Biotech Funk, Slump or Recovery?

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Yaron Werber: I'm your Yaron Weber, senior biotechnology analyst at TD Cowen, and I'm super excited to be joined today by our Arsani William in this episode called "Biotech Funk, Biotech Slump, or Biotech Recovery" to talk about the outlook ahead in biotech. Are we in a funk or are we actually getting better? Arsani is the managing partner Chief Investment Officer of Logos Capital, a global life science investment Fund focus of private and public therapeutic innovation.
Prior to founding Logos, Arsani was an investing professional at Farallon Capital Management. He holds an MD from Harvard Medical School, an MBA from Stanford Graduate School of Business, and a BS with honors in biology from Stanford University. He was recently recognized as one of the top 25 healthcare investors in 2024 by Growth Cap Advisors and is a former Forbes 30 under 30 honoree.
He currently serves on the Board of Design Therapeutics and is a board observer for Odyssey Therapeutics. Arsani thanks so much for joining us. Great to see you. Always appreciate your time and your insights.
Arsani William: Happy to be here.
Yaron Werber: So there's a lot going on in the biotech sector and as I thought about who to have as our next guest, you immediately came to mind not only because you are an esteemed 49ers fan like I am, and we're both sort of recovering the loss, the Super Bowl loss together, but also you really have a terrific vision, strategy and you really sort of mix and match what you're really trafficking in, which I really thought, given what we are in the sector, it's critical to have your views. Tell us a little bit about Logos Capital and sort what's your investment strategy?
Arsani William: Yeah, of course. And Yaron I will say as one of my favorite sell side biotechnology institutional analysts. I will put in a big plug for you for the ayeaye vote for this year. So if folks that are listening in are on my side of the street and have yet to vote, Yaron is definitely kind of at the top of the list for us.
Look, we're part of a privileged community and I would say that's definitely had quite a difficult slog for the last several years. But it's very hard to forget that when you take a step back for a second and think about what we do as investors in this ecosystem, investing in biotech gives us a glimpse into the future of human life. We're all focused a common mission and that's trying to finance and advance these pioneering treatments and support of a better future for medicine tomorrow.
And so that's our mission at Logos. What we're trying to do is really hone in on a rigorous scientific diligence. That means understanding the biology of the disease, that chemistry at drugs, the former group of dynamic properties of how these drugs interact with targets of the disease, and then building on them and layering in sophisticated data models for the clinical triads.
And so we combine finance alongside science to invest in companies that hopefully will advance and transform the future of medicines, especially in the world of therapeutics. And this dual approach that we have enables us to both invest in private and in public markets and really hone in that irrespective of the capital structure or the majority of the company, where have we identified enough evidence whether that's in the preclinical world or the clinical world of what is going to be developing as a new groundbreaking medical innovation.
Yaron Werber: Awesome. And how much of the fund at any one point is sort of public invested versus privately invested?
Arsani William: Yeah, so we have two structures to the fund. So one side of the business we call the Logos Opportunities Funds, and these are about five year locked up vehicles in which we typically invest in private companies or very difficult to trade public companies, what you would normally call illiquid public securities that are accessed through a structure of an insight. The other side of the business is really focused on public markets investing. And so those are typically more mature companies, companies that have produced an ample amount of scientific clinical data that they have a signal that they come in on with a drug and now they're advancing into phase two and phase three clinical studies. And the divide is roughly, I would say about 50-50 in the fund today.
Yaron Werber: And is the fund structured as a hedge fund on the public side or are you sort of, I don't know what you said publicly in terms of your net exposure?
Arsani William: Yeah, so we manage what we would define as a long biased hedge fund. Meaning that we're optimists about the future of being able to solve a lot of human disease. And so we'd rather focus a lot of our resources and efforts into identifying what are the great management teams that can execute on great development prospects in order to bring forward new treatments and medicines to patients as opposed to thinking what is overvalued or what is likely to fail.
That being said, being long biased enables us to express most of our theses, certainly in I would say an affirmation of a company's prospects, but during our due diligence we'll come across a lot of competition of what is vying for market share in a particular disease or a particular part of the ecosystem. And when we do find companies that for a wide variety of reasons simply do not look as promising or in fact quite the opposite, are very much bound to fail due to things that have been identified in their data or in the clinical trial protocol, we can express that thesis as a short. But most of our exposure tends to be long.
Yaron Werber: As you're thinking about started that fund and you obviously were a professional Farallon Capital, also a very esteemed fund also in San Francisco. What led your decision to hey, I need to start my own fund?
Arsani William: Well, that kind of goes back to sort of the origins of why I chose to really study medicine in the first place. When I was an undergraduate student at Stanford, I shot about 40 different emails to a wide variety of Stanford faculty in the School of medicine just asking to do research. And really several got back to me and just by happenstance I ended up in a lab that was tailored and focused on drug development and discovery, and that was Larry Steinman's lab in the Department of Immunology where Larry or Dr. Steinman had been a critical component of a wider team that had developed Tysarbi, which is a leading drug for multiple sclerosis that targets a key antigen in the brain called Alpha 4 Beta 1 integrin.
During my time in that lab, I began to realize what it takes to really turn benchwork into a potential translational therapeutic promise, and that requires intellectual property, it requires corporate formation, it requires working with key advocates and even collaborators from both other labs in academia but also potential pharmaceutical partners. And it certainly requires being able to forecast how we're going to get funding in order to take this project that has shown promising signals in the bench all the way forward.
So after graduating from Stanford and ending up in medical school, despite the fact that my tree has always been to become a surgical oncologist or a cancer surgeon, I still couldn't necessarily let that itch go of wanting to do something in the world of drug development and discovery. So several internships throughout medical school and business school led me to the path where I was very fortunate to join an outstanding team at Farallon Capital build up the expertise, the knowledge, and I would say just the broader network of folks.
And then whenever you get the chance, like we fortunately had to launch a new fund with a great team that's unipolar and focused on just the ecosystem that we exist in, you certainly take it. So we were backed by some amazing institutional LPs. We had a wide variety of folks join us from the get-go, including several of my partners that came from venture capital and have MD-PhD backgrounds and ultimately we started in 2019 and looking forward at our five-year anniversary pretty shortly, we're pretty happy as to where we ended up.
Yaron Werber: Yeah, you've been one of the success stories in the sector, which has really been great to see. And Arsani, when you're thinking about some of the other therapeutic funds, how are you differentiated?
Arsani William: That's a great question. Because there's a lot of investors and a lot of great funds that are out there that are also tailored and focused on this ecosystem. One of the things that we have tried to do since our founding of 2019 is think about how to combine traditional due diligence with both the biology and the pathology of disease. But also with more sophisticated data analytics focused on clinical trials.
So the very basic example that I like to give is that you can have a great drug that checks all the boxes in the preclinical realm. The drug has solid chemistry, is showing very good PK in either mice or on human primates and ultimately has a very wide therapeutic window. You take that into patients where you're dose escalating in a phase one study and then you see a signal and then you begin designing a randomized phase two and phase three study and that's where a lot of good drugs unfortunately end up in the cemetery.
Why? The reason is that there's a lot of variability in disease, there's a lot of heterogeneity in underlying patient populations, and there's a lot of different ways that we look at clinical statistics in order to demarcate whether something is statistically significant or if it has failed to more or less meet that threshold. And what we've done is we've created a wide variety of analytics models that help us more or less begin to bridge and collapse what that variability is in clinical studies and just hone in on the signal. And if we identify that companies in their clinical protocols are doing the exact same thing that we're doing in the background, usually that gives us a little bit more of a green light to make the investment.
And so it's this combination of a data science framework focused on clinical trial predictions alongside the standard and traditional approach of looking at biology and disease pathology that really helps hone in on what is going to be the ultimate outcome of investing in a drug and not just a very interesting or intriguing science project.
Yaron Werber: Is your sort of informatics based on the decrement so to speak, between phase two and phase three? Is it based on the sort of, as you said, the confidence interval variability in response rates or whatever it might be? Or is it also based on stats?
Arsani William: Yeah, I'd say if we take a step back, data and big data is just becoming an increasingly important element in many investment processes and quite frankly, data in and of itself is becoming a commodity. So what we hope to achieve is can we take data sets that have been presented in past of either drugs that have been similar to what is our current area of focus and then build simulations upon all of that data in order to hone in on the probability that a current clinical study is going to be successful or if it's likely to fail?
One of the big things that we do is we run thresholds for failure or similar as you would take a standard public markets portfolio and look to stress test exactly what the portfolio volatility is likely to produce in various macroeconomic circumstances. We stress test different types of assumptions. Things like enrollment criteria, specific events, hazard ratios that may ultimately swing the vote in terms of trial failure or trial success.
And these multimodal approaches, as we have continued I would say evolving our practice and really building upon this data science repertoire has enabled us to look at things like Bayesian simulations, doing a lot of cross comparisons on what are the diseases where PK and PD translate well versus others that do not? And then ultimately looking at underlying patient population variability in addition to endpoint variability.
So to give you just a quick example on the last one. If I'm a cancer patient that's enrolled in a phase two or phase three study, ultimately I'm going to be measured by one of two different things. Have I responded to the treatment which is typically more or less a CT metric that looks at volumetric tumor increases or reductions? Or am I living longer? Whereas if you look at an orphan disease, one where you don't really have imaging as a quantifiable endpoint, we're going to have to do things in a lot more of a qualitative manner. How much are you able to rise faster? Are you walking a little bit longer? Are you able to move your hand and display motion in a different way that you would've otherwise not been able to without the drug?
Unfortunately, one of those parameters are good indicators of whether a drug works or not. One can more or less draw the conclusion that they're also much more highly susceptible to variability. Depending on if I drink a cup of coffee or had a milkshake that morning or had eight hours versus four hours of sleep, I may perform differently on the exam date than I otherwise would have. So how do you begin to tease out what is noise versus what is signal? And a lot of what we try to impute in these models does just that.
Yaron Werber: That's really terrific. And I got to tell you, one of the things we've been doing a lot is looking at stats for different studies, and when you do all these stats simulation at the end, these simulations never spit out an answer that the study's got a 72.7% of working, but rather it gives you the framework for which to think, and then you to have to apply your own sort of expectations set into that. That's always good. It gives you a matrix to fly your plane by into the stars type thing. But more often than not, it lands you in the right place, and to your point, it's a dispersion in the data that's oftentimes is the hardest to predict, which is exactly what you're really hitting on.
Arsani William: Yeah, I completely agree with that. When something is muddy or it's unclear, many times it either becomes underfollowed or neglected just because there's so many other interesting and clear data sets to invest behind and look at. But on the other side, it also becomes very underpriced and presents a great opportunity. So one of the things that we've begun to think about is how do we screen for everything that the market has very much discounted to where there's certainly one, two, maybe three fuzzy things in a data set to where we can begin to understand why that exists and ultimately develop either an archetype or a framework to dissect out the underpinnings of why there is some haziness.
From that, hopefully what we can do is combine it with our analysis, and if everything on the biology and the chemistry and the disease is more or less lining up with ultimately a decent probability of succession, minor changes be made in the next clinical study, that usually presents a much more asymmetric opportunity for upside than something where the entire market is looking at something very pristine and has fully priced in what the commercial value of that drug is likely to be.
Yaron Werber: That's terrific. So as you're thinking about fundraising, what's the secret to raising capital for a new fund? And also we just did an event for allocators, which to me personally I don't normally interact with allocators, so it was kind of mind blowing to get access to a very different asset class and how they think about allocating capital to the sector and different funds. What's the credit sensitivity from allocators to investing in biotech?
Arsani William: Yeah, that's a good question and I think it's certainly changed during the pandemic versus three to four years in what we would define as a biotech slump or just simply an ecosystem in a sector that hasn't performed in line with the broader market. I'd say raising capital right now in this current environment can certainly be tough, but there's a few key strategies that can really make a difference and we've certainly, I would say, have come to experience that in the last year where we were raising our fourth Logos Opportunity Fund and we'll likely announce the close of that just in a few days.
I'd say three things are pretty important. One is in today's world more than anything, having a clear compelling value proposition is pretty critical. A lot of LPs and investors today want to understand not only just the financial return of the product that you're offering, but also the broader impact of where those investment dollars are really going into. So highlighting why our capital is really holding in an investing behind key scientific and clinical impacts of therapies that ultimately buy our support will make a dramatic shift or a change for society overall I think is important. So first thing, demonstrating that what we do is important and actually has a net beneficial outcome to society and it's not just interesting science for the sake of financial return.
The second thing I'd say is that we at this point in time as a team have had a decently strong and proven track record, and we've done this irrespective of I'd say market downturns of which the last three to four years have arguably been some of the most volatile and certainly violent in regards to downward trending, just biotechnology valuations. But in addition, the integration and the chemistry and culture of the team is really important. A lot of scientists and a lot of investors can express deep expertise in medical research and understanding clinical trials and even others in data analytics. But the ability to merge all three in a cohesive and dynamic team really I would say speaks very well to LPs when they see how the team is structured in the culture that we have.
And the final thing is transparency and regular communication with investors about progress in the funds. I found that sometimes it's more important to discuss why things have gone wrong or didn't go as predicted and how we responded in those circumstances rather than just highlighting our successes. It not only demonstrates character because inevitably different challenges will arise that you have it suspected, but it also shows how you are able to course through and respond to challenging moments and use those to catapult you down the line into learnings that can be applied when they inevitably arise again.
I'd say today if we look at the sector overall, the receptivity from allocators is optimistic, but it's also cautious. And that doesn't have to do with the amazing innovation and products that are being developed actively in the biotech community. I would say it more has to do with just the challenging economic uncertainties that have loomed for quite some time, the impact of interest rates on non cashflow producing infrastructure companies like the biotechnology sector, and also that there are other great alternatives to investing that certainly are not as volatile.
Case in point, I think this webcast is coming a couple of days right after Nvidia just achieved the golden crown of hitting the number one market capitalized company in the world in a relatively short period time. And so when you have major themes and movements in the market like AI, certainly what we have found is that investment dollars tend to chase that for better or for worse.
Yaron Werber: And tech usually is where capital comes into biotech and we're still in a large cap centric tech environment and until that really flows into smaller cap tech, one of my initial telltale signs that it's not coming into biotech. So are we in the biotech funk? Are we in the biotech slump as you said, or are we in early recovery?
Arsani William: So I think if you would've asked me this question last year and the year before and the year before that, I likely would've said the same thing. So anything I say on this, kind of take it with a grain of salt because we're certainly not market forecasters or predictors. We simply try to identify what are the best assets and with patience in a long-term investment horizon, can we continue funding these companies towards successful milestone or potential therapy?
But let's kind of take a step back and think about that question. My personal opinion is that we've certainly seen a slow down, and recent trends I would say are beginning to indicate what could be a sustained recovery. First and foremost, I would say a lot of companies have cut R&D spend. We've seen capital markets slow down, so the new issuance of IPOs has certainly not come to a screeching world but has slowed down versus other prior years.
Yet at the same time, we're beginning to concentrate and consolidate investor capital behind those very companies that have great management teams, that have great executional prowess and that ultimately have assets with late stage data that will more likely pump therapies and drugs that are ultimately in one day approved. So we're navigating and we're navigating this transitional period and hopefully what happens is that we can work stronger as both an investment community and also I would say a broader ecosystem and sector.
The one really important thing to think about at this point in time is that biotechnology tends to go through cycles, it goes through innovation cycles, it goes through macro cycles that are pinned to interest rates. It goes through M&A cycles, and ultimately we're at a point in time where it seems like the secular underpinnings are converging towards major tailwinds while everything else is just apparently a headwind.
So for example, we know that M&A in the biotech sector is an outsized source of returns for both investors, but also for the entrepreneurs who take on the difficult task of being able to launch a company and then launch a new therapeutic project. Pharma today has a greater need that at any time in the past 20 years to secure new assets for revenue growth because they're facing challenges in major patent clips by 2030. But they're also facing major challenges coming from the Inflation Reduction Act, which is cutting more or less the ability to price a drug at P pricing versus what they otherwise could have. We know that pharma R&D over the last 10 years have returned a net 4% on ROIC. So where is pharma going to actively go in order to prosecute and get new projects? They have to look to the biotechnology ecosystem.
So we're certainly at prices where biotech companies are listing today and at the cash levels that pharma is sitting at expecting a convergence of bid and ask prices so that there should be more M&A that moves forward over the next several years, especially in the mid to late stage asset pool.
The second thing is that interest rates certainly are exhibiting a pronounced inverse correlation to where the sector traits. And we know that this theme of higher for longer has now been entrenched in market psychology, but it's not going to be higher forever. At some point in time, the interest rate cycle breaks, we begin to see rate cuts and that will likely have a shift in terms of where investor capital in the markets is moving towards from very high cashflow, de-risked defensive assets ultimately into a little bit more risky asset classes just like that of biotech. And what we know is that given the liquidity of the sector, any capital shifts of that sort can have a much more pronounced effect as to where asset prices lie.
And then the last thing that's looking very positive I would say for the sector is we came off a period of time where series A and series B finance sites and venture capital fundraising were at all time highs in 2020 and 2021. We created more companies over the course of those two years than any other five year stretch in the history of the sector. And there's a lot of digestion that has to now be dealt with as we go through a lot of me toos and copycat companies that may not be that differentiated in regards to the strategy or the underlying asset, but they're all focused on one target.
Case in point, I've lost track of how many CD19 and CD20 CAR-T cell therapy companies have created. And certainly every management team will tell you, "Well, we've got this bell and whistle versus our competitor," but at some point in time we begin breaking down that market to where the NPB can't be positive for any single company. So as we continue working through that enormous pipeline of early stage venture funded companies, I do think that the sector is beginning to transition into a much healthier and hopefully more sustained state for the next three to five years.
Yaron Werber: So I totally agree with all of that and I would say we are, I don't think we are in a biotech slump. I think we're in a little bit of a funk. I have to admit I'm not a hundred percent convinced that I understand what the difference is from a biotech funk and a slump. So going to put them in the same bucket. Slump just feels like it's more structural and sustainable, funk just means it's down and out. So we're more in a funky area.
But it also very much reminds us of the '03 to '06 timeframe where the market was still sort of recovering from the crash of the genomic bubble. There were a lot of biotech companies at the time, those business models weren't sustainable doing things that are genomically related. That technology was still 15 years too early, so to speak. It needed to mature. And we're seeing very much sort of a mixed signal that the sector is underperformed in the last three years on an absolute basis point, the NASDAQ and the S&P between 50 and 80% in three years.
You could see why generalists are sort of on the sidelines. At a near term momentum, the RSI right now, the relative strength index is sort of in the middle. So we're not oversold or overbought. The good news is fund flows after being completely structurally negative last year have stabilized. So we're back to at least neutral territories. We are seeing a lot of deal value, much more than last year, and that's sort of a little bit of a leading correlator, but so you want to see a lot of deals, but they're not trading necessarily all that well.
And what we really track is obviously you're not going to have a ton of IPOs since the peak of 2021, but you want to see follow-ons and you want to see follow-ons performing well, because the companies that are raising money in the equity market, as we all know, are usually the go-to companies that have good fundamentals and you want to see those deals trading well. But they are sort of around neutral right now, and we are seeing a lot of M&A even on a year-over-year basis.
We're actually outpacing last year, which is one of the best years on a volume basis. But the total value is actually down. And the reason for that is obviously the whole overhang on the Federal Trade Commission into the election, and no big buyer wants to do a big deal. They just need to understand what's going to happen on the federal trade side.
And I could tell you also, we run a thermometers every quarter reporter and we're seeing a better interesting deals, which is what you want to see. But we're also seeing a total capitulation three months ago on sentiment, which is exactly what you want to see is a good leading indicator. And that's usually a very sensitive barometer when the sector bottoms out. So it's not going to tell you where it's going to go structurally for three years, but it's going to tell you where it's going to go near term.
I think we're beginning to get through the funk. We totally agree that it's interest rate driven, and so that's really what's going to drive things. But thereafter, we could argue we're in an early recovery. We're not going into another bull market. We just don't have the fundamentals right now. But what I want to ask you is the sector is also a lot more thematically based than when we started 20 years ago, 24 years ago. There's a lot more themes now. There's a lot more companies that are in the same bucket. Last time it was the fast follower, best in class oncology player. Now it's the I&I player. There's the CAR-T for AID for INI kind of play. There is the new prime editing and RNA rewriting.
There's a lot of themes now emerging. We also mentioned even the third generation CAR-T for hematology, right? You're beginning to see a lot of bispecific, maybe even trispecific working in solid tumors and even CAR-T for solid tumors now. So I guess my question to you is, to you, what are some of the leading indicators for a real recovery?
Arsani William: I agree with everything by the way that you just said Yaron. And when we discuss with our LPs about different signals in the market that will tell us in what part are we early or mid, are we late stage in the biotech cycle, and do we have any indicators kind of like what you were saying on sentiment gauge that could indicate a reversal from the current trajectory?
There's a couple of things that we'd look at. So one of the things that I would say at the bottom of this very large XBI or biotechnology dislocation that we were paying close attention to was the number of companies that were trading at either one times or two times their cash level. And what we found is that at the very bottom, literally 40% of the entire sector was trading below cash. And that was a figure that exceeded the prior cycle troughs that we had seen from 2015 and '16 and even exceeded that of 2000 and 2001.
The second thing we take a look at is what is the market cap to catch for the median unprofitable biotech company? And what that typically tells us is how much are investors willing to give equity value to these companies in regards to what they're producing versus how much of just the trading value that you'll typically see on the Bloomberg screen is simply just the cash level. That certainly the company will continue burning as they try to hit clinical milestones and develop a drug and make it all the way through the different phases of development.
What we've seen at the end, I would say maybe even before Q4 of last year, where we saw a major M&A boom was that the drawdown figures for the percent of companies trading at two times in one-time cash and that of the market cap to cash for the median or profitable company exceeded everything we'd seen before, including that of March during COVID when the entire market had capitulated.
And that gave us a pretty good indicator that things were pretty much washed out at that point in time. A lot of these companies that had great management teams that had a lot of cash that they had raised from the prior cycle certainly could continue developing really innovative projects with high probabilities of success, great pipeline shots on goal, and all you had to do is have a longer term investment horizon than just looking forward to three months or six months of pain that was getting the experience at that point in time. So different types of financial indicators that are sector specific like that typically give us a good notion of whether we believe the tide is likely to turn or it's likely to stay the same.
In terms of the diversification across different therapeutic areas that we're talking about, certainly different thematic areas I would say have different levels. So for example, the FDA can be more stringent or lenient depending on which division is reviewing a drug application prospect. We know that the division of cardiorenal at the FDA is certainly going to be a lot more stringent in their application of statistical analysis than the division that is looking at cell and gene therapies. Why is that the case? Well, certainly, I don't know. That is an assumption of mine, but I would assume it based to be on the need and the overall populations of treatment in the end.
Project optimists from the FDA, which really hones in on why are we giving this dose of drug in a phase two or phase three clinical study and have we looked at a wide variety of different doses that can be applied for a similar pharmacodynamic effect went into place several years ago, and that has forced companies to very much rethink how they do dose escalation studies. Confirmatory studies versus FDA, I would say approvals on circuit and berg accelerated approvals.
All of these things can play into why investors choose to focus in on one area versus another. But all amount to the exact same thing: is my path from a clinical development stage asset all the way to a fully commercial approved product, is it more or less de-risked based upon a lot of various things that are happening? If in one area or one category, we know that clinical trial success rates are higher, we know that the Inflation Reduction Act pricing pressures impact it less. We know that the FTC is unlikely to prosecute on a potential merger because there's not a lot of product overlaps in pharma, or we believe at FDA stringency versus leniency in one area or another. That can have a dramatic impact on where influx typically go.
What we try to do at Logos I would say is focus on those things certainly, but we try to identify where has the medical community really sought an answer for a given disease or a given pathway except for a company where we believe a novel framework and a novel therapeutic developmental candidate or asset is certainly going to propel us in a different direction.
That's where things become very interesting because what we have identified when we look at our performance, and we look at just sector-wide performance, companies that are not me toos, companies that simply are not copycats, that are actually producing what is going to be the frontier of medicine and making shifts as of first in class and the best in class profile, those are the companies where the vast majority of the overall sector return is going to move towards.
Everything else certainly will add to the repertoire of learning and understanding as we move forward as a medical community and begin to realize why things have worked versus have not. But it is those companies that are typically the first movers and a large indication, those are the ones that not only succeed but garner the vast majority of the return out of public market biotech.
Yaron Werber: You're very involved in the private side of companies and you sit on boards. Are managements and boards rational about the new reality in terms of their valuation? Are they willing to take down rounds? Are they making the tough decisions now in cutting programs and cutting their burn?
Arsani William: I would say the answer to that is yes, and it's certainly changed. Because in 2020 and '21, I'd say the focus was just on strong science, innovation and technology. You could raise a massively oversubscribed route by more or less with a presentation speaking to the core science and tech, talking about how your framework or what you were advancing was going to be robust and innovative, and you attracted a wide variety of investors outside of the biotech community who held and believed in this promise that everything could replicate what Moderna and BioNTech had done, which of course we know is striking lightning in a bottle. Not only just right place, right time, but right place, right time, right technology, right people, right development stage, et cetera.
So I think we've seen a few things from management teams today on the private side that keep us actually quite optimistic as to how private portfolio investments will fare over the next several years. What has a lot of management teams have done strategic milestone planning. So they're developing a clearer roadmap of well-defined milestones, and what they plan to do in terms of either financing, building credibility with investors and stakeholders or working with collaborators like pharmaceutical companies with those milestones ultimately read out. So that's one.
The second that you had mentioned is really R&D resource efficiency. They've been a lot more prudent with resource allocation, prioritizing projects that have the highest potential for success and allocating resources accordingly to avoid overextending not only just the teams, but also just the capital, because that capital we need to last them for a lot longer.
And then the final thing I'd say is really just transparency. We've had a lot more interactive conversations as investors in a lot of our private portfolios, helping them mold and define the strategy moving forward because they are now reliant on not only how they used to see the world as scientists and entrepreneurs, but they must be educated in terms of how capital markets are functioning and beginning to foster trust. And I would say great transparency with a larger and more broader investor base in the ecosystem for when your next capital raise is likely to happen.
So I do think that they've certainly buckled down. That was a lot of 2022 and 2023, and those principles that have been put in play at that time are certainly carrying forward throughout the course of this year.
Yaron Werber: And then as you're thinking about, because you have that not so prevalent inside view, so to speak, what I mean by that you sit on boards, you're a strategic investor and companies and adviser to them. As you're thinking about what the biotech community and the investor community does well and what things as a community it doesn't do well, what comes to mind?
Arsani William: I'd say as a community, what we do well is due diligence. The community is the best that I've seen among everywhere that I've traveled in the world in terms of evaluating scientific validity, looking at clinical trial designs and understanding the market potential. And I do believe in the theory of market deficiency in that while certainly not every investment is going to work out, investors as an aggregate within this community tend to actually move towards the things that are very much likely to succeed, and they do succeed because those investors have moved towards them. So it's almost a symbiotic relationship.
I also think that a lot of investors having seen the last three to four years as difficult as they are, have been forced to take a much longer term perspective, recognizing that biotech development takes years, not months, not a year, but years for something to come fully into fruition.
And then ultimately that it's not just about the science or the innovative approach in order to develop a breakthrough therapy, that there is a lot of significant emphasis that must be put on management teams, on execution development plan, and focusing on the right capital structure for a company. And so I think as a community, having gone through the last three to four years, we have certainly come out for the better and hopefully when the next speculative market arises in the next decade or two decades, we'll still kind of harness the lessons from this past cycle and apply them, I would say, with a greater appreciation towards what we are doing as opposed to the high risk market chasing that we saw happen several years ago.
In terms of what we're not doing super well. I think when markets become very volatile, there happens to be this immediate shift toward risk aversion, and there's a tendency to shy away from early stage biotechs due to perceived higher risks and a potential to shy away from actual groundbreaking therapeutic innovations because it may not be working from a stock pricing action. Counterintuitively, it's actually probably the best time to buy into those companies because the price asymmetry when things in the market do turn or when the company does produce data, have a much more higher likelihood of producing a larger return than kind of your standard, very safe commercial name that's trading currently on the biotech public market.
So that's one is that there's this sudden move towards risk aversion as opposed to really thinking through on a case by case scenario as to how to build a diversified portfolio that certainly isn't everything on the risk spectrum, but does actually have companies that could produce an outstanding reward in the end in terms of a return stream should the science actually work out.
And the second is during volatile markets, I do think that there is a pressure on investors to have management teams deliver immediate results, and that can be detrimental towards longer term success. And this focus and this pressure that is very heavily applied on just trying to produce and squeeze out short-term gains leads to decisions being made in terms of allocating dollars to companies or in terms of discussions with companies that may not actually be the most beneficial for either patient, so ultimately for the portfolio in the very end.
So I think if we had to do something in order to improve those key characteristics, certainly understanding a good balance between short-term versus a long-term focus, and then, we don't have to completely swaying towards zero risk tolerance and complete risk aversion. I do think that there's a good balance there to be kept as well.
Yaron Werber: Yeah. So let's move to my favorite part of the podcast where it's a little bit of a personal touch and humor and you really get to know the guests. What is your dream adventure on vacation?
Arsani William: Oh man. So many places. I want to go travel the world and see. My ideal vacation is something that is all about exploration and adventure, maybe kind of mixed in with a little bit of relaxation. So I've always wanted to go to Patagonia and very much explore that entire landscape and hopefully I'll get to do that in the next couple years. And another place with natural beauty that I've always wanted to go and experience the rich cultural history of New Zealand. So Yaron, if you want to join me for a few weeks or a month long backpacking trip, either of those adventures, I'd be thrilled.
Yaron Werber: And so we did Patagonia two years ago, and it was with obviously my family and the kids were a little smaller, and another family where their kids were smaller. So we saw a lot of it. There's also Atacama when you do the desert, it's the driest place in the world. It looks like the moon, literally. It's where they tested the moon rovers. And so hiking in the desert in my opinion is not easy. If you look at the Appalachian Trail, it's actually considered the hardest trail. The east coast, it's actually 500, 400-500 miles less in the Pacific Crest Trails but the PCT was an equestrian trail, so it doesn't have the crazy elevation, and you're really kind of not going through every peak. The AT is a lot harder. I'm doing parts of it now, but the PCT has got 700 miles of desert.
Arsani William: That's unbelievable.
Yaron Werber: Yeah, that's tough.
Arsani William: Would you say that your favorite landscape is the forest, the mountains, the beach, or the desert?
Yaron Werber: I would say the mountains. The forest get, they're amazing, but they get monotonous hiking through them. Whereas mountains are variable. The beach is great, but you don't want to be hiking on the beaches, know what I mean? I love beach vacations, but we never do them. It gets a little...
Arsani William: There's pristine beaches that walking just down the sand and just looking at them at their horizon is an absolute, it's just a site to be seen. But on in terms of adventure, certainly the mountains. And then for me, I would say I do like the forest. I like the forest. I haven't hiked a lot in the desert, but I've spent a decent amount of time in the desert. And I will tell you, I probably can bear a lot more cold than I can a lot more heat. Once it's 120 and you just feel the weight of the sun kind of just running on your shoulders.
Yaron Werber: There's no escape from that. When it's cold, there is no escape. I remember when I was right after college, right before med school, I was in the Sinai Desert in the peninsula, and it was already Egyptian obviously, and there were places to go sleep on the beach. And these little shacks, I mean there were Bedouins, literally in the middle of nowhere, and there was literally just shacks and the Bedouins would cook food for you. They would slaughter them in the morning and there's camels roaming everywhere. Wake up like 5:00 AM because the sun's beating down the camel's eating the top of your little, it might even a pen. It's just like this little tiny structure with palm sort of leaves on the top, and there's mosques everywhere, calling everybody to go to pray. And this is how you wake up at 5:00 AM.
Arsani William: Oh, that's-
Yaron Werber: Nowhere.
Arsani William: I had a similar experience in Wadi Rum when we went to visit Petra. And have you ever been there by any chance?
Yaron Werber: I have not been to Petra. I'm planning to go, but I haven't been there.
Arsani William: Okay. I would highly suggest it. They actually do, and they do these adventures to where you can go at night where it's all candlelit. And so it's jaw dropping, for example, in regards to what the people that lived back in the day were able to carve and build in regards to these entire cities in this mountain. But when you hike the cannons, there are many times where they give you mules because the hike is so steep, and so you're riding a mule at the edge of the staircase. And then the irony is that there's a 10 or 12-year-old boy basically just there that's kind of guiding you and walking alongside.
But I will say that that is one of the iconic vacations that I've been at where it's highlighted by very cool immersion in terms of just what that culture and society look like. Also with just a very fun time out in the desert with wine.
Yaron Werber: In Petra, tell us about this, but what I think is so underappreciated is their intricate water system and water holding systems that they built in there. I mean it is remarkable.
Arsani William: Yeah, yeah, it is. It's like these rock cut channels and underground water pikes basically that would carry them from springs and seasonal streams. And then the group at Petra, which I believe they called the Nabataens, they used to then collect and store of water in these water type holes and cisterns. And you can find basically when you go all of these kind of underground areas of how they basically built it because water was hard to get by.
The belief is that this group of people actually had a pretty strong grasp of hydraulic systems of how to move water with pressure and this advanced knowledge of these how to more or less pump water upstream or how to basically think about flow rates enabled the city to thrive. And so they recurve these channels into these canyon walls and it is a pretty intricate actually water based system. Certainly they knew a lot more than I know about the plumbing in my house. So probably something I'll go and read about after we kind of finish.
Yaron Werber: It's a black box deal, so I'll go to New Zealand with you in short.
Arsani William: All right, done. We'll plan it.
Yaron Werber: What's the hardest thing you had to overcome in your life and what got you through it?
Arsani William: It's a question. I'd say, I don't know if this is even just exclusive or specific to me, but I certainly, as I'm getting older, have started seeing more of this in my life. Even just from family, friends and folks that have reached out. I think the hardest thing to overcome is the loss of a family member and the emotional tool that takes and how it can turn one world upside down. And thankfully I have a very healthy, and well off family. But people in my extended family and even very, very close family members and friends who have been diagnosed with an illness have certainly, I would say, experienced that and as a member of their community and as a member and a close loved one, it has certainly affected me as well.
During those times, one of the things that I have learned is, A, you just have to find support from loved ones and take the support whenever it's very much offered. I have a very strong sense of faith and that provided me at least with a sense of peace an, I would say soulness during those difficult times. And I think dedicating oneself to focusing on the positives of anything as challenging as that may be during those times at least helps channel some of those emotions into something more constructive. So look, it is a product of life. We will all face it at one point in time, whether it's a family member, a parent, a loved one. But I do think that it's something that brings us together in a human experience.
The last plug that I'll say on that is also having been in the seat that I am, we do get to meet several patients and folks within our intimate networks who do require either to go on clinical trials or who need help because they've run out of options for therapies. And because that has happened to me personally several times over the last year, I have begun to have a much greater appreciation for the hope and the promise that what we do day in and day out is actually having in terms of a profound impact in the lives of people who may not have a lot more hope.
And so hopefully this sector and our ecosystem and all our investor colleagues continue to do well and companies begin spurring out new and innovative medicines because certainly when one is diagnosed with a disease or an illness that is catastrophic or terminal, everything else in regards to your worries becomes secondary and that becomes the sole and primary focus and that's what we're focused on as a community.
Yaron Werber: It's a great way to wrap it together. Arsani, always great seeing you, man. Thanks so much for joining us. We appreciate it.
Arsani William: Do your own. Good luck on the ayeaye vote. You got mines.
Speaker 1: Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.

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