Ep. 359 - 2Q markets preview, tariffs and biotech takeouts

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<v Voice Talent>BioCentury This Week is brought to you by IQVIA Biotech.

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<v Voice Talent>A full-service CRO right sized for biotech.

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<v Voice Talent>Dedicated to helping biotech leaders close unproductive gaps in clinical development so they can protect timelines, preserve capital and stay ahead of risk.

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<v Jeff Cranmer>Biotech has been resilient while markets are teetering under global uncertainty.

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<v Jeff Cranmer>M&A financings for biotech continue, emphasis on the M&A there.

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<v Jeff Cranmer>But will the Middle East conflict stop biotech's Recovery in its tracks?

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<v Jeff Cranmer>Will have Stephen Hansen today with BioCentury's Second Quarter Public Markets Preview.

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<v Jeff Cranmer>And indeed we closed March with more than $20 billion in biotech dealmaking.

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<v Jeff Cranmer>Two of the three biggest deals came last week from Biogen and Lilly.

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<v Jeff Cranmer>Biogen is strengthening its push in a nephrology with a $5.6 billion deal for Apellis, and Lilly's $6.3 billion for, Medici Ventures formed Centessa.

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<v Jeff Cranmer>that takeout helps validate, the broad potential of OX2R agonists beyond narcolepsy.

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<v Jeff Cranmer>We'll bring in Steve Usdin, our Washington editor to talk Trump's threatened pharma tariffs.

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<v Jeff Cranmer>And in addition to Steve as ever on the BioCentury This Week podcast, I'm joined by our illustrious Editor in Chief Simone Fishburn, and Lauren Martz will be also joining us to talk deals, and of course, Stephen Hansen, who's gonna kick off from the top.

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<v Jeff Cranmer>But first, Bio€quity Europe right around the corner.

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<v Jeff Cranmer>We're about four weeks away from this dare I say, the best, biotech meeting in Europe, 26th Edition in Prague in Central Europe for the first time in the Czech Republic.

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<v Jeff Cranmer>Tasty beer and up and coming biotech.

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<v Jeff Cranmer>Come check it out.

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<v Jeff Cranmer>Register now.

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<v Jeff Cranmer>We still have limited spots left for presenting companies, early private presenting companies to join us.

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<v Jeff Cranmer>So reach out to me if you'd like to get on stage at Bio€quity Europe.

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<v Simone Fishburn>Yeah, for presenting companies, I want to make one other point.

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<v Simone Fishburn>My colleague Stephen Hansen will be there, I will be there.

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<v Simone Fishburn>Steve Usdin will be there, a few of us will be there.

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<v Simone Fishburn>We really like to meet up and coming new companies, interesting companies, and when we meet them, we like to learn what they're doing and write about them when the time is right.

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<v Simone Fishburn>So this is for you and for us, an opportunity to present in front of investors.

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<v Simone Fishburn>But also an opportunity not only to meet us for the fun and great people we are, but also for us to understand your platform and be able to integrate that into our content and our analysis.

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<v Simone Fishburn>So we find it extremely exciting.

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<v Simone Fishburn>This is just a great way for us to get to know who's doing what, what the up and coming emerging technologies are, and then feed that into, uh, what we think about every day.

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<v Simone Fishburn>Right, Stephen?

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<v Stephen Hansen>Yeah, exactly right.

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<v Stephen Hansen>And Um you know, I think also, I think Jeff has mentioned this before, but uh, and I know Steve has expressed his.

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<v Stephen Hansen>enthusiasm for our subscriber, BioCentury lounge.

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<v Stephen Hansen>And so I imagine you can probably meet Steve, uh, he'll be lounging around in our

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<v Simone Fishburn>I have visions of him lounging around in there.

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<v Simone Fishburn>Absolutely don't

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<v Stephen Hansen>will the, I, I imagine I, I can just see him laying on a sofa, just, you know, chilling

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<v Simone Fishburn>Roman style.

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<v Simone Fishburn>Will we be feeding him grapes.

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<v Simone Fishburn>grapes?

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<v Stephen Hansen>that's right.

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<v Stephen Hansen>There you go.

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<v Simone Fishburn>Yeah, that's,

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<v Stephen Hansen>with a, with with a Czech, Czech beer in his hand.

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<v Steve Usdin>I, I'm looking forward to it.

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<v Steve Usdin>Looking forward to the lounge.

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<v Steve Usdin>I'm looking forward to Prague.

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<v Steve Usdin>First time I was in Prague was in 1988 and it was a different world back then, so I've been back a few times, but it's one of my favorite cities.

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<v Stephen Hansen>what was it called then, Jeff, I wonder, was it, uh.

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<v Jeff Cranmer>It's true.

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<v Jeff Cranmer>Uh, I've been catching up on my history this week.

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<v Jeff Cranmer>Um.

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<v Jeff Cranmer>Czech Republic.

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<v Jeff Cranmer>There we go.

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<v Jeff Cranmer>Well, great points about presenting companies, Simone, and, we're actively recruiting a cohort of Asian companies to be at the meeting and other meetings coming up.

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<v Jeff Cranmer>There's definitely gonna be one, for you on our roster.

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<v Jeff Cranmer>Uh, super duper early stage.

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<v Jeff Cranmer>We've got Grand Rounds coming up in Seattle and then Amsterdam, and then to round out the year, we will have our 13th China Healthcare Summit in Shanghai, which we put on with BayHelix and McKinsey, and we get a great roster of Chinese companies for that, but we're also looking for Western companies who want to go over to China, to see it for themselves, to meet top Chinese and Asian investors and executives.

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<v Jeff Cranmer>With that, Stephen, you've been talking to buy siders for the past month, probably a little bit after you started a war broke out, maybe that shuffled the deck a bit.

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<v Jeff Cranmer>Um what did you find?

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<v Stephen Hansen>Yeah.

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<v Stephen Hansen>No, Jeff, you're absolutely right.

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<v Stephen Hansen>The first, yeah, sort of week or so of my conversations with investors and bankers, it was all, everybody was excited, you know, things were working well.

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<v Stephen Hansen>It was basically a continuation of what we saw.

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<v Stephen Hansen>Sort of in the fourth quarter last year where biotech was outperforming, deals were getting done, both financing deals.

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<v Stephen Hansen>M&A was getting done, lots of deals were getting upsized, so people were very excited.

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<v Stephen Hansen>You know, there were IPOs happening and then the U.S. uh, decided to start a little conflict in the Middle East and it kind of, kind of blew a hole in all my conversations in the sense that that was kind of the topic that everyone wanted to talk about was essentially what impact that might have on the markets.

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<v Stephen Hansen>And it basically was, everyone was pretty optimistic about where biotech, the fundamentals of the sector were going, but now it just had this huge cloud kind of overhanging everything in terms of where things might go in the second quarter.

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<v Stephen Hansen>So, you know, in this, I tried to kind of take this kind of two-pronged, I guess, approach to it, in the sense that looking at, okay, if things, and, and I know Simone might, uh, quibble with my use of this term here, but if things find some sort of resolution or there's a, uh, some sort of settling, settling down of the, uh, of the tensions, what does that look like for biotech?

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<v Stephen Hansen>But then if things were to carry on.

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<v Stephen Hansen>You know, what does that potentially mean?

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<v Stephen Hansen>And so, so that's kind of what part of this analysis looks to do.

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<v Simone Fishburn>Let me make a couple of comments first, Stephen.

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<v Simone Fishburn>I think the moral of the story.

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<v Simone Fishburn>You can't start doing your research for the Quarterly Preview in this era quite so early.

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<v Simone Fishburn>Right.

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<v Simone Fishburn>So, you know, why would you assume in February that it will stay the same?

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<v Simone Fishburn>Right.

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<v Simone Fishburn>And, uh, you know, I, I have a couple of other comments.

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<v Simone Fishburn>You know, I would say in my conversations, I mean, you know, even thinking back to East-West, it actually took biotech quite a while.

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<v Simone Fishburn>To start thinking about the impact of this war.

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<v Simone Fishburn>So I was asking the question when we were at East-West people were saying, sure, it's affecting my own portfolio, but I'm not so worried about this.

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<v Simone Fishburn>And I think the timing of that was sort of early on in the war.

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<v Simone Fishburn>I think now, and this is what Stephen's referring to is that, I think that some of the way that it's being expressed is when it reaches a resolution.

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<v Simone Fishburn>I think we all have to be cognizant of the fact that there is a scenario in which it reaches a resolution, but there's also a scenario in which it is prolonged, and I think that most people aren't yet baking that in.

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<v Simone Fishburn>I think they're baking in, is it two weeks?

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<v Simone Fishburn>Is it four weeks?

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<v Simone Fishburn>Or whatever?

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<v Simone Fishburn>Um you know, with a really prolonged scenario, there will be some settling down.

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<v Simone Fishburn>So, you know, I think, Stephen, why don't you, you know, I'm, I'm looking actually at your your chart here with the smid caps where it seems to me that that might be the area which is specifically vulnerable.

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<v Simone Fishburn>They've been through a bull market, then a bear, and then you've just got this sort of continued volatility era.

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<v Simone Fishburn>And are those the ones you're feeling like are most subject to this kind of uncertainty

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<v Stephen Hansen>Yeah, I, I think

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<v Simone Fishburn>of the last five years, right?

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<v Simone Fishburn>Uncertainty.

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<v Stephen Hansen>It has, it has.

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<v Stephen Hansen>And I feel like I've overused that phrase far too much, but yeah, no, this, this kind of volatility, I think, kind of hurts the smaller caps for sure.

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<v Stephen Hansen>Um I mean, so, so the point that, you know, that people were making was, you know, the one way to look at it is that if we do have a prolonged scenario where oil prices remain high.

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<v Stephen Hansen>the follow this sort of sequential follow through there is oil prices remain high that leads to higher inflation, which then the trickle down there is potentially higher interest rates.

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<v Stephen Hansen>And we've kind of seen, you know, in the past couple years, what happens to biotech when you have high interest rates.

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<v Stephen Hansen>It's usually not, not good for the markets.

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<v Stephen Hansen>The flip side though, that a couple people argued for, and we can debate how much we agree with this, but there were a couple investors that were arguing that.

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<v Stephen Hansen>There is, a way to look at it that maybe biotech is more sort of insulated from, from this particular conflict, just because it doesn't have the same sort of direct tie-ins to the price of oil relative to other sectors, I think was the point.

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<v Stephen Hansen>It's not that it's not that biotech won't be affected if the whole market goes down.

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<v Stephen Hansen>Of course biotech will also go down, but it might not go down as much because it doesn't have the same direct inputs from oil or, or from fuel as other sectors might have.

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<v Stephen Hansen>And so in that sense, on a relative basis, there were some arguments being made that biotech could be a bit of a safe haven.

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<v Stephen Hansen>But

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<v Steve Usdin>uh, say a safe haven.

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<v Steve Usdin>Say, say, it won't go down as much.

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<v Steve Usdin>It won't be as bad as something else, is really not a good argument for something being a safe haven.

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<v Stephen Hansen>that's

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<v Simone Fishburn>it, it's a little bit because if they wanna put their money, some.

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<v Simone Fishburn>Where does biotech represent a safer version than somewhere else?

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<v Simone Fishburn>'cause they're not gonna put it under the bed

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<v Steve Usdin>Yeah.

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<v Steve Usdin>That that's what everybody's looking for.

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<v Steve Usdin>Invest here.

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<v Steve Usdin>You lose less than if you invest invested somewhere else.

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<v Simone Fishburn>Well.

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<v Stephen Hansen>a

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<v Simone Fishburn>I think this is why I was making the point about the smaller companies, because the biggest impact is on interest rates and they're the ones who are most vulnerable to interest rates, I would think.

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<v Simone Fishburn>Right?

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<v Simone Fishburn>The slightly bigger, stable companies, and certainly the pharmas can argue that oil prices is less of an impact on their actual operations, on their ability to deliver results.

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<v Stephen Hansen>Well, it, it, I mean, it, it, it's also, you know, when you think about the specialists, I mean, so that's a situation where they have to keep their money invested.

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<v Stephen Hansen>They can't just, their LPs aren't in their funds for them to be 95% in cash, right?

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<v Stephen Hansen>They have to be invested.

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<v Stephen Hansen>And so if there is a flight to safety, they're probably more likely to, to move their money towards the larger, more liquid names, the ones that have, you know, cash flows and those sorts of things.

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<v Stephen Hansen>And so that's where I think it's also a problem for small caps is because then there's just, there's, there's less reason for, for investors to sort of stay in those small caps during periods of high volatility.

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<v Simone Fishburn>Can I just go back to something else you said, Stephen?

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<v Simone Fishburn>'cause I wanna dig into this.

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<v Simone Fishburn>You know, one of the things that Stephen and I were talking about is the fact that biotech over the quarter was more resilient.

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<v Simone Fishburn>Now, actually what that was was more resilient over the first couple of months.

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<v Simone Fishburn>Right.

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<v Simone Fishburn>And maybe that's something also just to double click on Stephen, because I think there is good news there.

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<v Simone Fishburn>And in a scenario which is plausible, that this, uh, conflict comes to an end, certainly given midterms and all those pressures, we don't need to become sort of Middle East analysts here to, to talk about that.

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<v Simone Fishburn>But in that scenario, maybe we return to that that environment.

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<v Simone Fishburn>And perhaps you can talk about the drivers behind why biotech outperformed in the first two months.

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<v Stephen Hansen>Sure.

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<v Stephen Hansen>No, and, and that is kind of the hope is that if, if there is a, a near term solution.

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<v Stephen Hansen>Um then, then maybe biotech can, can come back to the trajectory that it was on.

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<v Stephen Hansen>And as you say that, that trajectory was primarily driven by by M&A, which we have seen continue.

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<v Stephen Hansen>So in the first quarter there was, uh, I believe nine deals that were had cumulative of 32 billion.

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<v Stephen Hansen>Which is sort of a continuation, as I said, of a run.

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<v Stephen Hansen>We have a nice chart that kinda shows that flow of deals, uh, basically over the past nine months at a pretty steady cadence.

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<v Stephen Hansen>And then just good performance.

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<v Stephen Hansen>I mean, we've had some good clinical readouts.

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<v Stephen Hansen>You're seeing companies getting rewarded for those good clinical readouts.

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<v Stephen Hansen>So there's sort of quite rational investor reaction.

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<v Stephen Hansen>And then companies are able to raise really well on the back of those, of those catalysts.

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<v Stephen Hansen>And a lot of those deals were upsized.

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<v Stephen Hansen>And you know, as, as we've kind of been saying, when you're seeing companies, you know, proposing to raise 400 and then they raise 650, oftentimes that's a pretty good indicator that you had some fairly large checks that were wanting to come in on those deals.

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<v Stephen Hansen>And those tend to be, you know, long only mutual funds for these more generalist sort of monies that want to get in.

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<v Stephen Hansen>And so again, that's also a good sign if they're wanting to increase their exposure.

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<v Stephen Hansen>As I think we talked about in the, uh, in the 26th Preview those generalists had been underweight our sector for so long, you know, they were looking to increase their exposure and, and, and we saw a continuation of that.

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<v Stephen Hansen>And it didn't just end, in the first two months.

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<v Stephen Hansen>I mean, we saw three pretty good upsized deals during March, you know, while the conflict was, was ongoing.

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<v Stephen Hansen>So.

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<v Stephen Hansen>Um that's what I was sort of meaning when I was talking about sort of the resiliency of the sector is that you were still getting deals done, you were still seeing financing, you were still seeing M&A, all the things that were good.

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<v Simone Fishburn>Couple of quick things in the empty half of the glass.

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<v Simone Fishburn>IPOs still cold out there.

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<v Simone Fishburn>And actually, I don't know if this counts as empty or full, but took a little bit about predictability at FDA and the importance of it and what you were hearing about the Prasad departure.

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<v Stephen Hansen>Sure.

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<v Stephen Hansen>yeah, so IPO's expectation is those are what are most vulnerable to this volatility.

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<v Stephen Hansen>So the expectation is those will pretty much be on hold until volatility subsides.

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<v Stephen Hansen>but there's still plenty of companies that are hoping to get out later this year.

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<v Stephen Hansen>On FDA, again, this is more, I guess a hope, I think but I had several investors sort of citing the fact that Prasad was departing as hoping that there might be a return to something that's more predictable at the agency.

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<v Jeff Cranmer>And that's, Vinay Prasad, who was the head of, CBER and, uh, the CSO and CMO who, uh, is departing imminently for the second time.

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<v Stephen Hansen>That's right because I think the investor perception is that he was played some role in a lot of the decisions that were sort of baffling investors.

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<v Stephen Hansen>And in some of the turns that that made it hard for, for companies to, you know, where they thought they had an agreed upon sort of plan.

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<v Stephen Hansen>And then FDA sort of, you know, did a 180 on that.

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<v Stephen Hansen>And I think a lot of the sentiment is that he was behind a lot of those decisions.

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<v Stephen Hansen>And so the hope is that his leaving will, will change that.

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<v Stephen Hansen>Um I imagine, Steve, do you have an opinion on whether that's good thing to, to expect?

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<v Steve Usdin>Yeah.

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<v Steve Usdin>Yeah.

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<v Steve Usdin>You know, I, I think, so here's the thing, I I, I had a story last week that talked about companies that have received complete response letters, going into FDA and meeting with the Chief Counsel there, uh, which is highly unusual, companies don't usually meet with the Chief Counsel about pending applications.

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<v Steve Usdin>The calendar notification about one of the meetings said they were in there to talk about approval pathways.

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<v Steve Usdin>From what I'm hearing from people in FDA and from people in the who were, close to the companies that had those meetings, FDA's looking for ways to To find a path forward for products that Um receive CRLs either from CBER under Prasad or from CDER, but with Prasad's influence.

00:15:50.783 --> 00:15:55.321
<v Steve Usdin>It doesn't mean that it's gonna happen necessarily, but I think that  it's a positive sign for those companies.

00:15:55.620 --> 00:16:01.559
<v Steve Usdin>On the other hand, what that doesn't mean is that we're going back to a more normal situation.

00:16:01.860 --> 00:16:24.482
<v Steve Usdin>I think that the, well, it's good news for a company and for patients if a product that received a CRL in the past if FDA finds a way to approve those products, but it still creates a tremendous problem because you've got unpredictability, you've got lost time that, uh, those patients and those companies will never get back Um in a, in a lot of process problems.

00:16:24.482 --> 00:16:42.400
<v Steve Usdin>So the real question, beyond the specific products that we have um had setbacks, is whether the new CBER Director will bring CBER and, and hopefully even a read through to CDER, back into a more stable and predictable, regulatory pathway.

00:16:42.400 --> 00:16:45.571
<v Steve Usdin>There's a possibility that will happen Um but it remains to be seen.

00:16:46.437 --> 00:17:02.687
<v Jeff Cranmer>So there's a couple of other big factors out there, Stephen you did say IPO is a bit rough, but M&A, as  you talked about a little bit, we talked about at the top, just in the, uh, wrap up of March, we had three deals that were over $5 billion up front.

00:17:02.687 --> 00:17:15.933
<v Jeff Cranmer>So that's gotta be heartening to biotechs out there that there's, interest from big biotechs and pharmas and this pharma tariff situation that's just, come back into view.

00:17:15.933 --> 00:17:18.303
<v Jeff Cranmer>And so why don't we shift to that?

00:17:18.604 --> 00:17:22.441
<v Jeff Cranmer>Uh, Steve, I know you've been, taking a close look at this.

00:17:22.441 --> 00:17:23.008
<v Jeff Cranmer>What are you learning?

00:17:23.741 --> 00:17:26.811
<v Steve Usdin>Okay, so you know level set what's been announced.

00:17:27.211 --> 00:17:32.651
<v Steve Usdin>the administration is saying that it's gonna impose up to a hundred percent tariffs on imported patented drugs.

00:17:33.484 --> 00:17:38.891
<v Steve Usdin>And some APIs from companies that haven't cut, MFN and Onshoring deals.

00:17:39.090 --> 00:17:44.930
<v Steve Usdin>It's gonna exempt generics, biosimilars, orphan drugs, and so-called specialty categories.

00:17:45.263 --> 00:17:49.334
<v Steve Usdin>It's gonna be implemented over the next 120 to 180 days.

00:17:49.667 --> 00:18:04.482
<v Steve Usdin>The tariff levels, are gonna be lower for companies that have done trade deals with the United States, uh, 0% for U.K. and other countries are gonna have rates  between 15 and 20%.

00:18:04.982 --> 00:18:06.951
<v Steve Usdin>So what's this all about?

00:18:07.019 --> 00:18:18.063
<v Steve Usdin>I think that what this is all about is coercing smaller companies, mid-size companies into doing MFN deals with the administration.

00:18:18.262 --> 00:18:23.501
<v Steve Usdin>Remember, companies that do an MFN deal are gonna be exempt from these tariffs.

00:18:24.068 --> 00:18:30.275
<v Simone Fishburn>Steve, I'm ask you the question that I very often ask you, how how permanent is this?

00:18:31.076 --> 00:18:33.846
<v Simone Fishburn>What degree is a future?

00:18:34.078 --> 00:18:38.584
<v Simone Fishburn>You know, a different congress, but certainly a future president going to keep this.

00:18:38.650 --> 00:18:41.319
<v Simone Fishburn>And how should companies be thinking about the long term?

00:18:42.121 --> 00:18:52.964
<v Steve Usdin>Well, so that's really a, it's a very difficult situation for companies because the MFN deals that have been done to date, expire at the end of the Trump administration.

00:18:53.164 --> 00:18:54.398
<v Steve Usdin>Remember, they're secret deals.

00:18:54.398 --> 00:18:56.535
<v Steve Usdin>We don't know what's in them, though.

00:18:56.567 --> 00:19:07.145
<v Steve Usdin>I think we will know what's in them soon enough because if the Democrats take either House of Congress, they're gonna subpoena those deals and make them public or make redacted versions of them public.

00:19:07.145 --> 00:19:07.980
<v Steve Usdin>So we'll find out.

00:19:08.212 --> 00:19:12.750
<v Steve Usdin>But anyway, the MFN deals have sunsets at the end of the Trump administration.

00:19:13.417 --> 00:19:15.988
<v Steve Usdin>The tariffs don't have sunsets.

00:19:16.255 --> 00:19:20.192
<v Steve Usdin>Theoretically a new administration and president could view them differently.

00:19:20.726 --> 00:19:29.367
<v Steve Usdin>One of the other things that's happening is that the administration is leaning on Congress to codify the MFN deals that would make them permanent.

00:19:29.634 --> 00:19:32.136
<v Steve Usdin>And industry is resisting that.

00:19:32.703 --> 00:19:35.507
<v Steve Usdin>It's likely to come back again soon.

00:19:35.740 --> 00:19:49.954
<v Steve Usdin>It's gonna come back in the context of funding bills for the war and other funding bills because the administration is going to present MFN codification as a cost saver that can be used to offset, spending on other things.

00:19:49.954 --> 00:19:57.261
<v Steve Usdin>So it's still an uphill battle for the administration to persuade Congress to codify MFN, but it's certainly not out of the question.

00:19:57.261 --> 00:19:59.765
<v Steve Usdin>And if that happened, then it would be permanent.

00:20:00.332 --> 00:20:01.299
<v Simone Fishburn>One quick follow up.

00:20:01.333 --> 00:20:07.306
<v Simone Fishburn>We have seen in other contexts the Supreme Court sort of slapped down tariffs.

00:20:07.439 --> 00:20:15.446
<v Simone Fishburn>Is this tariff use by the president considered to be quite safe from that, or will there be legal challenges to this?

00:20:16.448 --> 00:20:17.915
<v Steve Usdin>Oh, there there are very likely to be.

00:20:18.083 --> 00:20:22.854
<v Steve Usdin>Legal challenges, whether they succeed or not is anyone's guess.

00:20:23.020 --> 00:20:26.625
<v Steve Usdin>And I think that it will take time for that to play out.

00:20:26.959 --> 00:20:33.030
<v Steve Usdin>It's not as, obvious a case, uh, legal case against these tariffs as some of the other ones.

00:20:33.265 --> 00:20:35.000
<v Steve Usdin>So  it's really highly uncertain.

00:20:35.000 --> 00:20:39.503
<v Steve Usdin>We don't know whether legal challenges would be successful or not.

00:20:39.503 --> 00:20:48.614
<v Steve Usdin>And we also don't know whether they would be specific to a particular company or whether they would be, uh, if they were successful or if they would be, you know, sweeping across the board.

00:20:48.913 --> 00:20:54.086
<v Steve Usdin>So I, I don't think that anybody can count on Um these tariffs just being thrown out.

00:20:54.419 --> 00:21:07.231
<v Steve Usdin>I think that some of the other things that are important to think about is that what the administration's really doing is it's squeezing or it's putting the pressure on mid-sized and smaller companies to do MFN deals.

00:21:07.365 --> 00:21:13.872
<v Steve Usdin>A lot of them are highly dependent on manufacturing overseas, for example, in Ireland and in China.

00:21:14.205 --> 00:21:22.681
<v Steve Usdin>And those companies are in a much worse position to do deals with the administration than the 16 big companies that have already done deals.

00:21:23.382 --> 00:21:30.721
<v Steve Usdin>They can't, in many cases, they can't offer to do high profile manufacturing expansion in the United States.

00:21:30.721 --> 00:21:34.459
<v Steve Usdin>They don't have the, necessarily have the resources to be able to do that.

00:21:34.792 --> 00:21:54.278
<v Steve Usdin>And they by virtue of the fact that they're coming later, they have, they generally have less, less leverage than, and then the big companies, another thing that's important to remember about this tariff announcement is that  there's an opening, the Secretary of Commerce can designate a drug as a specialty drug.

00:21:54.378 --> 00:22:00.786
<v Steve Usdin>And if a drug is designated as a specialty drug, then it can be exempt from the tariffs.

00:22:01.086 --> 00:22:05.257
<v Steve Usdin>And that opens Um the door for political considerations.

00:22:05.723 --> 00:22:07.459
<v Steve Usdin>Cronyism, dare I say corruption.

00:22:08.559 --> 00:22:20.372
<v Steve Usdin>So I think that's also gonna play into people's thinking about this and their lobbying of the, Trump administration to try to get particular products or particular companies exempt from the tariffs.

00:22:20.872 --> 00:22:31.349
<v Steve Usdin>Overall, I think that another thing that's really important to think about it is that this does nothing to impact companies doing R&D overseas.

00:22:32.116 --> 00:22:38.589
<v Steve Usdin>Acquiring early stage assets based on Um R&D that's been, conducted overseas.

00:22:38.723 --> 00:22:53.805
<v Steve Usdin>And it also, it gives big companies that have done MFN deals leverage in acquiring assets from smaller companies that rely on overseas manufacturing because the big companies remember that have done these deals, they're exempt from the tariffs.

00:22:54.605 --> 00:23:02.480
<v Steve Usdin>So when they're negotiating with smaller companies that might be subject to these tariffs this gives them  quite a favorable situation.

00:23:02.780 --> 00:23:11.189
<v Stephen Hansen>Steve, I just wanna ask you about, you know, with respect to the, the situation these small companies find themselves in, isn't this the role of the trade organizations?

00:23:11.189 --> 00:23:21.298
<v Stephen Hansen>I mean, isn't this where they can step in and try and negotiate on behalf of a group of small biotech companies rather than leaving it to each of them to handle individually?

00:23:21.900 --> 00:23:24.001
<v Steve Usdin>No, I mean, you, you would think so.

00:23:24.135 --> 00:23:35.046
<v Steve Usdin>But  the Trump administration sidelined the trade association's early in the MFN negotiations, it announced that it wasn't going to deal with the trade associations.

00:23:35.180 --> 00:23:37.516
<v Steve Usdin>It would only deal with individual companies.

00:23:37.982 --> 00:23:41.920
<v Steve Usdin>And there's no sign that it's going to, to change from that policy.

00:23:42.421 --> 00:23:48.426
<v Steve Usdin>So the trade associations have put out statements, Bio, put out a statement, arguing that the tariffs are counterproductive.

00:23:48.593 --> 00:23:54.365
<v Steve Usdin>PhRMA's uh, put out statements, uh, against them, but they're really not particularly relevant in these negotiations.

00:23:55.333 --> 00:24:00.838
<v Jeff Cranmer>All right, and Steve Story is now up on BioCentury.com.

00:24:00.838 --> 00:24:04.742
<v Jeff Cranmer>Obviously an unfolding situation that Steve will continue to follow.

00:24:04.742 --> 00:24:05.977
<v Jeff Cranmer>Steve also, uh.

00:24:06.178 --> 00:24:13.384
<v Jeff Cranmer>Couple weeks ago had a nice piece on a new initiative by C-Path, Steve, just top line.

00:24:13.384 --> 00:24:15.519
<v Jeff Cranmer>Uh, why should readers check that story out?

00:24:16.520 --> 00:24:18.789
<v Steve Usdin>C-Path is the Critical Path Institute.

00:24:19.057 --> 00:24:23.728
<v Steve Usdin>It's a public-private partnership between FDA and academics and patient groups.

00:24:23.929 --> 00:24:33.104
<v Steve Usdin>The initiative is called One to Millions, and it's basically an initiative that aims to implement the plausible mechanism pathway.

00:24:34.205 --> 00:24:45.616
<v Steve Usdin>In a broad way, if it's successful, it could have a really large impact on, companies that are trying to develop therapies for very rare conditions.

00:24:46.183 --> 00:25:00.898
<v Steve Usdin>I'd say in essence, the idea that C-Path has is to try to move toward a process approval pathway for products such as  the, uh, ASO's for N-of-1 or actually N-of-a-few conditions.

00:25:01.232 --> 00:25:02.534
<v Steve Usdin>You should read my story.

00:25:02.733 --> 00:25:13.111
<v Steve Usdin>If it's successful, I think it will be an inflection point in a positive way for the development of therapies for rare and especially Um ultra rare conditions.

00:25:14.112 --> 00:25:18.817
<v Jeff Cranmer>Alright, we're gonna take a quick break and we'll be back to bring in deals.

00:25:18.817 --> 00:25:25.089
<v Jeff Cranmer>Lauren's been waiting patiently and she is excited to tell you about a space that she has been watching for some time now.

00:25:25.523 --> 00:25:30.795
<v Voice Talent>BioCentury This Week is brought to you by the 26th Bio€quity Europe in Prague, Czech Republic.

00:25:32.631 --> 00:25:37.669
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00:26:33.057 --> 00:26:35.393
<v Jeff Cranmer>Okay, we are back.

00:26:35.859 --> 00:26:45.537
<v Jeff Cranmer>Last Tuesday, Eli Lilly announced plans to take out uh, Medici Ventures, formed biotech, for around 6.3 billion.

00:26:45.636 --> 00:26:48.606
<v Jeff Cranmer>Uh, it was a 38% premium.

00:26:48.906 --> 00:26:55.079
<v Jeff Cranmer>The deal contains a contingent right, something we've been seeing a lot of lately.

00:26:55.180 --> 00:26:59.817
<v Jeff Cranmer>And it was one of two really big deals last week, the other was Biogen.

00:26:59.817 --> 00:27:01.318
<v Jeff Cranmer>We'll get to that in a minute.

00:27:01.486 --> 00:27:08.425
<v Jeff Cranmer>Together the two big deals accounted for nearly 12 billion in upfront payments from the M&A.

00:27:09.193 --> 00:27:15.266
<v Jeff Cranmer>Lauren,  it brings a little jolt of energy into a space that you've been writing about that's really featured.

00:27:15.266 --> 00:27:15.432
<v Jeff Cranmer>Uh.

00:27:15.767 --> 00:27:18.936
<v Jeff Cranmer>Takeda and Alkermes.

00:27:19.037 --> 00:27:21.605
<v Jeff Cranmer>What does the deal say to you about the landscape now?

00:27:22.740 --> 00:27:25.844
<v Lauren Martz>Well this, this is an area that we've been following closely.

00:27:26.577 --> 00:27:41.992
<v Lauren Martz>In part because, so this is the narcolepsy space Um in part because it's just a major breakthrough for type one narcolepsy to have a therapy that gets at sort of the root cause of this condition, which is known for that form of the disease.

00:27:41.992 --> 00:27:48.767
<v Lauren Martz>So for a long time it was difficult to agonize the orexin receptor 2.

00:27:49.366 --> 00:27:55.140
<v Lauren Martz>Takeda's kind of had a major breakthrough there has a drug that could be approved this year.

00:27:55.507 --> 00:28:10.355
<v Lauren Martz>But what I think this deal Eli Lilly's acquisition says is that there's much broader potential for this mechanism that goes beyond this subtype of narcolepsy, this very serious subtype of narcolepsy, which makes it even more exciting, I think.

00:28:10.855 --> 00:28:21.098
<v Lauren Martz>While Takeda is focusing on that specific indication, Centessa and Alkermes have data in other forms of narcolepsy and other sleep disorders as well.

00:28:22.000 --> 00:28:30.174
<v Lauren Martz>They both have presented data for narcolepsy type two, and Centessa has data for idiopathic hypersomnia as well.

00:28:30.407 --> 00:28:39.416
<v Lauren Martz>And those proof of concept Phase II results really suggest that even though the same underlying mechanism may not necessarily be at play.

00:28:40.250 --> 00:28:45.957
<v Lauren Martz>There is potential to regulate sleep in other disorders, which could even extend beyond that.

00:28:46.257 --> 00:28:59.537
<v Lauren Martz>I think the reason Lilly hasn't directly said, we're acquiring this company because it has broader potential, but if you line up the Phase II data, Centessa's results looked very strong relative to what Alkermes saw.

00:28:59.903 --> 00:29:04.541
<v Lauren Martz>And the CVR that you mentioned is, is pretty tied to.

00:29:05.276 --> 00:29:08.378
<v Lauren Martz>Indications outside of narcolepsy, type one.

00:29:08.480 --> 00:29:14.152
<v Lauren Martz>so all of those $9 are broken down into three different regulatory milestones.

00:29:14.184 --> 00:29:16.621
<v Lauren Martz>Uh, none are specific to nar, narcolepsy type one.

00:29:17.622 --> 00:29:22.259
<v Simone Fishburn>Yeah, it's, I think it's a really interesting field, Lauren, as you, as you pointed out, we have been following it.

00:29:22.259 --> 00:29:26.663
<v Simone Fishburn>It's one where the biology just continued to unfold.

00:29:26.663 --> 00:29:30.000
<v Simone Fishburn>People were interrogating   the receptors and sort of learning more and more.

00:29:30.000 --> 00:29:39.810
<v Simone Fishburn>And so, you know, Stephen has written about several indications that sort of started out with very little activity in the space, certainly some rare ones.

00:29:39.810 --> 00:29:46.416
<v Simone Fishburn>And then they end up being sort of gateways either to a lot of activity in that space or gateways to much bigger ones.

00:29:46.416 --> 00:29:55.026
<v Simone Fishburn>And it looks like this form of narcolepsy is opening the door to some, potentially a lot of competition and also bigger markets.

00:29:55.026 --> 00:30:03.201
<v Simone Fishburn>So for me, we knew Takeda was in there, Alkermes, Lilly buying Centessa really at sort of a center of gravity.

00:30:03.768 --> 00:30:10.040
<v Simone Fishburn>Um another center of gravity, a really big player in that space that says to me that this is, this is really one to watch.

00:30:10.575 --> 00:30:11.209
<v Lauren Martz>Absolutely.

00:30:11.241 --> 00:30:18.348
<v Lauren Martz>And you know, we're, we think about the sleep disorders, but if you think about all the other neurological conditions that have sleep disturbances.

00:30:18.817 --> 00:30:23.421
<v Lauren Martz>As a side effect and how big those chronic disease markets are.

00:30:23.621 --> 00:30:29.760
<v Lauren Martz>If this works in those indications, it it, it absolutely opens the door to, huge potential drugs.

00:30:29.760 --> 00:30:33.765
<v Lauren Martz>And so as I said, I think that Phase II data suggests that that is a possibility.

00:30:34.097 --> 00:30:38.001
<v Lauren Martz>Narcolepsy type one is caused by loss of the orexin producing neurons.

00:30:38.001 --> 00:30:41.105
<v Lauren Martz>So if you agonize the receptor, that makes sense.

00:30:41.105 --> 00:30:42.440
<v Lauren Martz>You've got that causal biology.

00:30:42.707 --> 00:30:49.446
<v Lauren Martz>But when they show that even when those neurons are present, even when there's orexin, that's, you know, engaging its receptor.

00:30:50.013 --> 00:30:59.022
<v Lauren Martz>If you agonize the receptor more, you can help people stay awake, that's sort of was, I think, the, uh, tipping point for this could work elsewhere too.

00:30:59.990 --> 00:31:05.395
<v Jeff Cranmer>Alright, and for Lilly, it is the fourth, fairly large deal of the year.

00:31:05.395 --> 00:31:10.101
<v Jeff Cranmer>It's putting that obesity, uh, revenue to work, building out its pipeline.

00:31:10.602 --> 00:31:25.083
<v Jeff Cranmer>And, Lauren, I, I see in your story that you said it's, Lilly's largest deal since 2019 when it bought Loxo for 7.2 billion on the eve of JP Morgan, that was, uh, a fun one.

00:31:25.115 --> 00:31:36.493
<v Jeff Cranmer>Uh, other big deals that it did, so far this year, it is buying circular RNA company Orna, which brings Lilly into the in vivo CAR T race.

00:31:36.928 --> 00:31:51.776
<v Jeff Cranmer>And let's see what else it bought Ventyx, which has four clinical products, including a pair of NLRP3 inhibitors, for some cardiometabolic and neurologic indications.

00:31:52.143 --> 00:32:14.132
<v Jeff Cranmer>And then, can't sleep on Innovent one of the big up and coming companies in China, Lilly and Innovent have a half a dozen deals, and they did a, uh, a broad pipeline deal, with Lilly paying Innovent 350 million upfront, Innovent eligible for 8.5 billion, for those that are into biobucks.

00:32:14.365 --> 00:32:18.670
<v Jeff Cranmer>Oncology and immunology is the focus there.

00:32:19.002 --> 00:32:21.172
<v Jeff Cranmer>Alright, I wanna bring Stephen back in.

00:32:21.204 --> 00:32:25.943
<v Jeff Cranmer>Uh, Stephen Biogen, uh, obviously a company you've followed for a very long time.

00:32:26.243 --> 00:32:32.817
<v Jeff Cranmer>Chris Viehbacher, has been reshaping the company through BD in many ways.

00:32:32.817 --> 00:32:44.095
<v Jeff Cranmer>And, uh, the latest is buying Apellis for 5.6 billion to add a pair of growth drivers, and get some commercial infrastructure and nephrology.

00:32:44.362 --> 00:32:45.630
<v Jeff Cranmer>Tell us about the deal, Stephen.

00:32:46.096 --> 00:32:46.463
<v Stephen Hansen>Yeah, sure.

00:32:46.463 --> 00:33:03.448
<v Stephen Hansen>So, as you said, Jeff, this is, uh, 5.6 billion upfront, and essentially they're getting, uh, two formulations of pegcetacoplan, which  is approved both for one formulation has, uh, A PNH, and then two, uh, nephrology indications on the label.

00:33:03.448 --> 00:33:09.619
<v Stephen Hansen>And then there is a Um sort of an ocular formulation that is approved for, uh, geographic atrophy.

00:33:10.054 --> 00:33:14.858
<v Stephen Hansen>Collectively those two brought in 2025, uh, was just shy of 700 million.

00:33:14.858 --> 00:33:26.570
<v Stephen Hansen>So the thing that kind of struck me, I guess was the, the fact that Biogen kind of framed this as these being growth drivers, but we're talking sort of mid to teen percentage growth, through 2028.

00:33:27.637 --> 00:33:28.772
<v Stephen Hansen>Not too far from now.

00:33:28.772 --> 00:33:30.708
<v Stephen Hansen>So that's, we're talking three years of growth.

00:33:30.708 --> 00:33:39.650
<v Stephen Hansen>And so, you know, if you do sort of like the CAGR on that, you know, you're talking about combined sales in 2028 of 1.2 billion.

00:33:40.050 --> 00:33:48.058
<v Stephen Hansen>So they paid about 4.7 x peak sales Um at the takeout price, which maybe seems a bit steep.

00:33:48.226 --> 00:33:58.036
<v Stephen Hansen>But, I, I think the, the other part of this is that they've got felzartamab which is a CD38 mab, uh, which is in Phase III development for some other renal indications.

00:33:58.036 --> 00:34:08.478
<v Stephen Hansen>And so part of the idea here was a synergy of having Apellis commercial platform, that's already in renal, that they can then pair with this upcoming product, uh, to help launch it.

00:34:08.945 --> 00:34:14.952
<v Stephen Hansen>Know, the only question I sort of had about this was, Biogen's now taking on more debt to acquire Apellis.

00:34:14.985 --> 00:34:19.322
<v Stephen Hansen>Uh, they say that they'll be able to pay off this transactions debt by year end 2027.

00:34:19.990 --> 00:34:31.936
<v Stephen Hansen>And, you know, I don't know if Biogen would disagree with this assessment, but the read of it I have is that, you know, Biogen kind of had, they had the firepower to do maybe one deal of this size, and they took their shot, they've landed on Apellis.

00:34:32.402 --> 00:34:40.811
<v Stephen Hansen>I kind of wonder whether this means that they're potentially, maybe, at least in the near term, not gonna be looking to do another sizable uh billion dollar acquisition.

00:34:41.478 --> 00:34:43.280
<v Simone Fishburn>Quick, quick question for you, Stephen.

00:34:43.681 --> 00:34:43.748
<v Stephen Hansen>Hmm.

00:34:44.181 --> 00:34:56.059
<v Simone Fishburn>To what degree is this reminiscent of the Reata deal, which you know, raised a lot of eyebrows, but Biogen was then bringing in also a specific product did a lot of money with a idea that is was gonna bring them a lot of revenue.

00:34:56.059 --> 00:34:58.896
<v Simone Fishburn>So is this similar to that deal in any way?

00:35:00.398 --> 00:35:07.105
<v Stephen Hansen>I think it is in the, in the sense that it's kind of pushing them, sort of, it's kind of pushing the boundaries of where Biogen has been focusing.

00:35:07.304 --> 00:35:10.041
<v Stephen Hansen>Uh, so that was for Friedrichs ataxia program.

00:35:10.474 --> 00:35:11.976
<v Stephen Hansen>Um but there were questions there.

00:35:12.043 --> 00:35:13.244
<v Simone Fishburn>get you to say all the hard names.

00:35:13.244 --> 00:35:13.677
<v Simone Fishburn>You know this.

00:35:14.679 --> 00:35:16.447
<v Stephen Hansen>That's right, that's right.

00:35:16.713 --> 00:35:23.820
<v Stephen Hansen>Uh, you know, there, I think some of the questions were around, well, they don't, I don't think they acquired, you know, global rights for that.

00:35:23.820 --> 00:35:25.889
<v Stephen Hansen>So there were some, they were gonna miss some rights there.

00:35:25.889 --> 00:35:29.726
<v Stephen Hansen>And, you know, these Apellis programs, are they really gonna be strong growth drivers?

00:35:29.726 --> 00:35:33.197
<v Stephen Hansen>Because that's basically the thing Biogen's been missing right there.

00:35:33.197 --> 00:35:40.438
<v Stephen Hansen>There hasn't been any sort of central like strong growth driver that investors can kind of really get behind in far as far as a story.

00:35:40.438 --> 00:35:42.840
<v Stephen Hansen>And I just don't think this is that either.

00:35:42.940 --> 00:35:46.577
<v Stephen Hansen>And so that, that's, I think the, the question, and I think we saw that reaction too.

00:35:46.577 --> 00:35:50.815
<v Stephen Hansen>I mean, the market, I think they were down 5% on the day they announced the acquisition.

00:35:50.815 --> 00:35:54.018
<v Stephen Hansen>So I'm not sure investors were super enthused about it either.

00:35:54.117 --> 00:36:03.427
<v Stephen Hansen>Um but maybe if you can aggregate enough of these together, uh, you know, you can start to build something and maybe, you know, maybe felzartamab will be what they, what they think it will, will be.

00:36:03.427 --> 00:36:09.166
<v Stephen Hansen>Maybe that will be a big growth driver, but we still have to see the data and see how they get that, uh, you know, see how that looks.

00:36:09.967 --> 00:36:20.443
<v Jeff Cranmer>And then, then to put out there what Viehbacher said on the analyst call, he said, you can pretty much assume that anything under 5 billion of market cap we have looked at.

00:36:20.744 --> 00:36:28.251
<v Jeff Cranmer>And we believe that this was the best opportunity that really fit strategically for the company and where its pipeline is taking them.

00:36:28.552 --> 00:36:38.795
<v Jeff Cranmer>So we will see, uh, when the, uh, the deal filing lands on Edgar whether, Biogen had some competition in completing this deal.

00:36:39.130 --> 00:36:42.800
<v Jeff Cranmer>Um the deal's premium was on the high side, 130%.

00:36:43.900 --> 00:36:46.369
<v Jeff Cranmer>It was about a, about a third above.

00:36:46.369 --> 00:36:47.505
<v Jeff Cranmer>Its 52 week high,

00:36:47.538 --> 00:36:54.744
<v Stephen Hansen>You know, I was, I was wondering, you know, at first I was wondering like were, you know, were people not tracking the private plane tail numbers for Biogen, you know, in this deal?

00:36:54.744 --> 00:37:02.753
<v Stephen Hansen>But then I remember that they're both Boston based, so probably wasn't much commuting on, on flights to, uh, to get this deal than they could just drive, drive across town.

00:37:02.820 --> 00:37:03.153
<v Stephen Hansen>So,

00:37:03.521 --> 00:37:03.788
<v Jeff Cranmer>Take the tube

00:37:03.954 --> 00:37:06.090
<v Stephen Hansen>maybe a bit harder to, uh, harder to track.

00:37:06.724 --> 00:37:17.001
<v Jeff Cranmer>And, and, uh, to Simone's point about Reata these are deals, number one and number two in terms of the largest that Biogen has ever done.

00:37:17.001 --> 00:37:23.673
<v Jeff Cranmer>So we'll see if it's, uh, a transformational deal or, uh, as Stephen said, let's get that data first.

00:37:24.407 --> 00:37:24.909
<v Jeff Cranmer>All right.

00:37:24.909 --> 00:37:30.146
<v Jeff Cranmer>You've been listening to the BioCentury This Week podcast.

00:37:30.347 --> 00:37:37.621
<v Jeff Cranmer>again, I invite you to check out Bio€quity Europe and our Grand Rounds U.S. both are coming up.

00:37:37.621 --> 00:37:56.873
<v Jeff Cranmer>You can learn more on BioCentury.com and, would love, uh, you to go on and, and subscribe to this podcast as well as our sister podcast The BioCentury Show last week, featuring, one of the most influential folks in the British.

00:37:57.340 --> 00:38:14.659
<v Jeff Cranmer>bio ecosystem Daniel Mahony, who was the Former Chair of BIA and is currently, with Novo Holdings, he had a great discussion about what's next or what needs to be next for the U.K. uh, in conversation with Simone.

00:38:15.425 --> 00:38:17.327
<v Jeff Cranmer>we will catch you next week.

00:38:17.561 --> 00:38:25.835
<v Jeff Cranmer>Thanks for tuning in, and as ever, thanks to Kendall Square Orchestra for providing the music for our podcasts.

00:38:27.405 --> 00:38:32.876
<v Voice Talent>BioCentury would like to thank IQVIA Biotech for supporting the BioCentury This Week podcast.

00:38:33.344 --> 00:38:40.217
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