395: Biotech investors' plea to Trump, and a busy M&A week

[Music] Welcome to this week's episode of The Read Out Loud, a weekly biotech podcast from STAT. I'm Alice in D'Angeloos. I'm Adam Forrestine and I'm Elaine Chun. It's Thursday, April 2nd. I'm back in the podcasting chair with my co-host and on this week's episode, biotech investor Rod Wong joins us to talk about the FDA, rare diseases, and why an industry patient advocacy coalition that he supports is asking for more regulatory flexibility. But first, a recap of the week's news and a word from our sponsor. [Music] I'm Gali Alevi, SVP of Development at Kite, a Giliad company. At Giliad and Kite, our working oncology starts with a very simple question. How do we make progress truly meaningful for patients? Since 2020, our therapy has been used to treat more than 75,000 people worldwide with metastatic, triple negative, and HR positive, her two negative breast cancer. We bring that same patient first mindset to other areas of high-end met need, including CAR T-cell therapy for people with difficult to treat blood cancers. To date, over 34,000 patients around the world have been treated with CAR T-cell therapies from our portfolio. Across oncology, this perspective guides how we design clinical trials and pursue innovation. So patients can access potential advances throughout their treatment journey. Learn more at giliad.com. Welcome back, Allison. Thank you. Thank you for having me. Last week, we didn't tell people where you went. We just gave them a hint that a camel was involved. Yes. So why don't you tell everyone where you were? I spent 10 days in Morocco, which was amazing. And yes, I did go out into the desert, spent a night in the desert, rode a camel that I named Gerald, and just had a fantastic time. It was great. I deleted Slack. I really disconnected. Couldn't tell you what you two talked about on the podcast. That's not true. You did listen to our podcast. Oh, that's right. Sorry. You missed us. You did miss us. You did listen to the podcast. Yeah. You see, you can't quit us all 100%. You know, we know. We were getting some text from you during the week. So we were on your mind. That's how important the lane and I are to you. Because you've been you've like infiltrated. You've like seated deep into my mind. Even even in the Moroccan desert, you were thinking about the readout. I was thinking about the podcast. I had like a sixth sense that I was like, Thursday morning. It's time to podcast. She was it was just welcome to this week's readout. Wow. It was just like muscle memory. I actually said that to Gerald. No, I'm kidding. Well, I'm glad that you guys seem to have survived my vacation. Thank you and thank you listeners. And should we should we talk about some news? Let's do it. Okay. So a new obesity pill has entered the conversation on Wednesday. The FDA approved Eli Lilly's medication or folklipron now known commercially as found aO found found aO. Uh oh, here we go again. One of those two. Here we go again. Elaine, do you know what is what is Lilly telling us about the pronunciation? You know, I don't honestly don't remember. I think it's found found aO. Oh, it is found aO because the whole idea is like the day is supposed to like signify that it's taken once a day. Okay. Well, this approval is really interesting. It sets up I mean this fierce competition against Nova Nordic would gov pill that was launched right at the start of the year as more people are seeking alternatives to GLP one injections. And it's going to create a big price battle between the two companies. Novo launched its Wigowy pill kind of undercutting Eli Lilly. Um, they started off with a cash price of $299 a month, $299. And Lilly has now slightly lowered the pricing it had set out. It's pricing guidance for found aO. And on Wednesday, they said that they will sell their pill at $299 a month also if patients continually renew their subscriptions. Yeah. So the cash market where patients pay out of pocket themselves without using insurance is becoming a growing market. And we're seeing a lot of competition between the two companies there. Also this week, Nova rolled out a new subscription model for its cash offering of Wigowy. Basically, if you get either the Wigowy injection or the pill, you'll be able to get a $249 a month if you get a one year prescription. The catch is this is only available if you use certain telehealth providers like row, weight watchers, and soon also hymns on hers. So, you know, Nova made a very big deal about this. They went on the today show exclusively to talk about it. They were like, we want consumers to know. I guess my question is if the goal really was to expand access, make sure people stay on your treatment. Why are you only making it available just on the telehealth platforms? I do think that this arrangement does potentially exacerbate concerns that people have raised about the relationship between pharma companies and telehealth. Because if you think about it, if these discounted subscription programs are exclusive only to the telehealth platforms, then that would drive more patients presumably to the telehealth platforms. Would the telehealth providers end up having more incentive to preferentially prescribe Wigowy, even say when it's not the most appropriate drug or when it's not medically necessary? Nova and the telehealth companies would say, you know, the providers are exercising independent medical judgment, but I could also see a scenario in which the providers on these telehealth platforms could be influenced and swayed by this kind of arrangement. Yeah, you know, Elaine, you and I and Allison, we had this conversation earlier just about telehealth and whether, you know, how these things work, right? You know, you fill out an online questionnaire, you have an online or a phone consultation with a provider with a physician who then prescribes you these medicines. Who has wondered like how often those consultations end up with a recommendation against taking one of these medications? You know, it seems like you said like the financial incentives are all aligned towards, you know, making that sale and prescribing that drug and I just wonder like, you know, are our patients getting the best medical care under these circumstances? Yeah, and I think there's also, I mean, probably a psychology that if you're buying 12 months of the medication up front, there is a psychology to having made that purchase and then kind of using what you've paid for even if it's not soothing you. Like if a patient I wonder if this will have any effect on patients who might otherwise have discontinued medication because they were having side effects that were, you know, not tenable to them continuing to use medication because they, you have already paid for it, they've already bought for it, they don't want it to go to waste. Or patients who, I mean, Elaine, as I know, you have a lot of lots of feelings about patients who have already lost plenty of weight and are actually kind of at the point of maybe losing too much weight, continuing to use the medication because once again, like there's this psychology of I've paid for this thing, I have it, let me get you sad of it. Yeah, like it's already a sunk cost. Yeah, it's already a sunk cost fallacy. That's interesting, I didn't think about that. But that is a good point. I mean, I think that, like investors are cheering this cash market. They're like, oh, this is a great, like revenue generator. I think we also need to keep in mind that this is kind of the first time we have consumers driving prescriptions. Like you're probably going to have consumers coming to the telehealth provider saying, I want a one year subscription. And then are the telehealth providers supposed to say no to that? It doesn't seem like a situation in which doctors are being like, this is the best option for you, but it's consumers asking for medication. I don't know. This is a provocative question or not. But at one point, do we hear proposals to move these weight loss drugs over the counter? I'm pretty sure there already have been proposals brought up. I don't like not formally, but I'm pretty sure people have talked about it. I wouldn't be surprised if that gains steam over time. I feel like it's inevitable. It's not really only a matter of time. Particularly, I think maybe once you get the companies getting a little bit more clinical data on the supplemental effects, you know, the benefits to heart health, the benefits to you know, liver health, kidney health, what have you, that gives them a lot of onus to make this. I mean, even more of a mass product than it is, even though there are side effects to these medications. And these are medications that have to like, as we talk about, should be used carefully, though they are being used kind of with abandon right now. So we can continue talking about Eli Lilly in the news this week. They continue to spend some money on Tuesday, the farmer giant announced it will spend roughly $6.3 billion to acquire centessa pharmaceuticals, centessa, which has headquarters in the UK and in Boston, started with more than it does in programs across a range of diseases. But over the years, it is focused on disorders that leave people struggling to stay awake. Elaine, you have covered this space lately. What do you think about this Lilly? deal for Centessa. Yeah, I think it makes sense. Lilly has talked about, you know, it has all this money from its obesity business. It wants to invest beyond just obesity. And you know, Lilly has had presence in the neuro space for some time. So I think this makes sense. Centessa specifically is working on a class of drugs called erexan agonists. And so far, they've shown promise in a rare sleep condition, narcolepsy type one. And companies, including Centessa, are also testing them in other rare sleep conditions. Narcolepsy type two, an idiopathic hypersomnia, where it seems like there are some problems, though maybe not as big of a benefit as narcolepsy type one, but the data is still kind of early for those indications. It is notable that Centessa is behind two other companies in development. It's behind Takeda and Alchemy's. I think where people see the big kind of blue sky opportunity with this class of drugs is that can they help not only rare sleep disorders, but broad conditions that in which people experience sleepiness and also kind of cognitive and attentiveness issues, because these drugs still early data have shown potential help not just with sleep, but also with cognition and attentiveness. So if you think about conditions like Alzheimer's, Parkinson's, depression, ADHD, I do have to emphasize that that is all I think still pretty hypothetical right now. We really don't have that much data on how much these types of drugs can actually benefit those broad diseases. I've seen a lot of talk online of like, oh, Lily has got his hands on the next big GLP one class, but I really think it's too early to say. Well, biogen meanwhile is also making acquisition. It announced this week that it will acquire a pellis pharmaceuticals and it's slate of immunology drugs for about $5.6 billion. So we wrapped up Q1 with some pretty nice M&A really got it in under the wire there. Adam, what kind of information have we seen about how Q1 is fared from an M&A standpoint? Yeah, it ended up being a pretty decent quarter for M&A. You know, if you recall back in January, there was sort of a flurry of activity or at least speculation about some big deals that did not end up taking place. And so there was a little worry. Because it may be a little bit of disappointment in sort of in that January window, but the quarter certainly ended strong. Total deal volume in Q1, depending on whose counting is around $48.49 billion, which puts M&A in biotech on pace to beat 2025. And actually, if it continues at this pace, it would be the best year for M&A since 2019. Actually, I didn't expect it to be that good, though it makes sense. I mean, the pharmaceutical industry is really on the precipice of a huge patent cliff that's really kind of starting in earnest this year. And there are a lot of big name blockbuster medications that are losing patent exclusivity and therefore will be big revenue craters created in a lot of pharmaceutical, you know, accounting books, so to say. So let's end the recap of this week's news with a kind of a strange story that Elaine that you wrote this week. You know, you found a handful of YouTube videos that were promoting two psychedelic biotech companies, a Helus, Pharma, and a tie beckley. Tell us what you found out when you looked into these YouTube videos. Okay. So back up the way this story kind of started was actually because Adam, you knew this because you got an email suddenly earlier this year, the subject line was urgent paid booking. And it was an email from someone who said they lead influence or strategy at a marketing agency and they say that they're reaching out on behalf of a client, the biotech company Helus Pharma. So that immediately caught our eye. I was like, is this email real? And then a few weeks later, we saw YouTube videos popping up that actually kind of repeated or kind of echoed some of the talking points that were mentioned in this email, this email supposedly meant for influencers to promote the biotech. And some of the suggested talking points from this email were really interesting. One of them was, quote, I've discovered a biotech stock that has some of the most impressive numbers I've ever seen in its clinical trials. A hundred percent of patients improved. 71 percent went into remission and it only took two doses. So this is about Helus Pharma's lead candidate in depression. You know, obviously the email didn't mention this, but a caveat is that this was a very small trial and those numbers that it cited was not the outcomes for all of the patients in the trial. I just have to break in to say really quickly the idea of Adam reading these as like a tick talk influencer gives me immense joy. So I got to say I was a little bit tempted, you know, because they basically the email said, Hey, tell us how much you charge. For to tell these things and I was tempted to, you know, basically go back to hell, you know, you know, you know, I'll take a few thousand dollars to make a video. But then of course I didn't do that. I just forwarded the email to a lane so that she could write a great story about it. But anyways, I saw a few videos about Helus kind of in that kind of realm of kind of exaggerated claims. And then I also found some videos about a tie, which is a much bigger, much more well-known psychedelic biotech. And so yeah, that's what the story is about about like these exaggerated claims in YouTube videos out there, you know, promoting these biotechs. It is worth noting that the companies when I reach out to them, the biotechs both distance themselves from the videos, a tie said that, you know, quote, we initiated a pilot engagement campaign involving third parties and are actively reviewing independently produced digital content to assess alignment with our standards. And then also after I reach out to a tie, a lot of the videos I could no longer access. So in another way to lane, when you call the companies out and ask somebody's videos, their reaction was basically like, oh crap, a reporter found out about it. Oh shit. And then what Helus said was I talked to their CEO who's new. He's a very new CEO. He said that he didn't know about the videos until I reached out that this relationship with the third party marketing agency predates him. He said it's quote, off brand for what we want to be as a company. So they tried to distance themselves themselves from the video seem to say that this was, you know, the work of the third party marketing agencies. But of course, like if that's the case, experts I talked to said that, you know, as a company, you still have to have oversight and control over what your contractors are doing. Well, Elaine, I want to dig into this a little bit further because I mean, even if we look at GLP ones, what we were just talking about as an example, kind of influencer marketing is everywhere. I mean, we've moved on from this era of just like owner is TV ads and we are now kind of being subtly influenced to buy medications or ask our doctor for medications on lots of different social media platforms and for lots of different use cases. So why, like why did this psychedelics, you know, marketing besides the funny email to Adam, like why did you want to write about this? What's notable? Yeah. Well, one thing is like these drugs are not approved yet. They're still in development. So you know, the FDA has regulations around for investigational drugs. You can't make claims around safety and efficacy and stuff like that. So to note, these are still investigational drugs. But more broadly, I think this, I have seen other small biotechs kind of, their names associated with these kinds of paid promotional videos. But we're not seeing like no one or us or Eli Lilly, you know, being associated with these types of videos. When I talk to experts, they say this, this kind of activities, these kinds of videos aren't what you would expect from, you know, a serious biotech. And this is important because the psychedelics field, it's maturing. We have, you know, several candidates going towards late stage development. The field is trying to build credibility with investors, with pharma companies who might be interested in acquisitions. They've combatted a lot of skepticism and tried to, you know, like make themselves serious players in the field. And this kind of promotional activity could hurt their credibility. And it's the kind of hype that people say is harmful to the field and harmful to efforts to try to, you know, present the field as a serious sector. A group of rare disease advocates, bio-pharma executives and investors wrote an open letter to President Trump and his senior health officials on Wednesday. In this letter, the group highlighted concerns about the FDA's rejection of multiple drugs for rare diseases over the past year and urged the administration to appoint a new leader to the agency's Seabird Division, who is committed to regulatory flexibility for rare disease treatments. Joining us to discuss the letter and its intentions is Rod Wong, managing partner at RTW Investments, a biotech investment fund. Rod is also one of the letter's signatories. Rod, welcome to the readout loud. Hey Adam, happy to be here. Rod, so this group, it's called the Rare Disease Advocacy Biotechnology and Investor Coalition. What does this group hope to achieve with the letter? Having this coalition, the concept is to address a key challenge, right? Because we're hearing different messages coming from FDA leadership and it's very challenging for individuals, especially biotech execs, to speak out because they have almost all of them have to are an active interaction with the FDA, right? By having people come together as a group and makes it easier, and also with the second letter and contract. to the first that came out late last year. There's also the additional goal of being able to trying to collect everyone's feedback, you know, investors, how it's impacted, what they're doing, executives, patient advocacy leaders also, and to actually be able to show people what the consequences of the changes that FDA had then. Well, one of the big changes at FDA that's coming is Veney Prasad, the current head of the FDA CBER division. He has been a controversial figure in that job, and he's actually leaving the agency at the end of April. And one of the things that you do in the letter is specifically ask the Trump administration to appoint a replacement for Prasad who will, quote, "restore regulatory flexibility, predictability, and patient-focused decision-making." Can you explain a bit more about why that ask is in the letter and what you're looking for? Right now, we're at this critical moment where you've had Veney who's been leading CBER, as you mentioned, for a little bit shy of the past year. And it is under his leadership where we're seeing this reduced regulatory flexibility specifically for rare disease in his division. Right? So this is this unique moment in time to course correct for that, and to get a leader in place that will be supportive of regulatory flexibility for patients with rare disease. So Prasad supporters say he brought back scientific rigor to the FDA drug review process. You know, approval standards for rare diseases under Peter Marx, the CBER chief of foreperson, were too lacks, patient advocates had too much influence over decision-making, treatments were approved without clear evidence of benefit for patients. These are all things that Prasad supporters say, you know, that he helped change. Are they wrong about Veney Prasad in your opinion? Did he do anything right? Yeah, I think that's a great question. And when I think about it, I split it into two important buckets, right? So one is you can absolutely have different views on where the balance should be struck, right? In terms of let's just call it stringency, in terms of the evidence that you generate for approval. And that's something that I think is absolutely reasonable to debate. But the other bucket is this predictability or what I just call flip flopping. Flip flopping is incredibly destructive, right? Is when you think about drug development, it's this multi-year exercise as everybody knows. And it's not just that it takes a long time, but you have to commit resources, capital, people. And we're not just talking about, you know, companies resources. We're talking about patients. They're making decisions with their lives, whether or not to participate in clinical trials. Those have risks associated with them and those kinds of things. So if you look at some of the survey results that we got, you know, almost 80% of executives that responded said the FCA is less predictable. In fact, a full third much less predictable, right? And that is impacted all kinds of things. Obviously investor sentiment, which we touch on nearly 70% of this is due to this regulatory unpredictability. So that's a clear bucket that needs to be addressed. Separate from this, what is the right balance in terms of the bar? Now, I will say that in that debate, I think what has lost a little bit is this lack of appreciation of how challenging it is to run traditional gold standard randomized control trial in rare disease populations, right? You actually had the formal introduction of the use of some of these regulatory flexibility tools like the use of single-arm trials, surrogate endpoints, natural history or real world evidence control arms, specifically because in some instances, it is basically impossible to run those gold standard trials. So that has to be a critical part of that balance conversation that I think has been missed. Rod, in the letter, you point out some survey results showing that investors like yourself are pausing or exiting rare disease investments and some biotech companies are finding it harder to raise money to develop rare disease drugs. If these trends continue long-term, what are the consequences? Yeah, I don't think we even have to wait for the long term. I think you're seeing really significant impacts already. You know, in the survey for the over 25 investors who responded. And by the way, that might not sound like a huge number, but people should remember, these are all decision makers and there's actually not that many people that are decision makers in our industry. It's a relatively small and concentrated pool of decision makers. So it's a pretty significant sample size given that. But what you see in the survey is that the amount of capital that's being invested in rare disease has dropped from a little shop nine and a half billion dollars already by a third to six and a half billion dollars. So that is an immediate one-third decline in capital going to rare disease. And looking at this continues, I wouldn't see any reason for that to rebound. I would actually expect it to get worse. So Rod, you know, we're recording this interview. It's basically the kind of the one year anniversary of Martin McCarrie's role as FDA commissioner. He's been there for a year. And you know, he started his tenure kind of going on this listening tour. He visited several cities and sat down with biotech, biopharmate executives to kind of hear their concerns. And I wonder if you look back over the year, do you feel like he's, you know, that there's been an adequate follow-through from those sessions? And and you know, on this topic specifically, do you feel like groups like your coalition are being listened to? Do you have the ear of the FDA and health officials within the Trump administration? Well, let me kind of frame it this way. I think, me like probably many others were actually pretty excited at the beginning of McCarrie's leadership because he introduced some new ideas that look like they're being pushed forward to speed drug development in a couple areas, right? And I would broadly say there's kind of two main areas where we've liked what we've heard. One is speeding translational development, so kind of the earliest phases of clinical development. And then two for ultra-altra rare disease, right? This plausible mechanism pathway creates a path for diseases that there's no clinical trial construct that would have gotten drugs across the finish line for disease with handfuls of patients in total. So I think there has been progress at FDA. I think the major thing that is emerged is again, this issue that's more specific for rare disease and much more concentrated under Vene's leadership of Seiber. Now, unfortunately, within Seiber, as you know, that's where a lot of your new modalities sit as well, right? So gene therapy, gene editing, cell therapy, all of those are regulated under Seiber. So you have those new modalities which are not mature and also need regulatory flexibility for those reasons as well. So I think the big thing from my perspective is that as we are seeing decisions, late stage regulatory decisions, right? Approval decisions, pre-FDA filing, alignment meeting, types of decisions, we got a clear sense over the year that under Vene's leadership that he was taking this much more stringent approach. And unfortunately, that is emerged as much more important and a bigger negative than all the positives combined, right? Because it impacts this large group of rare disease, it's not ultra rare. There's far more patients in rare, of course. And then specifically for these very delicate new modalities, right, at this point in their life cycle. And as that became clear to me, I think that's when we said we have to participate in this discussion. And I would say, you know, honestly under Vene, there wasn't much interest, was our sense in engaging in that. Now I think with Vene on his way out, we are hopeful that that could change. Rod, you run a large biotech hedge fund. So while we have you, how are you feeling about the industry as a whole? As we start this second quarter of the year, you know, the FDA and beyond, how do you think that biotech is doing? Well, I think this issue that we're talking about, and here's a sad reality, right? Which is that let's take us as an example. As you mentioned, we're one of the larger dedicated healthcare investment firms out there. We have significantly decreased our investment and rare. And I'll tell you what I tell my clients, which is that there's so much innovation in other areas that are not rare, that are more traditional modalities, that we could easily and we have, frankly, shifted capital into those areas and biotech will be fine as an industry, if that's the question, right? And so we could say nothing and just do our job as investors and allocate capital to those areas. But the reason we're involved is because, you know, we're also mission-driven firm. We actually specifically care about rare disease, aside from having a long history in allocating a pretty significant percentage of our capital into rare. We also have this foundation where when we've encountered mainly academic programs that look like they would work for rare disease but wouldn't support a for-profit business, we felt compelled to get involved and support that. So because we're mission-driven and we care about any, you know, therapeutic that could make a difference in patients' lives that looks compelling, we felt like put the investing hat aside. It would be really a great loss to rare disease innovation if we didn't get involved in the conversation and so that's why we're focused on it. Rod, thank you so much for joining us. Oh yeah, you bet. Thanks a lot guys. That does it for another episode of The Readout Loud. Thank you to High Synth and Banato for producing this week's episode. Our senior producer is Alissa Ambrose, our executive producer is Rick Burke and our theme music is by Brian Joel. We'd love to hear from you. Tell us what you like about this week's episode, what you didn't like and what would you name your camel if you had gone on Ipication to Morocco. You can do all that by sending us an email and read out loud at statnews.com. And if you like what we do, leave a review or rating on Apple podcasts or whichever platform you use to get your podcasts. See you next week. Elaine, what would you name your camel? Um, found a yo. I'd go with Gertrude. [BLANK_AUDIO]