第152期—2025年8月15日

You're listening to Biotech Hangout, a live and unedited weekly discussion of all the latest news in our industry, as well as random stuff we want to talk about.

I'm Josh Schimmer. My cohosts today are Eric Schmidt and Tess Cameron. We've got the skeleton crew in August.

For more information about our hosts and guest speakers, or to listen to the most recent episode and for disclosures regarding the companies we cover, please go to biotech hangouts.com. As a reminder, none of what we say should be construed as investment advice because anyone who's ever tried investing in biotech knows just how very hard and volatile it can be.

Tess, by the way, I had a great introductory call with the RA Capital Planetary Health Team.

Oh, I love that. Yeah, very interesting initiative, now moving beyond biotech to invest in companies that are good for planetary health, thinking about sustainability, energy sources, and optimization. Really fascinating effort. So kudos to the RA Capital team for making that pivot and really trying to make a difference on a planetary basis. Very important, and hopefully we'll hear a lot more about that group in the months and years to come.

But we're going to kick things off now. That's not so much biotech. Let's talk about some of the latest updates. The big one: Vinay Prasad is back. Eric, good, bad, neither?

1. Vinay Prasad Returns

Oh boy. Okay. Just the latest chapter in quite the saga here. Look, I guess one thing you just have to say is that Dr. Makary really wants him there, right? I think most of us felt that when he left 2 weeks ago, it was for good reason—that there was just too much going on, too much havoc, too much chaos, too much drama. And yet he's back.

There was a great piece from STAT News this week that maybe provides some advice to Dr. Prasad on his way back to the agency about how he might be able to do things with a little less drama. Hopefully everyone has seen that. My take is that these 2 leaders are joined at the hip. Dr. Makary pushed very hard and very aggressively to bring him back, despite some of the political headwinds he may have faced, and he got his wish.

We're going to have these 2 guys running the agency. That's pretty clear. We can cross our fingers and hope for the best. Obviously, there are a lot of things that could potentially be at risk with regard to drug regulation and approval processes in the US, and I think we all need to get behind these 2, hope they can do the job as best they can, and maybe support them. So, good, bad, and indifferent? Josh, I don't know. I think we both feel that these 2 individuals are really bright, really capable, and certainly engaged. I hope they've learned a few lessons in their first 6 months on the job and, like all of us, can get better at it.

Yeah. Tess, what do you think? And how are you at RA Capital, if at all, reacting to some of the leadership changes at the FDA as you think about your investments and portfolio?

Absolutely. Look, I think we're really looking to actions as an indicator of what could happen in the future. It's only been a short time since Prasad has been back, but we know that he's very actively involved in approvals. Precigen's drug Papzimeos got approved, right? This is a drug for a small patient population with recurrent respiratory papillomatosis, a disease caused by persistent HPV. It got full approval on a pretty small trial.

I thought it was really interesting that, in the FDA press release, there was this quote from Dr. Vinay Prasad: “Randomized trials are not always needed to approve medical products, and this approval is proof of that philosophy. The FDA will always demand the correct clinical study for the specific medical product and disease. Our requirements for products given to tens of millions of healthy people will be different than products given to, at most, hundreds or thousands of patients with unique diseases.”

Obviously, that statement Dr. Prasad was making was not unique to the Precigen case example. We can all look at past statements and behaviors and maybe wonder, “What the heck is going to happen?” I think it's really important to see more examples and more details on just how approval pathways may be evolving and changing. I thought that was very interesting, especially when contrasted with some of the other regulatory decisions that have occurred earlier this year, where there was a little less clarity on why things didn't get approved.

2. Binary Events Burn Investors

PDUFA dates have always been marginal at best in terms of risk-reward, right? You rarely get paid to the upside to a meaningful degree for approval. Maybe that's changed a little bit lately, actually, interestingly, but in the event of a nonapproval, the result can be relatively catastrophic.

With the new administration, one might think that the risk-reward of PDUFA dates has even further deteriorated. Tess, from an investor lens, how do you think about those binary events and navigating them?

It really depends. Obviously, Precigen is up dramatically because people were not anticipating that approval would really happen, and it did. I think it is harder to gauge, but in a way, that means the risk-reward into an approval—if you think you have a different view than the market—may be more meaningful.

For these grayer cases, where it's a little less clear whether approval is baked in or not, there is, in some ways, a little bit more of a discontinuity on approval. I'd point to UroGen as another case, right? There was a pretty dramatic advisory committee, with a bit of a mixed vote. The company navigated FDA interactions after that and got approved.

I think the stock didn't move a whole lot on approval, but it certainly moved—well, actually, it did move quite a bit just before approval, after they hired some reps, and then, I think, on approval and quite a bit afterward. It's interesting. The uncertainty that's been injected into any company that has an open-label trial, a smaller sample size, or didn't have the perfect control arm means that, if you think you have a differentiated view, there may actually be a bit more of a move on approval for those medicines.

It's a different case for something where approval is really baked in and expected, and where it would be a shock if it weren't. That's the case for Insmed and brensocatib, and I think that's why we didn't see this huge reaction on the day of approval.

So I guess it kind of dovetails into a related topic around binary events. Certainly, PDUFA dates can be very binary events. Eric, maybe for you, in biotech, is it easier to make money playing binary events or avoiding binary events?

Oh, no doubt the latter. One hundred percent. In fact, we've always discussed how the best way to play any event is well before anyone else is playing it, right? You could buy a stock 3, 6, or 12 months in advance of an event and get the run into the event without taking the binary risk.

Why is it tough to make money on binary events? You actually called me out earlier today on this. You said I had rose-colored glasses, and you're right. I do. Almost all of us who have been around this industry need to have rose-colored glasses, in part because there's so much hope for patients in our business, in part because we're rooting for the companies that are trying to serve these patients well, and in part because it's a really difficult business to make money in.

When you approach a binary event with a bit of a rose tint to your glasses, most likely, as Tess was just describing, the risk-reward on that event itself is not going to be favorable. If all of us have rose-colored glasses and think the likelihood of success is 70% when it's really 50/50, that's a terrible risk-reward. I think we've proven ourselves that way time and time again over the years and decades that I've been watching the industry.

The time to buy is often 12 months before anyone has even thought about that event, before stocks have really adjusted at all to whatever potential risk-benefit we might have. Fortunately, we've got a lot of stocks and a lot of opportunities to do just that. That's always been a philosophy of mine. But, Tess, Josh, what are your thoughts?

Yeah, Tess, I'd love to hear your take.

Yeah, absolutely. I think it all comes down to differentiated perspective, level of conviction, and what you're doing on the back of that event if it goes how you want or if it doesn't go how you want. I think that can inform a lot, particularly for a fund. For bigger funds, it's hard to efficiently play around these events, because that in and of itself would actually move the stock.

You really have to enter positions with conviction and the understanding that you might have to sit through some binaries. If you're trying to play around that binary, you might cause things to go the other way just by being a pretty substantial percentage of that company's volume.

I think that's a key part, certainly for any bigger fund, of what positions to go into: How do those catalysts set up? It's always wonderful to invest in companies where maybe you have a few different potential outcomes, but you're thinking, “Hey, actually, in several of those outcomes, there's still an opportunity to buy.” Maybe it's disappointing to others but exciting for us in some way or the other.

Yeah, it often feels like moths to a flame for biotech investors, gravitating toward the binary events, often literally because so often you get burned by those binary events. It can be very difficult to drive performance with that strategy. But on the other hand, I think what Tess is, in some ways, alluding to is the large size of funds relative to the small size of company valuations and market caps, and trading dynamics and liquidity being very disconnected between running a large fund and managing an investment in a smaller, illiquid name. So, interesting dynamics in biotech, always.

3. mRNA Becomes Political

Another interesting dynamic that we're dealing with this year and with this administration, compared to the prior administration, is that if you'd asked me a year ago who the head of HHS was in 2024, I probably wouldn't even have been able to tell you, but I think we all know who the head of HHS is today. We've had some pullback in funding of mRNA vaccines. I think RFK justified that with his concerns that a monovalent vaccine from an mRNA vaccine, particularly for inhaled respiratory viruses, may actually be fodder for mutations and escape from those vaccines, and his view is that it perpetuated the pandemic. I'm not sure what, if any, evidence there is to actually support that dynamic specifically around mRNA vaccines. And then I think the head of NIH, Dr. Jay Bhattacharya, had some views on this as well to discuss.

Well, yeah. I guess in the week or so since RFK Jr. and Bhattacharya withdrew funding for mRNA research, we've gotten a couple of different rationales from the administration as to why they did that. RFK Jr., as you said, Josh, blamed it on the lack of safety and efficacy around the vaccine technology based on mRNA. Then Dr. Bhattacharya came out later and said, “No, no, no. It's not about lack of efficacy or safety. It's about public distrust of the technology.”

Well, God, that's distressing. Why would we be distrustful of the technology? Maybe it's our government that's been telling us to distrust the technology. I don't know. So that's a whole different can of worms there.

The sad part of all of this is that mRNA is a molecule, right? This is chemistry. It's a bunch of nucleotides strung together. It doesn't have a political will. It's just science, and how this technology got wrapped up into the debate over COVID, who was right and who was wrong, is really quite sad and sickening.

I hope that we can distance ourselves from the politics here and put mRNA back into its place, which is a tool. Maybe it's an imperfect tool in some cases. Maybe we've seen through the COVID pandemic that it can be a very helpful tool in others. We should stop treating it as a political football, but rather as a technology that should be assessed, funded, developed, critiqued, and studied in clinical trials. Unfortunately, we're just not there right now.

And Tess, any thoughts on it?

Yeah, I guess I would just point to the fact that it's always a little discouraging to see a decision like that that stems more from what the public thinks and how people feel about something versus a real evidence base. So, look, as you said, Eric, there are so many ways in which mRNA is a tool and is used for many different diseases and many different formats.

I'm hopeful that, just as more applications continue to be demonstrated, this turns around. I'm also hopeful that we can really—maybe hopeful is too optimistic—but I would want a world where decisions about funding are really based on societal benefit and a view of what scientific endeavors can really help us as a society, rather than public sentiment.

It is amazing how a platform that saved the world—I mean, millions of people's lives, saved millions and millions and millions of people, kept millions of people out of the hospital in a time of true crisis—has somehow become vilified, seemingly by a fairly fringe group, but a fringe group that now has a national voice and national attention.

Right. And to the point of it, it's now all politicized in ways that are so unscientific. There's nothing wrong with asking provocative questions. There's nothing wrong with wanting data and evidence to support the appropriate use of these vaccines and to support the safety profile of the vaccines.

I'm not sure we still have the best capture mechanism for vaccine safety. I'm not sure one is even feasible. It's so hard to—well, look, if you get a vaccine and something happens to you the next day, yes, that's probably easy to correlate to the vaccine, although there's also still noise because random things happen to random people all the time. But if it's a week later, if it's a month later, or if it's 5 years later, how on earth do you connect something to one point in time so long ago?

It's just a challenge for science. There are a lot of unknowns that we're dealing with, and the unknowns just get filled with conspiracy theories, speculation, half-truths, and some truths. It makes it very difficult to navigate, especially when there's not a healthy, balanced, pro-patient, pro-science dialogue to advance the field.

It's kind of left in the hands of mavericks and conspiracy theorists to rip things apart, as opposed to gently bending things to optimize them. What an odd year to be living in if you're a scientist.

4. Product Launches Drive Stocks

Again, we're kind of light on specific news this week, so I thought we'd talk about some themes and trends that we're seeing. One interesting trend that I think many have noticed is the successful stock performance around product launches. Not 100% of them, but far more than we've ever seen before.

There's a lot of focus on product launches. I guess, Eric and Tess, is the product launch trade getting a little long in the tooth here, or is this still an area that you think is going to be able to deliver value for shareholders?

Well, maybe I'll start. Maybe first we should talk a little bit about why this trade seemingly has worked and then go on to whether it's getting long in the tooth for certain products. Certain products are now getting a little bit past their launch phase, is the way I would answer your question, Josh.

If you've had a drug that's been on the market now for 12 or 18 months, people have woken up to the fact that it's probably having a good launch and have priced that into the stock. So, certainly for certain franchises, I think the launch view is playing itself out. But in other cases, for new drug launches that have yet to transpire, I think it's still working.

I think the reason it's still working is, first and foremost, pricing. We're just seeing more aggressive pricing out of the box than we've ever seen before. It's not something new in 2025. It's been happening over the course of the last 2, 3, 4, 5 years. Every year that passes, we price our new drugs at a higher price point.

Everything is priced to be a blockbuster. It used to be that a $1 billion peak revenue estimate was quite unusual in Wall Street models, and these days they're all over the place. So when you price your drug at a high premium, most likely you're going to sell it quite well, especially in the early days with those patients who were in great need.

The second trend, in my opinion, is about payer reimbursement pressures. I don't think we're seeing them as much as we used to, and I'd love Tess's view on this, but to me—and I don't know if it's because the PBMs have been in bed with the healthcare insurers or what—it just seems like we're talking a lot less about reimbursement restrictions, about tiering of formulary status and copays, and things like that than we really have in the last 3, 4, 5 years.

And I think that means that these drugs, out of the box, are doing quite well. But, Tess, I'd be curious.

Yeah, Eric, maybe just another perspective on the payer stuff is that I think it's very much still there, but companies have gotten a lot better about communicating it, and investors have gotten a lot more sophisticated about what expectations need to be.

In the past, there wasn't as much focus or understanding on what's really going to drive growth to NBRx, how important it is to be first tier versus second tier, what programs you're going to do, whether you're going to have a hub, and all of these things that are so critical to a launch and to a successful launch. I feel like in the past there were certainly a lot of barriers, but also a lack of communication or appreciation for how some of these factors actually played into things.

I think that's really changed. Now, when companies are talking about their phase 3 data, they already have some perspective about how this might be positioned, what it's probably going to come after, and how they can manage it on formulary. Perhaps part of why some of these launches have actually been quite good is that companies know they have to navigate this stuff, and they have to navigate it pretty early if they're going to be successful.

I think it's really positive to see many smaller biotechs getting way more sophisticated and specific. We'll talk about the Insmed approval, but I think it's actually been pretty consistent across several companies where they've been really specific about: Here's the total population, but here's the launch population. Here's how we're expecting things to play out on the payer side. Here are some puts and takes on how that could go. Here's at least a framework for thinking about gross-to-net.

Here's how to think about the IRA catastrophic payment and payer mix—all this stuff that is such a key part of the complexity of a launch and what you need to make it go well. I think the level of sophistication has really improved.

So, I think the old definition of a blockbuster was a billion-dollar product. Eric, to your point, everything's priced to a billion. I think now the blockbuster definition is probably closer to $5 billion.

Part of the way that companies are getting there is with drug prices higher than we've really ever seen them, and often higher than we thought they were going to be. So, I guess it begs the question: What is the probability that, in the next election cycle, new drug pricing becomes a target for either party?

And Josh, you're specifically referencing new drug pricing, right? Because the industry keeps getting squeezed by policymakers to contain drug pricing, and the balloon keeps popping out in the form of higher and higher launch drug prices.

Right now we have the IRA. What was the solution to the IRA? Launch at a higher price so that when you hit that discount, it's not necessarily as impactful as it might have been. But you have to imagine that, at some point, drug prices now come into the crosshairs of politicians.

Well, I think drug prices have been in the crosshairs of politicians for a long, long time, and now you're maybe making a subtle tweak in terms of focusing on new drug launch pricing. You may have a point. Maybe there's been somewhat of a blind eye toward that aspect of the business, as opposed to the drug price increases that companies have taken or the disparity in pricing between the US and ex-US nations that we've seen.

Those 2 concerns have been very much in the public eye and public focus, and we're obviously debating and in the throes of potential changes to the system in that regard. So, sure, I think it's possible that we may also see a little bit more attention on new drug prices. But, Tess, you're very close to this with your No Patient Left Behind work.

Yeah, I think the calibration point on all of this is outrage. In the past, we have seen real outrage at certain launch prices or price increases over time, where the patient community is feeling it and physicians are feeling the access constraints that come as a result of that. I feel like that is really a bit of a check on where these prices go.

I do think that we haven't seen that for some pretty high-priced launches that have happened in the past year or 2 years. I think the reason for that is that, yes, the drugs are high-priced, but they're also, in many ways, very closely managed by the payers. The price is high, but utilization kind of goes along with that.

I think companies are pretty careful in thinking through that. I can't think of any company that wants to be a focus and source of outrage by the patient community, payers, or physician community. My hope would be that companies continue to take that threat of outrage into consideration when they're thinking about pricing their therapies and negotiating access for their therapies, so that they're really staying within the bounds of what society thinks is acceptable and what insurers are going to put on formulary and deliver access for.

Yeah. And it also dovetails into most-favored-nation—the effort to get other countries to pay more and, perhaps as quid pro quo, to get US payers paying less, which may require legislation of some form. So, we'll have to see how it goes, and I'm appreciative that we have—

The No Patient Left Behind narrative.

—to kind of help counter some of the pressure that we may start to face again on drug pricing. It's a great effort and a great group that you have there.

Yeah. And maybe just a perspective on the MFN stuff, because I actually think that the MFN stuff—whether raising prices in Europe and other geographies will actually lower prices in the US—I think it does in the long term.

The way I think it does in the long term is that it actually increases competition. It makes it that much easier for the fourth-to-market, fifth-to-market company to say, “Here's a geography or space where I can actually play and win,” because the market is simply big enough and other geographies and other people are paying. It's not just the US.

We saw that competition in the hepatitis C market, right? We went from, gosh, $84,000 a year to now it's, what, $15,000 a year for a hepatitis C cure. That was because second-to-market and third-to-market companies came in and had to be really competitive on price, because the product profile simply wasn't as attractive.

So, I think that's the longer-term view that I have, and that No Patient Left Behind has, on how MFN really does bring benefits to the US market: through more competition, more drugs competing, and some of those are going to be on price.

Yeah. All right. Well, maybe now moving on to another topic, again somewhat related, that has to do with all these new forces we're dealing with that we never really had to pay attention to: MFN, tariffs, IRA dynamics, HHS, and FDA—

Josh, I can't hear you. Tess, did he go out on your end, too?

He went out.

There he is. There he is. You're back, Josh.

Oh, did I leave? Okay.

We missed about a half-minute or so, from MFN and other broad dynamics to something else.

Oh, that's weird. Well, hopefully you can still hear me if I drop off. Just keep going without me. But I'm here.

I guess what I'm noticing is that, because there are so many new focal points for investors to follow—MFN, tariffs, IRA, HHS, FDA, and all the volatility of the sector—investment horizons, which have always been short, have actually continued to compress even further.

I get almost no interest in 2026 catalysts yet. It feels like we're at the point of the year where interest in what's ahead in 2026 should start to pick up, but I'm certainly not really hearing much of that.

Eric, are you hearing it? And Tess, are you starting to think about 2026 events, or are we still all kind of in the weeds of 2025?

Yeah, that’s a good point. I hadn’t thought of it before you just raised it. No, my call volume is similar to yours. It’s very much focused on the next 3 or 4 months. And you’re right, this would be the time of year typically when you’d start to get those calls and emails saying, “Tell me at least about your first-half 2026 catalysts.”

One potential consideration—and maybe this is my rose-colored glasses on—is that folks seem to be looking to invest in nearer-term milestones, including binary events, right now because they want to put more risk on. They’re more aggressively positioned—positively and favorably positioned—in biotech, in my opinion, having seen a very good last 3 months of performance, especially great 3 months of performance from smaller-cap development-stage companies.

In my coverage universe, I still have a few 2025 events, and there is a ton of attention and focus and interest—in some ways, more than I would have expected for a binary, given what we just talked about earlier, Josh, which is how hard it is to make money in binaries. But I think people are seeing the Cidaras and Sutros and Abivaxes of the world, stocks up multifold on the back of binary events, and wanting to play more and still having a lot of fun with what’s left in 2025. That’s my take on this.

Yeah, I mean, I think it just comes back to our previous discussion. We are obviously doing both and have the capacity to do both, which is great in terms of thinking about the rest of the year and thinking about 2026. But I think what we talked about before is very true, right? When is the right time to really think about catalysts and companies that may be undervalued well before the event, where that may reveal itself? So, I think it’s always good practice to be focused on that.

Josh, I think it’s a really good point. We’ve just gone through such an incredible macro upheaval, where literally it’s like, can you even focus on next week because you’re just trying to figure out what’s happening today? So, I’m interested in both of your thoughts, but I think it’s also just a bit of catch-up where people are like, “Oh my gosh, okay, maybe tomorrow I’m not going to get whacked with MFN. Gee, let me think about some cool data that might be coming up. That sounds like fun,” right?

No, it's like there are so many blind spots now because we have in the way of our field of view all these other forces that are pulling us away. I think there's some incredible risk-rewards out there with important events coming 2026 or beyond where the valuation of the company might reflect a 5 to 10% chance of working and in reality it's north of 50%. Those arbitrage situations often are not sustained. They tend to close as you get closer to the data set and as investors start to turn their attention there. And so, another way of being able to drive performance without taking the binary exposure of each event.

Now, on the topic of a lot of distractions that we're dealing with is the topic of earnings calls and particularly earnings calls for non-commercial companies. They can often be fairly lengthy in terms of the prepared remarks. The prepared remarks are generally backward-looking, not materially forward-looking, and recaps of where the company is. Often, there's a fair amount of redundancy in the Q&A section, where you often hear analysts asking questions for the sake of being heard on a call, not really advancing the dialogue or contributing to the understanding of a company. So, Tess, we'll start with you on this one: your views of earnings calls, particularly for pre-commercial or less evolving, more static, early-stage and innovating companies. Do you like when they do the earnings calls? Any thoughts in terms of how they could be done better, if at all?

5. Earnings Calls Need Rethinking

I think it's such a good point. I feel like in some ways it is just more of a distraction than a benefit when you are early-stage and it's really going to be data that drives things, so why not just do calls around data? What's distracting about it is that sometimes it really does matter for even development-stage or early-stage companies because they may choose to include some pretty critical data in the earnings release sometimes, and so you kind of have to pay attention because it might really matter, but also it's distracting because very frequently it doesn't really matter.

I think that, to the extent that there's a lot of key information about what investors are typically looking for in a quarter for a development-stage company—how much cash do you have, when are you running out of money, are all of your programs still on track, are you doing anything new?—that usually can really be encompassed in the body of a press release, and anyone who wants more color can always take the time to talk to management. It allows more focus on what are the things that really do matter, which for development-stage and discovery-stage companies really tends to be data releases.

Then I do think, as you get to phase 3 and you're getting into regulatory and planning for launch, it's generally pretty helpful to actually start having those calls, ideally before launch, just because there are so many moving parts sometimes with what you have to do to get ready, and it's really helpful to hear that type of detail.

I'd be interested, Josh and Eric, in how you think about this and where you'd like to see development-stage earnings calls go, if at all.

Yeah, Eric, give us your take.

Well, Josh, not surprisingly, I’ll take the other side of the coin from you and I guess Tess as well. I actually kind of think we should be doing these as a regular best practice going forward. And the reason I do is because, from a company standpoint, it’s a very competitive world out there, right? I mean, there are 500 companies. They’re all looking for capital. They all need their voices heard.

If you don’t do an earnings call, if you don’t communicate even minor updates that you’ve made over the last 3 months, people will forget about you. They’ll assume you haven’t done anything. You won’t get the benefit of analysts asking you questions. You won’t get the benefit of the loudspeaker in terms of sell-side notes coming out after the fact. You’re in danger of becoming a nonentity, and that’s a really, really, really dangerous place to be.

Josh, even within our universe of coverage, I bet when you think about companies that do regular earnings calls—we just came off the Q2 earnings season, of course—you’re probably more fresh and up to date on those companies that did a call versus those that didn’t. I’m guessing; I don’t know, but that would be the rationale for why these companies seemingly are potentially using a little bit too much of our time on a daily basis with these calls.

Look, I don’t think anyone loves to listen to analysts spout off, as you just said, but I do understand the purpose, and I do think it allows me, as a busy person who’s trying to keep track of 20 or 30 names very closely and another 30 or so names somewhat closely, to stay a little bit more up to date on those stories.

Yeah, I mean, I think both sides have very legitimate points. I think it can be a little challenging or frustrating, in part because it’s a little bit of information overload. There are certainly days where 100 companies are reporting earnings. We’ve all had this scenario where multiple of our companies have their earnings calls going on at the exact same time. And so you’re kind of trying to rush through it and get all the key takeaways in a short period of time.

It’s not a great time to digest really new information, certainly about pipeline products. There’s a fair amount of wasted airtime in terms of reviewing financials that don’t matter. That’s always a point of frustration for me, because it’s a point of tone-deafness, right? If you think trivial numbers around R&D spending that we could have seen in a press release are material to investors, it is a little knock on your credibility and understanding of what really does matter.

I get that there’s this cookie-cutter approach, and folks may be nervous to break the mold. I get that folks may be nervous to say, “Oh, well, if we’re doing an earnings call for 1 earnings period, does that mean we need to do them for every other earnings period?” I just don’t understand why that needs to be. Why isn’t there flexibility in the way that we narrate these companies? Why do companies have to do a call on an earnings-day release as opposed to just having a mid-quarter update around anything that’s changed, that’s material, to give analysts and investors a chance to ask questions and not be 1 of 100 companies all coming out at the same time? That can make things overwhelming.

To some extent, it's our problem, right? It's not the company's problem. They're not doing anything wrong, right? There's nothing wrong with hosting an earnings call. There's nothing wrong with reviewing all the minutiae of financials that don't really matter. It is our problem, but it's a problem nonetheless that, in theory, could be optimized by a little bit more attentiveness to companies and a little bit more realization of the bandwidth that they are consuming with long introductory comments.

Maybe they have a reason for making them. I generally think they tend not to be as effective as companies think they are. These standard earnings calls don't move stocks. No one listens to the earnings call for a development-stage company, for the most part, unless there's something big and material that makes them say, “Wow, they really changed my mind with those introductory comments.”

There are all sorts of odd and unusual embedded practices that I think are just very, very hard to shift away from for one reason or another. So, an ongoing conversation point, especially around earnings—those weeks of earnings where we'll literally have hundreds of companies reporting that week.

6. The IPO Window Stays Closed

All right, maybe next topic: The IPO window remains closed, but a successful SPAC—are SPACs back? What's going on, Eric?

Yeah, actually, Endpoints had pointed out that it's been 6 months since the last IPO in biotech, or the last real IPO in biotech. That was Artiva Biotherapeutics. Josh, I know you were part of that one. That's a pretty long dry spell. I think the longest dry spell is something like 20 months or so in the history of the industry, so we're nothing like that just yet. But 6 months relative to historical norms is still a very lengthy period.

We did have a SPAC, and the SPAC was a name we were actually involved with: BridgeBio Oncology Therapeutics, or BBOT. The company was incubated as part of BridgeBio and spun out about a year ago as a private company, and chose to go public via the SPAC process. It raised a lot of money. It's very well capitalized. It's got a great list of shareholders.

Not that we're giving investment advice on this program, but it is a name that we think quite highly of, and they chose the SPAC route, which I guess is somewhat interesting to me. I don't know if this company had gone public via the traditional IPO dog-and-pony roadshow whether they would have had as much success. Obviously, with a SPAC, you have a pretty narrow set of shareholders and backers.

Tess, I don't remember if RA Capital was involved in this or not, so chime in here. With an IPO, you obviously are opening yourself up to a broader set of buyers, though lately, at least, IPOs have been pretty narrow in their support as well—maybe not quite as narrow as a SPAC.

I do think that, having not gone through the IPO roadshow process, the visibility and knowledge that surrounds this company is a little bit lower. They have a lower profile than they might otherwise have had, but they got what they needed, which is a terrific valuation, a great group of shareholders, and capital to take their oncology therapeutics forward.

We may see more of these in this very choppy environment, but I'd be curious as to what you guys are thinking.

Well, Tess, how are you thinking about the IPO window? What are the signals that you'd want to see as an investor to encourage companies in the RA Capital portfolio to test the IPO waters? Is there a reasonable signal that you're looking for? How are we even going to know?

Yeah, I think it always comes down to market demand, right? Are investors excited to put money into the company? If enough want to do that, then maybe it's time that company should be public, obviously stage-dependent and management-team-dependent and all that. But I think it really does come down to investor demand, and really starting with your insiders, right? Do you have a few insiders around the table who are really eager to invest more and facilitate a public listing?

I think it is interesting, and yes, we did sponsor a SPAC. We've also had several of our companies go through reverse mergers or pair up with reverse-merger companies. What I think works really well with that structure is that you agree on price, right? You're coming to the table with, “Here is what the price is going to be. Here is what the deal is going to look like.”

It's much more like a private-company deal process, which is a little bit easier to do in this market, right? It's a private-company deal process where you have a party that kind of names their price and sees if they can get everyone together. If they don't, then maybe the terms don't quite work right, maybe you have to modify things, maybe you have to price a little bit differently, and then maybe you can go and get things done.

The IPO process is a very different process for finding price. Everyone's sitting around the table, watching each other: “Are you going to put money in? Are you going to put it in at a higher price? Is that your real order, or are you just putting in those numbers because you want to wait to see if everyone else likes this IPO, but you actually only want $5 million?” It's such a challenging process to find truth in.

Josh and Eric, I know that we've talked about our approach to thinking through that, which is really starting with your insiders and, in a way, compensating them for giving you real information about pricing by giving them the allocation that they want, at a price where you're 70% covered by your insiders.

But, all that to say, in a period of great volatility, having that kind of lead investor and pricing certainty, I think, really helps deals get done and makes it more like a private transaction. Yeah.

I think one of the challenges I see for the IPO window in particular is that the highest-caliber companies who, in an ideal world, would be the first to test the IPO window, because they're going to have the best prospects for success, are the ones who least need to do it because they can still access plenty of capital from private investors as needed. They often have a fair amount of capital already, so there's not as much urgency for them.

We actually rarely start trying to open the IPO window with our best, which, in theory, would be the best way to do it because those are the companies that are likely to have strong out-of-the-gate performance and really start to crank that window open wider for the rest. Instead, we probably wind up with that middle tier, right? It's the companies that are good enough to consider an IPO—maybe not the best of the best—but they're the ones that are actually perhaps now pressured to find alternative sources of capital beyond their private investors.

For the IPO window to open in that way, it has to be more of a pull, right? It has to be even healthier because we're not necessarily leading with our best. Those companies that do go through have to be very reasonable on valuation. There needs to be enough investor appetite for those types of companies, as opposed to the elite of the elite, which is, I think, where investors are starting to focus.

I'm hopeful that at some point the IPO window will crack open just enough for the really high-caliber companies to come through. I've got a long list of high-caliber companies, not a short list, which is what I am super excited for and unbelievably intimidated by, because if the window really does open and these high-quality companies start leaping through it, we're going to be incredibly busy—incredibly busy in a really good and really exciting way, but incredibly busy nonetheless. So we'll see how that all evolves.

We've got a few more topics to cover toward the end here. I guess Summit Therapeutics, Eric, what was going on there? They elected not to host an earnings call, and funny that we were just talking about earnings calls and now a company that didn't host an earnings call caused a problem. What is going on?

Well, I guess this comes back to the debate we just had about whether development-stage companies will or should host earnings calls. Summit is one heck of a development-stage company. This is a $20 billion market-cap development-stage company, so they're a little bit of an outlier to begin with.

To the point you made earlier, Josh, yeah, they did host an earnings call last quarter. They chose not to this time around. That change in strategy was viewed, I think, a little bit skeptically by some. The vacuum of information that it created—in particular, not holding a conference call—led to a lot of debate and discussion, at least behind the scenes.

There were a couple of disclosures—not clinical data disclosures, but more financial disclosures—in their release that were also a little bit unorthodox. So it was a little bit of a storm in a teacup this week. It was my No. 1 incoming-call-volume stock in the last 5 days.

I think had they hosted a conference call, it would definitely not have been the case, right? It would have been an open forum, and everyone would have had an opportunity to hear management’s answers to the same questions that we all wanted to ask. But that’s not the way it played out. In fact, the stock was a little bit weak, too. It’s been an underperformer in an otherwise good tape for biotech.

So maybe another reason to think again about not holding an earnings call, especially if you’re as closely watched as Summit. There aren’t too many $20 billion development-stage companies. This one has been very volatile as a story for multiple reasons.

Yeah, I guess you just can’t win when it comes to earnings calls. You do them, you don’t do them—there’s always going to be someone who’s frustrated. But thank you for that context.

I think a lot of the revenue-generating companies have already reported. Certainly for my coverage universe, it was a very mixed bag, although I think overall it was a very good second quarter across the board. One company that did report this week was ARS Pharma with the launch of Neffy, which is nasal epinephrine intended to replace EpiPens. They’re gaining traction.

It’s been one of those high-volume, low-revenue launches, which are always hard to execute on because you need to wait for high volumes of prescription writers. It’s typically a mile-wide, inch-deep-type market, in contrast to the ultra-rare conditions where you put 50 patients on a drug and already have $25 million of revenue. This is a very different model.

To their credit, they are executing on the launch. They are starting to get traction. It’s back-to-school season, and that’s been helping them. Tess, I know this is a name of interest to you. I got a lot of questions about why the stock sold off after what looked like good second-quarter earnings.

My take on it was that now is really the time when they need to deliver on this launch, because as you look at the third-quarter revenue estimates, they really need to step it up. I think investors are starting to look toward that third quarter. They seem to be on track to hit that number as well. It’s still a little bit early in the quarter.

There are also some competitive dynamics at play. Tess, I’m not sure if you wanted to talk about this name in particular. I know RA Capital is very close to ARS.

Yeah. I think this is an area where convenience really does matter, right? There are a lot of people who are scared of needles, especially children. It’s great to see ARS on the market.

The other thing that we saw this week was Aquestive, and they actually have a patch therapy that you can put under your tongue that dissolves under your tongue. This is a company that I think is in discussions with the FDA now about the approval path. They were talking in their Q2 update about the timing for a potential advisory committee meeting and whether that may or may not happen.

Earlier this week, they announced a funding agreement with RTW and a pretty substantial offering of common stock. We’re certainly seeing a fair bit of these deals happen in the pre-launch space. Maybe something to call out that was pretty interesting about this deal is having the strategic funding agreement they provided be contingent on approval, right?

That can certainly be reassuring for investors, knowing that if it gets approved, there is money to really support the launch there.

Yeah, excellent. All right, a couple of final topics. Tess, if you want to cover either of these, the Insmed approval and Sarepta safety data.

Absolutely. The Insmed approval was probably one of the most highly anticipated launches across the sector. Brensocatib, called Brinsupri, for bronchiectasis—and big congratulations to the team here.

This has been an excellent case study in communicating the market opportunity and communicating unmet need. I think the success was very broadly anticipated, based on our previous discussion about whether you get paid for sitting through approvals. But it was a really clean label: It didn’t talk about prior exacerbations, and there was flexibility for 10 mg or 25 mg.

I think there’s a lot of excitement around this launch, and we should know next quarter, so that will obviously be highly anticipated. Another one we wanted to hit on was Sarepta giving an update to the patient community, really focused on sharing more details on some of the deaths and sharing more details on what happened in ambulatory and nonambulatory patients.

I think it’s really good and important to have this disclosure. With safety, it’s critical to get this information out, ideally as early as possible, and it’s essential to have this well characterized. Good to see them coming out with this now.

All right. Well, we’re at the top of our hour. As always, wonderful discussion—two of my favorite co-hosts. I hope everyone has a great weekend, and we’ll catch you back here next week, or if not next week, sometime.