第199期｜2026年10月16日

You’re listening to “Biotech Hangout,” a live and unedited weekly discussion of all the latest news in our industry with a group of biotech leaders and experts. I’m Graig Suvannavejh, and my co-hosts today are my fellow sell-side biotech analyst Paul Matteis, Brian Skorney, and Yaron Werber, as well as Jake Becraft, a private biotech company CEO. For more information about our hosts and guest speakers, or to listen to the most recent episode, please go to biotechhangout.com.

So happy Friday, everyone. It’s cold and somewhat rainy where I am in New York, and some might say it’s a bit miserable out. I guess the same can be said of the current state of the public biotech market, which is again trending downward. The XBI is under pressure again today.

1. Markets Weigh IPO Strength

With that in mind, let’s quickly review where things stand in biotech. I’ll touch on performance, IPOs, and deal activity. The XBI ETF is still up a very healthy 20% for the year, especially relative to the dark period that stretched from 2022 to 2024. That said, at the current level of around $146 flashing on my Bloomberg, the XBI has come down considerably—some 700 basis points since our last podcast 2 weeks ago—so that’s not a great sign.

Further outperformance versus the broader XLV ETF has narrowed significantly. Recall that XLV includes pharmaceuticals, healthcare equipment and supplies, healthcare providers and services, life science tools and services, and healthcare IT, in addition to biotech. Two weeks ago, XLV was up 7% year to date; it’s now up 15% year to date. That suggests to me that investors are rotating out of biotech into these other healthcare subsectors. In the context of the XBI’s late-August high of $169, we are now definitively in a correction of sorts.

I’ll return to the markets in a few moments, but I want to point out that, at least on the IPO front, we’re seeing pretty good momentum. We saw 3 new names come to market. TRex Bio is focused on Treg-targeted biologics for immune-mediated diseases. It has a Phase 1 asset for atopic dermatitis and partnerships with Eli Lilly and J&J, and it raised $117 million in gross proceeds earlier this week.

We also saw Iambic Therapeutics, an oncology-focused biotech leaning heavily on AI. Its lead pipeline asset is in Phase 1 and targets HER2-mutated cancers. It has partnerships with AbbVie, Bayer—“Buyer,” as I think it’s more properly referred to—Lundbeck, and Takeda. It raised $150 million in gross proceeds.

Today, City Therapeutics is making its debut. It’s an RNA interference, or RNAi, drug developer with preclinical ophthalmology and neurology candidates partnered with Bausch + Lomb and Biogen, respectively, as well as a proprietary clinical-stage candidate for thromboembolic diseases that’s in Phase 1. City’s IPO was upsized to $200 million in gross proceeds, so that’s a nice sign for the company.

By my unofficial count, we’re now at around 28 biotechs that have made their debut in 2026. At least from an IPO market perspective, things seem to be tracking along very nicely, and it looks like we’re definitely on pace to see perhaps 30 or more new issues this year. As additional momentum, just today we saw the market debut of a Frazier Life Sciences special purpose acquisition company, or SPAC. Let’s see how things end up with that one. I was doing some research for this podcast, and it looks like Frazier’s last SPAC merged with NewAmsterdam Pharma, which has been a success overall.

That being said, announced M&A deal flow does seem to have quieted down considerably. Perhaps this lull reflects an acutely rising interest rate environment, which makes borrowing more expensive for strategics, but perhaps it’s also a temporary pause as we approach next month’s midterm elections.

I’m going to stop here on my take on where we are in the markets. What I’d like to do now is bring back our co-hosts for a roundtable discussion about what’s really happening more broadly in the biotech market. There’s been a lot of noise given all the volatility. We’re going to touch on things like degrossing, which is what we’ve been seeing from the buy side, current biotech valuations, and what it takes to turn this market around.

2. Why Funds Are Degrossing

To start, I’ll go to our sell-siders, who talk with biotech investors every day. Brian, can you start? For our audience who may not know what degrossing is, can you briefly explain what we’re talking about here? I’d also love to get a sense of what you’re hearing from investors, and then I’d love to have Paul and Yaron offer their perspectives as well. Brian, why don’t you go ahead?

Thanks, Graig. Degrossing has been the big buzzword of the last couple of weeks. It seems to be everyone’s explanation for some of the pain since we got back from the summer, into Labor Day, and the pressure from degrossing events.

Technically, I don’t know that there’s a very specific distinction between degrossing in biotech and fund flows out of biotech. They could be used interchangeably. In practice, degrossing is thought of more as hedge-fund terminology, where a long-short fund takes down its entire position from some level. If you think about a very strict 50/50 long-short fund, it would be selling its longs and buying back its shorts, not necessarily for a fundamental reason, but simply because it has, say, $2 billion of exposure and wants to cut that down to $1.5 billion. Within any individual fund, there should be some nuance to what gets traded out of, but generally it’s about broadly lowering those positions.

The thing to think about, and why this affects valuations, is that biotech is a small world of investors. There’s a tendency to see a lot of crowded trades: names that are very well loved by specialists and names that are very much hated by specialists. When those positions get crowded, particularly in names with low floats, a degrossing event can mean that a fund’s positions are broadly taken down. That causes its long names to go down as there’s selling pressure, and its short names to go up as there’s buying pressure.

That can lead to a vicious cycle. Another fund sees its longs go down and its shorts go up because a fund with the same trades is being forced to lower its positions. Everyone sees their performance get hit, and as the risk profile goes up—especially at more of these 50/50 shops—the people higher up in the firms take down gross exposure.

This can bleed beyond the pure, large 50/50 hedge-fund groups we see. I think it can also be fundamental. If there’s a view that the overall market is going down, someone with a big dedicated position, whether in a 50/50 long-short fund, a 70/30 fund, or eventually even a long-only fund, might choose to take some of the position down because of the forced selling pressure. It also makes it hard for people to lean in and buy into that pressure. “Catching a falling knife” is one of the phrases investors like to use when things start getting sold off. They don’t want to be the one buying when there could be another 20% or 30% to go down, so they view it as a risky endeavor.

In terms of investor conversations, it’s funny: we’ve really seen this become a more pronounced pain point across the entire sector over the last month or so. But a lot of my hedge-fund investor conversations make it feel like they’ve been getting hit by degrossing issues going all the way back to June. I remember conversations with a bunch of hedge-fund PMs who were saying, “We’re getting hurt by these squeezes from degrossing. It’s probably another 2 weeks of this.”

It reminds me of the construction crew from Tom Hanks’ The Money Pit. Every time he checks, it’s “another 2 weeks.”

I think in the hedge fund world, that pressure has been on since early summer, and now it’s starting to bleed over, where long-only or more heavily long-focused funds are also feeling that pressure. I don’t know if the rest of the crew has thoughts on what they’re hearing from investors.

Yeah, Brian, I’d echo all of that. Another angle is: where do we go from here? Are people starting to feel like stocks are cheap? Graig touched upon the lack of M&A. I’ll hit on 2 quick things, and then I’d love to hear your perspective as well.

I think we’re at the point in this market where it’s become just as much behavioral and psychological as anything else. My sense is that people I talk to see a lot of interesting opportunities, both with stocks they own—where they liked them 30% ago and now they’re down a lot, so they’re asking, “Should I buy more of this?”—and with companies they’ve been watching that have traded off and now have a great risk-reward catalyst.

But what I’ve been hearing from people is that no one really knows when this carnage is going to stop. I think people are afraid of being too early, buying something that’s down X% on nothing, or down X% on fund flows and little sector or macro issues, when it could go down another 10% or 15%. I almost feel like people are waiting for others to make the first move and decide that this is done.

I think that’s where the whole M&A piece comes in. If we start to see a string of M&A, I feel like—it’s a cliché to say that M&A cures bear markets in biotech—but it could create a little FOMO or external validation: a lot of good companies are trading at a bargain now, and if I don’t start buying stocks I think are interesting, I could miss out.

I think that’s where the narrative seems to be shifting on a forward-looking basis: what’s going to turn this around? Unfortunately, I think it’s hard to find a catalyst—

Other than M&A, or maybe just time, I’m not totally sure. What do you think, Yaron?

Yeah, I think this is an amazing discussion. We’ve been marketing, and as you can imagine, people are really struggling. I think there are 2 things going on. The de-grossing, theoretically and hopefully, is going to start abating after the October 31 annual close for many funds. I think a lot of people are looking at that as a potential source of resolution.

Then, right afterward, there are the midterm elections. Even though they’re not a huge overhang on biotech—on therapeutics, probably not an overhang at all—what’s really interesting is that we’re increasingly getting questions from generalists about whether, if the Democrats sweep Congress, which is now increasingly a risk or a possibility, they’re going to move to regulate AI, and whether that could actually be positive for sentiment in biotech.

People are looking at it with fresh eyes. It’s amazing how many questions we get about AI, either from generalists worrying about Isomorphic Labs and speculation that it has a $50 billion valuation, and the implications for biotech, or about the trade of AI versus biotech. There’s a lot of macro, and many funds are basically telling us this is the worst environment they’ve ever seen in their careers.

What’s remarkable, and I think you’ve mentioned this, is that if you look at the 25 top stocks in the XBI, they’re performing very well. The XBI is doing very well, partially driven by Twist, which is an AI-driven diagnostics play. So it looks like biotech is doing well, while many of the underlying investments are not. That puts a lot of pressure on fund managers whose LPs are asking, “Biotech is doing extremely well, and your fund doesn’t seem to be following the same trend. What’s going on?” That’s fairly routine now for everybody.

It’s a tough environment right now. But honestly, I don’t think we can ignore that this was also very much driven by the increase in interest rates. There’s probably going to be another rate raise, maybe even 2 from here—certainly one by the end of the year. We feel like we need to get through that again, and that’s probably one of the things we all need to follow very closely. Rising rates were what put pressure on the sector before.

Yeah, thanks, Yaron. I want to flag a really interesting post I saw this week on X by Rod Wong, an investor, who posted a snapshot from a Goldman Sachs report. For those of you who can look it up, it was a graph showing Goldman’s view of recent de-grossing in biotech, according to its prime brokerage book.

The punchline is that hedge funds have unwound risk in biotech stocks in 6 of the past 8 weeks. In cumulative percentage terms over the past 8 weeks, the recent de-grossing is the largest in more than 5 years. Whether it’s interest rates, continued inflationary concerns, lack of M&A, or funds needing to de-gross, it’s just not a great picture right now.

We’ve got the elections, and Yaron, you put it so well in terms of the uncertainty around them. It just seems to be a more nervous time. That being said, the IPO market does seem to continue to hum along. Companies are able to raise money, but perhaps in a different kind of way, and I’ll touch upon that later.

3. Valuations And IPO Appetite

Maybe we can talk about valuations right now. Many of us have been in the industry on the sell side for quite some time. Does anyone have a comment on where valuations are right now? Are they stretched? Are stocks cheap? Brian, do you want to start?

They’re cheaper. They’re not as cheap as they were in 2023. Obviously, we’ve had a big move up. I think a lot of that move up has been more catch-up than anything else. I don’t think we’re anywhere near a bubble. I don’t think you can IPO a preclinical idea on a napkin for a billion dollars anymore.

I think a lot of the signals—and we’ve talked about this a lot on the IPO side of things—indicate that we’re not in an overvalued sector. There are certainly names that are overvalued, but I think there are a lot of names that are undervalued. I find more opportunities on the long side than on the short side. That’s probably most of what I hear from investor sentiment right now as well.

Everyone lived through the post-COVID fallout, so everyone knows how far down it can go, and you can see value now. One of the arguments I hear a lot when I try to pitch ideas to investors is that there’s a focus on near-term catalysts. I think there’s a fear that value alone can’t correct in a short enough timeframe for investors who want to buy.

There are certainly exceptions. We’re very long-term focused and see this as a way to find opportunities now. But by and large, people have gravitated toward shorter-duration catalysts to drive value. Again, I think there are a lot of those opportunities.

What I’ve always found most attractive about the XBI, whether it’s a great value for biotech in general or even overvalued for biotech in general, is that stocks with positive clinical data, where there’s some doubt about the outcome or the regulatory or commercial picture, go up a lot when sentiment isn’t fully baked in. That’s the nice thing about the sector.

The argument that’s so hard for the sector right now is that people who pride themselves on calling events and making money on them are particularly hurt by this de-grossing event. It takes away that argument around alpha performance versus taking a view that all of biotech is overvalued or undervalued.

Paul, Yaron, any comments on valuations from your perspective?

I completely agree with Brian overall.

You know, it’s funny because when you look at large caps, people very rarely talk about valuation these days. You guys remember that years ago, valuation was very important and things traded within a certain band. So much of it now is that things are trading on M&A in lower-cap land, and in general, 99% of the volume is ETF-driven. ETFs are not exactly valuation-sensitive.

We look at valuation a lot more in stride these days, because we can totally get run over by being too conservative about where things can go. But things are fairly reasonably priced. We’re back in a market where, if you have data and the data’s great, the stock is flat or down the next day, and if the data’s not good, the stock’s down a lot. So valuations are fairly reasonable overall. Certainly not cheap, we agree.

Maybe I can bring in Jake here. Jake, nice to meet you on the podcast. As a CEO, how do you make sense of what’s happening right now as you think about your own company, your peers, and whatever aspirations you might have as a company for thinking about the public markets?

Well, thanks for bringing me in. When I speak both to investors and other CEOs, I think the general sentiment is there’s a flight to both quality and innovation right now. We talked about the general de-grossing in the market. I think there are all sorts of things affecting the public markets right now that seem very transient and disconnected from underlying fundamentals.

There are even some folks blaming Moderna’s stock run-up, which was just about 8 weeks ago now, for being a driving force behind this. A lot of specialty investors were short Moderna, thinking their vaccine business was in trouble and their cancer vaccine business wasn’t nearly enough to justify an uptick in price. Of course, I think AI and other sorts of excitement around finally winning in cancer vaccines took their stock up, and some folks had to cover those short positions.

When I talk to specialty healthcare investors, whether they’re crossovers, public-only, or public-majority investors, the focus seems to be on both near-term catalysts and innovation. Whether it’s the general competitive dynamic, pricing pressures in the commercial market, or, perhaps more importantly, the threat of fast followers from China, the question is: How are you fundamentally and technologically differentiated in this space, with both an IP moat and a technical execution moat?

We saw that with City Therapeutics going public very recently: a clinical-stage company with a very innovative technological offering, and what I think is a very nice valuation for a company at that stage to get out in the public markets. There’s definitely price pressure, which I think is a fundamental theory and thesis of biotechnology specialty investors. There’s always going to be price pressure around how you justify a given valuation. But if you’re technologically differentiated in the space and have a near-term catalyst to de-risk that technological differentiation—and that catalyst needs to be clinical—I think you need to show some amount of clinical differentiation and de-risking of your technology. The appetite among later-stage investors, whether it’s later-stage growth crossover capital in the private markets or investors getting into the public markets, is still incredibly strong for a differentiated story.

Brian, and also Yaron and Paul, we all talk to private companies a lot. I’m wondering if, based on your conversations over the past month or so, you’re hearing any shift in how they’re thinking about things, given the weakness in the XBI, even though we’ve had momentum in the IPO market. You may not be, but I’m curious.

I thought in the summer, like July or August—can you guys hear me, by the way, Graig?

Yeah, we can hear you.

Okay. I had to update X for a second because I was having issues.

The list of private companies that were reaching out to me to talk and get a perspective on what they were doing, and contemplating their next steps toward becoming public, was starting to feel a little bit like 2020, just in terms of how early-stage some companies were and how viable they thought they could be as public companies.

It felt a little like the whole “Why not us?” dynamic, where they’d say, “Hey, we’ve seen all this happening, and we think we’re special. I talked to this board member or that board member, and they said, ‘You should look at a reverse merger.’” That wasn’t that long ago. That was early August. It feels like the past couple of months, or the past 6 weeks, have been a lifetime. We’re in a completely different world than we were in the summer.

So it’s hard for me to say if those types of companies are suddenly flipping, but maybe I just haven’t had as many of those calls in the past couple of weeks. I was having a lot of them. I’m sure, Yaron, you were too.

Yeah. I think we’re seeing three dynamics, and I want to pressure-test them against what you’re saying. One, we know that when the markets were strong, everybody on the other side started getting ready to gear up. All the motions, all the wheels were in motion. Then, when the window starts tightening and closing, the good ones, or the ones that really need capital, try to rush it out. We’re seeing a lot of that right now.

Second, there are companies doing really well that have new data in hot areas that are very vogue, topical, and innovative. Those are probably going to try to go out even in this window. There’s demand for those kinds of companies, and it’s a question of valuation and whether they really want to go out.

Then there are the other companies that sort of need to go out, were already in motion, and can’t really stop now. Frankly, they need capital, and they might try to test the market too. A lot of the feedback to all of us is: only go out if you have a catalyst coming up. You could be an amazing company going out into a vacuum of catalysts, and inevitably, at some point, I think you’re going to get forgotten. We’re definitely seeing that dynamic. There’s still demand, and you are seeing deals get done. It’s a question of how they trade ultimately.

4. IPF Data Tests The Thesis

Okay. Thanks for that perspective. We’re going to pivot the conversation to data from the week. We’re going to start off in the IPF space, where Bristol Myers Squibb had a drug—I think it’s called admilparant? Sorry about that. They had a successful Phase 3 study, but maybe not so successful a Phase 3, and there are some read-throughs to other companies. With that in mind, I’ll turn it over to Paul or Brian, whoever wants to lead off the discussion on the IPF data.

I’m happy to kick it off, and I’d love to hear Skorney’s view. Bristol reported data that they’re describing as 100% positive, and I think they’re probably right that it’s positive for them in terms of getting a drug likely approved, and a drug that could be a big product. The drug is an LPA1 receptor antagonist for idiopathic pulmonary fibrosis.

IPF is a fatal lung disease. There are a number of drugs approved, but none of them are really that great or solving the unmet need, per se. Patients still progress, and tolerability is tough. LPA1 receptor has been a very interesting biological target, but it’s been somewhat controversial because we’ve had mixed historical success. We’ve had some failures, including failures of approaches that people looked at as orthogonal, such as pursuing autotaxin.

For Bristol, this study was not at all seen as a slam dunk. I think the nuance Graig is alluding to in terms of whether these data are positive is that the low dose had statistical significance and the high dose did not. In the grand scheme of things for admilparant, you probably just need to get on the market with this class. Even if the dose response is a little odd here, and even if the effect size ends up not being as big as some other things we’ll ultimately see, these drugs do seem to be much better tolerated than other drugs in IPF.

We’ve done a number of calls with specialists in this space who’ve been interested in this class of drugs because they could theoretically be combined with many other agents. Right now, it’s hard to stack agents because of tolerability.

And just for anyone listening for context, when we’re talking about IPF drugs, we’re talking about drugs that could potentially sell billions in revenue per year. What’s interesting here is that Bristol stock was volatile. It was up and down. I’m sure people are trying to make sense of the filing strategy, too. Is it okay that the high dose didn’t hit and the low dose did?

I think, given the unmet need in IPF, it’s hard to see the FDA not approving this. But Bristol didn’t give any hard clinical data, so you have to reserve some judgment until we see the full data, likely at a medical meeting next spring. The other orthogonal trade came from Contineum, a company I cover that’s also developing an LPA1 receptor antagonist. Contineum was up 20% in the premarket, then ended up down more than 25% on the day as people tried to make sense of what this means for the company.

Contineum’s drug may be more potent than Bristol’s, and part of its thesis is that it can achieve better receptor coverage than Bristol. But looking at Bristol’s dose response, which some people might call an inverse dose response, my guess is that it’s probably more of a flat dose response, or just noise, because these doses don’t seem that different in terms of receptor coverage. I think people not seeing this dose response has led to more questioning of whether greater receptor coverage can drive greater efficacy for Contineum.

In this biotech market, which is very anxious and not very patient, IPF trials take a long time, and Contineum’s trial isn’t expected to read out until 2028. The stock traded off on this sort of unanswerable question around clinical differentiation for these drugs. I think people are also wondering how clear-cut the Bristol data is, how big the effect size is, and how robust the p-value is. As we think about the orthogonal read-through, are these drugs de-risked?

Our perspective is that the unmet need in IPF is so significant. If Bristol’s data is real, as it looks like it is, and this ultimately becomes a big commercial product, there’s likely room for a number of these drugs. Contineum’s drug should, at the very least, have a dosing advantage with once-daily dosing. But a lot remains to be determined until we see the full data in the spring.

Investors tend to look at IPF as one of those conditions where the translatability from Phase 2 to Phase 3 isn’t that great. In the context of the Contineum discussion and this orthogonal read-through, people will be looking closely at this top-line readout that is “positive,” but perhaps a little nuanced. How nuanced is it, versus how confident can we be that this target is de-risked for others beyond Bristol? I don’t know, Skorney. What else did you want to add there?

I think we share a lot of the same thoughts. IPF is a terrible disease. I don’t want to totally equate it to lung cancer, but there are slight similarities. It’s a very progressive, fatal disease, and these patients quickly lose the ability to breathe. Clinical trials here have been really tough. Part of it is the nature of the disease being idiopathic: there isn’t a great understanding of its pathophysiology. You can recognize what IPF looks like in a patient, but the underlying biology is totally uncertain.

Even when you think about the approved drugs, like nintedanib or pirfenidone, they have kind of weird mechanisms. It’s not a case where you say, “Oh, there’s this clear biological plausibility.” That’s not always the case for effective drugs, of course, but I certainly think the unmet need is here. I think this would be an area of flexibility. I have battle scars from watching the FDA reject pirfenidone on its first go-around, despite what I thought was pretty good data. I thought they were going to approve it, but they made the company run another Phase 3 study to recapitulate what they had already seen in the prior study.

It’s not necessarily an easy indication from a regulatory perspective, and it’s very hard from a clinical trial perspective. As you said, Paul, it’s hard to say what’s noise and what isn’t. Certainly, the hypothesis should be that there would be at least a flat dose response or a dose-related relationship here. Inverse dose responses probably aren’t something you’d predict in a disease like IPF with this mechanism.

One question I’d have—and Bristol didn’t really address this yet—is whether there were more tolerability issues. It didn’t seem like there was a big tolerability issue overall, but if there were more discontinuations on the high dose and patients weren’t getting the drug, that would be something to consider. In general, I think people are looking at this data very skeptically and asking what it really means for the mechanism.

Given the dozen or so drugs with early positive data that ultimately went into much larger studies and failed to show a clear signal, I think there’s a certain psychology around IPF’s history. There isn’t a lot we’ve seen that you can bank on moving from Phase 2 to Phase 3.

Brian and Paul, on the IPF space, I have some battle scars of my own. I used to cover a company called Galapagos, which has now been rebranded as Lakefront Therapeutics. Galapagos had an autotaxin modulator that ended up failing in 2 Phase 3 studies, I think mainly because of an imbalance in mortality, which obviously wasn’t good for the drug.

I’m wondering, as we think about the IPF space, if anyone is investigating combination approaches, like in cystic fibrosis.

I think that would be the hope with this mechanism, as Paul alluded to. There are anecdotes of people using pirfenidone and nintedanib together, but those are really toxic drugs. The treatments available in the IPF space to move the needle have been pretty tough to combine. Part of the hope was that you’d have a very tolerable mechanism, and it would be a great advance if you could stack additional tolerable mechanisms to add up to a benefit.

With cystic fibrosis, the problem is that, unlike idiopathic pulmonary fibrosis, where the pathophysiology is very uncertain, we have a very good understanding of the underlying genetics, how those genetics result in a specific phenotype, and where to target with pharmacology to correct or potentiate it. We’ve seen that with Vertex’s drugs.

Thanks for that. Brian, we’re going to stay with you. Two weeks ago, we talked about Mirum and another drug that got approved. It looks like Mirum had some Phase 3 data this week that you wanted to highlight.

Yeah. Just really quickly, they had a Phase 3 data set for their commercial drug, Livmarli. Livmarli is approved in 2 pediatric cholestatic liver diseases to improve pruritus, which is the main symptom here. This was an interesting basket study in other pediatric cholestatic liver diseases where pruritus is occurring. It was mostly made up of patients with biliary atresia, but there were also a number of much smaller ultra-orphan subgroups.

It showed what I’d call very consistent placebo-adjusted reductions, with a good magnitude of reduction in pruritus from baseline. They’re going to file for this indication, which could potentially add another 2,000 patients in the U.S. and EU just on the biliary atresia side. The cumulative numbers for the other groups are a little more uncertain, but probably add another 2,000 patients.

This is a pretty meaningful potential expansion. I think it also builds upon Mirum’s evidence for IL-10 inhibition. This drug is an IL-10 inhibitor. They also have another drug that they’re planning to file for adult cholestatic liver disease.

I think the bulk of the evidence is that if a person has pruritus due to cholestasis, giving them an IL-10 inhibitor will dramatically reduce that pruritus. They’ve shown that in a number of studies now. I think this feeds into a lot of their long-term opportunity: they continue to show growth with Livmarli in the pediatric indication, and their very late-stage adult IL-10 inhibitor, volixibat, has a pivotal study readout in PBC in the next few months. They’re planning to submit an NDA for PSC, where there is no approved therapy, in the first half of next year.

Okay, great. Thanks so much. Let’s turn to Yaron. Yaron, you’re going to talk about a company that I don’t know of. It’s called First Tracks Biotherapeutics, and then you’re going to talk about maybe 1, if not 2, datasets from a company that everyone knows about. That’s argenx.

argenx.

I’ll turn it to you.

5. Celiac And Sjögren’s Data

Yeah. Everybody, if you’re not following celiac disease, it’s time to do so, because this is like the best of biotech. It’s going to be controversial. There’s a lot of competition, and there are going to be lots of fireworks, with questions about mechanism of action. You start drilling down into very, very specific activity and inflammation. Frankly, as we all know, we don’t know everything about immunology.

There are 3 companies here: Teva, argenx, and First Tracks. The good news is that Teva is hitting the IL-15 ligand, while argenx and First Tracks are hitting the receptor. All of them show really good data. They’re showing a reduction in the attack on the epithelial lining by lymphocytes, so a reduction in intraepithelial lymphocytes, or IELs. They’re also seeing histological benefits and symptom benefits in very small studies, and all of them look fairly similar.

argenx, which bought Forte Biosciences, is technically in the lead. They just released positive data literally last week, and they didn’t release the full data. The main event for all these companies is probably going to be the International Celiac Disease Symposium in Melbourne in mid-November. If you haven’t been to Melbourne, that’s a great chance to visit. I think many of us are trying to figure out what it’ll cost to get there, because we sort of need to be there. It’s going to be the coming-out party for celiac disease.

There are nuances. As I mentioned, Teva is hitting the circulating cytokine. Its drug is administered subcutaneously every 3 months. First Tracks and argenx are hitting the receptor where IL-15 binds. It’s called the CD122 receptor, which is also part of the IL-2 receptor. As soon as many of us hear IL-2, we know there’s going to be a lot of activity here, both good and bad, that we need to be very cognizant of. They’re essentially shutting down the activity that you don’t want to have. It seems to be fairly safe and active.

The data looks good. There are subtle differences in trial design. Nothing is approved, and there’s no “pathway” yet to getting drugs approved. They’ve all done slightly different studies in terms of the gluten challenge patients have to undergo. How hard do you go? How long do you go with the challenge? Then come the biotech debates: the gluten-free diet is not expensive, so what do you charge for a drug that reduces gluten intolerance? What’s the endpoint going to be: histology or symptoms? How long do you treat for? How hard do you go? All of this needs to be ironed out. The bulls say the market is going to be huge; the bears say it’s going to be very small because no one’s going to pay for it.

The good news is these drugs also work so far in vitiligo. We’ve seen data from Forte/argenx and Teva. We’re waiting for the alopecia data from argenx imminently, and First Tracks is also doing an EoE, or eosinophilic esophagitis, study. Lots to look forward to: unlocking a whole new area of biology, which is super cool.

Mm-hmm.

We were hosting our therapeutics conference in Boston, which is a 2-day symposium with physicians, and we literally wrapped up a very bullish Sjögren’s disease panel. Amgen, as you know, is going to have its Phase 3 data coming up at ACR, and the next dataset expected was argenx’s Phase 3 Vyvgart data in Sjögren’s. The panel was basically very positive on Amgen and very positive on the BAFF/APRIL modality. The first one is going to be Novartis with the weakest drug; Vera is coming behind with a better drug, and then there are the FcRn drugs from argenx. They viewed them as active, but fourth in potency.

Fast-forward 12 hours, and we all wake up to argenx terminating development after failing a futility analysis. None of us even knew there was a futility analysis in that Phase 3 study, and of course argenx immediately sold off. Again, that was surprising. We do think Sjögren’s is going to be a big market with innovation, and we’re already seeing success with the upcoming Phase 3 data at ACR from Amgen for the first study. They have a second Phase 3 study coming by the end of the year.

The more we learn about biology and inflammation, the more we realize it’s not one specific factor that drives the biology. A lot of times, it’s the B-cell/T-cell interaction that’s probably most important in regulating disease. That was an example of Vyvgart specifically reducing autoantibodies: great Phase 2 data, but it failed in Phase 3. Meanwhile, the CD40 ligand from Amgen, which had great Phase 2 data, now also has positive Phase 3 data by regulating the B-cell/T-cell interaction. Lots to study in immunology.

Yaron, are you surprised that argenx is flat compared with a year ago, even after the market and this setback? Honestly, as you were talking, I was looking at the chart of this versus Alnylam and Insmed. People were putting these in the same bucket. Alnylam and Insmed are both down a lot. argenx is still hanging in there. What do you think?

Good point. There are puts and takes, right? Insmed was supposed to get acquired, but it didn’t, and then the question is whether the launch is crushing numbers or not. Alnylam is not crushing numbers. Of course, BridgeBio is doing very well. There are concerns about market dynamics.

argenx was a high flyer this year, crushing numbers, with good data. Lots of generalists are involved globally, and I’ve got to be honest: this is the one stock where we feel like everybody owns it. Literally everybody owns it. So it always overreacts to the upside and, frankly, to the downside with any data—even data that, to us specialists, doesn’t matter. I’m not talking about the Sjögren’s data.

Am I surprised it’s flat, as opposed to being down a lot? We’re expecting another good quarter in both Q3 and Q4, and then they have very important Phase 3 data coming up in MMN, or multifocal motor neuropathy, with their C2 antagonist. This is all first-in-class new biology, and that should work. The question is whether it’s going to be non-inferior to IVIG or superior. That makes a big difference to peak sales, depending on whether you go second line or front line, and that will determine how the stock does by the end of the year.

Are we shocked? No. But, to be honest, argenx has performed better than we expected this year, too, and I think a lot of it has honestly been driven by generalists coming in. We’re pleased, and there’s obviously important data coming imminently that we’re constructive on.

I think the argenx story is remarkable. I remember at a prior firm, we initiated coverage in late 2018, at €89, I think. To see how far the company has come is great, and I think it’s great for European biotech, too, which sometimes gets a bad rap. Yaron, thanks so much for that summary. Great stuff there.

6. Brain Shuttle Data Builds Momentum

Paul, I want to turn it over to you, and we’re going to switch to neuro now, a place that’s near and dear to both of us. Arrowhead had some data for a tau asset this past Wednesday, so it would be helpful if you could summarize that data and what you think it might mean for the brain shuttle space.

Yeah. Thanks a lot, Graig. Arrowhead had clinical data for its transferrin siRNA drug conjugate. Transferrin conjugates have been used to deliver drugs in the brain. We’ve seen success with transferrin in increasing antibody penetration, in the case of trontinemab, Roche’s drug for Alzheimer’s that’s in Phase 3, and with Denali and JCR, with enzymes. The space is quickly moving towards all kinds of cargo.

I think it’s not just a delivery thing, either. For CNS, transferrin could increase the probability of success, depending on the target, because sometimes you can’t get enough drug into the brain, or you can’t get it to distribute to the right areas of the brain when you go intrathecal or use another approach.

This was interesting for a few reasons. First, Arrowhead, which doesn’t have much history with transferrin expertise compared with Roche or Denali, apparently executed very well and became the first to show clinical data for an siRNA antibody-drug conjugate. Second, the data were good. They showed data for their tau-lowering drug, with up to more than 80% tau lowering in the CSF. We’ll obviously see more details, but at a high level, it looks pretty promising.

The discussion around tau has become more nuanced for a couple of reasons. One is that CSF tau may not equal tau burden in the areas of Alzheimer’s pathology. Ultimately, that’s where this is the most exciting target in Alzheimer’s: you have to show a reduction in tau PET. We saw with Biogen that the CSF reductions were a lot bigger than the PET reductions.

Second, Biogen had data from a big Phase IIb study this summer for its tau-lowering drug, which is given intrathecally. The distribution and efficacy profile may be very different from Arrowhead’s. Biogen was able to lower both CSF tau and tau PET, and showed clinical benefit at the lowest dose, but there was an inverse dose response and toxicity at the higher dose. That’s led people to question whether the Biogen efficacy is real and what the dose relationship is with tau lowering. Our thought was that, at least on the safety side, the tau lowering across all the Biogen doses was close enough together that it’s hard to believe the toxicity was driven by tau. It seems more likely that it was idiosyncratic toxicity from the ASO. Until someone like Arrowhead or Denali tests this hypothesis with a next-generation tau drug, we won’t really have the answer.

There’s still tremendous promise here. It’s really cool to see Arrowhead succeeding in a new tissue. I don’t cover Arrowhead, but I remember that, a number of years ago, the company got the rap of having a lot of me-too products and pipelines that overlapped with Alnylam and Ionis in the liver space. You’ve really seen the company break out, not just by innovating in an area like tau, but also with its triglyceride drug.

Graig, I think you had another angle on transferrin more broadly. For me, it’s interesting that we’re seeing so many companies succeed with transferrin. It feels like it’s become like GalNAc in the liver relatively quickly. I don’t want to say it’s commoditized, because I’m sure there’s a lot of art and nuance in doing this, and you have to give credit to companies like Denali that have gotten a drug approved and really figured out the safety margins. But there are a lot of players in this space, and it feels like a lot of companies are figuring out the science at the same time.

Yeah, that’s a great segue. I cover a company called Alector. We’re neutral-rated on it, but they had an R&D day that I thought went really well. They’ve had a pivot of sorts. They had some clinical-stage assets that unfortunately didn’t work in late-stage clinical trials, and they’re focused on neurodegenerative diseases. Now they’re developing a proprietary technology that they’re calling ABC, short for Alector Brain Carrier.

This is against the backdrop of a very competitive landscape. You mentioned Roche and Denali, Paul, but there’s also AbbVie in this space. There’s Corsona [?] in this space. BioArctic is supplying its technology to a couple of companies, including Acumen and Prothena. Alector made a bigger splash with its ABC technology, and its lead asset is a beta-amyloid-targeting antibody called AL-137. We don’t have any clinical data yet, but they made a really interesting and persuasive argument as to why their construct may prove superior.

They’re using transferrin, and they also have siRNA-based approaches, including one that targets tau. That won’t get into the clinic until next year, or perhaps not until 2028, as I think about it. But they’ve shown preclinically tau mRNA knockdown of about 75% to 80%, so it’s in the ballpark. Tau has been a challenge for many companies because the view is that tau is perhaps more intracellular, and traditional antibody approaches won’t particularly work if you’re trying to target it intracellularly.

Keep an eye on Alector and the space. It has heated up quite tremendously, and we’ve seen a lot of deal activity. Interestingly, the company raised $75 million this morning, even though its event was on Tuesday. Good for Alector, and we’ll see continued progress in that space.

I also wanted to briefly mention Verastem, a company I cover, which is in the red-hot RAS inhibitor space. They had very, very excellent data for their mutant-selective KRAS G12D inhibitor. It’s still early days; this is Phase I and early Phase II data across multiple cancers, particularly pancreatic cancer. That has gotten all the attention because of what’s happening with Revolution Medicines and its pan-RAS inhibitor, which, I think, just this morning or yesterday got a positive CHMP opinion for approval.

There’s good momentum in the KRAS space, which continues to be very hot, and lots of entrants are coming into the space. We’ve got a couple of minutes left, but I wanted to turn it over to Jake, who we haven’t heard from in a little while. We want to talk about upcoming ESMO data, especially in the context of the Moderna candidate. Jake, I’ll turn it over to you.

Yeah. This has been a hotly watched area. In my opinion, in a certain context, we’ve had the first big breakthrough in cancer vaccines, with Moderna and Merck announcing eight weeks ago that they seem to be able to show a significant benefit with their vaccine. It’s been a hotly contested data point. I’ll say that there’s growing evidence that mRNA vaccines, even COVID vaccines, can provide an immunotherapy benefit on their own, probably from a general T-cell stimulation effect.

Notably, I believe the Moderna-Merck data are controlled against a placebo, not another cancer vaccine. So there’s this overarching question, further confounded by BioNTech having now canceled, I think, 2 of its non-melanoma monotherapy cancer vaccine trials: first in colorectal cancer, then more recently in head and neck cancer. Moderna and Merck have a combination with Keytruda and a cancer vaccine whose antigens, Moderna says, are derived from an AI algorithm.

A lot of the stock trading around that move was probably general fervor around the idea that AI has finally cracked cancer. We’ll see at ESMO. I think the general industry take from the press releases that came out eight weeks ago, and the general buzz around that data, is that there’s certainly an ability to increase progression-free survival among melanoma patients. It’s a very small market, and they’ll need to prove that out much more broadly. There have been some Twitter fights between reporters, analysts, scientists, and others about the impact of this data. But it gives us all a lot of hope that there’s a lot more work and progress to be made in cancer immunotherapy.

Unfortunately, the patient types addressed by the data being announced at ESMO are in some of the earlier stages, obviously with fully resectable tumors. But with screening, we could see that patient population grow. Full disclosure: I also run an mRNA therapeutics company, not a vaccine company. The general sentiment is that mRNA is back on the menu again. The general biotech community and investor sentiment in the market are incredibly excited about the ways mRNA can go from vaccines to therapeutic vaccines and, ideally, into real therapeutics in the future. That’s something we haven’t seen succeed over the past decade or so of its promise.

So everyone's keeping an eye on that data. The late-breaker will be released at ESMO, and we'll see the full picture. I would have loved to see a control with an mRNA vaccine that was not antigen-specific to the cancers. Maybe in the future we'll see that.

All right. That was great. Jake, thanks for that. That’s all the time we have for today. Thanks to my esteemed co-hosts for making today’s hangout a great one. And thanks to many of you who dialed in live, and perhaps those of you who will dial in on the replay. Have a great rest of your day, and we hope you’ll join us for our next Biotech Hangout.