Biotech And Pharma Diversification Pays Off

Summary:

• Alex Carchidi calls the biotech sector highly risky and speculative, and says diversification is key for investors.
• Funding is currently difficult to obtain in the biotech industry, but a turnaround is expected.
• Competitive stories in gene editing therapy, Type 2 diabetes and obesity.
• Getting realistic about high price of drugs.

Listen below or on the go via Apple Podcasts or Spotify.

Alex Carchidi dissects the biotech sector – mostly highly risky, borderline investments. Diversification pays off (3:40). Funding is hard to come by and performance hasn’t been great but ebb will give way to flow (6:00). Gene editing therapy competitive story (7:45). Buy the rumor, sell the news is cliched but true for these stocks (17:00). Getting realistic about high price of drugs (20:05).

Transcript

Rena Sherbill: Alex Carchidi, welcome back to Investing Experts. Welcome back to Seeking Alpha. Always great talking to you. So, thanks for making the time again.

Alex Carchidi: Thank you. I’m excited to be back. We have so many great conversations that I’m eager to dive in.

RS: Likewise, likewise. For those who know you from covering the psychedelic and also at times the cannabis space, you’ve been on The Cannabis Investing Podcast a few times talking the psychedelics sector and it’s always brought a lot of edification and information. And through those conversations, I’ve gleaned your biotech background and your coverage of that sector and your interest in that sector.

So I thought, what better place to have you back on the show than Investing Experts talking biotech. So, if you would share with listeners your background in the biotech field and what brings you to cover that part of the marketplace?

AC: Definitely. So, first thing out of college, I started to work in an academic research laboratory doing vaccine research to make an HIV vaccine. It’s the Ragon Institute of Massachusetts General Hospital, MIT, and Harvard. Wonderful institution. They do a lot of wonderful research. I got my career started there. Then I worked at a couple of biotech startups in the Boston area, which is where I live, which is where there’s tremendous number of different biotech and pharma companies.

So I just have a big interest in the space. I think it’s really cool to have an entire industry devoted to using science to improving human health. And that’s kind of what attracted me to in the first place. And now that I’ve left the laboratory, that is what keeps me around. There’s so much interesting development going on. And I do find that I can learn a lot from talking to my friends who are still in the industry, and working on it every day, because you can get an inside perspective there that I find is really helpful to evaluate winning companies.

So I lean on my own experience a lot. I lean on my peers’ experience a lot. And I also just find it engaging to, kind of sort through the scientific literature and see what’s going on. What’s the most interesting area of development at the moment, and I try to apply my background there as possible.

My background is pretty exclusively in the immunology and immuno-oncology segment. So when I branch out outside of that, I have to do a lot more reading on the background to make sure that I really understand the most salient issue, but I do tend to branch out as well as kind of go deep within those niches that are kind of my specialty. And in practical terms, that’s like the gene editing stocks that there are a lot of today.

RS: I’m curious how you’re looking at the broad sector, but I’m also curious if you think that there’s anything specific to know vis-à-vis the biotech industry, or covering that part of the sector?

Do you feel like there’s something that investors maybe don’t know, or most don’t know, or many don’t know, or it’s not talked enough about, or do you feel like the metrics that are generally bandied about and the strategies that are generally used – how would you generally talk about them for investors and advise them in that regard?

AC: So, the way that I would approach most biotech companies, regardless of what phase of development they’re in, is to think of them as highly risky, borderline, speculative investments.

The bigger the company is, which is to say, more than one product on the market, more than one program in the pipeline, the more items they have in the pipeline, the more products they have in the market, the lower risk the investment will be, and the lower return as well, of course, that bears mentioning. And I don’t think I’m saying anything that is super new to people who are investing in the space a lot.

One problem that I do find though is, at least a lot of the people that talk to me about what to invest in and how to think about the biotech space, people want to find the one biotech company that has made the one therapy that cures the most terrible disease and oh, they’re about to launch it. All the data looks great. It’s never that simple. It’s never that simple.

And the truth of the matter is, for most investors, I would not recommend investing in only one biotech company that is inventing the one cure for the one terrible disease. I would invest in three, all targeting the same disease. And sure, it’s possible they will compete with each other one day, but a more likely outcome is that all of them will fail.

This is the biggest thing that’s hard for people to wrap their head around. You can take five shots on goal, five different companies, all of them will miss, and that will be the end of your investment there.

So, it really does pay off to diversify and buy a basket to get multiple attempts to kind of access the same market and get exposure to the annual portfolio. That’s the biggest thing I would say.

RS: And looking at the sector now, I mean, I know that you have specific areas of focus, but if you can go as broad as you feel comfortable going in terms of giving a big picture to investors, either who are already looking at the space or only dip their toes into the space, how would you articulate what you’re seeing big picture in biotech?

AC: So, the picture in biotech at the moment, I would say there are two big stories. One, funding is hard to come by. There have not been so many IPOs in 2023. And a lot of the VC funding in the space is a little bit tapped out at the moment. And like I said, public market activity is not that much.

And as a sector, performance in biotech of the companies that are publicly listed, it has not been phenomenal, not been phenomenal at all for a number of years now. I think that has discouraged retail investors from approaching the space.

I think the people who are more accustomed to the ebbs and flows of the biotech industry view this as an ebbing period where there will be a flowing period, perhaps quite soon. So, it’s not existential or anything. And really there have not even been so many companies that have gone under.

We have seen a pretty big wave of consolidation and I don’t want to say right-sizing because for biotech that’s not the right word, but many companies have scaled down their workforce and their pipelines to conserve their cash a bit for over the last year-and-a-half, two years. And probably I would expect that to continue for another nine months or so, at least.

Once the money starts to flow a bit more, then the pace of the sector will pick up, but I don’t want people to get the idea that it is slow now. The stocks are what is slow, but there’s a tremendous amount of research and development activity happening under the surface and it’s only going to increase.

RS: So, talk to us a little bit about that research and development. What do you like? What are you focused on? Why are you focused on that? What players in that space do you like? Give us a sense of that, if you would.

AC: So, I would say the hottest area right now, which is where I’ve devoted a lot of attention is to these new therapies for Type 2 diabetes and obesity. I think the story is a story that includes pharma, as well as biotech because in pharma you have Novo Nordisk (NVO) and Eli Lilly (NYSE:LLY) with Ozempic and Eli Lilly’s is called Mounjaro. And these are effective for Type 2 diabetes and also people are using them for weight loss, as well as the versions of those therapies that are indicated specifically for weight loss.

Pharma has the products on the market. Biotech is developing more products in the same vein, often targeting the same mechanism of action, or multiple mechanisms of action. You’ve got Madrigal Pharmaceuticals (NASDAQ:MDGL), Viking Therapeutics (NASDAQ:VKTX). Those are two biotechs that are working on these same kinds of drugs using the same modality. It’s the GLP-1 drugs.

And then you have more interesting ones that are private asterisk. So, in my mind, private for now, like Fauna Bio, where they’re taking a really interesting approach to developing therapies for obesity and diabetes. They’re looking at animal hibernation as a potential vector to develop drugs based off of it.

So I would say that’s probably the single biggest area right now in terms of money, in terms of money being made and also investors making money by buying the stocks of the companies that are making money. So, that’s a huge one. And I think we could do three whole podcast episodes just on that.

But other than that, the area that I think is even more interesting and it is more of a biotech story than a pharma story is gene editing, gene therapy, and that entire space.

So, the gene editing, gene therapy space, I think the biggest headline that everyone has kind of heard by now is, CRISPR Therapeutics (NASDAQ:CRSP) in collaboration with Vertex Pharmaceuticals (NASDAQ:VRTX) launched this gene therapy called CASGEVY that is essentially, it’s like a cell therapy/gene therapy. The point is that it can effectively cure people of beta thalassemia and sickle cell disease. These are hereditary blood diseases that this therapy is capable of curing.

And bluebird bio (NASDAQ:BLUE), different company, also has a gene therapy/gene editing therapy that targets exactly those two same conditions. So, there’s a competitive story developing there.

And I think it’s interesting for investors because it’s kind of rare that biotechs with one product on the market will be fighting each other for market share. Typically, they pick something that either there’s known to be such a huge market, but it doesn’t matter, or it’s such a rare disease that you would never have a head-to-head competitor.

And yet in this case, these two rare diseases have multiple head-to-head competitors, and it’s not as though there’s millions of people who have these rare diseases either, and it’s not as though the therapies are easy to deliver.

So typically in biotech and pharma, manufacturing is an afterthought. For these particular gene editing therapies, manufacturing is the core of how the company is going to be able to make money or how they will fail to make money even though they have an approved product. And this is, I think, the biggest point of competition between the companies and these two little gene therapy markets.

And there’s other players too, like Editas (NASDAQ:EDIT), that are really far behind and they might arrive at the market two years from now or something, or probably more like four years from now, at earliest.

So there’s a ton of activity, even in these tiny little rare disease markets, because the technology has kind of opened the door to competing. The manufacturing and clinical delivery technologies are dramatically different from company to company.

And logistics is a major concern as well. These are not things that are usually relevant at all in biotech. And yet here, if you have one company that says, okay, for these therapies that we’re talking about all, the ones for sickle cell disease, beta thalassemia produced by CRISPR, Editas, Vertex, and bluebird. The way that it works is that the patient has to give a donation of their own cells.

Those cells are then shipped to a central location and manufactured into the therapy product, which is then re-infused into the patient. It takes about 90 days in some cases, the whole process, 90 days, a hospital stay, a lot of manufacturing time, a lot of hands-on time by a lot of different staff.

So, if any one of these companies can find a way to simplify that process, and there are many ways that might happen. They’ve basically won the market overnight because they’ll be able to price their product significantly more cheaply than their competition. So, this is an area that I’m like intensely focused on because it’s an interesting problem that doesn’t occur much.

And I do feel as though it is a winner take all scenario where there are multiple companies that are reaching for the same slice of pie, so to speak. So I think it’s really cool.

RS: What do you think it means in terms of how the industry keeps kind of shaping and forming and growing vis-à-vis consolidations? Do you feel like consolidation plays into this narrative, or into these narratives?

AC: It will. It will.

As of right now, the most — big pharma have kind of been dipping the toe in the water, not really going too crazy. I do expect more consolidation to happen over the coming two years, although there has been actually — there’s been a lot of business development, I would say, which makes you think that there would be consolidation because often, you know, for a little biotech company, if it gets a collaboration agreement with a big pharma, that’s a foot in the door to getting acquired if the collaboration goes really well a lot of the time, or a major equity investment or something like that.

So, I would say there’s a lot of seeds planted that suggest consolidation coming up. Yes.

RS: And what are the timelines on these stories? Like how, what are kind of the catalysts going to bring and how far out are we looking?

AC: So, this is one of the fundamental challenges of investing in biotech. The late-stage candidates in the gene editing space, just in general, if it starts a Phase 3 trial, you could expect the product on the market within three years for some of them.

The timeline can be shorter under some circumstances, but the real challenge is, if you look at these development programs that are not on the cusp of coming to the market, the timeline can add up to be infinite essentially, because there could be failures along the way, there could be delays in discussing with regulators, there can be often difficulty just recruiting enough patients to initiate the trial because if you’re targeting a rare disease for your trial, it’s hard to find people who are by definition rare.

So, this is something that is cropping up, I think more and more difficulty with clinical trial operations, making timelines be longer than you would normally anticipate. And you would normally anticipate quite long timelines a lot of the time. In the gene editing/gene therapy space, there’s been a flurry of activity, flurry of commercialization.

I think that’ll cool down for a little while. And then we’ll see another flurry in a couple of years from now, at least in these hereditary blood diseases and other little niches of kind of the larger gene therapy segment, gene editing segment.

Catalysts are not in any short supply in the sense that companies are publishing their clinical trial data and they’re publishing their — what happen when they talk with regulators frequently. They’re publishing that all the time. Actually, getting the product out the door. This is a longer timeline, pretty much always at this point.

RS: Execution is always the hardest part of the game, isn’t it?

AC: Yes, that’s exactly it.

RS: Yeah. So, what would you say if you had to, kind of go deeper into bluebird and Vertex and CRISPR Therapeutics, how would you talk about the companies and the stocks regarding how these things may or may not play out? How should investors, if not be positioned for it, how can they be thinking about it?

AC: So, the phrase that has come in handy many times, especially in this little niche, buy the rumor, sell the news, it’s a cliche, but it really is, kind of the truth. Because for example, when CRISPR Therapeutics got the FDA to approve their therapy for one indication. Under normal circumstances, you would say, okay, biotech company, they’ve just gotten their first therapy approved and it’s going to be commercialized. This is the first time they’ll have an opportunity to make money ever while the stock is shooting up. It’s going 30% in a day. And yet in this case, that didn’t actually happen.

What happened was it got a tiny bump, but the fact is, people were anticipating based on the information that they had released about their prior discussions with regulators, everyone kind of saw that the approval was coming.

Of course, there’s no such thing as a guarantee. However, the sentiment was that the approval was coming. So, the stock did not really go up that much, which is to say, if you had bought it a few years ago, you would have gotten a really good run up.

And then there would not be that last kind of punch upward, but you would have gotten a really good run up. And then you could consider exiting your position at that point, or perhaps holding until they posted some kind of growth after their drug starts to be purchased and they start to have earnings to report.

It really depends on what kind of investor you are at that point. The biggest single thing that I would say is, keep track of the news cycle. Keep track of the news cycle because that is how you know when you will have opportunity for a positive catalyst, or a negative catalyst.

It’s often a decent idea to quit a position, even if you’ve held it for a few years, if you think, okay, the last few data updates this company has published, they’re not the best. Therefore, this big potential catalyst, like Phase 3 result readout or something, it might not go well. I don’t want that risk. I need to exit.

This is the thing that is the difficult about holding biotech for a long time. You’re exposed to catalysts. You can, you have to judge for yourself, is it going to more likely be a positive catalyst or a negative one?

And how much is everyone else expecting those outcomes? Because that is where you stand to either get a nice boost, or expect to get a nice boost, and then everyone already was expecting that. So, you don’t actually get anything. So, it’s kind of complicated. There’s a meta-aspect of it that I think is where a lot of your gains can come from.

RS: We saw some news last week – you were speaking of Mounjaro and Ozempic, two of the most talked about, or definitely two of the most heavily talked about drugs. We saw some price hikes there, but also throughout the sector. Do you have any thoughts on that, or what that means for the sector or what that means going forward, or is this just part of doing business?

AC: So, as far as the current discussions about pricing go, I am taking a wait and see approach. I do not have a very super strong opinion about it. What I will say is that over the last three-ish years we’ve seen essentially pricing as a major barrier to the adoption of certain medicines.

In particular, I’m thinking about these Alzheimer’s drugs, Biogen (NASDAQ:BIIB) produced one. I believe the cost of treatment was incredibly, incredibly high per dose. And also, with some of these gene therapies, the cost of treatment, that you only need one dose, but the cost is in the millions of dollars for the patient.

Potentially covered by insurance, potentially not. And the higher the price is, this makes the insurance company less willing to cover it if they think that they could save more money by just having the person continue to do whatever they were doing before. So, in that sense, I see extremely high pricing, regardless of the value offered to the patient, I see extremely high pricing as being a barrier that a lot of people in the industry are very reluctant to admit is a barrier to the adoption of the new medicine.

It’s not insurmountable because people will be happy to pay a lot of money if they get a serious condition addressed. The issue is that often the price is very high and the serious issue is not fully addressed or it is perhaps mitigated. And with some oncology therapies, we’re talking about months, like additional months that someone can live and not in good health for tremendous amounts of money.

So, I think that there needs to be a reckoning of some sort where people in the industry get realistic about pricing because it’s tempting to try to price as aggressively as possible to capture as much revenue as possible, but at some point you do lose out.

And if one insurer decides, I don’t want to cover this medicine, too expensive, not enough benefit. That is a signal to the other insurers that they might want to do the same. And then you arrive at a point where insurers are not willing to cover your drug, your drug is too expensive.

And I’m just thinking about these Alzheimer’s therapies that Biogen has gotten approved. If there’s any question about the efficacy, then you’re getting more and more stakeholders to say, no, no, this isn’t a good choice, too expensive, doesn’t work well enough, blah, blah, blah, blah, blah, too many side effects. So, all of these issues play together whether people want to address them as though they’re isolated or not. So, that is kind of my take on that.

RS: Given what you’re approaching, I think you need to be somewhat curious in order to be interested in these things. Given the fact that you’re thoughtful and covering the space, I’m curious what your thoughts are, big picture, and you don’t necessarily need to answer it if you don’t want to, if it’s a little bit too esoteric, or kind of more macro.

But I’m just curious your thoughts on the U.S. healthcare picture maybe and how you see it going, how you think it maybe could go and how investors might be keen to be thinking about the future of healthcare? I know that’s a lot of big stuff there.

AC: Yeah, so healthcare in the United States, what I will say, I don’t want to get too political.

What I will say is that, I have had good care here, and they’ve made all sorts of money here. And when I’ve traveled frequently, I traveled to Argentina. We have a doctor there. I am far more impressed with the level of service at cost in Argentina than I am in the United States, is the fact of the matter. Not to say that I get bad care in the United States.

So, as far as the healthcare system goes with respect to the biotech industry, I am kind of skeptical of this traditional argument that the drugs must be priced so high, and the insurance must be priced so high, so as to reward those who are doing the primary drug development work and that they would not do it if they did not have all of these rewards that come from paying higher prices as a consumer of healthcare, essentially.

I’m skeptical of that argument. And where do I see it going? That I really don’t know. I would assume that the status quo will continue to kind of trend in the current direction. I would assume that more than that there will be a major change.

And I think as far as investors care about it, the current conditions are permissive to having significant growth from investments that you make in the sector. And in the event that there is some kind of political tweaking around the edges or major re-haul, the time to worry about the details of how that will impact the sector is when there’s a proposal, I would say.

For now, I think that there is nothing even on the horizon to be so concerned about. There’s a lot of noise, but I don’t think that it will really amount to any significant change.

RS: And maybe kind of piggybacking off of that question, I’m curious because the pharma industry, I know we’re talking biotech right now, but you know, kind of the pharma industry gets a lot of bad press and bad coverage. It also gets a lot of good coverage in many respects, but definitely I think from the general population, a lot that’s wrong with how pharma approaches things.

How would you synthesize how pharma approaches things and also how it has its kind of tentacles in other areas of the sector?

Yes, so, I think that the pharma industry, it’s complicated. It does get a bad rap, and there are many things that I think could be improved. With that being said, I’m not going to go too much into detail, what I think will need to be improved.

But the big criticism that I think is accurate, but also unavoidable is that pharma has an incentive to treat diseases. It does not have as much of an incentive to cure diseases. This plays into the mention earlier of these drugs that maybe cost $3 million for one dose and it’s a curative dose. That is why the price is so high because they do not have any expectation of an ongoing cash flow from selling drugs that cure people, especially if it is for rare disease, because it is quite possible that you could make the humanitarian accomplishment of curing the entire market away.

Then you’ll be out of money and yet you’ll have done something wonderful and your shareholders will probably despise you for it ultimately. So, I do think that is a – it’s a criticism that they do have an incentive to create temporary solutions rather than cures, especially because Gilead Sciences (GILD), a number of years ago, was able to commercialize this curative therapy for hepatitis C, quite expensive. I think they made a follow-on therapy as well.

The point is they actually did end up, it didn’t cure their entire market away, but they certainly made a huge dent in it to the point where their sales flatlined. And I have not seen so much retrospection about this in the biopharma space.

What retrospection I have seen brands that is a failure, even though it has had this wonderful humanitarian effect of curing all of these people of this bad disease that they had. What can be done to address that? I really don’t know.

What I can also say is, when I’ve been in the room trying to figure out with some people what drug to target for a therapy program, or sorry, what indication to target, the limits of our ambition for treating this condition, it has been the same kind of discussion of, if we aim for the cure, it’s a much harder target to hit.

And on top of that, if we do manage to cure whatever, we’ve created now a kind of a bottle, a market in a bottle, and we understand that we can get to the bottom of the bottle. And the investors will not like that, understanding that there is a bottom to the bottle, even if it’s huge, even if it’s curing something that there’s millions of people that suffer from it, that does put a limit on how much money you can expect to recoup. And it does make your pricing far more complicated.

So, the lower hanging fruit is pretty much always making incremental improvement to treat the condition. And that leads to producing a lot of incremental improvements that do help people and they tend to make a lot of money as well, especially if people need to take them on an ongoing basis.

With all that being said, I really, really, really struggle to believe that any scientist working in any biotech or pharma company would somehow stumble upon something that could be curative and then put that away because it wouldn’t make as much money. I understand that the fundamental incentive is the opposite to shelve the potential cures, but I don’t believe that in practice that actually ever happens.

It just would be, I don’t think I’ve met a single laboratory scientist who has that capability in their character to shelve something like that. And I don’t think I’ve met any biopharma leadership that would really want to do that either. It’s usually an academic question to go for the cure, to go for a mitigation. When there is an actual cure in reach, I think that is almost always – if it’s within reach, that’s what gets reached for, so to speak.

RS: First of all, I appreciate your honest and forthright answer, even if it’s kind of a murky picture to be looking at in many respects, or in a few respects. But I appreciate an honest take. So, thank you for that.

As you’re looking out on the horizon, kind of these next few months, is there anything that you have your eye on coming up that you’re interested to watch, either from a specific company, or from a specific field?

AC: Yes. So, one area that I’m watching very closely is this market for non-alcoholic steatohepatitis drugs, NASH is the common acronym, or MASH is the more appropriate way of discussing it now, I’m told. So, I’m keeping close track of this space because there’s no, to my knowledge, no drug approved that treats the root causes. Nonetheless, it’s a huge market. It’s a crippling disease. Many people develop it for various reasons. And this is the other aspect of it that makes it worth watching.

I think for investors, there are many different potential approaches to treating MASH. Many different therapies that seem to have a credible shot at being able to address some significant element of this illness. And that’s great because it means that if there’s a small biotech that’s developing a drug for MASH and they’re taking some approach that no one else is taking, that means that their product, if it gets commercialized, it could co-exist with the other products produced by big pharma players, or other biotechs that use different mechanisms of action.

So, there’s a lot of opportunities to find good investments. However, so far, treating this condition has been a bit of a quagmire for many companies. They’ve tried again and again to get through clinical trials with one of their candidates and they’ve failed again and again and again.

And it’s a common story, a common story that companies try to make a drug for MASH and they fail. So, I do think they’re going to get it eventually, probably more than one company is going to get it. So, I think this is a case where it pays to invest in a few different competitors in biotech in a few different stages of development and perhaps get some exposure via a big pharma player as well because the market is going to be gargantuan, so – MASH…

RS: Are there any players in that space that you wouldn’t look at, or you would caution investors, or do you feel like diversification is key and who’s to say who’s going to come to the finish line?

AC: Yes. I think for now, I wouldn’t even want to put more than one egg per basket, if that makes any sense. Small bets is how I would approach this. I don’t think that there is any single company that can say they are the leader at this moment. And I don’t believe that there is really a leader either actually.

It’s many of the same ones that are developing medicines for type 2 diabetes and obesity. So, Novo Nordisk, Eli Lilly, Madrigal (MDGL), Viking (VKTX), many others. And I’m sure many that I haven’t even heard about because there’s so many different potential ways of trying to address this condition. I think this is a case where investors need to read the study. When a company issues new data for one of their clinical trials and they have it published in a journal, read the study.

Read about what symptoms their candidate seems to be targeting, what it actually addresses, and how many people are affected and how badly. And that this is really where you can very easily get some good insights on which companies are going to be more likely to be successful than others. And one of the important aspects of this space is that it is very evident when an approach is not working, at least in the cases that I’ve seen.

This is not a situation where there’s a ton of subtlety. I think it is very, very clearly a matter of reducing the metrics associated with the disease. And companies can say, oh, our candidate reduced blah metric by 20% or whatever. And then another company say, oh, ours will reduce this metric by 80%.

So for investors, there is a lot of science underpinning all of that, which to have a complete picture you need to learn, but there are direct comparisons that are very easy to make in ways that are often – it’s not easy to compare between one company’s approach and their clinical trial results and another typically, but in this case, you can do it. So I recommend that people do it if they’re interested in investing there.

RS: Is there, do you have a favorite biotech or a group of favorite biotechs that you’re consistently looking at that you feel like are consistently worth looking at, or does it depend on the narrative and the catalyst because it’s such a news based industry?

AC: Yes, it depends on the narrative. It depends on the catalysts and the data. And also just the strategy, right? Because that’s, I think I often, I make this mistake of thinking about biotech industry of every company has laboratories where they develop drugs, or technologies and then they sell all those drugs if they can get them commercialized, but the fact of the matter is that there’s more than one business model.

Companies can survive based on collaborations or buying royalties even. So, one company that I have found is really cool and I own this company, I have shares of this company, I’ve had them for a few years now, is Catalyst Pharmaceuticals (NASDAQ:CPRX). They don’t do primary drug development. They do buying pharmaceutical assets that are in late stage development that other companies can’t bring to fruition for whatever reason.

Then they finish the job, so to speak, get them commercialized and sell them to rare disease markets. And it’s, I like it because their business model is, kind of cool, it’s kind of unique, and it has good results. And that’s what I like about them. And they’re also not beholden to any specific indication or any specific disease area. They can go and see which assets are on offer, which look like they could ostensibly turn into a working drug. So, I like Catalyst Pharmaceuticals for that reason.

Aside from them, the other company that I’m really excited about right now is Caribou Biosciences (NASDAQ:CRBU), which I also own shares of. They are more of a gene editing cell therapy company. They’re early stage, quite early stage, but I think this is probably the only case where I will see a company’s Phase I results, read them in full, and then go to buy the stock.

I almost never invest in companies that only have Phase I candidates because they’re simply too risky and it can take many years to pay off. And, you also end up getting your shares diluted a lot of the time when they have to issue new stock to raise money. So, I almost never invest, effectively never in Phase I only companies. And yet I took a thorough look at Caribou Biosciences’ data, and it’s so impressive that I had to buy the stock at an early stage. So, we will see if that pays off or not.

More important than what their pipeline program is treating is the technology platform that they’re using. It’s a gene editing platform where essentially they’re able to add 5, 6 different features to their cell therapy products by splicing them in, so to speak. And when I was first working on these chimeric antigen T-cells, it’s a cell therapy modality, we were trying to figure out how to get one new feature to reliably work on the cell.

Not so long later, Caribou Biosciences, as well as a few other companies at comparable stages of development, they’re adding so many features that you can almost think it’s an entirely new modality that they’re pioneering here. It’s not just the cell that we produced treats this disease by doing one thing. It’s the cell that we produced treats this disease by doing multiple things. And also, it makes itself into a therapy product that is more controllable, more long lasting, more durable in various other ways, maintains its functionality better. They’re adding all those features in as well.

So, I think Caribou – Intellia (NASDAQ:NTLA) is another one who is also on the very forefront of this. They’re adding so many features to their cell therapy products that I think we’re about to see some really, really incredible work come out of them over the next few years, and they’re going to make some incredibly profitable drugs in the long-term. So those are the two that I’m quite excited about.

RS: Is there anybody that you would put on the other side of that equation? In other words, somebody that you feel like either has taken on too much debt, isn’t spending wisely, research isn’t leading where you thought or they thought it would. Anybody that isn’t looking too savvy about things?

AC: Yes. I would say generally the debt issue is not something that I see too much of, but one company that I have, I think I’m actually in the minority by saying this, but I’ve been quite turned away from Cassava Sciences (NASDAQ:SAVA). They make Alzheimer’s, they’re trying to make a drug against Alzheimer’s, but there have been a number of pieces of data that have been so-so, but the bigger problem is they have been embroiled in some various controversies.

And I think to me the controversies suggest that the foundation of their scientific background for their therapy is compromised in a way that makes it very unlikely to work.

I think that I’m in the minority there. And I also have to say the people who have been holding the shares of this company, they’ve done quite well. And how that is the case, I’m not entirely sure honestly. I do think that it is kind of not built on the most stable foundation and I believe that will bite the company in the butt eventually, but perhaps I’m wrong and perhaps I simply don’t understand their research.

Biogen I would say is pharma more than biotech, but I’m not so keen on Biogen for they’re also — the thing that I’m – I dislike about them is their Alzheimer’s medicines as well where — is to tie back again with what we were talking about earlier. They’ve produced Alzheimer’s medicines that while technically approved by the FDA, two of them, they’re incredibly expensive. They do not really work that well. And they are still – they tried very hard to bring these not-so-great medicines to the market.

And for one of them, ADUHELM, effectively, they could not get traction in the market because doctors did not want to prescribe it, insurers did not want to cover it, the side effect burden was terrible. It didn’t really work that well. So that was a huge failure for them. And then their follow-on medicine, LEQEMBI, it seems to be encountering the same fate. And so, to me that says, I do not want to – I don’t want to own shares of that company personally.

RS: Very good. Alex, I feel like we’ve given listeners a really nice, intricate and – intricately woven and also a nice overview of the biotech sector and beyond, I think. So, appreciate it. Anything that you feel like we should be including at this point towards the end of the conversation, or the end of the conversation?

AC: The biggest thing, if I was an investor just approaching space the first time, look at the cash, see how much cash these companies have, see how it compares to their trailing 12 months expenses. If it looks like they have less than two years of cash, trade very carefully.

RS: And what about to investors who have been in it in a long time, what do you think a grizzled approach might need tweaking in any regard?

AC: Grizzled approach, how would it need tweaking? Today, I would say for the grizzled investors, pay attention to the claims that are being made by the AI drug development platform companies. They’re claiming that research will get easier and it’ll fail less, and it’ll cost less.

And if they are right, TBD, then the picture will change and your grizzled frameworks for expecting everything to fail will not be accurate anymore basically. So, there could be a big change coming.

RS: Very good. Alex, always enjoy talking to you. Always appreciate you coming on. Looking forward to the next time.

AC: Yes, thank you so much. Looking forward to next time.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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