Terry Coyne: Maybe I’ll shift gears to industry and sentiment. So, 2022 was a really challenging year for biotech; 2023 was pretty rough, at least in the first half. But that seemed to shift towards the end of the year [2023]. So, I guess my question, Andy, for you is, what changed? And why is this industry so cyclical?

Andy Acker: I think a lot of it is human psychology. So, what’s happened lately, if we think back to 2020, you had unbelievable success against fighting COVID-19. Global pandemic, biotech was on the frontlines of fighting that, and historically it had taken 10 years to develop a vaccine. The fastest ever was four years, and here you had two companies, Moderna and BioNTech along with Pfizer, that were able to generate highly effective vaccines in closer to 10 months than 10 years. And that probably saved millions of lives. And I think that excitement, that wow – what we’ve been seeing really, which is accelerating innovation in the sector – became apparent all at once to everyone in the world, I think.

So, that created a lot of excitement for biotech. The funding environment was as wide open as I’ve ever seen in my career. And that’s sort of good and bad because a lot of companies got funded that probably never should have been funded. When you think about the opportunities for successful companies … when you have a great idea or a great mechanism, there’s probably room for maybe two or three companies to be successful but not eight or 10. And we were seeing the seventh and eight companies getting funding.

We were seeing valuations that were at unprecedented levels in terms of IPOs [initial public offerings]. Companies that still had preclinical data – no clinical data whatsoever, not even in the clinic – that were getting valued at billions of dollars. And I think you had to have a long-term history to really understand that that’s not normal, and a lot of investors in biotech were relatively new. If you had been a biotech investor for “only” a decade, you’d only seen an up market. The XBI¹ went up 5x over that 10-year period; you’d never seen a bear market before.

Rajiv Kaul: And really low interest rates.

Acker: Yes, and then you had zero interest rates. So, you combine all those factors and people were not thinking of the fact that 90% of these drugs are going to fail. And then what happened, as inevitably does, is a lot of those drugs did fail or had negative clinical data, and many diversified generalist investors that had gotten into biotech didn’t really understand what they owned and started losing money and then they all pulled their money out. So, you had that great sucking sound of all the money that had gone into biotech coming out, and it lasted about 30 months. It was kind of like a nuclear winter, I think, for biotech.

In our view, that probably bottomed in late October [2023] when we got to a peak in terms of 232 stocks trading below the levels of cash on their balance sheets. That’s kind of an amazing number. That means these companies were valued at negative value. If they gave their cash … they were worth more as a bank than their research, as developing their drug. So, that also was kind of crazy on the extreme, on the opposite side.

And so, I think the biggest factors that turned that around – first of all, the interest rate regime changed. So now, the Fed [Federal Reserve] instead of raising rates at the fastest rate in history said we’re done raising rates and now we’re going to look to lower rates. Historically, interest rates have not been that correlated all the time with biotech, but recently that’s definitely been a huge factor. So, that was a big change.

And then the second part is M&A [mergers and acquisitions]. When you have really low valuations and interest rates that in a historical context are still relatively low and you have tons of innovation … a lot of people wouldn’t know this, but last year was the biggest year ever for new product approvals in the U.S. We had 73 new medicines that were approved. That’s by far the most in history. So, you had a year with record innovation, record-low valuations, and you had pharma companies that need innovation because they’re facing the twin problems of patent expirations later this decade, which are quite significant for a number of companies, and now you have this new IRA [Inflation Reduction Act] bill that could have an impact in terms of even companies facing earlier pressure from price competition.

So, all that combination led to a significant increase in M&A activity. Just in the fourth quarter of last year [2023], there were nine deals of over $1 billion; for the year, I think it was 22 and over $140 billion in deals over $1 billion. That was about twice as many as any [year] in the last decade. So, you get the animal spirits to come back. Interest rates are going down, M&A is going up. You can actually make money in biotech. So, then you have interest coming back. Q1 [2024], we didn’t really see a lot of IPOs, we saw a few. But a ton of secondaries [secondary equity offerings], PIPE [private investment in public equity] deals … so, a lot of financings getting done. So, companies are able to get capital again, and that sort of excites.