382: Biotech's year in review

[music] Welcome to this week's episode of The Read Out Loud, a weekly biotech podcast from STAT. I'm Allison DeAngelus. I'm Adam Forrestine. And I'm Elaine Chen. It's Thursday, December 18th, and it's our last episode of the year, folks. Woo! Yay! So to wrap up 2025, we've invited venture capitalist Bruce Booth to discuss his annual year-in-review report. It's basically a hefty audit of the drug industry, but we'll give you some highlights. We'll also discuss Adam's picks for best and worst CEOs in bio-farm at this year. First, a word from our sponsor. [music] I'm Jesse McCorders, Stepper and Studio Editor, and today I'm joined by Ken Keller, chairman of the board, president and CEO at Daiichi Sankyo U.S. and head of the Global Oncology Business at Daiichi Sankyo. How do you see the standard of care for cancer evolving in the next five years thanks to antibody drug conjugates? A Daiichi Sankyo our focus has always been on advancing science in ways that meaningfully change the lives of patients. We're taking the next step in treating patients by moving our ADCs into earlier lines of therapy, including the curative intent settings of early breast cancer and treating more tumor types. Because of our game-changing work, ADCs may become a potential replacement for chemotherapy in any setting where chemotherapy is currently used. Our scientists are also exploring new payload technology and antibody designs. This exciting progress is what drives us to continue innovating to transform standards of care and bring more hope to patients with cancer. How can people learn more? Visit DaiichiSankyo.us to learn more about our science. Okay, so I want to start with holiday or Christmas Hanukkah baking. Does anyone have any big baking projects? I do. Oh, Elaine, what you get up to? So this weekend I'm going to make it's a pie with a chocolate cookie crust with an espresso flavored filling with a black sesame whipped cream on top. Oh my god, Elaine. Black sesame, which? And then you can my language girl. And then when Christmas, around like when Christmas actually happens, I've been asked to make, I guess, duck has become my specialty and I've been asked to make four ducks. Okay. So a lot of cooking. Are you doing four ducks prepared in four different ways? No. Are you doing four ducks prepared the same way? I don't think I could do four different ways. Probably all the same way, but I don't think they can all fit in the oven, so I don't really know what we're going to do. Okay, so there might be a little bit of mild chaos over at Elaine's place. There's going to be a lot of rendered duck fat. Yeah. I love duck fat. I do. Yeah. Duck like duck fat fried potatoes are so good. We're all coming over to Elaine's place for duck fat fries. Parted Elaine's house. So I am baking in honor of this year's great British bake off. Jasmine being the winner. I am making a pistachio cake with I probably with a sort of like cream cheese frosting. That sounds good. That's going to be for Christmas dinner. Oh my gosh. You guys are making me hungry. I'm not planning on baking anything for the holidays yet. I might need to step up my game now, though. Listeners, please, and recipes to me. But before the holidays, let's talk about Elaine's latest story, which takes a look at what's happening with drug pricing for weight loss drugs, and the eternal struggle about getting or not having insurance coverage for them. Tell us a little bit more, Elaine. Yeah. So the story this week is about these direct to consumer programs. Eli Lilly and Novo Nordisk have touted these programs as a way to increase access to patients. But what the story talks about is kind of counterintuitive. These programs may actually make it easier for employers to drop coverage of weight loss drugs. They're by actually making these treatments less accessible to many patients who rely on insurance coverage. Yeah, you know, Elaine, when I read your story, I thought what was interesting was it did seem like what's going on here is that instead of your employer providing you with drug coverage that would include obesity or glip one or GLP one, they're basically telling employers, hey, why don't you just go out and get it on your own? Yeah, and there may be a few factors here. One is employers actually don't have a great sense of the actual net price they pay for each individual drug because of PBMs and the whole rebate system. So when they see these cash prices out there on the DTC market, they start to think, okay, are those prices better than the prices I'm getting? And if so, then what's the point of covering them? Also, they already are facing huge surging healthcare costs. They're already thinking about dropping GLP one weight loss coverage. And with the DTC programs available, that just gives them more cover and kind of softens the blow if they drop coverage because the employees at least have, you know, some option they can turn to. That's cheaper than the list price. This whole story came about Elaine because you discovered that the largest hospital system in the US has actually decided that it's not going to cover Zepound and Wugovie next year. And it's actually like very specifically directed its patients who want those medications to go buy them directly from Eli Lilly in Novonortis, correct? And if that's the case, are patients actually getting these drugs for cheaper? Yeah, so that employer you're talking about is HCA healthcare. They're the largest hospital system in the country. So, you know, they employ many, many people. It's interesting because in their notice to employees, they actually say that in many cases, the cash prices through these direct to consumer channels are lower than what many health plans can negotiate. Of course, it's not clear if they're referring to themself or to other people, but it kind of gets at this reasoning that I talked about earlier. In a lot of cases, I think the employees will be worse off. For example, I talked to one employee who was getting Zepound through their HCA insurance for $100 a month, roughly, and if they go DTC, they're going to have to pay $449 a month. So, if you think this through to maybe, I don't know if this is the end game, Elaine, but we see drugs are not the only drugs that are ending up on these DTC sites. Are we looking at kind of the end of ensure-based drug coverage? I think not yet, but I think that, because I think the GLP-1 drugs are in such a unique position where there's so many people use them and they're so in such high demand, I think it's possible that this paves the way for a new model of payment for similar drugs that are perhaps widely used and in demand and can be sold at a DTC price. Yeah, it's definitely changing, I think, the way employers are thinking about paying for drugs and could shake things up, but we'll have to see next year. Well, on the other end of the spectrum, Adam put out his annual highly anticipated Best and Worst CEOs list this week. Adam, who topped the charts? What do you want to start with? Let's start with the best. You want to start with the best? Yeah, let's do good news first. So you're like the good news, bad news. So it's a long list, actually. As we have talked about, particularly over the last many months, how the rebounding biotech world and everyone is in a good mood. So couldn't name a single CEO as the best CEO of 2025. And so I put together a kind of a big list and then we're not going to go through all of them, but maybe I'll just mention a few. And particularly because we always talk about obesity, Whitburnard and Clive, meanwhile, the CEO and executive chairman respectively of Metsera are on the list. And they're kind of in this M&A cohort of CEOs. A lot of M&A this year, so there are a lot of those CEOs. But obviously because of the bidding war that they were able to kind of stoke between Pfizer and Novo, obviously Pfizer eventually prevailed there, paying about $10 billion for Metsera. But that was certainly an interesting thing, an interesting one to watch. But you know, also in that list, you're going to share in Mattis from Intercellular, she sold her company to J&J. That actually was the largest deal of the year back in January. But you got Sarah Boyce from Evidity, David Zachardelli from Verona. I would say other ones that I would want to mention here. Let's mention Natalie Hollis because if you remember, I was going to say because we've had her. Yeah. Natalie came on the podcast earlier this year. I think it was in August that we had her on. For those folks who don't remember, Natalie was the CEO of a biotech company called Third Hermonic that ran into some trouble. They became one of those zombie biotechs that we have talked a lot about. And her along with the board basically shut the company down and returned cash to shareholders. And we had a really great conversation with her about the process and about how, you know, they went about thinking about why all the things that they could possibly do and why it was the responsible sort of mature decision to shut the company down. And I thought that that gots to do. And it was the right decision to do at the right time. And so Natalie Hollis is on my list. Adam, before we get to the worst CEO, I want to circle back to the topic of zombie biotechs, which you talked a lot about this year. The high rates of companies that were just sitting dormant. On the stock market, you know, just kind of bleeding through what cash they had left. You know, come end of December. How are you feeling? Do we have, have we addressed the zombie biotech problem in this industry? Are they still lurking? You know, I didn't know you were going to ask you this question. Allison, I'll be totally honest. And so I do not have a number in front of me, but I do know looking at various end of year outlooks and blah, blah, blah, that the number of said zombie biotech companies is down this year. I think that that has contributed to the overall improved health of the sector. And so I like to see that continue. As you know, I'm not a big fan of more public companies. So, you know, we're probably going to see more of them. And I know we'll we talk to Bruce in a little bit on this podcast today. You know, I think he'll have something to say about IPOs. But let's just hope that those new companies that come public don't quickly become zombies. Let's hope fingers crossed. Okay, Adam. So who was your pick for worse CEO? And I think no one will be surprised by this pick. I was going to say, Elaine, this is probably the least surprising selection in a long time. And the worst biopharmacy year 2025 is Doug Ingram of Syrupta Therapeutics. And as I wrote, this is a selection that didn't necessarily bring me any joy. Because, you know, the circumstances that that earned Ingram this spot were obviously tinge with sadness. And we're talking about Syrupta. And as you remember over the summer, I know I was working on stop talking writing about and reporting on Syrupta. And, you know, around the deaths of the unfortunate and tragic deaths of some patients who were treated with Syrupta's gene therapy. And so, you know, for for all of the sort of decision making and the risk taking that, you know, I would say that, you know, maybe reckless decision making that Syrupta engaged in, particularly for the more vulnerable portion of the Duchenne patients who secured approvals who were eligible for their gene therapy. You know, we, you know, obviously we saw these cases of acute liver toxicity and then liver failure and then unfortunately again, some of those patients died. So, it was a decision to put him in the, you know, the name of Worsey and it was the obvious choice. It was the right choice. But one that, you know, was also somewhat regrettable. Yeah, Adam, I don't think it was a huge surprise to a lot of focus that Doug ended up on the Worse CEO's list, but our, you know, thoughts go out to all of the families affected in the Duchenne community. And we'll look for to see what 2026 holds. Yeah. So, I mean, one thing to look forward to is we're yet again going to be recording a podcast at the JP Morgan conference in January. And we're going to have some exciting guests on that podcast. So, we're going to have the CEO of Novo Nordisk, Mike Doudstar. And we're going to have Bob Nelson, co-founder and managing director of Arch Venture Partners. So, stay tuned for that episode. Yeah, we couldn't just have one guest for the extra special readout loud taped live in front of an audience episode at JPM, right? We had to go with two guests. We had to top last year, 'cause last year we had Eli Lilly CEO Dave Rex. What are we going to do year three? Oh gosh. It's going to be like a rigged out loud, a pollusa. We're actually going to put on like a festival, like a three-day long festival. Yeah, it's going to be a two-day lineup. Perfect. Any discussion of the bio-farm industry as a yearly performance is incomplete without talking to Bruce Booth. Bruce has been a partner at the VC firm Atlas Venture for two decades, and every year around this time he posts a deep dive into data on the drug industry. How many new biotechs were started in 2025? Are President Trump's drug pricing policies impacting the industry? His report touches on all of that, but we're bringing him back on the podcast to go over the highlights. Bruce, welcome back to the readout loud. Thanks for having me. Okay, Bruce. I need you to settle an argument that Adam and I have been having over the last couple of months. Is biotech back? Are we truly out of this slump that we've been in? Biotech is definitely back. I win. Thanks, Bruce. We'll talk about terms later, Adam. We can end the interview right here. That's it. And that does it for another episode of the readout loud. We joked last month at our LP meeting that we should have just gotten up on the stage said biotech is back. Drop the mic and you know, went to the reception. There we go. So tell us a little bit more, Bruce, about like, you know, what gives you this signal allegedly? Quote unquote that biotech is back. I mean, the amazing thing about the year and sort of reflecting on the first half of the year, the biotech market was really trailing the S&P and trailing the rest of the market. We're in the midst of obviously the huge AI machine learning bubble on the tech side. Maybe it's not a bubble. Maybe it's real momentum, but needless to say, all those other sectors, especially tech we're outperforming. Really since the middle of the summer and especially since Labor Day, biotech has been on a total tear, which really flip flopped the year. I think we ended the year beating, you know, the XBI beat the S&P by something like 2000 basis points today. Like that's an enormous outperformance. And if you just look at clinical stage biotech companies, they're up something like 62% year to date. I mean, that's just staggering outperformance. And a big part of that has been momentum around M&A, good data, a sense that some of the macro risks in the and the Trumpian risks are fading or at least are manageable. And, you know, a interest rate direction that seems favorable. So all of those have sort of conspired to create some real tailwinds in the last few months. Yeah, what you know, Bruce, what I've pointed people to is if you just look at the sort of trough to peak in the XBI from the April low to today, it's unbelievable. The thing that I amazed by is just the clinical stage. Oh, yeah. If you move the big ones that sort of never changed dramatically, they're up 180% since liberation day. That's the average of like 112 biotech companies in that ETF. It's really remarkable. So Bruce, obviously we're talking about the public markets here and the stock performance there. But we're not seeing biotech IPOs. And so I wonder, you know, now I know people have differing opinions about whether that's a good or a bad thing, and I want to hear your opinion on that. And also do you think that that's going to change in 2026? Yeah. So I would say it will definitely change in 2026. We will see a lot more IPOs is my prediction than we've seen here this year and last year, you know, two very barren years for IPOs. A big reason we haven't seen them since Labor Day is because of the timing. So by the time you've met with your bankers and formed your syndicate to go public, it takes you, you know, two to three months before you're going to actually come public with your S1 and price an IPO. And so for somebody to have gone public now meant that they probably worked up in July or August. That was a little early in the cycle, I would say. But I know a lot of companies that have now worked up. I think the banking community is really excited about all the IPOs that will come out in the first half of next year. There are a lot of companies in the queue at this point that are going to try to IPO then. You know, one follow up on IPOs is the quality of said IPOs. Are you concerned at all that we may see some lesser quality companies try to go public quickly? Maybe some that were sort of backlogged. Versus maybe some of the higher quality companies out there. I would say this. I'm a realist when it comes to the capital markets. There will definitely be companies that go public. This shouldn't be public. And that's just the nature of the way the capital markets cycle will work. When the market opens and they're bullish, you know, a bullish environment, very accommodating environment for new issuances like IPOs, you're going to see companies flock to those because, frankly, everybody in the ecosystem is incentivized to take those companies public, right? Bankers make 7%. The lawyers make a lot more. The audit firms all have their, you know, public company audits. The D&O insurance rates go way up when you go public. Management teams, you have liquidation preferences come off. They can start their 10v5 plans selling stock. And, of course, VCs like us. We never push IPOs. Of course, Adam, we would never do that. You would never do that, Bruce. Never. If we were doing it, we'd be incentivized because there's a path to liquidity out there. So the whole system is engineered to try to get companies public. One of the comments I made in my 20-year blogs back in October was you really shouldn't go public unless you really need to access the larger pools of capital. Like stay private as long as you can, which means as long as you can continue to fund your business at good costs of capital. But fundamentally, to bring a drug to market and spend billions of dollars, you almost have to, by definition, get into the public markets to access that kind of capital. And so that's one of the reasons why you'll see companies pushing to go public is because they can just raise lots more money. But fundamentally, everybody is incented. And so what that means is you're going to see both good quality and poor quality companies come out. And, you know, it'll be stock pickers, you know, a stock pickers market like it always is for picking those that are going to win, you know, historically 60 plus percent of IPOs are off within a year or two of their IPOs. And so, you know, it's always been a market of the few, the top core tile that actually outperform and deliver value while the bottom, you know, two thirds, three quarters generally don't. It seems that everyone in the industry has been looking for stability, particularly in the regulatory space. FDA leadership has said they're doing business as normal, approving drugs, putting out guidance. Has it felt like, from your perspective, from outlets's perspective and from your portfolio companies? Has it felt like the agency is fully operational? I would say this, I am really thankful that there are great FDA reviewers working hard on applications and on, you know, supporting innovative young companies with their with their meetings. We have not seen any wholesale delays or issues with the way the FDA is engaged in our portfolio. When I talked to heads of R&D, they're saying generally the same thing. There are, of course, specific areas where there's been slowdowns or specific drugs, but, you know, by and large, there always are some drugs that are getting slowed down by things at the agency. The turmoil at the top is definitely detrimental from a sentiment perspective. And I'm sure there are a lot of FDA reviewers who are quitting because they just can't handle the chaos. And that's a loss to the, what is really a gold standard regulatory body in the world? And so we do need stability. We need transparency. We need an FDA that is innovation biased and innovation friendly. And, you know, we've heard words from Dr. McCarray to that extent. But the actions, the turmoil, the leadership turnover really is chaos and that is definitely not a positive force. Yeah, Bruce, you know, when we talked to you this time last year, you were, we were already starting to feel the anxiety around town about what this second Trump administration and its approach to the, to science and the FDA would mean. What's the sentiment like now, particularly after, I mean, I think that you, and I have talked about this, it felt like the first six months of the year, in particular, the industry was kind of in a holding pattern, just like, wait and see what was happening and what was going to unfold. For sure, all of the macro issues, I would say, put a sort of on pause for the first half of the year, certainly nervous. The macro issues around FDA leadership, around NIH funding, you know, around drug pricing, MFN, you know, what's going to happen with tariffs and, you know, manufacturing in our space. You could sort of go down the litany of topics. So coming into the, you know, end of this year, it feels like a lot of those risks are at least perceived as being more manageable or are fading. I think the taco reference comes up on some of this, you know, the most favored nation declarations that we're doing MFN pricing and then you look at what the actual prices are. This isn't MFN pricing, like we're not pricing to the reference price in Spain anytime soon. If we did, I'd say that be an existential crisis in the beginning of the year. There were some fears of that, but that is not where this has landed or is landing as a space. And I think investors have had two things. One, we've probably gotten desensitized to some of the chaos, which, you know, that is probably an adaptive response to the amount of chaos. But I think some of it is that there's a legitimate view that the worst case scenario is maybe fading away. Well, it seems like when it comes to most favored nations in particular, the sentiment is kind of that. A lot of the pharmaceutical companies so far, we've seen a few deals have gotten off easy. Do you agree with that? For sure. I mean, when you declare that you've done an MFN deal on your portfolio, but then you really don't have to restate your revenue forecast, what does that tell you? Right? That means that it's more political theater around gross to net pricing in particular that, hey, sure, we'll agree to the net price. That's the price we've been getting anyway. And you know, it'll ripple through the system in perhaps perverse ways, but it gives Trump a win. The administration takes the win, political theater, everybody claps, and you know, the sector moves on. I'm hopeful that that's where it'll end up. You know, there's always a risk that, you know, agreements get overturned and, you know, Trump wakes up one day and says, this isn't enough. I think that's always a fear around policy making these days. Bruce, what are your thoughts about this commissioner, national priority voucher program that's been introduced? There have been some people who are concerned that this politicizes the FDA's decision making. It seems like there's been reporting recently that they're really cutting down review times. For example, there was a reporting that leadership was trying to cut down review of Eli Lilly's or for Glebron down to one week. What are your thoughts about this program and the way it's it's actually affecting, you know, how reviewers are making their decisions? I mean, I would say at the 60,000 foot level, I love the concept of a faster, more expedited FDA process for drugs considered high priority or high impact, and that's a great thing. That's what accelerated approval was for the last 20 years. And so I think this is all in that theme around how does the FDA, you know, support these things. There are clearly some operational questions about this new voucher program of how do the decisions get made, what's even the process. Full disclosure were investors in disk, disk received one of these vouchers. And, you know, we're thrilled that that drug is likely to have a faster review time. So that's a good thing for biotech companies like disk to be able to get these. But I do think there's a real question around the transparency of the process and how decisions will be made here. So we started the year with obesity being kind of front and center, Bruce, and we're ending the year with obesity. Also, front and center, it's been a topic, obviously, that it's been, you know, much discussed. A lot of activity. And I know in your outlook for the year, you had said that you thought that companies were starting to be, quote, "priced to perfection." What do you mean by that? Yeah, so investors have loved the space as you've rightfully pointed out, stocks get sort of bit up to a point where everybody thinks they're going to beat, you know, Teres Appetite, the current sort of gold standard approved drug, and in terms of weight loss or side effect profiles, everybody is shooting for that. And when you're price to perfection, any blemish from that potential, you know, target product profile of being able to be best in class and beat Teres Appetite, leads to, you know, what I jokingly call billion dollar bad days. You know, those are days when stock prices come down massively and, you know, Viking had that happen in August for what looks like a very interesting drug just wasn't exactly on perfect with what investor expectations were. And so they lost 40% of their market cap in a day. Even the lily oral over the summer, you know, it wasn't a perfect molecule. And so the street sold off 60 or 70 billion dollars of lily stock. And so investors have really lined up everybody to say, are you going to hit that perfect profile? And if you don't, you're going to sell off remarkably, which was probably one of the reasons why Metsera in addition to a fantastic deal was probably making some of the calculus of, do we want to be the ones that actually take this all the way through phase three and have to, you know, mark ourselves relative to some of the other gold standard drugs that are out there? What a fantastic deal for the Metsera organization and the investors there. So let me ask you, Bruce, you're involved with an obesity company. It's called Kailera. So we're going public in 2026. What's going on with Kailera? No comment. Adam, no comment. Uh-oh. All right. Well, yes, I was about to say, I'm not on the board there just to be clear. I can't, you know, make comments about companies I'm not involved with. Stay tuned. You also mentioned in the year in review that I think you said it's for the first time in your career when you look at all of the money that's kind of going into venture capital, being invested in, you know, really early stage startups of like all industries. The share of VC dollars that are going into biotech versus other sectors has fallen below 10%. I think you said it was something like six or seven, six, seven percent. I had to. I had to. And now I know the hand gesture. What does that say about what's happening in our industry right now? It says two things. One, thankfully, the venture industry has stabilized at sort of five to six billion dollars of venture capital in the U.S. every quarter. That seems to be a plateau we've sort of come to. And I think the fourth quarter is already on track to be around that sort of six number. But the tech sector has exploded. And so the denominator within the venture world has changed. And so instead of from much of the last decade, you know, from 2013, the sort of super cycle that happened there, tech and biotech both grew at about the same pace. And so we were always roughly the same percent of venture capital. That has changed dramatically in the last year, year and a half, two years. As money has flooded into the tech AI trade, it's inflated the amount of dollars on that side of the house, which has really dropped the biotech as a percentage. So from a share of voice with our limited partners, it's, you know, a seven percent instead of 12 to 14 percent, like it was for most of the last 20 years. The biotech sector has, I mean, like other areas as you're pointing out, kind of become really enraptured with AI. And, you know, integrating that tech into drug companies or kind of creating drug companies built entirely around, you know, different AI tools for, you know, whether it's proteomics or whether it's, you know, small molecules. What have you? I wonder, in 2026, we're going to see more biotech companies kind of chasing those tech dollars, trying to, you know, feed into that interest in AI with everything that you're pointing out in the market right now. I mean, I think that's already the case. You're seeing lots of tech biotech VC investors coming into what you might call AI-native biotech companies, you know, companies that are being started around AI. My own, you know, personal take is, while I believe AI machine learning will transform industries over decades, and I think drug discovery will be very different, just like it's different now than it was two decades ago before structure-based drug design really took off. You know, in the next two decades, we're going to see transformations happen from AI machine learning. But right now, I think there's a lot of companies that are being way over-capitalized on sort of over-promotional hype around the impacts of AI machine learning. Many of them are being backed by investors who haven't sort of grown up in the biotech R&D world. And so I think maybe making some, you know, less experienced assumptions around valuation and impact and where value inflections occur in our business. And so I do think there's going to be a bunch of investors that get their hands burned from some of these AI machine learning overly hyped investments at this point. And Bruce, more broadly, what does the pipeline of like company creation look like from the Atlas perspective for 2026? You know, what's interesting with us, we've started essentially eight new companies plus from minus a couple every year for the last decade or so. And it was steady through the bubble. We didn't sort of launch, you know, two to three times more companies. It's a process we incubate companies in our office. It's sort of, I like to say it's more artisanal sort of cheese-making approach to biotech venture capital. If you start every company from scratch or most of our companies start that way, I'd say the tourists who came into the space around venture creation during the bubble have largely left. There was one chart in the year in review that showed are the number of first financings is really back to where it was in the sort of 2015, 2016 timeframe call it 60 or so biotech companies in the US every quarter that get created. And so I actually think it's very healthy that this ecosystem has tightened back up on the supply side so that we're not creating, I mean, there was going to be enormous competition in our space, but there was a period of time where every week there was, you know, the 20th CAR T company going after the same target and the 20th, you know, PD1 company going after IO and all of that. I think with fewer companies being formed, there'll be more opportunities to create sort of novel, innovative and distinctive companies. Well, Bruce, thank you for joining us and happy holidays. Thanks for having me and happy holidays to all of you. That does it for the last episode of The Readout Loud for 2025. Thank you to Hyacinth and Bonato for producing this week's episode. Our senior producer is Alyssa Ambrose. Our executive producer is Rick Burke and our theme music is by Brian Joel. And we'd love to hear from you. Tell us what you like about this week's episode, what you didn't like and tell us what you're baking for Hanukkah and Christmas. You can do all that by sending us an email at [email protected]. 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. No, nope. No, I'm not. No, we're not going to. See you next year.