Introduction
STEPHANIE SIROTA: The biotech sector is rallying. With the four-year winter safely behind us, the key question is, what's next? What are the big catalysts coming? Why are science, capital, and the markets all lining up at the same moment? What's actually driving this, and what does that mean for both investors and patients? I'm Stephanie Sirota, and welcome to the RTW Podcast, where we aim to keep our listeners healthy, wealthy, and wise. Today, I'm sitting down with our CIO and founder, Rod Wong. We have these kinds of conversations all the time, and there is so much happening right now. I wanted to get him in the studio to share his thoughts with our investors and our broader network of friends and followers. Welcome back to the studio, Rod.
ROD WONG: Great to be here.
AI and the Fate of Humanity
STEPHANIE SIROTA: So it's been a big week for RTW. We launched the RTW Institute to try and have a positive impact on policy as it relates to innovation, public health. We'll get to that in a moment. First, I wanted to just ease into our conversation today. So let's start with a small bite-sized topic, the fate of humanity. Anthropic CEO Dario Amodei said, and I quote, "My chance that something goes really quite catastrophically wrong on the scale of human civilization might be somewhere between 10 and 25%." I'm going to let that sink in. Now, we work in an industry with the opposite ambition. What is your reaction when you hear that?
ROD WONG: Well, I think I had the same reaction as probably most people, which is that no one likes to feel like they're on the outside looking in for something as impactful or consequential as AI could be. I then naturally just try to think about, well, what can I do about it? We stood up an AI sub-team a number of months ago. And going forward, we want to feel like the anxiety starts lower and that by the end we have more confidence or ideally even at the beginning of those conversations, we have a viewpoint. Of course, there's a lot of wonderful things about AI, but we want to both manage the risk and be aware of the risks and see them coming instead of be surprised by them. And then of course position ourselves to take advantage of the benefits too.
STEPHANIE SIROTA: If the impact of AI is the story, good or bad, that some people are telling about the future, what's the story that biotech is not only telling about the future, but actually delivering?
ROD WONG: That's right. I mean, it has been a big focus of ours, of course, in our conversations. We've tried to start getting the message out there, what a wonderful time it is in biotech. We really are in the early innings of what we believe will be the golden age of medicine. And what does that mean more concretely to people? Well, one metric is historically we've gotten 50 novel new drugs per year and our expectation is for that to double thanks to all the innovation that we see around us. Another way to think about it is what does that mean for our longevity? Right now, the top two killers in the US are still cardiovascular disease and cancer. We're living through a revolution right now thanks to GLPs where I think it will actually increase the average life expectancy of Americans and folks everywhere. And then cancer, that is one of the disease areas where I think over the next decade we're going to see the most substantial change. So for many tumor types, you're going to see really breakthrough new drugs that together when you add them all up after a decade of innovation, I think you're going to see on average increases in survival of 50 to maybe even 100%. And that's also going to start to impact life expectancy.
Tech vs. Biotech: Value and Villains
STEPHANIE SIROTA: Obviously that creates a lot of value for those humans who are living longer and for their families. So there's a feel good aspect of that, but talk about creating value for society and investors, tech versus biotech. The vast amount of value accrues to the innovator in tech companies, whereas in biotech, it's the end user, it's the patient, it's who is the beneficiary of the value. And yet the biopharma, the pharma CEO, our companies are often cast as villains while the tech CEOs, you know their names, something about them and they're the heroes. What would it take to flip that?
ROD WONG: That's an interesting question. On the villain aspect of it, I think there's certainly one very important reason why that's been the case, which is that patients are faced with these really significant, sometimes disabling in terms of the amount of financial distress, out of pocket costs, and they're asked to buy something that they didn't want to buy and they didn't plan to buy. So that's a terrible situation to be in. Now, I think a positive thing is that people over time, as there's more of a conversation around this, have come to understand that one important reason that that is the case is because insurance has been evolving in a negative way. So it acts less like insurance. And so people are exposed to those risks. I think another reason is because our industry doesn't have the kind of scale of successes and heroes that tech historically has had. We only have one trillion company and that's Eli Lilly, the obesity company. But I think a couple interesting stats here, there is not one single founder CEO among all of the large cap pharmaceutical companies. I think it's for the very simple reason of it takes a very long time to develop a drug. And so for a CEO, it often spans longer than their career. And then even if you have a success, the patents expire and then you have to start all over again and replace your business. I find it interesting that there's not a single pharma CEO, including David Ricks, who's CEO of Eli Lilly, who is a billionaire. So you just don't have that scale of success.
The RTW Model
STEPHANIE SIROTA: I think this is a good segue actually into the RTW Institute because the two pillars of the institute, you said in our last conversation are keep driving innovation forward and then also affordability. What led you to create the RTW Institute?
ROD WONG: Yeah. Well, it's really about to talk about these issues that we're talking about now. And most important is how do you make innovation go faster? How do you really kind of release the energy, the boom that we're seeing in science right now and make sure that policy is not getting in the way of getting medicines to patients? That's one core pillar of what we're trying to achieve at the policy institute. The other one is this affordability crisis that we're in the midst in healthcare. And to play one, number one, an educational role to explain to folks what we think the drivers are because they're not inherently obvious. Healthcare is obviously a super complicated industry. So we want to make sure that as much information as we can put out there as possible on that to do that, to then say, "Hey, what are the policy solutions that make sense?" Because what we want to avoid is we want to avoid damaging innovation, which ultimately is the key to living longer, healthier lives. And at the same time, we actually do bend the curve in terms of the affordability crisis.
STEPHANIE SIROTA: Well, RTW, you've built a world, you've built an ecosystem with three legs of the stool, investing capital directly for profit in our funds. You fund science and rare diseases and non-attractive, commercially attractive opportunities philanthropically through the foundation. And now you're engaging on policy What drove you to want to do all of these three aspects of the world of innovation?
ROD WONG: Yeah. So the foundation was a natural extension of our work investing. So we had encountered programs where it didn't make commercial sense for a for-profit business, but the science was compelling and there's high probability that could be a really important medicine for people that needed it. A second core pillar emerged during COVID when we diverted actually our first research grant cycle just to community relief because of COVID. And that was such a heartwarming experience and impactful experience really for our team that we decided to create a second pillar that would always focus on healthcare for our community. So that's really the backstory of the foundation. In terms of the RTW Institute, we first started thinking about it. It was really a few things coming together at the same time. One, this administration we kind of expected would be one of significant change and that's what we got. We've got new FDA leaders and significant policy change in healthcare overall, and we wanted to be on top of that. We have grown in terms of our position in the ecosystem and we felt a certain responsibility. And then we also started having really strong opinions about the best path for innovation policy. And so the combination of those things led us to say we should have a voice. And so the logical way to do that was to create the think tank.
What's Driving the Recovery Now
STEPHANIE SIROTA: So let's get more now into where we are in the biotech cycle. In plain terms, what changed to bring science, money, and markets together at the same time?
ROD WONG: Yeah. If I were to pick or call out the top reasons, I would say the most important one is that the innovation boom that started five to 10 years ago started to mature and you started to see drugs get across the finish line and even beyond that to be successful commercially. That was the most important fundamental driver. But then you had some other positive things as well. some of the overhangs started lifting, the most important of which is probably the fact that we're in interest rate tightening cycle that went from very low to where we are now. And when that finally stopped rising significantly, the headwind of capital flows leaving our space started to dissipate. And then finally, I think M&A picking up was something that got people to take notice and say, "Oh, is there something going on in the sector?" So I think the combination of those three things have started bringing interest back to our space. But as you mentioned already, it's really just the very beginning. If you look at an important metric that we follow, capital flows, it really was negative even last year, which was the first year of the recovery post the bear market. And then this year it was actually negative for most of the year because of the Iran war and only started turning positive in the summer.
STEPHANIE SIROTA: Well, what do you think is different and what's driving this rally that was not true the last time we were in Boomtown in 2020?
ROD WONG: Yeah, they are totally different situations because the last bull market cycle was really driven by exciting new modalities, platform technologies, early stage science. A lot of it, frankly, was sci-fi at the time. And so you got the very natural wave of failures and disappointments that go along with that stage of innovation. And now what you're seeing is the products, not just the products, but the businesses that are built from those products. And so that is absolutely not only sustainable, but I actually think will accelerate.
STEPHANIE SIROTA: There was so much excitement and hype from 2020 that going into 2021, that was capital markets from that perspective, it was just an incredible class of all of these IPOs that went public. Many of those companies actually had preclinical stage assets. Is that a difference as well today from a capital markets perspective? What are you seeing successful in IPO land?
ROD WONG: It is a huge difference. Now, as opposed to the platform company, now most companies, almost all basically, are what we call asset companies where there's a compelling lead drug candidate oftentimes already with clinical data. You do have some that are preclinical, but with very compelling science. So it really is a very different animal. And if you compare the peak of the last bull market, I think it was north of 100 IPOs that year. This year we're on track to reach the low end of what I call normal, which I think of as 30 to 50 IPOs per year. I think we've had just over 20 year to date. So it's really just the beginning of a normalization process as opposed to something much later in the cycle.
The Decade of Oncology
STEPHANIE SIROTA: Let's chat about oncology because that has been the story of the year. Three different tumor types got FDA approvals in a span of six weeks this year. So Acuity in breast cancer, Replimune in melanoma and RevMed in pancreatic cancer. And you actually posted the standing ovation that RevMed got at ASCO, which went viral for the best of reasons. Is that pace something that investors can maybe not count on, but can they expect that going forward or do you think, okay, we just had a spate of approvals and now it's going to be crickets for a while?
ROD WONG: Yeah. As bullish as I've been so far in the conversation, I think cancer's going to be a flag bearer of the next 10 years. I couldn't be more excited. I think the last boom in cancer, people remember the dawn of immunology and there's disappointment because it turned out to be mostly PD-1, right? Opdivo, Keytruda were revolutionary drugs. They worked on a lot of tumor types, but a lot of the other targets that people pursued didn't work out. And so we get asked sometimes whether this movie is going to be the same, and I really am very confident that it'll be much better than that story. The main reason is that now we have a number of tools, small molecule discovery has gotten better and better for targeted therapies, but now you have all kinds of designer antibodies, especially antibody drug conjugates, which makes chemotherapy much more precise and the risk benefit much better. But you also have cell therapy, you also have radiotherapy. And so the combination of all of these technologies that are already for primetime, I think is really just going to transform the treatment of cancer over the next decade. I think 10 years from now, all of first generation naked chemotherapy will be replaced for all of the major tumor types by something better. I think a lot of that's going to be by antibody drug conjugates and T-cell engagers, but all of these things are going to play a role. And I think the result is you're going to see an increase in survival, broadly speaking, somewhere between 50 and 100%.
STEPHANIE SIROTA: So just to reiterate to our viewers, in 10 years, chemotherapy, naked chemotherapy will be a thing of the past.
ROD WONG: That's right.
STEPHANIE SIROTA: That's your bold prediction.
ROD WONG: That's exactly right.
FDA Leaning into Innovation
STEPHANIE SIROTA: So there's been leadership change at FDA. The new CDER and CBER heads were in their seats in a temporary capacity and now they've taken over full-time, but not yet confirmed is the next FDA commissioner, Heidi Overton, awaiting Senate confirmation. So how does her leadership impact whether. What do you think about her leadership on the pace of approvals? Is her confirmation a catalyst? Is it a risk? Is it neutral?
ROD WONG: Yeah, I wouldn't say that we know for sure whether she'll make it through confirmation or not, but for the folks not familiar, just so they understand a little bit more about Heidi, she has been working in the White House. She's basically responsible for translating the White House's priorities in healthcare or the MAHA agenda into policy and working with HHS and FDA. And the general feedback has been she's been very successful and effective in that role. So she does have an MD PhD, so she does have a scientific background. And I think, look, a very good case scenario would be that because she really understands how to navigate the politics and the different groups involved, that could make her an ideal FDA commissioner because there are some very controversial issues obviously that aren't run-of-the-mill every day drug approvals, for example, the vaccine policy as an example. But if she works well with now the permanent division heads for CDER and CBER, it could work. They could balance each other very well or compliment each other. I think in terms of the permanent CDER and CBER heads, we're very optimistic. Obviously, Makary and Prasad were not strong leaders and things were very chaotic at FDA under their leadership. But as you mentioned, Mike Davis and Karim, they've been there in an interim capacity for the last few months. We've already seen the result of some of their decisions that they have made. And I think it's pretty clear that they want to swing the pendulum back, be supportive of innovation and regulatory flexibility. And at the same time, some of the best ideas that Makary came up with to push things forward and speed up drug development, they also want to continue to carry that flag. So I think as long as they have a good working relationship with Heidi, it could be not just a period of normalization or back to business as usual for the FDA, but it could be a very positive FDA where they're also changing for the better.
STEPHANIE SIROTA: How important is that for capital?
ROD WONG: I think it's important from the sense that you want to have the confidence that FDA is going to be predictable and is going to be pro-innovation, of course. And I expect that that's what we're going to get.
STEPHANIE SIROTA: Certainly, because people don't want to go into a high risk situation if there's a lot of uncertainty or an overhang from the policy side.
ROD WONG: That's right. I mean, one of the biggest issues under the Makary period was that the goalposts seemed to be changing and they didn't necessarily follow a specific logic review to review. And drug development is a decade plus long exercise, and obviously you can't expect capital to come in and undertake those kinds of projects if you think that at the 10-yard line, the goalpost could be completely moved.
M&A and the Eli Lilly Effect
STEPHANIE SIROTA: So there's three main sources of capital that fund these businesses that we live and breathe. Obviously, one comes from the investor, the specialist investor and the generalist that is just starting to wake up. M&A is another big source of capital, and of course IPOs or other paths to getting public. Let's talk about M&A. Deal value is already way past a hundred million this year, and that puts 2026 on pace to be the strongest year for biopharma M&A since the last peak, which was 2019. Eli Lilly alone has done roughly 10 deals this year. Other people are also doing deals. Is there another buyer out there that people aren't watching closely enough?
ROD WONG: Yeah. What is happening is exactly what we expected would happen and that we've talked about where you have two major drivers right now of deals. One, you have the normal patent expert cycle. We've talked about that. A lot of big products going off patent between now and 2030. In fact, the dollar value goes up over the next couple of years, so we're just in the middle of it. And then there's another big wave actually post 2030. Which we've talked about less, but that's one major driver. And the other new driver, which is actually the game changer, is Eli Lilly. And we've been telling people to expect Eli Lilly to begin to diversify and reinvest obesity revenues into other things. And that's exactly what they've been doing over the last year or so. Now, the thing to expect now going into the future is that that's going to grow. So the number of deals that Lilly has done is what you said, is a high number. They're leading the pack. I think they're more combined than the next few pharmas combined, something like that. But the deal values have been small. The cash flows from obesity are going to continue to ramp. And so I fully expect for the deal values, the sizes of the deals that they're going to do are going to get bigger.
STEPHANIE SIROTA: And with later stage assets, so do they want to pay more to buy a revenue ready asset that is going to replace whatever's falling off the patent?
ROD WONG: That's right. So for the reason that one, to make a difference, that'll bias towards larger deals. But also as time moves on, you're going to get closer and closer to their own obesity patent expiries, which will mean they'll favor later and later assets. That's the natural evolution of the drug development and patent expiry process.
Launch Performance and Public Markets
STEPHANIE SIROTA: Okay. Let's talk about the commercial side of the business. And a lot of the companies that have launched new drugs, those drugs really dramatically beat consensus. Why is that? Was consensus being conservative? Is this a sign of, you talk about the maturation of the industry and so people just don't know how to assess the commercial opportunity because it's never been at this magnitude, it's never been here?
ROD WONG: Yeah, I think it's absolutely a sign of the kind of innovation that we're seeing now. It's the kind of innovation that is meaningful to patients so that they want these medicines. There used to be a saying in biotech, which is short the launch. And now we're seeing the opposite of that. When that happens, it's good for everybody. You see some of these businesses not just become viable but thriving. There've been a small number that have been so successful, they're becoming acquirers themselves instead of being ultimately sold to a pharma company. And then it gives people more optimism, of course, about future product launches, which makes capital more accessible for the next generation of companies to try to do it.
STEPHANIE SIROTA: We talk a lot about RTW's full lifecycle approach, which means that we do everything from new cos to late stage venture. So a lot of times when speaking to investors who might just be getting to know biotech, their first thought is that, oh, we're investing in small businesses, small companies, very early stage science. And sometimes they assume that we're a venture capital firm. Now for that non-specialist investor, for that private wealth investor, why is it still smart? Why is it smart? Not still smart, but why is it smart for them to invest and be in the public environment, not in venture?
ROD WONG: Well, the way I think about it is our space is pretty different from tech where, as we've seen with the leading tech firms, they don't go public until they're huge, huge businesses. In fact, some of the biggest in the world with trillion dollar plus IPO valuations. Our sector is the exact opposite of that. Venture capital, the bulk of it, frankly, happens in the public markets. Companies go public very young. Even with the increase in average IPO valuations, you're still talking about half a billion dollars for the average market cap at time of IPO. And a blockbuster medicine is worth 10X that. So most of the journey is in the public markets. We do think it's very valuable to be there for the private part of the journey. There's access to science and to the leaders of companies that you won't get once a company is public, but 80, 90% of the value creation happens after the IPO.
STEPHANIE SIROTA: And is that why you've made the conscious decision to have public and private investments in the same fund?
ROD WONG: Absolutely. I think from creation all the way through to commercially mature public company, it makes sense for it to all be under one umbrella. Science and medicines don't care whether you're in a public wrapper or in a private wrapper. That's historically an artificial separation.
What's Next
STEPHANIE SIROTA: So the next six months, what's on your radar between now and the end of Q1?
ROD WONG: Cancer remains probably the number one focus area for us over the next few months. We're going to see some earlier proof of concept data across a number of tumor types that still have tremendous unmet need. We're going to see data in bladder cancer and kidney cancer as examples. So cancer probably still remains number one. Another area we've been talking about a lot is the renaissance and neuropsychiatric medicines. Psychedelics we've talked a lot about. There's a lot more to come in psychedelics, right? We still, with all the successful clinical trials that we've seen over the past few months, we have yet to have our first product launch. At the beginning of next year, Compass Therapeutics could be launching the first approved psychedelic. So we're looking forward to that.
Closing Thoughts
STEPHANIE SIROTA: Okay, so if there is one key takeaway that you would want our viewers to learn and walk away with, we get your conviction. It's pretty high and it's probably the highest that I've really seen you. What do you want someone to walk away knowing about our sector?
ROD WONG: Well, I think, look, we do think we're in the golden age for innovation in medicine. We think it's really the early innings of that. But the couple other things that I would mention is that China is adding to the global drug pipeline in a significant way. I think we're only just starting to see the impacts of that. And then finally, something we didn't get a chance to talk a lot about today is AI. AI's impact is you haven't seen yet, but is very real. We're already starting to see it significantly impact the productivity of drug discovery. And so the medicines that come from that, you're going to start seeing in the next handful of years, and that's really going to be now the fourth transformative factor that's going to continue to accelerate this renaissance in medicine.
STEPHANIE SIROTA: Well, now we have the topic for our next conversation. Maybe it's the fourth or the fifth industrial revolution, the AI and biotechnology combination.
ROD WONG: Sounds great.
STEPHANIE SIROTA: Thank you, Rod. It's always a pleasure sitting down with you, and I really enjoyed today's conversation.
ROD WONG: Thanks a lot.
