Episode 131 - February 14, 2025

Summary

• Graig Suvannavejh’s bottoming call: his 15-year “Sentometer” survey of 150–180 buy-side investors has swung from all-time-high small-cap enthusiasm before the election to “winter is coming,” and sentiment historically takes about two quarters to bottom; he sees “probably another three months until we bottom.” Stocks are “down 50% for no reason” while the flattish indices mislead; Sam Fazeli’s chart of the XBI shows “exactly five years of nothing” as the S&P 500 doubled.
• A profitability wave is cresting across the SMID/midcap tier — Argenx and BeiGene turn profitable this year, SpringWorks early next year, Legend and Ascendis late this year into next, and Ultragenyx in late 2026–27 — as companies face pressure because “they can’t continue to raise money forever anymore.” Sam’s caveat keeps it honest: “nobody wants to own a profitable biotech company whose profitability is going up at 10% a year” — the value is in the reinvestment ramp, not the pennies.
• Eric Schmidt expects a SpringWorks takeout by Merck KGaA to be announced Tuesday or Wednesday, ahead of Thursday’s earnings. Ogsiveo crushed year one (~$170M US vs. $45–50M consensus), Gomekli carries a cleaner, broader label than AstraZeneca’s Koselugo, and the shortlist of smaller buyers (Ipsen, Jazz, Servier, Exelixis) can’t swallow a ~$5B deal on ~$1.5B consensus sales — Merck KGaA ($60B cap, $21B global sales) can. Stock has run from $32 post-JPM to $58.
• Moderna’s near-term trajectory now hinges on the cancer-vaccine timeline: 2025 guidance held at $1.5–2.5B (consensus still above), the norovirus clinical hold was “easily explained,” and Sam says the cancer vaccine is “what’s going to change the trajectory for this company.” Bristol Myers Squibb’s Opdualag adjuvant-melanoma failure cuts both ways — a bar-raiser removed, but a trial most expected to work didn’t — while GSK’s payer-informed “two-player market” framing of RSV “creates extra headache” for Moderna.
• The IPO window is open but has no staying power: Metsera and Sionna are “the cream of the crop,” yet end-of-last-year landmarks with no news are getting crushed — Septerna down 50% this year (60% from highs), Upstream Bio down 54% (74% from highs). The market is penalizing anyone who needs to raise (“that’s 99% of biotech”), faces competition, or lacks catalysts; Aardvark priced its $94M IPO at $16 and already trades around $13.80 against the $2B Soleno benchmark.
• Negative enterprise value doesn’t mean dead: Xilio jumped 117% on an AbbVie masked T-cell-engager option deal yet still trades below cash, and Luba Greenwood notes that a company she invested in, Landos, received a 200%-plus premium from AbbVie — “they are definitely shopping.” Sam withholds a masked-TCE renaissance verdict: after watching CytomX and Bristol Myers, “there’s still some wood to be chopped here for the masking world.”
• BioCentury’s Steve Usdin says the single best FDA tell is who replaces Patricia Cavazzoni as CDER director — the director “really has more influence day-to-day on the things that are vital for the biopharmaceutical industry than the FDA commissioner does.” Cutting user-fee-funded reviewers saves taxpayers nothing, new reviewers may not be productive for two years, and Sam Fazeli says NIH’s red flags are “more serious” than FDA’s; a year from now, Usdin says, “we’ll either be feeling a lot better or a lot worse.”

Deep dive

1. “Biotech is in a dark place” — but the data says three months to a bottom

• The episode opens on Adam Feuerstein’s gloom piece: ~700 public biotechs, ~200 trading below cash, and his proposed rule that three should delist before any new IPO prices. Ginkgo Bioworks co-founder Jason Kelly pushed back on X, citing Lilly and Novo Nordisk’s value creation — an optimistic counterpoint, though there are exceptions to the broader rule.
• Graig Suvannavejh’s evidence base is his firm’s Sentometer, which surveys 150–180 mostly US sector specialists and has run for 15 years, plus sector-performance notes built around the JPMorgan and Cowen conferences. The sector started this year flat — only about the third time since 2000, and historically “flat to down.” Sentiment reversed drastically from all-time-high small-cap enthusiasm into the election to “winter is coming”; it usually takes about two quarters to bottom, so Graig sees “probably another three months until we bottom.” Meanwhile, “a lot of stocks are down 50% for no reason,” even as the indices look roughly flat.
• Sam’s macro read on the surprisingly hot CPI print: he views it as a “January effect,” although it could affect the Fed’s next decision; if tariff talks and other inflationary pressures persist, “we may see at some point an interest-rate rise.” His Bloomberg screen of the XBI: “It’s exactly five years of nothing” while the S&P doubled — and over 20 years it looks fine, but “who on earth invests over a 20-year horizon?”
• The Armistice Capital wrinkle: The Wall Street Journal reported that the fund issued IOUs instead of cash redemptions despite having performed well and holding prominent names including PTC, Supernus, argenx, Incyte, and Cytokinetics. Graig’s explanation is that it may be almost two portfolios: a liquid book plus PIPEs and warrants that are “unbelievably profitable when these things work out, right? But they’re illiquid.” The fund has nearly 250 public names, but Luba noted the episode could still be specific to this fund; Paul wanted to believe it was “an anomaly and not the beginning of a trend.”

2. The profitability wave: Ascendis and Exelixis carry the innovation-cycle thesis

• Eric Schmidt’s roll call of companies flipping to cash-basis profitability: argenx and BeiGene this year, SpringWorks early next year, Legend and Ascendis late this year into next, and Ultragenyx late 2026 into 2027 on four additional launches. The driver is mounting pressure because “companies can’t continue to raise money forever anymore.”
• Ascendis specifics: Yorvipath for hypoparathyroidism is “off to a really strong launch in the US” after a good European year; TransCon CNP will be filed this quarter to compete with BioMarin’s Voxzogo; and AstraZeneca’s eneboparatide phase 3 is imminent but likely “a year and a half behind and a little bit of a me-too.”
• Exelixis: Cabometyx is a $2B-plus global brand, the generics win extends protection to 2030, and the neuroendocrine-tumor launch should drive a beat — but the re-rating depends on zanzalintinib, with phase 2 data in head and neck and phase 3 data in colon cancer this year. Early data show “not ample differentiation against Cabo.” On the M&A hope, Eric’s view is: “People are hoping it’s going to get acquired, but it’s probably not going to get acquired.”
• Luba’s structural question — doesn’t profitability shift the valuation lens from pipeline promise to pennies, as with Vertex’s long unprofitable period and Amazon’s approach? Sam’s answer: profitability matters if it funds a ramp; an argenx that can reinvest and grow is preferable to a biotech whose profitability rises 10% a year.

3. Moderna is now a single-catalyst story, and the adjuvant-melanoma read just got murkier

• Q4 brought a volatility halt but little new: 2025 guidance remained at a wide $1.5–2.5B range, with consensus still ahead; there was a norovirus clinical hold, softer CMV timing commentary, and a COVID-flu combination that may need to wait for phase 3 flu data. Sam says the cancer vaccine is “what we’re all waiting for now” and what could change the company’s trajectory.
• The Opdualag adjuvant-melanoma failure is a genuinely two-handed read. It is bad for Bristol Myers Squibb, but removes a therapy that could have raised the bar in the setting where Moderna’s key data set reads out. Against that, a trial most expected to be positive was not, and Moderna’s own small phase 2 had a Keytruda control arm that “didn’t quite look as good as Keytruda should have looked.” Sam says that concern remains in the background as data arrive late this year or possibly next.
• GSK’s earnings comment called RSV vaccines “a two-player market.” Sam reads that not as arrogance but as a view informed by payer conversations, which “makes it even more important” that Moderna’s cancer-vaccine trial succeeds. Graig, who covers BioNTech, gets the aside that BioNTech currently has the stronger enterprise-value position.

4. IPOs: great receptions, no staying power — and Aardvark as the cautionary print

• Quality has improved — companies are more mature, many have data, and many are in phase 2 — and Metsera (obesity) and Sionna (cystic fibrosis, where “it’s really Vertex and there’s not a lot of competition”) are “the cream of the crop.” But end-of-last-year landmark IPOs with no news have cratered: Septerna down 50% this year alone (60% from highs), Upstream Bio down 54% (74% from highs).
• Graig’s three-part list of what gets penalized: anyone who needs to raise money (“that’s 100% of biotech, or almost 99%”), anyone facing competition, and anyone without catalysts. It’s “a self-fulfilling prophecy” — as stocks fall, investors open the models, see hundreds of millions needed over five years, and sell more. “That will reverse.”
• Aardvark’s debut, per Sam: a more nuanced obesity play focused initially on Prader-Willi syndrome and hypothalamic obesity that raised ~$94M at $16, after seeking $16–18, and traded down to roughly $13.70–13.80 shortly after launch. Soleno is a roughly $2B, FDA-filed benchmark with a different mechanism, leaving room in principle for two approaches. The ARD-101 plus DPP-4-inhibitor combination showed it could enhance a GLP-1, but proving meaningful benefit against tirzepatide and the coming triple-G requires a substantial trial. Sam “just can’t see an easy way for these to become M&A targets until they’ve got some really hard, good-quality obesity data.” Eric’s counterexample: Rhythm has been an orphan-obesity play for years and remains independent, though its stock is finally doing well.

5. SpringWorks: the deal Eric expects announced before Thursday’s print

• The assets: Ogsiveo in desmoid tumors did almost $170M in the US in year one against ~$45–50M consensus, and newly approved Gomekli, a MEK inhibitor for NF1 plexiform neurofibromas, carries an adults-plus-pediatrics label with cleaner and fewer warnings than AstraZeneca’s pediatrics-only Koselugo, which was approved five years ago and sold $311M globally last year.
• The buyer math is the tell: this is a ~$5B deal on ~$1.5B in consensus portfolio sales, so the perennial names — Ipsen, Jazz, Servier, and Exelixis — are too small. Merck KGaA, which confirmed it has been in discussions, fits: $60B market cap, $21B in global sales, neurology and oncology exposure, and the ability to take the assets global. With SpringWorks reporting next Thursday, Eric expects a deal to be announced “probably Tuesday or Wednesday.” The stock has moved from $32 post-JPM to $58.
• Paul’s context check: even this Pfizer spinout success story peaked at $90 per share in February 2021 — its recent multiyear high above $60 still has not reclaimed that earlier peak.

6. Below-cash doesn’t mean worthless: Xilio’s AbbVie deal and Anaptys’ PD-1 agonist surprise

• Xilio signed an option deal with AbbVie on its masked T-cell-engager platform — masking the CD3-binding site, the antigen-binding site, or a costimulatory molecule — and the stock jumped 117%, yet even after the AbbVie cash it still trades below cash. Sam’s caveats: this is discovery-stage work rather than a deal on particular pipeline assets; cash runs only through the first quarter of 2026, so another raise will be needed; and on a masked-TCE renaissance, “there’s still some wood to be chopped here for the masking world.” He wants longer-duration follow-up from Janux and Xilio before drawing conclusions.
• Luba’s corroborating datapoint: Landos, a public company she had invested in, traded at negative enterprise value and received a 200%-plus premium from AbbVie — “they are definitely shopping” among undervalued public names.
• AnaptysBio’s rheumatoid-arthritis data moved the stock from roughly $12–13 to above $20 despite Sam’s instinctive alarm at the mechanism: a PD-1 agonist “immediately scares the bejesus out of me” because it does the opposite of immuno-oncology, creating an immunosuppressive environment. The 12-week data look “comparable” to current agents, particularly Rinvoq, including after considering patients with prior therapy experience, though a confusing week-12-to-14 shift caused “a lot of soul-searching amongst analysts.” Sam’s open hypothesis: Lilly pursued a similar approach with similar-looking data and discontinued it — was the profile inadequate, or did Lilly simply have “a whole lot more strings to their bow”? “Time will tell, but I think the data was better than some folks were [expecting].”

7. FDA under the new regime: watch the CDER director, not the commissioner

• Usdin’s ledger of possible opportunities includes onshoring pharmaceutical manufacturing, fixes to the IRA Medicare drug-negotiation program, PBM reform, restoration of immediate R&D expensing, a possible return to traditional antitrust enforcement, and bipartisan legislation to restore pediatric priority-review vouchers, introduced two days earlier. Negatives include DOGE’s proposed large FDA cuts, RFK Jr.’s discussion of cutting scientific leadership, a one-hire-for-four-departures rule, and a return-to-office push likely to drive out long-tenured staff amid “poor morale.”
• Where the cuts land is everything: a 10% cut absorbed by the tobacco center would not touch biopharma; 10% of review staff would mean missed PDUFA dates. The key lever is who replaces Patricia Cavazzoni, because the CDER director “really has more influence day-to-day on the things that are vital for the biopharmaceutical industry than the FDA commissioner does.”
• On cutting “fat”: Usdin’s business test is that firing 10–20% first and analyzing later “is kind of backwards”; he relays that FDA reviewers may not be productive until they have been there for two years, so damage cannot be reversed on demand. In response to the concern over who guarantees agency performance after forced cuts, Usdin offers qualified confidence: Makary “didn’t go into this wanting to fail,” insiders are already telling him to identify and protect key people, and serious problems, if they come, “will be inadvertent.” The Gottlieb playbook of asking staff for their top reform ideas is available.
• The deeper tension: most drug-review staff are industry-user-fee-funded, so firing them saves taxpayers nothing — setting up a tug-of-war between DOGE, whose “metric for success is the number of people they can fire,” and a faction asking how to get more safe, effective drugs to patients efficiently. One possible reform with a real chance of happening is a distinct efficacy standard for ultra-rare diseases, which Janet Woodcock and others are pushing.

8. NIH’s red flags are “more serious” — and a one-year verdict either way

• Luba’s concession from 33 years in industry: nobody disputes the need for government basic research, but against a roughly $50B budget, “most people would say, wow, there is a lot of inefficiency there.” She also raised the possibility of a more effective industry partnership to guide early research and drug-discovery spending.
• Sam says much of Jay Bhattacharya’s published criticism is valid: NIH is too risk-averse, first-grant recipients are too old, and too much research is me-too work. “We’re certainly not getting $50 billion a year of science out of the $50 billion a year or so that we’re paying.”
• The other hand: Sam says Bhattacharya’s COVID statements are “not based in science,” and that Bhattacharya and RFK Jr.’s concern about excessive pharmaceutical influence at public-health agencies threatens the NIH-industry interface that matters — including research collaborations and SBIR funding, which is “really important for some of the small biotechs especially.” Sam says CDC concerns are warranted too, though the picture is mixed: some “really competent, good people” are being recruited, while there are also people one would not want near the levers of power. Luba noted that Scott Gottlieb had supported the new pandemic-planning director.
• The closing answer to Luba’s ten-second question: “A year from now, we’ll either be feeling a lot better or a lot worse, because that’s about the time frame when these things are going to play out” — including whether user-fee reauthorization goes forward, gets revamped, or “gets blown up and cause[s] real problems.”