00:00:00:02 – 00:00:21:07

Dylan Van Haaften

Good morning, and welcome to Bryan Garnier’s second monthly “On The Money” webinar, where our analysts will be in conversation with leaders from the private equity, venture capital and asset management world to talk about what’s hot and what’s not. Today we are speaking to Geraldine O’Keeffe, partner at EQT Lifesciences, formally LSP, about the market, how we got here and where we can expect opportunity to arise.

00:00:21:22 – 00:00:48:11

Dylan Van Haaften

So a brief bio on Geraldine. Geraldine O’Keefe joined EQT in 2008. EQT is a purpose driven global investment organization with a track record, almost three decades of delivering attractive returns across multiple geographies, sectors and strategies. Furthermore, LSP is known within Europe as one of the preeminent venture capital and asset management firms in healthcare today. To start off, thank you Geraldine for joining us on the second instalment of this webinar.

00:00:48:22 – 00:01:11:24

Dylan Van Haaften

Over the next 45 minutes, we’re excited to be able to pick your brain about how we got here and what signs there are that we may be getting out of this horrible bear market. So maybe to start with that. We have a pretty punchy title for this webinar around generational opportunities. It’s been repeated ad nauseum, but we are in the most protracted deepest drawdown in biotech, particularly XBI history.

00:01:12:05 – 00:01:36:23

Dylan Van Haaften

But if we reflect on some of the best periods, they’ve come usually after major market corrections, with or without economic and prosperity. For instance, the 02-08 period, the 14-15 period and the COVID 20-21 period with major M&A reshaping the sector usually following in short pursuit of that. So do you agree with our somewhat punchy title that there are generational opportunities in biotech and perhaps healthcare as a whole today?

00:01:38:10 – 00:01:57:15

Geraldine O’keeffe

Hi Dylan, thank you, first of all, for inviting me to come on the podcast, and I will just have to make a disclaimer that my crystal ball is in for repairs at the moment, so I may not be very accurately able to predict the future, but we can certainly talk at length about how we got here and the current markets that we’re in.

00:01:57:18 – 00:02:16:14

Geraldine O’keeffe

Yes, it’s true, this is not for any biotech investor, this is not the first drawdown in the market that we’ve seen. You know, the markets have been very volatile in the past. I think maybe what feels different to investors this time is, as you mentioned yourself, how protracted this drawdown is and just how, you know, it’s just across the board.

00:02:17:02 – 00:02:36:00

Geraldine O’keeffe

What is also little bit different, is this is not specific to health are this time is really is a complete market sell-off. So, yes, health are investors are feeling the pain but they’re all but so are all other sectors. And then your other question was, do the you know where we go from here? Are we going to get out of it?

00:02:36:15 – 00:02:58:23

Geraldine O’keeffe

You know, are there opportunities? You know, absolutely. I mean, we’re in a market where fundamentally things haven’t really changed in the biotech sector. You know value has been created in the last few years. We have had multiple companies moving forward and generating strong clinical data that has not been priced into the share price. We have a huge number more than ever before.

00:02:59:15 – 00:03:15:18

Geraldine O’keeffe

We’re seeing companies trading below their cash positions. So, yes, I think for the long term patient investor, this is definitely a time to buy. But how patient you need to be, that is probably another question we can discuss later in the podcast.

00:03:17:14 – 00:03:37:22

Dylan Van Haaften

I think that’s a great comment. Just on the value creation aspects, if we zoom out and this is also question I put to Antoine Papiernik in our previous webinar, if you zoom out, the sector is actually very healthy. Usually the problem is there’s actually a lack of capital, there’s a lack of deployment, there’s a lack of people willing to take early-stage risks.

00:03:38:13 – 00:04:00:13

Dylan Van Haaften

All those things are present. Just the valuation that’s being put on some of these assets is just diminished. If you reflect on the clinical progress made over the past few years, you know, where do you think we are? Do you think, you know, you’ve mentioned some major progress. Where do you think that’s particularly? and where do you see, and why do you think particularly investors are not really putting that multiple on it?

00:04:01:02 – 00:04:22:14

Geraldine O’keeffe

1. Will I take a little step back and just kind of talk a little bit more holistically about how we got where we are now. You know, as you mentioned as well, you know, we’ve had some volatility in the sector, but particularly I think in the last couple of years, we have seen unprecedented amount of volatility, but a lot of that driven by COVID as well.

00:04:22:14 – 00:04:41:20

Geraldine O’keeffe

I think COVID brought the healthcare sector and biotech sector and innovation and healthcare sector into focus, not just the specialists, maybe. So probably for the first time, significant volume of retail investors moving into the sector, which caused a short term boom, you know, as investors realized that they could actually make money on some of these early stocks.

00:04:42:19 – 00:05:07:06

Geraldine O’keeffe

That led to increased volatility. But it also meant that there were certain funds, like the ARC Fund, who needed and got a huge amount of inflows, which meant that they had to start buying in the market and that, and then, we also had an enormous number of IPOs in the last couple of years, IPOs for, you know, unusually early companies, companies that may not have gone public in the past.

00:05:07:15 – 00:05:37:22

Geraldine O’keeffe

Everybody going for IPO seemed to get funded in the 19, 20, 21 era. So we had all of this, you know, pent up, em, companies getting funded. Maybe some of them should not have got funded. Maybe some of those should have not have gone to IPO that’s something we can also discuss. But then when the time, you know, then at the end of that COVID bubble, so to speak, when all the generalists started flowing out and share prices start to drop, we now see a lot of those companies on the public markets who probably shouldn’t have been there. Nobody really knows them that well because there were so many companies doing IPOs that healthcare investors didn’t really have time to get to know all of these companies and these companies are also going to be coming back looking for more capital.

00:05:57:00 – 00:06:21:00

Geraldine O’keeffe

That’s definitely weighing on the sector right now, is that, yes, they all got early stage funding, but they’re all going to need to come back for additional funding, which is just the nature of the kind of companies in the biotech sector. And that is a risk factor that the specialist investors are looking at now. I think we also found that because there was outflows from the sector, everything became a liquidity event.

00:06:21:00 – 00:06:47:06

Geraldine O’keeffe

So even if companies had good news, the share price didn’t really move. If you got bad news, you were dead. So I think that also put more investors off coming into the sector because if you’re not being rewarded for taking risk, why do you get into the sector? I just saw a report the other day that in the first quarter of this year, the negative news events went on average went down 25%.  The stock price, you know, a negative share price response of -20%, 25% sorry. Positive news, on the other hand, was only up +8% in the second quarter was even worse. Negative news on average had a -32% impact on the share price and positive news only a +3%. So I think that’s where we’re at right now that it’s very hard to convince investors, certainly those who might be thinking more short-term to come into the sector because they’re not being rewarded, at least in the short term. They’re not being rewarded for taking that risk.

00:07:24:21 – 00:07:47:01

Dylan Van Haaften

Understood. Understood. And you mentioned ARC, you mentioned some of the capital allocators, and I fully subscribe to that view that we’re kind of in a place where a lot of these problems that are kind of plaguing the sector are more technical in nature and they’re, you know, focused on liquidity, they’re focused on, you know, big almost cyclical tactical allocations to healthcare.

It’s focused on particular funds, positions it’s faced, it’s its liquidations. How far do you think we are in that sort of, you know, redemption-liquidation situation? You mentioned second quarter was still relatively tepid as far as positive newsflow reactions, but we have seen good data come out. Do you think we’ll get to the end of that? And I know your crystal ball is in the repair shop, but do you think we’ll get out of this this year?

00:08:13:20 – 00:08:39:02

Geraldine O’keeffe

Yeah, great questions, of course. And I would love to have the answers. I think, yes, Q2 was worse than Q1. You know, where are we now in the cycle? You know, I suppose the other point we haven’t touched on is, you know, the greater macroeconomic political situation in the world. You know, so at the moment, everybody’s talking about the perfect storm going on.

00:08:39:12 – 00:09:03:24

Geraldine O’keeffe

I guess drawdowns in the past have been more focused on specific aspects. Aspects either related sector or the financial markets, whereas now we have this this broader geopolitical situation around the world that is weighing across all of the markets. So that is much harder to understand in relation to the healthcare sector. And I think, my opinion at least, is that we seem to be bouncing around the bottom.  We’re still seeing quite a lot of intraday volatility and we do seem to be bouncing around the bottom. But there is seems to be a bit of a collective holding of breath at the moment. I think everybody seems to be waiting to see “is there going to be a recession?”, you know, how bad is it going to be, is there not going to be a recession?

00:09:20:08 – 00:09:43:14

Geraldine O’keeffe

So I think we’ve had so many hits in the last year or so, we are going to a couple of years is that it seems to be a collective holding of breath about what happens next ?and I think if we get into the third quarter and there isn’t any further disasters, let’s call it, or any further hits to sentiment we might see starting to build into the into the fourth quarter.

00:09:43:14 – 00:10:07:12

Geraldine O’keeffe

So that would be the way I would see it. I mean, if suddenly we’re hit with another major recession, then, yes, we’re going to have we’re in for the long run. There’s going to be a lot more bleeding of the sector. But if things remain where they are and there’s no further shocks, I would see us building into the fourth quarter and hopefully by then, positive news will start to be rewarded.

00:10:09:13 – 00:10:41:10

Dylan Van Haaften

There’s clearly also some risk appetite, because I mean, for you personally, but also for the sector, I think if we look at long term investors there’s been some major moves made by both EQT acquiring your firm, LSP, Apollo, taking a stake in Sofinnova and then also Carlyle taking over, Abingworth. So if we’re talking about risk-taking behaviour, I think that was actually a very, I mean, I would I would say at least the three companies doing this is certainly a trend.

Could you maybe tell me how that affects, I mean, you personally your thoughts on this and how this is reshaping the sector? Because, I mean  clearly, there is a lot of capital on the side-lines and these big players going into specifically life sciences reflects that there is definitely opportunity out there.

00:10:59:18 – 00:11:25:14

Geraldine O’keeffe

No, absolutely. Dylan. I think that’s very positive for the sector, particularly in Europe. You know, as you might have seen, LSP raised the first a €1 billion fund in Europe just last year, which is already, you know, a testament to how much interest and demand there is now for the biotech sector in Europe. And then, of course, the merger acquisition with EQT and then the, you know, subsequent Carlyle-Abingworth hook-ups, as you mentioned, I mean, I wouldn’t have predicted would have gone that fast. You know, there’s so many would have happened in such a short space of time. But I think what it does do, though, is maybe I just talk from the whole LSP EQT side. You know, as we’ve grown, we just felt that fundraising was taking up more and more of our time when all we really want to be doing is focusing on the in the investment side.

00:11:48:19 – 00:12:17:21

Geraldine O’keeffe

So the main driver for us to link up with EQT is, you know, they have a phenomenal capital raising team and that’s just, we’re hoping they’ll do the heavy lifting for us on that side and just free us up to really focus on the kind of investing we want to do. And I imagine some of the rationale for the other hook-ups is similar. But I think what a positive is for the healthcare sector then is that it really means that the venture capital is really flowing into the companies in Europe.

00:12:18:04 – 00:12:44:10

Geraldine O’keeffe

So that would mean that these early stage healthcare companies in Europe will be much better funded. What’s always been the problem is that a lot of the biotech companies, even the great biotech companies, have almost never had really enough capital to run trials where they should be run. In other words, enough patients, long enough. You know, they always had to try and, you know, tailor the trial to meet their budget.

00:12:44:17 – 00:13:06:15

Geraldine O’keeffe

Now it’ll be the other way around. Now they can run really well-run trials. We can get a clear answer of how to move forward with the drugs. And I think that really looks well for the future of the biotech sector in Europe, because these companies will be well-funded. They won’t have to rush to the public markets. And, you know, this will filter through to the whole sector for the next five or ten years.

00:13:08:19 – 00:13:29:04

Dylan Van Haaften

Excellent. That that is very positive. And just on, you know, I think we’re perennially sort of comparing the US to Europe. Obviously, the US is in a very different position especially also having pulled ahead over 20 and 21 during the COVID boom with, you know, I think 130 companies added to the MBI over that period. Or the XBI.

00:13:30:20 – 00:13:53:08

Dylan Van Haaften

I mean to a certain degree, I think Europe has had some structural challenges. I think one of the things you’ve mentioned is just the underfunding, but on the other hand there’s also a lack of a central index in Europe. There is no MBI. Typically this kind of informs that European companies look to Nasdaq sooner. I think with this current market downturn, maybe plans are changing, priorities for companies are changing.

Could you just give me your view on where the European market has matured to also in the context of the things you just said about, you know, venture capital money getting here, do you think we’re finally at a position where we might be able to keep companies in Europe longer, or is it still going to be the MBI long-term?

00:14:11:15 – 00:14:35:21

Geraldine O’keeffe

Yeah, great question. Of course, you know, I’ve been in the industry for a long time, a lot longer than you, and we’ve always been talking about, you know, the valuation gap between Europe and the US. I mean, I think it’s clear to everybody we do have signs, we have great university, we have the great research centres, we do you know, the amount of IPs filed from European universities and companies is also, you know, really high relative to the US.

00:14:36:06 – 00:14:58:22

Geraldine O’keeffe

But the big disconnect is always been there between the number of companies started up in Europe and the valuations that they get. And we’ve always been waiting for this valuation gap to close and it hasn’t quite happened yet. So I do think that the venture funding in Europe is going to be key and that will filter through to companies being able to stay in Europe for longer rather than having to merge with or be acquired by US companies.

00:14:59:10 – 00:15:23:15

Geraldine O’keeffe

The whole question of the lack of an index in Europe and the companies wanting to go to Nasdaq, I don’t see that changing too fast. And I think maybe the real reason is that there isn’t any Europe as such. You know, there’s London, there’s Paris, there’s Amsterdam. You know, there’s always been this local for local investing, its still very much key in Europe.

00:15:24:11 – 00:15:58:17

Geraldine O’keeffe

The companies will list on their local exchange and therefore their market remains very fragmented. So I see even a stronger trend actually for companies to move faster to Nasdaq than they might have before. I think, a few years ago, the ethos or the tradition was to list first on your local exchange. And then if you’re a few years later, get your Nasdaq listing. Now we’re seeing more companies going directly to Nasdaq and the reason for that is just access to capital that yes, you might have ,the IPO might be painful, might be expensive. But once you are on Nasdaq, the idea is that you should have access to a broader amount of capital because we are seeing more growth capital appearing in Europe, but it’s still where we have a big gap I think, in Europe for those companies that have gone public, their venture investors can’t follow them in the public markets and if they’re not successful or any setbacks, they can really struggle to raise capital in Europe.

00:16:29:03 – 00:16:51:21

Dylan Van Haaften

Excellent. And that brings me very neatly onto the next point. If we look at your style, irrespective of the factors we just talked about regarding the European market, you’ve always been overweight Europe. You’re typically underweight medtech, and you’re overweight late-stage assets, especially these past few years, could you maybe talk me through why that still is and what your rationale is there, and, you know, especially now with this underfunding, I presume that in your portfolio you’re feeling a lot of the bite in the European market. And what keeps you sort of grounded in that sort of style and how it’s going to pay off?

00:17:05:15 – 00:17:38:18

Geraldine O’keeffe

Yeah. Well I suppose in the broader address, e.g. life sciences. You know, we do have a medtech fund, the Health Economics Fund, which focuses on later stage technologies and devices in the health care system. So I guess that’s covered. But they do venture investing. On the public markets, we don’t tend to do as much medtech. We can and we do, and I do have some medtech in the portfolio, but there has to be really high conviction because in medtech, you know, you’re not taking as much clinical risk, you’re taking more commercial risk. And commercial risk in this market is quite difficult as you can imagine. I would say, our portfolio is probably more weighted than it traditionally has been to later stage companies, i.e. companies with revenues. And the reason for that is again, you know, if you’re not being rewarded for taking risk, then, and also I believe the company, so yes, the two factors I guess are the risk is not being rewarded and cash is king are the two main thesis drivers at the moment, so companies that are generating revenues and have more limited cash needs, I think are probably the ones that will return faster in the public markets.

If the markets do turn, which we are hoping they should start turning towards the end of the year.

00:18:28:01 – 00:18:51:20

Dylan Van Haaften

Excellent. Understood. And maybe just on style, because we also have some corporates here on the line as well. Maybe it’s interesting to maybe talk about your process. You know, what things are you looking for now that you might not be looking for, I mean, I would I would rephrase that question. What things are you looking for in a company that really sort of drives the investment thesis? Do you have sort of a checklist or a process you could maybe talk us through in broad terms?

00:18:57:14 – 00:19:28:02

Geraldine O’keeffe

Yeah, I guess we look very broadly across all therapeutic areas. So, maybe some funds will focus more on oncology or otherwise. That’s what we like to try and find a balance within the portfolio. So when we are looking at new investments, we are trying to find that balance you know, how does it fit with the rest? We don’t want to have all binary companies in the portfolio, but we will take some because obviously they can be the ones that can really witness the outside, upside and create alpha.

00:19:28:20 – 00:19:50:12

Geraldine O’keeffe

And like that we try and create a balance of revenue-generating companies, but also earlier-stage companies in the portfolio, so that’s kind of on the broad portfolio level. And then on the individual level, you know, most of the companies that we look at in the healthcare sector are, you know, they are event driven and you have to look at, well, what is the next event for that company?

Because its all going, your investment thesis will be driven around the overall company value and their pipeline. But the “why now?” is going to be dependent on the next upcoming trigger as far as that company and whether we believe the risk-reward is skewed how it is skewed going into that event. So we you know, we have companies in our portfolio that we followed for ten years before making an investment because the “why now?” was missing.

00:20:21:06 – 00:20:35:07

Geraldine O’keeffe

And we have other companies that we will follow and, you know, really do in-depth due diligence on them and get in within three or four months, because we feel we have a good handle on the next upcoming event for that company.

00:20:38:04 – 00:21:15:12

Dylan Van Haaften

Understood. And maybe then to just sort of drill a little bit deeper into this market and some of the, you know, success stories, I know they’re, they’re tough to come by. But, you know, for instance, this year a company that’s done quite well has been Vicore in IPF, obviously a company that’s done well over a very long period of time is Argenx, which I believe you’ve held, in myasthenia gravis specifically, and then another company that has done well over long time, also back to your point around doing the right trial with enough patients for a long enough time rather than, you know, doing it right rather than doing it according to your budget, is a company called Calliditas in IgA nephropathy. Um, could we maybe talk about some of these companies and why they are so good? And what do you think, you know, has really driven the success of these companies, both from an investor perspective and also maybe from a clinical perspective?

00:21:33:15 – 00:21:52:17

Geraldine O’keeffe

Yeah, you know, well, Argenx, you know LSP was one of the early investors in Argenx, that one’s very close to our heart. And I think maybe two things about Argenx and Calliditas, you know, they are actually very rare companies because they have brought products through to the market without having them partnered.

00:21:53:00 – 00:22:14:14

Geraldine O’keeffe

That is actually exceptionally rare in Europe. If you look back, there are very few companies have managed to do that. Even Genmab, which is a phenomenally successful company, partnered Darzalec you know, with J&J to bring it to market. And if you look back in history, you know, that is actually the norm. So for Argenx and Calliditas to get there all on their own, you know, is phenomenal, and I think they deserve the success they’re seeing. Argenx and Calliditas also I think have in common, I would think I would rate management they’re very high I think that’s also a big factor here. Both management teams are excellent. Tim at Argenx you know, quite phenomenal how he was able to, in this tough market do a major financing.

00:22:39:08 – 00:23:17:04

Geraldine O’keeffe

You know from the outside it certainly looks like it was you know he snapped his fingers and investors are running to put money into that company, so you know quality can still raise money even in these markets. You know and Calliditas as I do believe is very undervalued and underappreciated and the current markets also probably because, yeah probably some number of factors, there there’s also always a little bit of a “show me” I think more so for a European company trying to launch a product in the US, there is a little bit more of a “show me” phenomenon so they’re not getting the credit they need from the US investors even though they have the Nasdaq listing. But oh, that will come. You know, I think in both cases they’re both very much in launch mode and I think we just need to trust in the strong management in both those companies and I think there, I would be quite confident both those companies are going to deliver.

00:23:33:21 – 00:24:00:01

Dylan Van Haaften

Excellent that’s good news. In terms of, you know, obviously orphan indications have been in vogue for a while. I think some companies have done really well with them. On the flip side, there’s also some, certain fields that have done less well. I mean, I’m talking specifically about oncology, neurology, and in terms of modalities, I’d probably talk about the gene therapy space specifically as being pretty downbeat.

00:24:00:12 – 00:24:12:03

Dylan Van Haaften

So from an investor perspective, how are you looking at these fields today and what do you think has contributed to these sectors being, the sentiment being so downtrodden? You know, pretty much across the board.

00:24:12:15 – 00:24:38:00

Geraldine O’keeffe

Sure. Well, let’s take oncology first because oncology is by far the largest subsector within biotech. And I think if you look back, you know, the last really big advancement was checkpoint inhibitors. But then we got a huge number of companies adding their drug onto ketruda and the other checkpoint inhibitors. And that was going to be the next wave, you know, but that hasn’t worked out.

00:24:38:04 – 00:24:58:00

Geraldine O’keeffe

You know, we’ve seen a lot of companies run trials where they see maybe a 10% increase in overall response rate, which is like, is it really worth it? So I think there’s been a lot of disappointment actually in oncology and I think that is also weighing on that as a subsector. I think they’re, you know, the next big wave hasn’t really paid off.

00:24:58:00 – 00:25:37:04

Geraldine O’keeffe

There’s also the cell therapy companies with the CAR-Ts, huge excitement around those. I mean, they are still working well, but, you know, challenges in terms of ramping up access for patients and the, or the autologous or the allogeneic CAR-Ts are taking time as they do. I think we sometimes forget that these things take time. So I think that both of those disappointments, if you like, and just things taking longer, have definitely weighed on the oncology sector, we need some big wins here to really turn sentiment around for oncology. And gene therapy again, I think a lot of excitement there, but again, I think it’s more a case of things take longer. We’ve also seen some clinical holes which have scared off investors. I think maybe we sometimes forget that new technologies do also take time and there is also a huge amount of scrutiny on the safety, as there should be, so the FDA, as it should be, is hyper focused on any kind of a side effect.

00:26:03:19 – 00:26:23:11

Geraldine O’keeffe

So I think some of those clinical holes, which in most cases have been reversed, have also scared off investors and the gene therapy space. But I’m hoping with more data that sentiment could turn. And we can see, of course, Uniqure is on track to hopefully get approval of their haemophilia B product with CSL, their partner, later this year. That’s pretty exciting.

00:26:23:12 – 00:26:49:00

Geraldine O’keeffe

And then the third sector you mentioned was the neurology. But of course, there is a bit of, I suppose the Alzheimer’s debacle weighed on that subsector in the last year. Should they or should they not have approved Aduhelm, and it was all very controversial. I do think that the whole Alzheimer’s field could be our big winner this year.

00:26:49:09 – 00:27:19:22

Geraldine O’keeffe

You know, if we do get positive data from the ongoing Phase IIIs, some of which are will be reading out in the second half, I think this could be the positive part that may start sentiment to come back to the sector. The caveat is of course that most things in Alzheimer’s have failed, but you know, if we can get some positive news in a big indication like that, I mean, really positive news, clearly positive news in the second half, I think that could be one of the drivers to turn sentiment in the sector.

00:27:21:15 – 00:27:38:01

Dylan Van Haaften

Excellent. And that is also somewhat skewed towards Europe as well, right? With some notable players like AC Immune, Vivoryon, BioArctic and actually also MirImmune behind the atucamulab drug, even though that’s probably not commercially viable.

00:27:38:22 – 00:27:55:06

Geraldine O’keeffe

Which is also interesting, isn’t it, that, you know, that you know, a few small cap biotechs in Europe are at the forefront of such a big sector. I think that’s also a testament to the quality of the science and technology in Europe.

00:27:55:06 – 00:28:12:05

Dylan Van Haaften

Excellent. And is any of that informed because I know at LSP, you guys started the Dementia Fund a while back with a very well-known KOL, Philip Skeltons, which was also kind of against the grain at the time. Do you think that, you know, really looking where no one else is looking is really the way to go right now?

00:28:14:12 – 00:28:34:13

Geraldine O’keeffe

Yes I suppose, you know, you need someone like Philip Skeltons to come onboard to do this. You know, you need to have some, you know, and Philip has built a really strong team here, within EQT Life Sciences to do that. So we certainly wouldn’t have done this without him, I would think. And, you know, it also makes sense. I think the timing was right.

00:28:35:16 – 00:28:57:03

Geraldine O’keeffe

You know, it’s kind of a sector, if I can say it’s kind of coming of age, you know, for a very long time, as I mentioned, you know, everything in Alzheimer failed. But that doesn’t mean we didn’t learn from each failure. So I think the whole sector has made huge advances, probably not as obvious in the public markets as the advances that have been made, you know, and how we can diagnose these illnesses and diseases, and we now we have a much better understanding of these diseases than we had five or ten years ago. So I think the timing for the Dementia fund was really good in that sense. Obviously, that’s why we did it and that’s also why Philip joined us, because he really wants to drive forward advancements for patients, because he spent his life, you know, treating patients and now he really wants to do something to bring more treatments to those patients.

00:29:20:10 – 00:29:33:22

Geraldine O’keeffe

So I do believe the timing is right. And of course, yeah, we’re very optimistic about that fund and I think it’s phenomenal that we are able to raise a fund focused on something like dementia.

00:29:33:22 – 00:29:39:00

Dylan Van Haaften

Understood, understood. And that is very exciting. So we’re looking towards the third quarter, fourth quarter for some of those readouts to come through.

00:29:39:11 – 00:29:39:19

Geraldine O’keeffe

Yes.

00:29:40:19 – 00:30:04:11

Dylan Van Haaften

If we look at maybe some other things that we’re seeing, I think one notable exception again on capital isn that we saw, you know, and to a certain degree, I think BioNtech has 90 billion in cash, Galapagos just 4.6 billion in cash. These companies have a lot of cash, and cash is a benefit. But it can also be a massive anchor to your valuation, your progress,

you know, for instance, BioNtech reads out some new antigen cancer vaccine data, it moves the stock up one or 2% or down one or 2%. It doesn’t really move the needle anymore, which you do want if you’re taking risk on clinical development. That cash is also being deployed into the sector in one case as a buyback. But notably in Galapagos’ case, it was acquisition, I think, where the sector was I mean, somewhat surprised I’d say, because it was not in inflammation and immunology, it was not small molecule.  And furthermore, it was actually in oncology and in cell therapy and antibody engineering so how do you look at that in the context of this stock that is really shaped part of this story in European biotech? Is this something that’s brilliant and we just don’t understand it, or is it something that is almost like jumping the shark to a certain degree?

00:30:54:20 – 00:31:18:10

Geraldine O’keeffe

Well, I suppose time will tell. But, you know, like you, you know, I was a little bit surprised to see the acquisition they did. You know, we have known for quite a while that Galapagos has this huge cash reserve and has had major setbacks from its own pipeline. So I think everybody was expecting them to buy themselves out of the situation, which they haven’t done.

00:31:19:11 – 00:31:38:19

Geraldine O’keeffe

For other reasons, too, of course, because they’re right. You know, a lot of I guess is their hook-up with Gilead, and Gilead having options to anything they buy in further down the line. Paul Stoffels has just taken over as the new CEO. So I guess we shouldn’t be too surprised, I guess, to see them doing something in oncology, given Paul’s background at J&J. But Galapagos has always been a small molecule company, so I guess I that was maybe the bigger surprise they started that they moved in to do something in cell therapy, but then, you know, maybe Paul is fuelled by the J&J acquisition of Legend and wanted to do something like that for Galapagos. But, you know, I did speak to them about the acquisition and if they’re going to get into cell therapy, this is probably a clever way of doing it in a sense that they don’t, because it’s kind of a point of care, cell therapy, in terms of looking up at Lonza and Lonza’s pod technologies so that they will have these pods in the hospitals and they’ll have a very fast turnaround of the cell treatments for patients. It means that the whole idea of having to build up huge capacity in cell therapy isn’t there.

00:32:33:04 – 00:32:40:15

Geraldine O’keeffe

So it’s a case of let’s see, you know, if it works, it’s phenomenal. And if they were going to get into cell therapy, this is probably a clever way of doing it.

00:32:42:12 – 00:33:02:16

Dylan Van Haaften

Certainly I agree 100% on that. I think it’s a, it’s a very good approach especially in the context of the cost and some of the issues that have kind of plagued, you know, further deployment of cell therapies. And maybe just to cap off this section just to remind everybody, if you want to ask a question to Geraldine, please pop it in the chat and we’ll try to get around to it.

00:33:04:11 – 00:33:20:20

Dylan Van Haaften

So maybe just to cap off this section, we started by asking you how we got into this mess, and now we’re going to ask you sort of what is going to be the key thing that is going to get us out of it? We already spoke about, you know, surprise, positive surprise, maybe in a down, sort of, in a negative sentiment area of the market, could be gene therapy, could be neurology, maybe something big comes out of oncology we really, I mean, when we spoke last week, we spoke about ASCO and CancerlinQ, that was pretty stellar, actually. So maybe I’m filling in the question too much right now, but what in your view gets us out of this situation in the market?

00:33:43:04 – 00:34:03:07

Geraldine O’keeffe

OK, well you know, the greater are macroeconomic or political situations aside, which I’m certainly not qualified to talk about, in terms of the sector itself, you know, I do believe that we really get it. But because value is being created in these companies and having all these companies trading below cash just doesn’t make sense in the longer term. Not all companies will survive. That is clear. What’s going to really turn the sentiment around, I think, is positive news, whether it comes from Alzheimer’s or oncology or some other sector. I think if we get some nice surprise, positive news, that is definitely going to help sentiment. Another factor which we didn’t really touch on, of course, but is also on everybody’s mind, is M&A.

00:34:26:05 – 00:34:44:03

Geraldine O’keeffe

Every time there’s a pull-back in the market, everybody talks about M&A. We haven’t seen as much as people might have expected. But then in a way that’s not really surprising because biotech companies are still kind of licking their wounds a little bit and thinking of where their share price was six or 12 months ago relative to where it is now. So it’s very hard for them to accept a discount on that price, if you’re talking about in M&A terms. And from the acquirers perspective, they’re also conscious of value, not just valuations, but the impact that an acquisition would have on its P&L. Because also in these markets, everybody’s been more laser focused on their P&L than the might have been otherwise.

00:35:07:23 – 00:35:38:15

Geraldine O’keeffe

And we have to remember that in most cases the M&A is for clinical stage assets. So the acquirer is going to have to put a lot of money into running those trials. That means increasing their R&D. And so I think this is going to you know, more M&A will definitely happen. But I think we need to, you know, it takes time for these things to start to actually work in terms of the biotech having to accept the new reality, and for the acquirer to feel confident enough to take on that extra burden and that extra risk on their pipeline.

00:35:39:19 – 00:35:54:00

Geraldine O’keeffe

So I would expect that we are going to see a little bit more M&A happening in the second half. And historically, this has always been a very positive impact on the sector and drawing investors in.

00:35:54:02 – 00:36:16:18

Dylan Van Haaften

Understood. And maybe to that point also, I think the golden middle road of that will probably be licensing, at least in the near term, it gives biotechs the chance to cut some costs, get some cash in, maybe get some strategic investments. It gives the pharma, which are dealing with these big macroeconomic shocks as well, a chance to also risk share without actually having to take too much on the P&L right now as well.

00:36:17:04 – 00:36:30:05

Dylan Van Haaften

So, I mean, I think we’re due for a reset in licensing as well, considering that over the past sort of sevenish years, we’ve seen M&A just take up more and more and license. You take more of a backseat. So I’m also excited to see that play out.

00:36:30:14 – 00:36:33:19

Geraldine O’keeffe

So I agree, the risk sharing.

00:36:35:09 – 00:36:59:03

Dylan Van Haaften

That would be good, especially in these lower valuations, is probably a good way to bridge that gap. Just to remind everybody, if you want to ask a question please raise your hand or pop in in the chat and I’ll be happy to take that question to Geraldine. In the meantime, maybe one other thing that we’ve also been discussing in the past is, I mean, one thing that we’ve seen in every at bear market discussion is pricing discussions.

00:36:59:03 – 00:37:22:24

Dylan Van Haaften

You know, we all remember the Hillary tweet, we remember all the posturing around capping prices, we remember a lot of negativity and a lot of very, let’s say, negative public discourse, which wasn’t very constructive. I feel that that is somewhat absent in this downturn. If we look at, you know, inflation, actually healthcare is the least inflated category right now.

00:37:23:07 – 00:37:49:20

Dylan Van Haaften

If we look at what Mark Cuban’s been doing, I think that’s been received sort of very positively with his drugs being provided at cost. And then, furthermore, we’re also seeing PBMs being investigated, which I think has always been one of the key issues here. What’s your view on the pricing discussions? Have we kind of moved beyond that, or is it still something that’s very much sort of on the, you know, maybe more in the back of mind for many people, but still something that could disrupt the sector again, just like it has over the past ten years.

00:37:53:14 – 00:38:14:19

Geraldine O’keeffe

Yeah, it’s kind of like the sleeping serpent that raises its ugly head every now and again. You know, it’s is never going to be gone away. And it is something that, you know, has to be dealt with at some point, because, you know, we can’t afford you know, most countries can’t afford their healthcare systems. You know, it’s getting more and more expensive and certainly as the population ages, it’s going to get more and more so. So that’s definitely a factor. But of course, drug prices are only a small part of the overall cost of the healthcare. In the US, you know, the more I understand, you know, the more I learn, the less I understand it. It’s an increasingly complicated system in the US and it’s virtually impossible for anyone to make a seismic change in the system there.

00:38:38:18 – 00:39:00:09

Geraldine O’keeffe

Having said that, I think there is already more pressure on companies to come up with more rational pricing and not to, you know, and certainly price increases are more and more scrutinized than they ever were before. So I think in a way that’s a good thing as well. I think we can’t ignore the fact of the whole cost of healthcare.

00:39:00:09 – 00:39:19:19

Geraldine O’keeffe

But, you know, it’s something that comes certainly around election time in the US. We always hear more about drug pricing and I think that’s going to continue. There will be tweaks to the system, no doubt there will be more pressure on companies to be mindful of pricing, but I don’t see any seismic change happening.

00:39:19:19 – 00:39:37:12

Dylan Van Haaften

Excellent. Understood. I would almost argue that, you know, if you look at the current trajectory of inflation, probably a lot of drugs are too cheap. Also  if you look at the participation you know, of health care and the real economy versus the market economy, you could probably make that argument even though people would probably, you know, at family parties, people won’t agree with you on that.

00:39:37:14 – 00:40:01:20

Geraldine O’keeffe

But anyway, that’s what they would do. And we always like to say that, you know, good therapeutics will actually save the health care system money, but we have to prove that to maybe a move toward economic arguments in drug pricing like they have in the UK. The nice system we might see that being implemented in more territories.

00:40:01:20 – 00:40:16:11

Dylan Van Haaften

Understood. We just got a question from the chat from Isabel just on. “Do you see investment strategies leaning towards revenue-generating companies becoming increasingly popular?” and as a sub-question, “Are EU investors trending towards being more risk averse than in the US?”

00:40:17:13 – 00:40:34:21

Geraldine O’keeffe

I like the second one first because that’s easy. EU investors are definitely more risk averse than the US and that’s always been the way. And I’m not sure what’s going to change that. I mean, that’s why there’s so much more funding available in the US. And the first question again, sorry, was the strategy.

00:40:34:21 – 00:40:40:19

Dylan Van Haaften

You’re seeing, if you’re seeing sort of a skew sort of a weighting more towards revenue generating companies across the whole?

00:40:41:16 – 00:41:06:09

Geraldine O’keeffe

Yes, I think that is definitely true. But also most of the recent ideal companies were probably very early. So it needs very patient capital. But then again, in this market, you know, a lot of those companies are trading so low that, you know, for a patient investor, I think there’s a lot of opportunities out there. But I think as I said at the very beginning, you know, the patient investor, we just don’t know how patient you need to be at this particular point in the market.

00:41:07:08 – 00:41:22:23

Geraldine O’keeffe

So I think once we start seeing a little glimmer at the end of the tunnel and people feel that we’re starting to come out of this, we might see much better funding for those kind of companies when you know how patient you need to be and when you might get out of this.

00:41:22:23 – 00:41:42:15

Dylan Van Haaften

Understood. And maybe, maybe to this point as well, I think there’s a lot of companies that have no assets, that have either had clinical, you know, clinical holds right into sort of, you know, right after R&D and Phase I, you know, something wrong with the platform, but a load of cash, but not enough to acquire real companies. And there’s companies with real assets that are really underfunded.

00:41:43:02 – 00:42:13:20

Dylan Van Haaften

Furthermore, we’ve seen some of the bigger funds in the US also liquidate certain assets just to get the money flushed through the sector. Do you think that it could be a catalyst to see company combinations? You know, usually those company combinations are a sign of weakness, but in the current valuation setting, that could, in my view, at least be something to look forward to where we see good assets from Europe, maybe with money in the US and maybe even production assets, you know, see them combine into new, stronger let’s say, biotech companies.

00:42:13:20 – 00:42:18:05

Dylan Van Haaften

Is that something that would catalyse the sector as well, in your view, or more of a marriage of convenience?

00:42:19:08 – 00:42:45:06

Geraldine O’keeffe

Well, I think it’s probably both. I think you’re right that that is something that should and could happen, that there are you know, the companies would revert into these with like cash shells and how the market perceive it. I think, you know, if you can get funding that’s not particularly dilutive and sustains your business case, I think that’s going to be viewed very positively in the markets because as you know, cash is critical, cash-run rate is critical at this point. So if you can get it by merging into a cash shell, that’s very positive.

00:42:54:02 – 00:43:11:21

Dylan Van Haaften

Excellent. So we have one final question here. So how solid are growing investments in digital therapeutics, AI and healthcare? Are we heading towards a new dot com bubble? I think it’s a very good timing on that one because we’ve seen some sell-offs in some digital health companies after COVID. So what are your thoughts on that, Geraldine?

00:43:12:24 – 00:43:41:05

Geraldine O’keeffe

Yeah, you know, it’s very interesting space and there is a lot of talk about it. I think we haven’t quite seen yet how you make money out of some of these AI, ML companies. I maybe that’s a little bit of the gap at the moment is, you know, lots of great ideas. We’re all talking about, you know, big data and the promise of big data, but we need to see how, we need to see the business models around them shaping up a bit better before we start seeing real investments in those as a as a separate entity.

00:43:43:03 – 00:44:03:17

Dylan Van Haaften

And do you feel they’re overly-valued? One thing, for instance, I’ve noticed this, for instance, Foundation Medical was acquired by Roche purely based on data, it seems. It looks like pharma puts a lot higher valuation on that than the investors. Time will tell which one is right, obviously. But do you feel that they are too highly valued today?

00:44:04:16 – 00:44:22:24

Geraldine O’keeffe

Maybe part of the disconnect is that from an investors perspective, they’re very hard to value. You know, it’s very hard to diligence a data set and really understand, you know, whereas a pharma can really get in there and look under the hood and really, you know, test-run the data so they can have a better perception of what they’re buying.

00:44:22:24 – 00:44:32:23

Geraldine O’keeffe

So I think maybe that’s a little bit of the disconnect. yeah. And also, I guess, you know, pharma makes like the sensible acquirer for such technologies.

00:44:35:18 – 00:44:46:07

Dylan Van Haaften

Understood. Understood. Well, I think we’ve reached the end of our of our webinar. So with that, I’d like to thank you very much, Geraldine, for joining us and I hope you’ll join us again someday. And to everybody listening in and thanks for your great questions and a replay will be made available. Have a great day.

00:44:46:11 – 00:44:47:00

Geraldine O’keeffe

Thanks, Dylan.