Let me just very quickly agree with you and say, think of this deal this way: it really shines a light on what a structural problem this is.

Hengrui is not an—GSK has been inventing new medicines for literally over 100 years. Hengrui has been doing that for 4 years. So, the fact that GSK, which has been at the forefront of science for literally over a century, is saying, “We need to outsource our science to these guys because it’s just so much faster and better,” really goes to show what a structural problem this is.

If you had asked me 4 or 5 years ago to rank the 50 Chinese biotech companies in terms of the impressiveness of their work, I would have put Hengrui in the bottom 5 or 10. It’s traditionally a generic drugmaker. I think this is a great example of how, eventually, people are going to pick up on this. It’s a glaring example of what the issue at stake is here.

Yeah, it’s a great point. So, Paul, I want to hear a little bit from you. Talk about the AbbVie–Gilgamesh $1 billion deal rumors. I’m not sure if there’s any news on that today. And then also, some good launches in biotech and whether shorting the launch is a dead thesis.

Sure. I think the AbbVie–Gilgamesh rumors reported by Bloomberg are interesting because, if this happens, it reflects another mainstream player—in the case of AbbVie here and J&J over there—going all in on psychedelics.

Taking a step back, psychedelics emerged on the public-market scene maybe 6 or 7 years ago. They had very niche interest from investors, and I think there were some really significant commercial questions around the scalability of the model with these drugs. But J&J has seemingly validated that to a degree with Spravato, which looks like it’s on its way to being a $2 billion-plus drug in not that long.

Spravato is certainly a nice product. It’s given every other week, and even with that cumbersome dosing paradigm, utilization is growing really fast. So, AbbVie doing the deal for Gilgamesh, which is a mid-stage player with some data—we’ll see how the data ultimately plays out over time and what their differentiation is—but it’s validating for the space. That’s true for companies like Compass, GH Research, and MindMed.

It’s a space we’re following closely, and all of these programs have their own idiosyncrasies, their own questions around safety, and their own questions around scalability in the real world. But I think Josh mentioned this over email: Compass now has a Phase 3 study in the bag, and they’re looking to meet with the FDA soon to see if there’s even a path to filing sooner than they expected.

There are a lot of moving parts here, but ultimately it feels like there’s broad support politically and in the medical community for these drugs. I think the Compass situation is going to be super interesting because the psychiatry division is notoriously—I don’t want to say conservative, but pretty by the book—in terms of what they expect from companies.

Compass having a Phase 2 study and a Phase 3 study, but not completing the second Phase 3, would traditionally be a nonstarter from a filing perspective. But if that’s ever going to change, it could be now, in this kind of environment for psychedelics. I don’t know if anyone wants to add anything.

Keep going. Let’s talk about launches in biotech: Alnylam, argenx, and Neurocrine.

5. Biotech Launches Beat Expectations

Sure. Our team was looking back at some of our older models from companies I’ve covered for a decade or longer and looking at what the spend was in the early days of a launch back then versus now. I think we’re seeing this theme where small- to midsize companies are much more well-resourced and much more sophisticated when they launch drugs. It also feels like they’re more sophisticated at managing down expectations.

I thought this week was interesting. It looks like the second quarter was pretty good broadly from an industry perspective, but you saw Alnylam report blowout numbers even against a backdrop of super-high expectations for vutrisiran in TTR cardiomyopathy. You’ve seen Neurocrine, with its drug Crenessity in CAH, get over 1,000 patients close to starting therapy. Just a year or 2 ago, I think most people thought that was going to be a fairly small product.

Then there’s Verona and Madrigal. The list sort of goes on here. I think there are still a lot of impediments to getting generalists into the sector, but shorting the launch was the cliché, and it feels like now that’s become a lot more dangerous for people.

I would even say that, in my covered universe, the commercial stories are more and more in favor of these companies versus how they’ve been historically. I feel like the better way to play biotech was to do clinical development stories and dream the dream, but once a company launches a drug, the financial reality gets more complicated and challenging to grapple with. This year, we’ve really been seeing the opposite.

And Josh, you cover BridgeBio as well. I saw Neil last week. That’s another example, I think.

Yeah, we’re in a different era now. It’s an exciting era. I think investors have broadly taken note of it as well. For me, what’s an interesting theme is looking at some of these companies that are having good product launches and then thinking about what comes next, and looking at some of the pipeline programs that aren’t really getting a lot of value recognition.

How much of this is due to analysts also thinking, “We’ve learned from shorting the launch, so let’s be conservative,” and management being more conservative with guidance? Any of that? Or how much does it come from drug prices being 3 times higher than they used to be, so everything gets multiplied by 3?

Sam, to your point, it’s multifactorial, and there have been a lot of adjustments and learnings along the way. I don’t think it’s all just expectation-setting. Part of it is that operational execution has changed.

Brian, and then we have Brad, Paul, and Sam on Alzheimer’s news. We have Biogen earnings, some blood-based biomarker developments, and Lilly’s amyloid-prevention study. Why don’t we start with Brian?

6. Alzheimer’s Drugs Face Slow Growth

Talking about shorting the launches, when do expectations actually start outperforming? I thought Biogen was interesting this quarter. It was really maybe the first quarter I remember where Leqembi actually outpaced expectations. It wasn’t a massive outperformance. It was a big outperformance if you included a 1-time build in China, but even if you unwind that 1-time build in China, it still outpaced expectations on the revenue side.

What I thought was more interesting was the commentary, and I think this goes across the class. It has been a huge disappointment relative to where expectations were maybe 5 years ago for something like Aduhelm. I do think a lot of the controversy around the Aduhelm approval has weighed on the next anti-amyloid therapies that have been approved.

There are certainly a lot of hurdles to getting patients on therapy. One of the biggest hurdles has been getting patients diagnosed and getting a positive PET confirmation of amyloid presence. One thing that has been really interesting is the emergence of blood-based biomarkers that are looking to correlate with amyloid on PET. They’re getting better and better.

We’ve seen a lot of usage of blood-based biomarkers to go through a decision tree as to whether a patient with mild cognitive impairment should go on for a PET or not, sort of excluding that need. One of the comments that Biogen had was that they’ve seen the use of blood-based biomarkers increase 3-fold over the last year.

I think that’s an interesting consideration. I know Sam has some commentary from Roche’s presentations as well, but we’re really starting to see the emergence of these much easier tests, which ultimately may wind up being the primary mode of diagnosing Alzheimer’s and getting around PET altogether.

There’s not really much to add. That was a preclinical story that came through, and Roche is still sticking its colors to the mast with regard to trontinemab, the Brainshuttle, and so on. I agree with Brian that it’s been interesting to watch this.

These were a cluster of drugs that, in the end, didn’t really pass muster with regard to the clinical data I’ve been seeing. I think there’s quite a lot of that playing out. But Roche’s progress quickly into much earlier-stage Alzheimer’s is quite telling, and let’s not forget that it’s also a company that knows all about diagnostics. I’m hoping that is a good signal going forward.

I’ll just add that, at this point, in the absence of any more clinical data, it feels like this could be a slow grind. Who knows? Maybe Leqembi ends up becoming a couple-billion-dollar drug someday. But when we talk to different neurologist practices, I still think the growth here is fairly linear. It’s because of diagnosis, but it’s also because of capacity.

Biogen has said over and over that one of the rate-limiting features of this launch has been getting people to see a neurologist, which is conceptually wild. The interesting readout we’re likely going to get sometime in the next year, and maybe sooner if we get a positive interim analysis, is from Lilly’s AHEAD study, which people are calling an Alzheimer’s-prevention trial.

The truth is a little more equivocal because these patients are at that early, tipping-point, presymptomatic stage. But if that study works, I think there’s an argument that, for patients who don’t actually yet have Alzheimer’s, the level of motivation for seeking a treatment to prevent it might be somewhat different from that of someone who is already somewhat symptomatic and is being told that the drug is not going to make them any better.

And that patient psychology question really centers around the debate on this study: Is this study actually going to increase the use of these drugs? Could it transform them? Could it just have a marginal impact? I guess, Brian, the one issue we still have with that study—and even with these blood-based biomarkers, when we think about scaling this to a broader population—is that, if you look at the Lilly trial, the screen-failure rate is still around 85% to 90%.

That shows that even people seeking out this study who think they could be candidates are not, the vast majority of the time. I just wonder if that's really going to be viable in the real world. How are we going to implement these tests? Where are they going to be? Are they really going to be in primary care?

And if it all still comes down to referral to a neurologist because of the ARIA monitoring and things like that, maybe data from that study could double the size of this class, but I'm just not sure if it could 5x it in the way that some investors are starting to talk about—albeit, I think Biogen is still a pretty out-of-favor stock right now. Yeah. So, Galapagos, what's happening over there? I know Henry was originally going to run the SpinCo, and now he's running the parent. Matt, you've been following this story.

I have actually talked about it on here before, and I just think it's again one of these examples of the long-term laws of unintended consequences, where you've got a story that had a very specific meaning under its prior incarnation. Then, when Ono left and filgotinib and the other sort of original compounds kind of blew up, you wound up with this no-man's-land.

Now they've been going through a series of iterations to try to reboot the story. The thing that happened last week is there was a further modest renegotiation of the Gilead pact and some team changes there to try, I think, to clean things up and maybe make it easier to sell the cell-therapy company that was originally going to be spun out and is not going to be spun out.

My take on this from the outside remains what it has been, which is that there's an awful lot of capital there. There are some smart people around the story as investors and so on, but until the economic arrangement and framework with Gilead is truly sorted out, you have a box of cash that has some really complicated encumbrances on it. I think it's going to continue to flap in the breeze a little bit until some of that stuff gets settled.

Now, Galapagos has a lot of say in the matter because I think most of the complicated entanglements with Gilead have sunsets in the next few years. I think we'll see that play out over time.

Great. Well, we're almost at time, so let's go around. Usually, we start the show talking about biotech sentiment, capital markets, et cetera. Let's end the show talking about that. We'll start with Brad.

I would just say I feel like we've all been in a bad mood for a long time, and I would say that if you take a step back, things are going really well lately. How many clinical-trial results have there been over the last 3 or 4 weeks? You're seeing companies literally quadruple or quintuple, and we were talking about Alnylam earlier. They crossed the $50 billion market cap; that's a major achievement for our industry and just goes to show that, if you have really great science, it doesn't happen overnight, but you can build something that's really big and impressive.

How about Madrigal already being in a position to be buying stuff? Their launch is going so well. I think we're getting caught up on a lot of the cleanup from the COVID bubble—the stuff that shouldn't exist—and a lot of that's weighing down the XBI. But especially lately, over the last few months, it feels like the news flow has been pretty good. I would say we should be pretty optimistic lately.

Yeah, Josh.

Still a lot of risk out there. The one thing I'd say is that, at least from the investment perspective, you can't rely on the same investment practice or approach irrespective of the broader context, whether it's macroeconomic, regulatory, or China innovation.

I think that's kind of the fun of what we do: We're always trying to figure out what the right investment strategy is in the moment. The moment today is different from the moment at the beginning of this year and last year, and it'll continue to evolve.

Well, the 3 of you have been consistently, I think, more—not pessimistic, but less optimistic—than most. So I find your comments to be really reassuring. Let's go to Paul, Sam, and then Matt; you can close out the room.

Yeah, not much to add. It feels like the risk-on piece is definitely emerging, right? We're seeing more financings; stocks have been trading better on data. Not much to add, but outside of this lingering MFN issue, it feels like the market's in a much healthier place for the sector.

Okay, Sam, and then Matt's going to close it out.

Yeah, I love hearing this because, at heart, I'm a biotech analyst. But we did have the opposite story this week in pharma land, with Novo cutting its sales growth for the year by half, from 14% down to 7%. That's a launch that's not going as well, but that's because their lunch is being eaten by compounders and competition from a very good drug from Lilly.

Pharma land hasn't been as great this week, but in biotech, I'm really excited. And when Josh is happy, I get happy, so I'm waiting to see.

Yeah, thanks. A lot of smart people have gotten to go before me, so I don't have a ton new to say. I think getting away from some of the political turbulence and whatever else actually feels bizarrely short-term to me, even though maybe it shouldn't. It's been so whiplashy.

I think there are just some really exciting fundamental changes happening. Biotech companies are launching products well because the M&A climate has changed, so they haven't been bought as clinical-stage companies. I think that's a great development. People are finding actual business models.

I think it's going to turn out eventually that, however the China dynamics play out, new parts of the industry are going to be commoditized, and it's going to lead to interesting developments in other parts of the industry. I'm excited to see that play out, and I think so much of what we're watching is the early or middle stages of some of that transformation. It's complicated, but it's fun to be part of.

Yeah. Well, thanks all for your great comments today, and I hope you have a nice weekend.