Episode 147 - July 11, 2025

Summary

• Biotech M&A is nearing 2024’s full-year count just over six months into 2025: 18 takeouts versus 20 last year, over $40B in value versus about $30B, and three $5B+ deals are cited. Merck/Verona at $10B is the year’s second-largest deal, while AbbVie bought private Capstan for $2B. Tim Opler’s read: tariff/MFN uncertainty cleared enough to release latent demand, producing a “normal M&A year” in which patent-cliff-facing pharma has “no choice” but to pursue inorganic expansion.
• Brad Loncar’s tradeable signal is Capstan—pharma “buying science” again, not just revenue. The in vivo CAR-T company had only entered the clinic in January yet fetched $2.1B, which “blew me away” and “says a lot about how challenging the public markets are.” Unlike commercial takeouts such as Verona, science deals could lift the whole XBI, though Eric Schmidt says science-for-science M&A generally requires a frothy environment and may be limited to one-offs.
• Premiums are modest in a one-bidder market. Tess Cameron says Blueprint and Verona premiums were “good but not astounding”; Opler, working on more M&A than ever and seeing commercial deals, says “the median number of bidders is 1. It’s not 6.” A decade of capital has created a large pool of available targets, while many commercial companies lack enough products to support a durable standalone business.
• Trump’s 200% pharma-tariff talk produced little lasting market reaction, while MFN rumors moved the XBI. Tess notes that a 1–1.5-year grace period is not enough for tech transfer; Brad interprets the market’s quick reversal as belief that the ultimate policy is unlikely to be seriously harmful, rather than as evidence that tariffs are already priced in. Tim believes rumors of a Medicare/Medicaid, “carrot rather than stick” MFN approach, while Brad expects more clarity and possibly another announcement.
• The FDA’s release of roughly 200 CRLs drew qualified praise: transparency will have more effect on behavior if CRLs for drugs that never receive approval also become public. Eric Schmidt rates this FDA 9.5/10 as a communicator versus 4/10 for the prior administration, while Tim notes that the letters show large companies as well as small biotechs were not always transparent with markets. Tess reports constructive interactions but worries about turmoil, low morale and reviewer departures; Brad says companies will continue working with other regulators until confidence improves.
• On Capricor’s DMD-cardiomyopathy CRL, the discussion mostly favors waiting for more data but preserves the company’s fairness objection. Eric describes marginal existing data and a key readout in another DMD indication within roughly 30 days, while Tim says a positive midcycle review does not guarantee approval. Brad criticizes rigid PDUFA calendaring, arguing that regulators should consider the totality of the data; Eric relays the company’s view that it effectively dealt with two successive FDA staffs after Nicole Verdun’s departure.
• Two positive updates and a tougher obesity outlook: KalVista’s Ekterly is the first-ever oral treatment for HAE attacks, priced at about $16,700 per pill; Brad proposes a subscription model for PRN drugs, and Eric agrees. ProKidney rose from $0.61 to nearly $5 on open-label Phase 2 eGFR-slope data, though the randomized Phase 3 study expected in 2026 will provide more information. Tim says Lilly’s oral, amylin and muscle-drug portfolio plus retatrutide makes obesity harder to enter; generic semaglutide is presumably coming around 2030. He still likes Structure and Kailera.

Deep dive

1. M&A is nearing 2024’s full-year count — and pharma “has no choice”

• Eric’s scoreboard: 18 takeouts YTD versus 20 in all of 2024, over $40B versus about $30B, and three $5B+ deals are cited. Merck/Verona at $10B is 2025’s second-largest transaction, AbbVie bought private Capstan for $2B, and, as Daphne Zohar noted, it was the third takeout in six months of a company led by a female CEO, after Intra-Cellular and Blueprint.
• Tim’s thesis: tariff and MFN moves created tremendous uncertainty, and as that uncertainty cleared, buyers returned for a “normal M&A year.” An FT article on patent cliffs underscored the severity of what is coming: “pharma has no choice… they’ve got to go out and do inorganic expansion.” The resulting activity looks like “almost workmanlike steps” by AbbVie, Merck and others.
• His 30-plus-years-as-a-banker cynicism on motive: every organization’s overriding goal is “to survive… you don’t want to be the CEO who was the last CEO Bristol Myers Squibb ever had.” Survival means preserving revenue, and most companies in the industry lack enough organic growth to do that alone.

2. Capstan is the deal that matters: pharma is buying science again

• Brad’s split: Verona, Intra-Cellular and Blueprint are expected commercial revenue-gap fills; what has been “missing in action for a long time is companies buying science.” Capstan is an in vivo CAR-T company that entered the clinic in January—“practically a preclinical company.” Lilly’s purchase of Verve is another sign that pharma may be buying science for the long term. Verona will not lift the XBI, Brad argues, but buying a gene-editing company could benefit dozens of similar companies.
• His candid double-take: Capstan’s $2.1B price “blew me away”; if it were public, “that would not be the case,” which “says a lot about how challenging the public markets are right now.” The private-company setting may have been a factor, but he views the price as a strong sign that big pharma will pay for very early-stage science.
• Eric’s pushback is worth keeping: science-for-science M&A “only happens in a very frothy environment” and usually requires scientific disruption that challenges normal drug development and distribution. He is unsure these deals will be more than one-offs.
• Tess’s UK coda: Verona is a major success for the UK life-sciences ecosystem, but it also illustrates the recurring problem that, just when a company succeeds and reaches the big time, it gets acquired and the ecosystem is “back to square one.”

3. A one-bidder market explains the modest premiums

• Tess observes that Blueprint and Verona premiums “were good but they were not astounding,” raising questions about competition for commercial-stage assets. Eric adds SpringWorks to that trend, while noting that smaller companies such as Regulus and Chimerix received much more significant premiums earlier in the year.
• Tim, speaking from the deal desk, says he is working on more M&A than ever and that it is all commercial: “You need revenue… you can buy revenue.” Across the clients he advises, whether buyers or sellers, the median number of bidders is 1, “not 6.” The market has become a buyer’s market.
• The target population has expanded sharply after a decade of capital flowing into biotech. Many commercial-stage companies received approval without being acquired in Phase 2 or Phase 3, leaving numerous available targets.
• Most companies get few approaches—often none, or perhaps one or two, in a decade—so boards learn to pay attention when an offer arrives. Most commercial-stage pharmaceutical companies also lack enough products to support a durable EBIT-positive future and may be better off inside a larger organization that can spread overhead across multiple products.

4. Small Beautiful Bill: orphan fix in, pill penalty untouched

• Brad’s read of the biggest biotech-relevant item in the July 4 law: rare-disease drugs with multiple approved indications for a rare-disease-type population are now exempt from IRA price negotiations. Previously, a rare-disease drug with only one approved indication was exempt. Medicaid spending reductions and changes affecting certain hospitals may also affect the industry.
• Tess says it is positive that policymakers recognized the IRA’s disincentive for orphan-drug development, especially small-molecule development across multiple orphan indications. But the more impactful fix would have removed the small-molecule penalty and made the period 13 years. Multi-orphan drugs may benefit from the change, but Alzheimer’s, cardiovascular and heart-failure drugs aimed at elderly populations may not.
• On whether the narrower exemption makes a later pill-penalty fix harder, Tess says it removes one tool and may reduce the probability somewhat, but the drug-pricing executive order’s recognition of the distortion is encouraging; she does not think the odds change drastically.
• Brad’s broader market point is that the bill’s main benefit for biotech may have been preserving existing tax rates rather than raising taxes. Tim adds that deficit spending is bad for rates and therefore bad for biotech.

5. 200% tariff talk was shrugged off; MFN rumors did the real moving

• Tess reports Trump’s cabinet-meeting statement that pharma tariffs could potentially reach 200%, with companies given one to 1.5 years to move manufacturing into the United States. Brad adds that this is not enough time for tech transfer and process relocation.
• Brad interprets the market’s near-instant reversal after the tariff statement as a belief that the ultimate policy is unlikely to be seriously harmful, rather than a belief that any tariff is already fully priced in. He expects the end-of-month report to bring substantially more clarity within 30–60 days.
• Tim says rumors circulated that MFN would be resolved mainly through the Medicare and Medicaid systems using a “carrot rather than stick.” He believes the rumors are true while stressing that he is not a Washington insider, and says the XBI could be seen “popping up hour by hour” as funds absorbed the story.
• Brad says the FDA’s affordability-for-faster-review voucher announcement was not the whole MFN story and expects something else to arrive, “probably going to hit next week.”
• Eric notes that the industry was up nearly 4% through the first four days of the week, had recovered fully from the April lows and appeared to be breaking out. Brad’s caution is that this is “like a poor man’s strength”: the Nasdaq and S&P are at all-time highs, while biotech is mainly repricing from “Armageddon” toward something more normal.
• Brad says that a genuine risk-on environment, using Bruce Booth’s phrase, should eventually help early-stage biotech, but that recovery is a multiyear process. Tim similarly says the effects of expansionary policy can take 5–10 years to play out and that he has no idea what happens next week.

6. The CRL dump: real transparency may require covering rejections

• The FDA released roughly 200 complete response letters from 2020–2024 in a ZIP file, covering products that ultimately received approval. Tim jokes that “the Epstein list got lost this week, and then all of a sudden it’s, ‘Oh, here’s everybody’s CRL,’” and says the letters show that many companies were not transparent with markets, including some large pharmaceutical companies.
• Eric gives the FDA credit for the initiative and for its communication skills, rating the current FDA 9.5/10 as communicators versus 4/10 for the prior administration. He sees the approved-drug CRLs as a good first step but wants broader publication to change company behavior. Tess agrees that releasing CRLs for unapproved drugs would have a larger effect.
• Tess says many portfolio companies continue to report constructive interactions, but STAT’s reports of internal turmoil, low morale and reviewer departures raise questions about whether that is sustainable. She has heard of several senior reviewers being gone and says it may take more time to assess the quality and timeliness of briefing-book, end-of-Phase 2 and pre-IND interactions.
• Brad says companies will continue working with other regulatory agencies because they cannot yet assume that FDA interactions will proceed smoothly, and companies cannot afford to take that risk.
• Eric also cites a leaked BioCentury-reported memo from Dr. Prasad as evidence that leadership may recognize staffing, turnover and morale problems and is trying to address them through hiring, openness and internal communication.

7. Capricor’s CRL: more data, rigid timing and a fairness dispute

• Eric’s account: Capricor’s cell therapy targets the specific indication of DMD-related cardiomyopathy, and the existing data were marginal. The same therapy is being tested in a large trial for a different, more traditional DMD muscle-strength indication that could read out in August or September—potentially within about 30 days—providing a clearer view of whether the approach works.
• Brad agrees with Tim that the company’s midcycle review being favorable did not guarantee approval. He also criticizes rigid PDUFA calendaring, using Sarepta’s accelerated approval and later confirmatory readout as an example. In his view, the FDA should be able to wait for the totality of the data rather than make a decision simply because a statutory date has arrived.
• Tim says the company’s press release—emphasizing that the midcycle review was fine before the FDA concluded that statutory efficacy requirements were not met—does not establish that the agency acted improperly. The FDA should be able to review all the evidence and then decide.
• Eric relays the company’s view that it effectively dealt with “two FDAs” or successive review staffs. The earlier Nicole Verdun team had accepted the statistical plan and analyses, including a partly post hoc element; after Verdun’s departure, the company faced a different FDA directed by Dr. Prasad. Eric also relays reporting that Verdun was not a believer in the therapy and had scrapped the planned advisory committee. He says the CRL came ahead of the August 31 decision date and that more will be known after the upcoming trial readout.

8. Wins on the tape—and a more crowded obesity market

• KalVista’s Ekterly is the first-ever oral drug for HAE attacks, an oral kallikrein inhibitor named to evoke “act early.” Its list price is about $16,700 per pill. Brad worries that a price of roughly $17,000 per emergency dose may lead patients to use it less or think twice about taking it, and floats an annual subscription model for PRN medicines. Eric agrees.
• ProKidney’s rilparencel is a cell therapy for chronic kidney disease. In an open-label Phase 2 study comparing two injection schedules, the company reported improved eGFR slope after treatment versus before treatment, with a more dramatic change in the two-injection group. The stock rose from $0.61 to nearly $5, taking the company above a $1.5B market capitalization.
• Tess emphasizes that the Phase 2 interpretation remains debated because the study was open-label and raises questions about placebo comparison, SGLT2 use, follow-up timing and injection timing. The randomized Phase 3 study, expected to read out at some point in 2026, should provide more information and could form the basis for approval.
• Tim’s post-ADA obesity report argues that Lilly has a formidable portfolio: a strong oral, a strong amylin and a strong muscle drug, with retatrutide also coming. Generic semaglutide is presumably arriving around 2030, will be inexpensive and works well. His conclusion is that the market is “a little bit less open than it seemed before,” though he still likes Structure and Kailera as companies with assets that could compete against Lilly’s best asset in the category.