Biopharma newsletter - review of 24 and look ahead

[rogermunibond]

https://t.co/9PzDKJc9J8

 

 

[rogermunibond]

https://www.stifel.com/newsletters/investmentbanking/bal/marketing/healthcare/biopharma_timopler/2025/BiopharmaMarketUpdate_Outlook_2025.pdf

 

Presentation at the end of the letter

[thowed]

Thanks for this.

 

 

[formthirteen]

Thanks. Enjoying this in my armchair. Stay strong and healthy.

[pricingpower]

Impressive range and depth to that piece thanks for sharing 

[Spekulatius]

Awesome read, What was most interesting to me is that Chinese biotech are now really good and smart Pharma cos can inlicense molecules far cheaper than from US biotechs. U see a Deepseek theme here

 

Also this note is very true.

 

While individually rational for each specialist healthcare fund, our fear is that generalists and retail investors have increasingly realized that biotech is a tough game for them to participate in given the rise of specialists.

In contrast, tech stories like Amazon or Nvidia are easier for the generalist investor to understand.

 

 

In my opinion, biotech is a minefield for private investors and you are off buying an index fund or some large biotech with a good track record like REGN (one a few shares).

 

I do think they glossed quickly over the anti science appointments of Oz and RFK as well as the possibility that Trump/Doge elbows some price cuts especially for big sellers like GLP-1 drugs.

Edited February 9 by Spekulatius

[rogermunibond]

Speaking of biopharma adjacent biomedical research news.

 

Biotools and research firms TMO, BRKR, BIO, QGEN, ILMN, DHR, down 2-4% on cut in the NIH F&A (Indirect cost) rate from average of 50-70% to 15%

[Spekulatius]

3 hours ago, rogermunibond said:

Speaking of biopharma adjacent biomedical research news.

 

Biotools and research firms TMO, BRKR, BIO, QGEN, ILMN, DHR, down 2-4% on cut in the NIH F&A (Indirect cost) rate from average of 50-70% to 15%

Well those instruments get expensed from these indirect costs.

A lot of biotech & related research has to be cut, there is no way to run with 15% indirect costs.

[Dinar]

1 hour ago, Spekulatius said:

Well those instruments get expensed from these indirect costs.

A lot of biotech & related research has to be cut, there is no way to run with 15% indirect costs.

Why?  Why does Harvard need to take 50% of the grant?  I think that there are more administrators at harvard than students!

[Spekulatius]

3 hours ago, Dinar said:

Why?  Why does Harvard need to take 50% of the grant?  I think that there are more administrators at harvard than students!

Show me any business where direct labor is 85% of the total cost. It does not exist.

[Dinar]

30 minutes ago, Spekulatius said:

Show me any business where direct labor is 85% of the total cost. It does not exist.

Really Spek?  How about rickshaw drivers?  Home healthcare aids?  The list goes on mon ami!  You really think that Harvard needs more administrators than students?  How on earth did it function a century ago when that ratio was a fraction of what it is today?

 

I can give you a hint.  On a proprietary trading desk at JP Morgan, there was one secretary supporting 30 traders, in NYU there is one secretary for three professors. 

[Spekulatius]

11 hours ago, Dinar said:

Really Spek?  How about rickshaw drivers?  Home healthcare aids?  The list goes on mon ami!  You really think that Harvard needs more administrators than students?  How on earth did it function a century ago when that ratio was a fraction of what it is today?

 

I can give you a hint.  On a proprietary trading desk at JP Morgan, there was one secretary supporting 30 traders, in NYU there is one secretary for three professors. 

I don’t know NYU, but I know how industrial companies work .Your prop shop was supported by IT guys, accounting, auditors, facilities , HR, a management layer on top and I don’t know what else. None of those count as direct labor cost and I am willing to bet those costs were much higher than 15% and probably exceed 50%.

You can not seriously compare a one man rickshaw driver running a cash business with a high tech research lab or any other larger operation. Even a temp hire outfit probably has 20-30% indirect labor costs and that’s as low as it gets.

Edited February 11 by Spekulatius

[Spekulatius]

Going back to the letter, I was surprised by the positive assessment of MRK. MRK has a serious problem with Keytruda patent expiration in Dec 1st 2028. I think vaccines is another one where they seem to have issues in China currently and the recent changes (RFK - a vaccine hater) are going to create more headwinds.

 

MRK vaccine business is considered a gem and they Animal Pharma business is another one but Keytruda casts a long shadow. the stock looks cheap and I have owned it before, but I am sceptical of the business model nowadays since so much R&D cost gets capitalized.

[Dinar]

1 hour ago, Spekulatius said:

I don’t know NYU, but I know how industrial companies work .Your prop shop was supported by IT guys, accounting, auditors, facilities , HR, a management layer on top and I don’t know what else. None of those count as direct labor cost and I am willing to bet those costs were much higher than 15% and probably exceed 50%.

You can not seriously compare a one man rickshaw driver running a cash business with a high tech research lab or any other larger operation. Even a temp hire outfit probably has 20-30% indirect labor costs and that’s as low as it gets.

Spek, there are many businesses where labor costs are 85% of total company costs.  Asset management, consulting firms, law firms, architects etc...  I thought about sending my kids to Catholic schools in NYC - tuition is $9K per child.  NYC spends $40k per child in public school, of which only $10k reaches the actual school.  My point is that governments/universities tend to be very inefficient.   

Have you looked at GSK?  It has a huge vaccine business.  

[rogermunibond]

Regarding research indirect cost - there are a few things that gets factored into it that probably shouldn't - D&A for new research buildings, interest expense for construction of new research facilities.  There have been myriad white papers from the NAS and Rand and OSTP that have looked at indirect cost.

 

Otherwise, there are a lot of legitimate costs that are covered.

 

BTW direct cost can include salaries of faculty, postdocs, research scientists etc.  And also include capex, equipment, supplies, travel, etc.

 

 

[Dinar]

One thing that concerns me, and I may have missed it, but if AI can make searching for new drugs much more efficient, won't it be a huge problem for players such as TMO?

[Spekulatius]

21 minutes ago, Dinar said:

One thing that concerns me, and I may have missed it, but if AI can make searching for new drugs much more efficient, won't it be a huge problem for players such as TMO?

I would be more concerned about the Chinese dominating the discovery phase for biotech and biopharm, if you read the report.

If that happens , they are going to use their own equipment before too long.

 

AI is just one of the many tools that can be layered on existing simulation software. I don’t think we will see huge gains from this, at least not short term.

Edited February 11 by Spekulatius

[Dinar]

20 minutes ago, Spekulatius said:

I would be more concerned about the Chinese dominating the discovery phase for biotech and biopharm, if you read the report.

If that happens , they are going to use their own equipment before too long.

 

AI is just one of the many tools that can be layered on existing simulation software. I don’t think we will see huge gains from this, at least not short term.

I read the report, and I agree with you, I thought the Chinese threat was mentioned before while the impact of AI I did not see.  Yes, looks like TMO, Sartorius, et all may be in trouble.  

[rogermunibond]

The Stifel report is talking about big pharma licensing deals for Chinese molecules and compounds.  These Chinese biopharma companies don't have the ability to do US/Europe clinical trials and launch products across the sales platforms that the big pharma folks have.

 

Bioprocessing like TMO, DHR, Sartorius sell to China for their own market, but with licensing deals they'll be producing the new drugs when they get approved in US and Europe.

 

I'm not sure what you both think the threat is?

 

There's more threat currently to US/European biopharma VCs.

[HubbadaPow]

How naive is it to just buy 35 of these cheapest net nets?  

[Dinar]

On 2/11/2025 at 10:43 AM, rogermunibond said:

The Stifel report is talking about big pharma licensing deals for Chinese molecules and compounds.  These Chinese biopharma companies don't have the ability to do US/Europe clinical trials and launch products across the sales platforms that the big pharma folks have.

 

Bioprocessing like TMO, DHR, Sartorius sell to China for their own market, but with licensing deals they'll be producing the new drugs when they get approved in US and Europe.

 

I'm not sure what you both think the threat is?

 

There's more threat currently to US/European biopharma VCs.

Because the Chinese government will require domestic players to use domestic players rather than TMO/DHR et all

[rogermunibond]

@dinar China is still a small % of the bioprocessing exposure for TMO/DHR.  And you can't produce medicines in China and export to OECD without clinical trials in those countries.  Still a long way off imo.

[rogermunibond]

https://www.economist.com/business/2025/02/16/its-not-just-ai-chinas-medicines-are-surprising-the-world-too

[Spekulatius]

On 2/13/2025 at 9:45 AM, rogermunibond said:

@dinar China is still a small % of the bioprocessing exposure for TMO/DHR.  And you can't produce medicines in China and export to OECD without clinical trials in those countries.  Still a long way off imo.

You actually can produce medicines in one country and run clinical trials in another. This happens all the time.

[rogermunibond]

Of course, but if you read the Economist piece or the presentation deck, that's not what's going on Chinese pharma are licensing the compounds or setting up US spincos.

 

They're all aware of the risk of tariffs so want production to be in the market, unless they like the cozy Irish tax arrangements and put US market pharma manufacturing in Ireland as most all of the big pharma are doing.

 

 

Edited Tuesday at 05:59 PM by rogermunibond