Episode 132 - February 21, 2025

Summary

• Adam Feuerstein’s “zombie” census framed the episode: of roughly 700 public biotechs he tracks, about 200 trade at negative enterprise value. Tess Cameron’s counter was that some apparent zombies are not dead: RA and other investors saw an opportunity in Taysha below cash, and “voilà, the company has reemerged.” Josh Schimmer’s harder case was Cargo Therapeutics: sophisticated investors funded a specific experiment, “the experiment was run, and the experiment failed,” and major shareholders told him they want the company shut down rather than repurposed.
• Josh argued that shareholders need a real choice when a biotech pivots or winds down. Tess’s proposed structure would let investors take $X per share or roll into the next journey for a larger stake. Josh said he has failed to get a company to return cash voluntarily in the last 2 or 3 years: “They will do it with a gun to their head.” His Royalty Pharma example cuts both ways: half cashed out 20 years ago, while the remaining company later grew roughly a hundredfold.
• Solid Biosciences reported about 110% average microdystrophin expression in 3 Duchenne patients, with an early potential cardiac signal, and planned an FDA discussion midyear about next steps and possible accelerated approval. Brian Skorney reported that Solid had lined up a $200 million raise at $4 per share with institutions before the data became public; Tess noted that the data was shared before pricing. The stock later traded above $6, driving a fairness debate over selective access and discounted financings.
• Bluebird Bio agreed to sell itself to private equity for about $30 million excluding a high-bar CVR after financial distress, loan covenants and exhausted financing options. Adam said the company had once been at gene therapy’s vanguard but suffered from scientific and manufacturing setbacks, excessive spending and the difficulty of making these products profitable. He also argued that an unknown Chinese BCMA competitor helped wipe out Bluebird’s opportunity. Brian’s efficiency lesson: try starting the next Bluebird with 15 people.
• Septerna’s significant side effect was described by Josh as an unfortunate but inherent biotech risk; Tess emphasized backups, including multiple PTH1R agonists and the “backup of the backup of the backup” lesson from Eliquis. Josh said it was at least the second, possibly third, recent IPO to blow up soon after going public. Brian said biotech sentiment is worse than the XBI performance suggests: “Our clients are hurting,” and investment strategies may need to change.
• Josh’s merger-arbitrage framework for the confirmed SpringWorks–Merck KGaA talks: across roughly 150 credible merger announcements, about half closed and half failed, so the post-announcement trade should offer no obvious profit. He expects 2–4 months while bankers shop for a higher bid. Separately, Josh said launches that beat consensus are bought in almost every case. BridgeBio’s Attruby had more than 1,000 unique prescriptions after only a couple of months, while Stoke’s Biogen partnership funded Phase 3 non-dilutively but disappointed investors expecting a buyout.
• The obesity discussion shifted from tiny differences in weight-loss percentages to tolerability and convenience. Josh said patients notice dosing frequency and whether they feel unwell more than a 20% versus 21% result; Tess added that women may prioritize total weight loss while men may focus more on tolerability and muscle loss. The FDA announced the GLP-1 shortage was over, which an unidentified speaker called a major threat to Hims’ mass compounding model, while other speakers noted patient-specific exceptions, Hims’ “customized compounding” strategy and possible Novo patent exposure. Brian also cited a report that Lilly had apparently produced about $500 million of its Chugai-licensed oral drug before data, and an unidentified speaker mentioned a Viking takeout rumor.

Deep dive

1. Zombie biotechs: ~200 of 700 trade below cash — but some come back

• Adam Feuerstein defined a biotech zombie as a company trading at negative enterprise value: its equity is worth less than its balance-sheet cash, often after clinical setbacks. He tracks roughly 700 public biotechs, of which about 200 trade at negative EV in some form. The central question is whether their capital should be returned to shareholders, redeployed or used to attempt a turnaround.
• Tess Cameron asked how investors distinguish a dead company from one that only looks dead. She cited John Maraganore’s discussion of apparent zombies that later transformed, Alnylam as an example raised in that discussion, and Taysha, which RA and other investors saw as an opportunity below cash because of its Rett syndrome gene-therapy program. Adam added examples including Jazz Pharmaceuticals, Pharmacyclics, Neurocrine and others.
• Adam also offered the defense from his experience as a board member and investor: surviving teams can become hyperfocused, work intensely to survive and concentrate on one program rather than two, three or four.
• Josh Schimmer pushed back on treating every successful turnaround as a zombie example. He said Immunomedics was not a zombie but an activist-led management change around a drug that was working. His broader objection was that biotech wastes substantial capital through arrogance, greed and unwillingness to give up. Cargo Therapeutics, he said, had strong scientific rationale and sophisticated backers, but the specific experiment it was funded to run failed; he spoke with major shareholders who wanted the company shut down rather than repurposed.

2. The investor-mandate problem: cash rarely comes back voluntarily

• Josh said the issue becomes especially contentious when a company makes a dramatic pivot. He cited companies that crash and rebrand as obesity plays, and Galapagos, whose negative enterprise value was possibly the largest ever. Its first deal after Paul Stoffels arrived was a CAR-T deal that investors disliked because it was far removed from the company’s prior work and Gilead-era strategy.
• Adam noted that shutting down is not the only option: a merger partner, a spinout or a combination of assets from several companies could unlock value. The broader industry problem, he said, is redundancy and the need for consolidation among public biotechs.
• Tess proposed an explicit investor mandate. After a failed program, a company could offer shareholders a choice: receive $X per share or remain invested in the next journey with a larger stake. She pointed to reverse-merger structures in which shell holders receive a dividend or buyback while new investors fund the PIPE: “You want your investors to choose you, not force yourself on them.”
• Josh described a Royalty Pharma board fight from 20 years ago. Advisers created a structure allowing shareholders to stay or cash out; half chose to leave, while the continuing company later increased in value roughly a hundredfold. But he said he has been unable in the last 2 or 3 years to persuade a biotech to return cash voluntarily: “They will do it with a gun to their head.” His proposed remedy is to give management a financial incentive to return money, since returning cash also reduces the pool available to pay management.

3. Solid’s ~110% microdystrophin — and the pre-data financing debate

• Tess described Solid’s data from only 3 Duchenne patients: average microdystrophin expression of about 110%, compared with roughly 34% for Sarepta in her comparison. She said Pfizer’s discontinued program showed upwards of 34% and might have been closer to 50%; the transcript leaves that comparison hedged. Solid also showed early data suggesting possible cardiac benefit, including LVEF measurements. The next step was an FDA discussion midyear about next steps and possible accelerated approval.
• Brian reported that Solid had worked confidentially with bankers and a handful of institutions in the days before the announcement to line up a $200 million financing at $4 per share. CEO Bo Cumbo’s defense was that biotech, especially gene therapy, has been so weak that a company cannot count on a positive stock reaction even to good data.
• Brian’s counterarguments were that participating institutions may have an incentive to secure the lowest price and that the stock later traded above $6, potentially leaving money on the table. He also said selective pre-data access creates a legitimate fairness concern for retail investors.
• Tess said investors need financings because many biotechs have too little trading volume to support a meaningful open-market position. She emphasized competition among institutions: a company can take one price to an investor, only to have a peer offer 10% more the next day. She also noted that the transcript’s sequence involved both a pre-data commitment to the raise and pricing after the data had been shared publicly.
• Adam described the market as an uneven playing field in which companies need capital and are at the mercy of funds. He said investors may put a term sheet directly in front of a company at a discount, though a well-structured PIPE can give the company a stable shareholder base.
• Brian compared PIPE discounts with IPO first-day pops: investors are being induced to do the work and participate. He described the demand dynamic as nonlinear—no one may want a company until one party commits, after which dozens of investors suddenly want in.

4. Bluebird’s ~$30M take-under: economics, execution and competition

• Adam said Bluebird Bio was selling itself to two private-equity firms for about $30 million excluding the CVR. Financial difficulties, loan covenants and the company’s statement that it had exhausted other financing options left it with what he called essentially a take-under. The CVR offers some additional upside tied to future product sales but has a high bar.
• Adam recalled Bluebird’s position in 2013–14, when it appeared to be proving that gene therapy could work for diseases including cerebral adrenoleukodystrophy and beta thalassemia. The company ultimately hit the “buzzsaw” of converting scientific breakthroughs into a viable business.
• An unidentified speaker said the products should persist under new ownership for patients with CALD, beta thalassemia and sickle-cell disease, while acknowledging long-standing concerns about margins, profitability and the size of the patient populations.
• Adam added company-specific problems: setbacks involving the first construct around 2015, manufacturing issues and very high spending. He said management resisted investor pressure to throttle back because it believed deeply in the mission.
• Adam also offered what he called a historically interesting example of Chinese competition. At ASCO 2015, while investors awaited Bluebird’s BCMA data, an unfamiliar Chinese company working on the same area appeared. Adam said that company is now worth about $7 billion, while Bluebird is effectively bankrupt; without that competitor, he argued, Bluebird might own the BCMA market and be worth roughly $7–8 billion.
• Josh said Western biotech should learn to operate more efficiently. Brian took the point further, suggesting that the next Bluebird might be started with 15 people rather than a large organization. The host also cited Angelica Peebles’s observation that Bluebird’s CEO had cashed out roughly $80 million over time, despite the company’s long-term failure—something that bothers many investors even if it occurred in a free market.

5. Septerna’s blowup and a brutal sentiment check

• Josh said Septerna had not necessarily done anything wrong: discovering a significant side effect with one drug is an inherent risk of biotech development.
• Tess, while disclosing that her colleague Jake sits on the board, emphasized the value of backups. Septerna was accelerating multiple attractive PTH1R agonists and expected to put one into the clinic later that year. She recalled Carl DeCicco’s Eliquis example: the eventual winner was the backup of the backup of the backup. Efficiency, she argued, should not come at the expense of risk mitigation.
• Josh said Septerna was at least the second, and possibly the third, recent IPO to blow up within six months of going public. Failures that soon after an IPO damage biotech sentiment beyond the individual security.
• Brian said sentiment was “terrible” and probably worse than the XBI’s performance or press coverage suggested. Clients were losing money, investors were crowding into the same names and the industry needed to reconsider its investment strategy. The episode opened with Brian’s related example of Albert Bourla being booed at a White House event.

6. Deals: SpringWorks at 50/50, Stoke takes Biogen’s money, good launches get bought

• Josh said he had no specific information about the confirmed SpringWorks–Merck KGaA talks. His PhD dissertation examined roughly 150 credible merger announcements and found that about half closed, with the stock rising, while about half failed, with the stock falling. After SpringWorks’ initial pop, he said there should be no obvious profit opportunity for a merger arbitrageur.
• Josh estimated that a process usually takes 2–4 months because SpringWorks’ bankers will likely shop for a higher bid. He expected pressure on the board and thought multiple bidders might be involved, though he said SpringWorks’ midsize and smaller indications may make it less likely to be picked up by a large pharmaceutical company focused on bigger indications.
• Adam discussed Stoke’s ex-North American partnership with Biogen for its Dravet syndrome program. The deal provided non-dilutive funding for the Phase 3 study and removed an important financing overhang, but the stock fell. Adam liked the deal while acknowledging the bear case: the asset is now encumbered and the company may spend years simply running the study. Investors who had expected a buyout may also have sold when Stoke partnered instead.
• Tess said BridgeBio’s Attruby launch had generated more than 1,000 unique prescriptions only a couple of months after approval. The result challenges the reflex to short smaller biotech launches, although she said it was still too early to declare the launch a complete success. Alnylam could enter the space as soon as the following month.
• Josh added a Stifel observation that, in almost every case, a company with a launch that beats consensus eventually gets bought.

7. Obesity: tolerability, convenience and the uncertain future of compounding

• Brian introduced Angus Chen’s STAT analysis that patients may not all want the maximum possible percentage of weight loss. Josh agreed, saying markets overanalyze small differences such as 20% versus 21% or 22% weight loss. Patients are more likely to notice weekly versus monthly dosing and whether they feel unwell. He expects tolerability and convenience to help separate winners from losers.
• Tess added that the trade-offs may differ by gender in data from companies such as Hims: women appeared more interested in total weight loss, while men appeared more concerned about tolerability and side effects such as muscle loss.
• The FDA announced that the GLP-1 shortage was no longer present. An unidentified speaker said Hims had anticipated the decision, noted that Novo and Eli Lilly had sued to force it, and called it a major blow to Hims’ sales if the FDA’s decision was final. The speaker said Hims could not continue mass sales of drugs from compounders under that interpretation.
• Another unidentified speaker explained the remaining compounding nuance: patient-specific reasons such as alternative dosing or an allergy to an ingredient could still matter, but they would not support the previous mass-production model. That speaker said Hims’ site now tries to qualify obesity patients as nonresponders to available doses and had shifted toward “customized compounding.”
• The first unidentified speaker warned that using dosing rules mainly to evade compounding restrictions could expose Hims to litigation over Novo’s patents, with an uncertain and potentially difficult defense.
• Brian cited a report that Eli Lilly had apparently produced about $500 million worth of its Chugai-licensed oral therapy before seeing the data. He said the scale illustrates how much capital big pharma can put at risk in obesity—something a smaller biotech generally cannot match. An unidentified speaker then added a Betaville rumor about a Viking Therapeutics takeout: “On a Friday, of course.”