Chit Chat Stocks - Verve Therapeutics (VERV) with Maxx Chatsko

Episode Date: September 30, 2021

Verve Therapeutics develops gene-editing medicines for patients to treat cardiovascular diseases. Generally, biopharma companies are very difficult to understand, but today our guest makes the complex seem simple. Maxx brings his expert knowledge of Verve Therapeutics for a great discussion regarding the history and future of the company. Enjoy the show! Our Thursday Deep Dives are sponsored by Quartr, the new way of doing company research. Access conference calls, presentations, transcripts, and more for FREE on your mobile device. Download Quartr on the App Store here: https://apps.apple.com/us/app/quartr-investor-relations/id1552412128  Download Quartr on the Google Play Store here: https://play.google.com/store/apps/details?id=se.quartr.android  Subscribe to 7investing with the code "CCM": https://7investing.com/subscribe/aff/4/ Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney Interested in more of Maxx's work? Follow him on Twitter: https://twitter.com/7MaxxChatsko?s=20 Rather watch us on video? Subscribe to our YouTube channel: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ  Contact us: [e-mail]  Timestamps Verve Therapeutics | (4:27) Management & more | (26:50) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. This is our Thursday deep dive show. Today we have on our friend and recurring guest, Max Chatzko. He did this with a quick turnaround time, actually. It shows his true expertise in the biotech field. I mean, what, decade of research compound? Yeah. I reached out to him because I knew he would have all this stuff kind of top of mind. And so the company we talked about was Virth Therapeutics, which was right up his alley. And you're going to figure out just how much he knows about the industry, but he also does a really good job explaining kind of the actual business side as well. If you're interested in gene editing, I know we get into the different

definitions and he'll explain it better in the interview. But if you're interested in that high risk, high reward stuff, you know, this kind of new field, this is a company that may not have revenue until like 2030, but it's still interesting to learn about. And that's up your alley. This will be a must listen uh but before we get to the interview we want to talk about our friends uh at quarter our sponsor i've actually been i'm nearly a dau now almost a daily active user i if i especially come earning season i'm sure they're going to be a seasonal business because you know it's it's an earning season hit uh but if you don't know what it is it's basically an investor relations app uh all in one you can listen to conference calls from all your favorite

companies uh it's it's basically you've got conference calls you've got audio not audio presentations investor presentations you can listen to it at two times speed you can skip to the q a there's a whole bunch of easy just intuitive features that really help and they have more stuff coming down the line this app has just launched within the last year or so and it wasn't even early 2021 so they have you know they've announced that they're going to have a ton of things coming down the line in future years so the app is going to get better and better over time so if you look at it now it's a little you know it's not like some super robust thing but that's going to just get better and better and better and the core thing to use it for at least right

in its current form is for those um conference calls and they let you skip to you know right to the q a go faster i like to do 1.2x speed on conference calls because they do tend to be slower uh right you know they uh sometimes they can bore you to death and if you get up to 1.2x speed it can really help you know well speed up the process over here but yeah go ahead check them out it's 100 free you can download them on ios and android they have companies from uh all over the world and you can also follow them on twitter at quarter underscore app q u a r t r underscore app uh so go ahead and check them out without further ado let's get to the interview Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview

industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or recommendation. Now, please enjoy this episode. All right. Today, we are welcomed by, I think this is either third or fourth time guest now, Max Chatzko. He's a lead advisor for 7investing, our friends. This is a good chance to do our shameless plug. Go ahead and use our code CCM if you're signing up for 7investing. But Max,

how have you been? How have things been? I think it's been, I don't know, I want to say two months since we last spoke more than that it was the spring yeah spring yeah man uh thanks for having me back um all is well in pittsburgh but uh starting it colder here i have to turn my heat on soon i'm not liking that yeah we're going to talk about another uh company verve therapeutics another one i think last time we talked about a complicated company or i forget we may have done utilities but either way this is going to be a company that a lot of generalists like us I guess may have had trouble understanding and hopefully you'll clear some stuff up and learn about what,

what would you describe this company as a biotech company or. Yeah. So this is a, a drug developer, a biopharmaceutical company. And it's working on a new technology called a base editing. Oh, sorry. I was going to say like, how did you come across this? It seems like I never find these companies. So I'm curious how you found it. Yeah. So I've talked before about the frameworks I use when I'm trying to find companies I want to invest in, or maybe something I want to recommend at 7investing. And part of that,

one of those frameworks is looking at the competitive landscape. So there's a company I'm interested in. I want to understand how does it fit in? Is it competitive? What are the advantages and disadvantages? How does it stack up against some of its peers? So when you're doing that, though, that includes looking at both publicly traded companies and privately held companies. So inevitably, Verve Therapeutics came up in a couple of those different screens when I was looking at the competitive landscape. So I've been following this since it was founded as a startup, and it's got an interesting approach to how it's building out its pipeline. Yeah. And what is Verve Therapeutics?

What problem are they trying to solve? And I guess, in what way? Because from what we were reading it's in a very they're trying to solve whatever this problem is in a different way than everyone else yeah so verb therapeutics is a crisper base editing company uh so we've heard of gene editing right with crisper gene editing um and then base editing is just kind of like the second generation version of those tools um so the company's specifically using base editing tools or developing these um to develop drug candidates for cardiovascular diseases and that's really it's what it's focusing on pretty much a hundred percent right now. Uh, and it's just going to go after certain genes that are involved in, in some of these diseases or cardiovascular risk factors,

um, and try to develop treatments for that, that are highly effective and safe and durable, meaning maybe you only need to get treated once in your life. And then, uh, hopefully that the durability of the effects can last for many years, maybe a decade, maybe your whole lifetime. Um, So, you know, if we talk about, you know, first generation base, or I'm sorry, so we use gene editing and CRISPR kind of interchangeably, right? We often kind of only think of CRISPR with gene editing, but that's not really true. So gene editing and the first generation approaches you brought up when we were talking backstage earlier, you know, the scissors, right? So, first-generation tools are a little sloppier because they go in and they cut DNA in half. We call that a double-stranded break.

And that's at the core of how these tools work for the first-gen tools. And that's actually one of the most traumatic events in all of biology. I mean, when you guys go to the dentist and you get an x-ray, they make you put on a lead vest, right? And that's because there's certain ill effects from radiation, where UV light causes double-stranded breaks. Radiation causes double-stranded breaks. you know ingesting certain things can cause double-stranded breaks so those things can

eventually if they accumulate over your lifetime or sometimes all it takes is one double-stranded break in one cell and you can go on to develop cancer so there's a pretty big long-term risk to making double-stranded breaks so those first-gen tools kind of have this like looming uncertainty hanging over them so the companies that are using those right now in within the CRISPR, you know, field are, you know, CRISPR therapeutics and teleotherapeutics, editas medicine, graphite bio, caribou biosciences. They're all using the first-gen tools. And then, you know, scientists said, well, they knew this when they were developing them. And they said, that would be really nice if we didn't have to make a double-stranded break in the DNA

when we're trying to fix some of these genes or give people some protection from diseases. So, they developed these second-generation tools, which are base editors. Base editors are kind of similar, except that they don't make that double-stranded break. So there's a lot of diseases that maybe, you know, in the genetic alphabet, there's A, T, C, and G, right? A lot of diseases, maybe an A should be a G instead. So base editing goes in, it doesn't actually make a double-stranded cut to the DNA, but it can convert that A to a G. So fixing that mutation, or it can change an A to a G or one letter to a different letter. And just that one little change could disable the gene so you're essentially knocking out its function and that could provide a protective

benefit for certain diseases so it's a much more precise than some of the first gen tools theoretically um and you're not making that double-stranded break so you're completely removing uh that that big looming uncertainty of hey you know these might look great in clinical trials but what happens three years later or five years later ten years later are a lot of these patients maybe going to develop cancer um and of course because these are permanent treatments there's no undo button. You can't stop giving people treatment after you've given them a gene editor or a base editor. So it might be a much bigger factor in the minds of the FDA or regulators or even doctors and patients if any of these treatments are approved. So base editing has

some interesting advantages as a second generation way to maybe, you know, alter the function of genes. And that's the pencil and eraser approach as opposed to the scissors. Yes. And it's verb is the pencil, just to be clear. Exactly. Yeah. So the first gen tools would be scissors. They're just going in and cutting, coming in like a wrecking ball, right? Miley Cyrus and the whole DNA is cut in half. That's probably not good. That's actually, I avoid all those first gen companies. I don't own any of them because I kind of do see it as like almost an existential risk. If it all it takes is one of those companies that have data that show maybe, you know, some of these patients might have a

much higher risk of cancer or significantly higher. However, the FDA wants to define that. And there could be a clinical hold on all of those tools. So, you know, to me, that's kind of a deal breaker for the companies I want to own. Yeah. Base setting would be more like a pencil eraser. It's a little more finesse. It's, it's much more precise. Okay. And what for Verve specifically, you mentioned the cardiovascular stuff. Can you go maybe a little deeper on how they're trying to solve that problem? Why, like, you know, how, how it's used? I think they mentioned something about mRNA, and I think people are familiar with that now. How would the process theoretically work within a human to solve the problem?

Right. So in biology, we say this is the central dogma of biology is DNA makes RNA makes proteins. So DNA and RNA are actually the root causes of disease and health, but they both encode for proteins. And proteins are the drivers of health and disease. um so in cardiovascular diseases there's certain genes that play a role in uh lipid metabolism so things like cholesterol right to use general terms um so if you have high cholesterol there's genes that are at play in terms of how they uh they make those proteins that eventually go and mop up the cholesterol right uh from your body to keep you healthy and if those genes aren't

producing enough proteins uh to keep up with that um then you know that's how you can have the accumulation of cholesterol and get plaques forming eventually, you know, that, uh, gives you cardiovascular disease, maybe puts you at a much higher risk of, uh, a heart attack or stroke, uh, all the things we hear about so, so commonly. Um, so you can also disable genes potentially, uh, that are involved in those pathways and give people protection. So you would have permanently lower levels of cholesterol, uh, if you could precisely, uh, maybe disable some of those genes that are involved. So, um, you know, this is a pretty interesting approach to take, uh, if you can do it like with a one and done treatment on paper, um, provide a very durable,

uh, effect. So again, one treatment and then you're, you're done. And maybe for the rest of your life, you, uh, just have much lower levels of cholesterol, um, because we've altered your genetics in that way. So how, maybe this is a naive question, but how do they then make money? What is sort of the business model? What are the economics look like? So are they like, who are their customers? Do they have any suppliers? And then what are the economics look like on it? Like, are they, would it be a very profitable business scale? I'm curious how that works. Yeah. So this is still a pre-commercial drug developer. And in fact, it's a preclinical drug developer. Verve Therapeutics does not have a single drug asset in its pipeline that's in clinical trials right now. So none of these are being tested in humans. They do have some pretty interesting data in non-human primates. so those are kind of the that's the animal model that's maybe the closest predictor of what the drug might do in humans it's not perfect for everything but for some of these cardiovascular diseases we do think it kind of translates pretty well of course you still have to go and run and

conduct all the clinical trials so suppliers aren't really that important for a drug developer but the customers of course would be patients so typically you know for drug development um you know you do discovery research that's the first step so you're trying to find and and design your drug candidate against a specific target so for verve it would be you know can we design this therapeutic payload a crisper base editor um that's going to go in and actually you know precisely knock out one of these genes that's involved in one of these diseases and then you move into pre-clinical research so you're kind of like collecting all the data um that you would need to show the FDA or regulators in whatever region you're trying to run clinical trials

within, um, you need to collect certain data and present that to regulators before they sign off on saying, okay, we think this is going to be reasonably safe. So you can start testing this in human subjects. And then you move into clinical stage research. And of course that's, you know, phase one, phase two, phase three. Uh, and that takes, you know, the whole process from discovery preclinical all the way through phase three clinical trials. I mean, it can take, you know, 10 years it can take maybe seven to ten years and sometimes it's can be accelerated um so you know for verb therapeutics it's interesting as well there are treatments that target some of the same genetic targets they don't obviously act on dna because these are new capabilities and tools

we've had right with with gene editing or base setting so for the first time we can actually act on dna but there are treatments for some of the same um you know genetic targets so So, uh, Alnylam pharmaceuticals and Novartis have a drug that's on the market now. It's called like VO and spelled L-E-Q-V-I-O for anyone listening. Um, and that's an RNA interference tool, and that actually acts on the PCSK9 gene. So this is the lead drug candidate from Virth Therapeutics is actually also trying to disable that gene. So RNAi doesn't act on DNA, it acts on RNA.

Um, and it just kind of chops up the mRNA that's going to make that protein before it can be made. um and that's on the market now it's probably going to be one of the more successful genetic medicines out there and that's because uh the patient population is pretty large as far as rare diseases go so that gene specifically and this treatment and additionally for verve are going after a rare disease called familial hypercholesterolemia or just fh so this is a a rare genetic condition where, um, you inherit, you know, a mutation in this gene. Um, and you just can't keep your cholesterol levels low. It has nothing to do with your lifestyle or diet or

anything like that. Uh, it's caused by this genetic mutation. Um, so verb is trying to go in and kind of correct that a little bit by turning off that gene in the liver. Um, but eventually the company says, you know, well, there's no reason we can't use this to treat maybe you know the general population people have cardiovascular risk or high cholesterol the same exact genetic pathways involved and indeed we do have other drugs that treat high cholesterol that go after that protein so there's another drug amgen has called rapatha this is a monoclonal antibody so it goes in and binds to in the bloodstream um the pcs k9 protein so same thing it inhibits that same protein and it helps people have much lower levels

of, um, LDL C LDL cholesterol. Uh, so again, you can maybe just go up that stream instead of working on proteins with monoclonal antibodies. Um, you know, the next step upstream is maybe you're acting directly on the RNA. So something like L9 and pharmaceuticals and RNA interference, and now verbs like, well, let's just go all the way upstream to the DNA. And then, uh, you know, we can act on that and maybe that's, if that can be safe and effective, it's also permanent. Um, and why the heck not? Right. That could, I mean, cardiovascular diseases are really one of the, uh, uh, I think like the largest killer, right. Um, you know, from heart attacks and stroke, uh, big economic burden, at least in the U S yeah.

Right. Yeah. We love, we love our, uh, American lifestyles here. So, um, you know, one day and that that's, this is not the first, um, clinical trials will not be going after like general population. Let's do this on everybody. It's specifically for people with that rare disease, But maybe later they would be able to conduct later clinical trials against, you know, providing this this benefit to the general population. That would probably be much later, maybe later this decade, the second half of this decade. But, you know, imagine if you could do that, you know, that would be a pretty important and big drug for for various reasons. Right. And that's something that in theory, like if it's a simple process with hopefully, you know, minimal side effects, that's something a lot of people would want to take advantage of. And when they give out their,

you know, investor presentations or on their documents, they talk about the 30 million people with that, you know, rare disease. And I think something for investors that people would maybe want to clarify, and I know you don't have exact numbers because they haven't, they haven't reached revenue yet, but what type of revenue ramp and margins do these type of businesses have when they succeed? How, how do you look at that, you know, ramp once they get, once they get approved? Yeah. So, you know, for a drug developer, you guys kind of hinted at this, right? There's no revenue, there's no earnings, and there's not going to be for a very long time for a pre commercial company. So drug developers still do have fundamentals, I call them drug developer

fundamentals, they just don't have the same, you know, financial fundamentals of a, you know, more traditional business. So for investors, you want to look at like cash collaborations, and then the pipeline in terms of you know how much could this uh generate i mean when you're doing that so um you know i've just started learning how to build uh risk adjusted net present value calculations very nerdy spreadsheets when you're trying to maybe model out how well some of these drugs might do for various drug developers so the most important things would be looking at the patient population um so you mentioned about 30 million that might be globally i think in the u.s specifically it's maybe closer like 1.4 million for that rare inherited disease

um that's still a that's currently the largest patient population by a pretty wide margin for any genetic medicine you know usually uh you know an rnai or maybe a gene editing tool might be only going after a disease with like you know tens of thousands of patients or something or even fewer than that uh so you know once you get over the 1 million mark that's that's pretty significant that's a pretty big milestone for genetic medicines um so that's pretty encouraging right And Alnylam and Novartis think, you know, their drug could have blockbuster potential. So over $1 billion in annual revenue. So again, you know, Verve has a very large patient population and a lot of the patients

are, you know, it's at relatively high diagnosis rate. So that goes into play too. You know, if you have a hundred thousand patients with a rare disease, but only 10% of them are diagnosed, well, that's going to be a challenge for you, right? Even if your drug is approved. But yeah, I mean, potentially, right? And this is still so, so early, but yeah, this could be a blockbuster drug just from treating that, you know, genetic condition.

And then of course, if it rolled out to the general population many years from now, I mean, you know, Lipitor is one of the best selling drugs of all time. At the time, it was the best selling drug of all time. That was just for, you know, managing pretty much the same thing for cardiovascular risk and cholesterol levels. So, you know, that was like over $10 billion in annual revenue. Not many drugs ever get to that mark, right? I think there's only maybe two right now that are currently at that level.

So this could be a pretty big treatment. But again, and this is true for all, you know, all of these tools, there's already treatments on the market, you know, so as convenient as it would be to go in and maybe you get an IV infusion for an hour or two, if you got like a CRISPR base editor one day, and then maybe you never need a treatment again, there are treatments on the market now, like like Veo from Novartis and Alnylam, only has to be done once every six months. And it's a simple subcutaneous shot. So you just go into your doctor's office, you get a shot and you're done. So that's not, you know, one and done like a gene therapy or a gene editor or base

editor, but yeah, once every six months is pretty convenient, right? If we're going to be honest. So that can also impede some of the commercial opportunity for some of these drugs. You know, in the minds of investors, it's like, we're curing this, we're providing one and done. And in reality, a lot of the CRISPR and gene editing and base editing tools are going after markets that already have some pretty safe, effective, and very convenient treatments. So it'll be interesting to see how that shakes out. That might affect how much they can charge for their pricing. It's probably going to bring down pricing for everyone across every therapeutic modality,

right? Monoclonal antibodies and RNAi and base editors would probably all have to have lower prices. Great news for patients, of course. So it's kind of hard still. These are still, obviously, we don't have any data in humans. So it's hard to project much. But yeah, I mean, if successful, best case scenario, this could be a very successful drug.

In terms of the margins, you asked about that. I mean, we all know how the American healthcare systems work. You can charge whatever you want. So it's pretty great. You have gross margins like in the mid to high 90% range. It's pretty insane. And then of course, though, operating expenses can be pretty large, right? You have R&D, sales and marketing, general administrative is pretty expensive for a drug

developer. So it kind of depends on the drug in the market, but, um, you know, it's not uncommon for a, uh, once a pre-commercial drug developer makes that transition to commercial development, you know, so they have a drug on the market and they're ramping sales, you know, and that can take, I think you asked a question about that. that can take many years to reach peak sales, maybe like three to five years or so to reach their peak. You know, but it's not uncommon for companies to still be generating large operating losses as they're ramping sales. So it kind of depends on the market and everything else.

And often actually companies lose more money once they have a drug approved as they're trying to ramp up sales. And again, it's kind of like that. this is maybe a terrible analogy but like you have a drug approved and then you just go all in on like marketing that right and trying to ramp up sales and launch it um so you're making that big investment for the big payoff years from now in terms of like when you are profitable as a drug developer it's like you know pretty significantly margins right maybe um i haven't looked in a while so i don't want to say but well over you know 20 20 operating margins for these businesses. All right. All right. And Verve has about, they just did an IPO. They have $400

million in cash, or that's kind of the rough number I saw on their balance sheet. And I think a lot of investors would wonder what kind of runway does that give them? I know they have a lot of R&D expenses. How much are they going to have to spend in a rough ballpark before getting to that point five, 10 years from now when they're generating revenue? Yeah. So this is one of the drug developer fundamentals, right? Cash balance, the all important cash balance. Um, so $400 million, that's a pretty nice, uh, stack of cash for the stage of development for this company. But again, it's not even in clinical trials yet. Right. Um, so, you know, I don't know if the company stated this publicly, but, um, it's probably several years of a cash runway for now.

Um, you know, it's not spending a whole lot of money right now. It's just still working on preclinical studies. Uh, but of course, once it starts a phase one clinical trial, that's significantly expensive, right? That's some pretty big expenses associated with it. A phase two clinical trial is even more expensive because it has more patients, it's longer, there's maybe more interactions with regulars in the FDA. Phase three clinical trials, obviously even more expensive, more patients, maybe even longer. And oftentimes actually you have to run multiple phase three trials simultaneously. So for now, $400 million cash balance, that's pretty high for a company of this maturity level. But yeah, it's certainly going to have to raise more money either through

announcing a partnership. So maybe you can get an upfront milestone payment from a bigger partner and that can extend the cash runway a little bit. But obviously these companies do dilute shareholders quite a bit. Pre-commercial drug developers often conduct public stock offerings over the years to raise money and keep the lights on. So yeah, $400 million is not going to get them to the market obviously uh they're going to need to raise money in some shape or form uh multiple times over the coming years how does how does a company survive like this if they aren't public like is it just those partnerships or is there just like biopharma vcs or is it kind of for them to go public and this is the boston like uh right there's just so much money for biotech in boston

And is that a big deal to like being in that in that area? Yeah. So, yeah, you know, they can't tap into public markets, obviously, if you're not publicly traded. Yeah, there's there's venture capital and a lot of pre-commercial drug developers that are privately held. And some of them are actually in clinical trials. They don't necessarily have problem funding, but they might take a narrower approach to development. So maybe a little smaller pipeline, but more focused on an asset or two or three. So they manage expenses a little bit better. Publicly traded companies can tend to have much larger pipelines.

But again, they have a little bit, they're more liquid or they can access money a little bit more easily. So, yeah, venture capital kind of fits that role for privately held companies. Okay. All right. Well, I think that's going to do it for the first half. We've got more questions on the back half. We're going to have a quick break. this episode is brought to you by kpmg as a business leader how can you innovate build trust and move forward in a digital era kpmg can help by bringing together the right talent and technologies generating insights that spark opportunities to explore their thinking visit read.kpmg.us opportunities this episode is brought to you by lakinta by windham

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Book your stay at LQ.com. Okay, welcome back. And now a little more specifically to Verve Therapeutics, who's on the management team, who's kind of running the company, and then I guess what's your take on them? Do you have an opinion either way on them? So the management team at Verve Therapeutics is actually pretty impressive, and it's encouraging to see it too. Sometimes a drug developer will be founded by a bunch of lawyers, and they understand the business side of it. but now do they really understand the technical concerns that go into drug development? Probably not.

And maybe they lean on advisors or they just hire those people. But Verve Therapeutics was founded by a number of doctors and the CEO is actually a cardiologist by training. He was actually most recently the director of the Massachusetts general hospital center for genomic medicine. And again, trained medical doctor trained cardiologist the chief scientific officer and chief medical officer is actually the same individual holds those both of those roles right now i'm sure they will separate those out as they mature a little bit but uh again he's a

trained cardiologist right so these are individuals who are you know they see the ill effects of cardiovascular disease or high cholesterol they're dealing with patients who've had heart attacks or trying to manage you know these biomarkers these you know high cholesterol levels so that they don't have heart attacks or a stroke um you know and they said hey you know there's finally this tool here where we can maybe do this provide a lot of benefit for patients so uh they went out and you know they they developed and licensed some of the tools um from other you know institutes or other companies in this case um and they're just laser focused on cardiovascular diseases so uh very good very encouraging to see you know those individuals evolve from the from day one um because

they do understand you know what they're trying to do and um they understand it from like a patient perspective as well. So that's always good to see that. Right. And back to some more regulatory stuff you talked about, you know, uh, the getting to clinical and then getting through phase one, phase two and phase three. So we don't need to go over that again. The one risk that we kind of came up with is, you know, with these companies in general, how much risk do you think there is for the public to not trust the technology? You know, we've seen that with MRNA stuff. um do you think that's a risk here or is that you know because from a business perspective that's kind of something i don't know i would think about yeah that's an interesting question

and uh it's something we don't have the answer to yet right i do think that might be a risk for some of those first generation tools so for most of the other companies that aren't using base editing um because again you know even the fda has these questions and we don't know how long the fda might um require some of these studies to collect data so obviously in drug development there's always a development risk right your clinical trial could fail or whatever but there's a unique regulatory risk like additional regulatory risks for these tools because they are permanent and there still is some uncertainty about do we want to make permanent edits to the genome with the technology we have today because we aren't very precise with it um they do have some

potentially really big uh side effects in the long run so you know the fda could say hey look we might need to you know rather than moving to phase two or phase three immediately you need to follow up with patients for like three years before you even come talk to us again uh so that could actually lengthen the time of development here um base editing again it's a little more precise it's uh potentially maybe a little safer in the sense that it avoids those double-stranded bricks so that's an advantage and that might help too in the eyes of patients should any of these drugs eventually earn approval i do eventually see kind of the whole field transitioning towards base editing and in future tools that don't require double-stranded breaks um so again we

talked like you know there's we use crisper and gene editing to be interchangeable but crisper is just a system that allows us to take the gene editing approach so there's crisper gene editing and there's crisper base editing but there's also other systems right there's arcus gene editing and Arcus-based editing, or there's Talon gene editing and Talon-based editing. So, you know, the FDA can take different stances on these different tools, but I think everyone eventually is going to move to base editing, no matter what system you're using or what approach, because that might be safer, and I think patients would actually appreciate that as well. So, when I think about Verve, I think, like, as a shareholder, if I were to just wait long enough

And then there were successful trials, like I would make, I'd make money, eventually, it might take longer than I might expect. But I'd make money eventually. But I imagine somewhere in there, there's competition, doing trying to do the same thing. So who are some of those competitors today? Is it kind of a crowded field? Or are they kind of isolated? so right now verve's the only one using uh base editing to specifically go after these genetic targets um so there's no competition within crisper base editing and again that's because a lot of the ip is kind of owned by the same like four people you know i mean i'm over exaggerating a little bit but like there's a lot of crazy licenses and sub licenses within crisper tools among like the same institutions and companies so uh um a very you know close-knit ip web there um now i i could imagine like um another system so not crisper maybe an arcus base editor could go after some of these same targets so that would be competition within the base editing

uh you know therapeutic modalities and then of course you know we talked a little bit about like there's rni or there's um uh you know monoclonal antibodies and of course those aren't permanent but sometimes that's you know having a temporary effect can actually be an advantage for some of these diseases the reason i like verb is like you know there are naturally occurring variants within the human population where individuals have these genes that are missing or they're inactive and there's really as far as we can tell no ill effects from that so if you evaluate you know that might not be true for every disease like genes always play multiple roles in the body so as simple as it might seem to like knock out a gene you're disabling it for that disease but

for maybe the three or four other things it does within the body so that could potentially cause other long-term side effects right um so i've talked about this on other podcasts but you know intelli therapeutics has the first in vivo crisper gene editing data so that's a first generation tool and it's knocking out the ttr gene in the liver and the liver is the only place where the ttr gene is expressed so all of the ttr protein in your body comes from the liver now the ttr gene is involved when it's mutated or that protein as well uh it misfolds and then it aggregates it forms these clumps and that can accumulate in certain tissues and that's what causes the disease um that you know intelli therapeutics is going after so they said hey you know what we're just

going to knock this out and if that would reduce levels of that you know these these aggregates that form and we'll treat the disease that way one potential issue with that is that the ttr gene is the only or one of the only transporters of vitamin A in the human body. So we need that for vision. And in fact, you know, if you knock out that gene, individuals are going to have night blindness, meaning they're not gonna be able to see in low levels of light, they're going to require daily dosing of vitamin A, which is kind of ironic, right? Because we call this a one and done treatment. And then you eventually need daily supplementation of something else as a side effect. And additionally, there's some emerging evidence that TTR helps to reduce beta amyloid

plaques in the brain so there's some evidence emerging evidence that maybe low levels of ttr could be correlated to the development of dementia or alzheimer's so again where there's like it's genetics are very complicated and uh one gene always plays multiple roles in the body or usually so we do evaluate a lot of these on a case-by-case basis but for the targets that verb therapeutics is going after you know we have pretty well established evidence just from the you know human population there's natural variants people are missing these or have inactive versions of these and there doesn't seem to be any effect at all so uh so this is one instance where it actually makes sense to me um you know like a permanent edit could actually make a lot

of sense compared to some of the temporary treatments like from rdi so i think on paper if this works um you know base editing for these genes and these diseases actually makes more sense than, than RNAi or monoclonal antibodies or something like that. Um, so again, you know, for competition, think about all those things, got to think about the commercial market. Maybe some patients are just going to stay on the treatment with RNAi or monoclonal antibody because that's convenient or something. Um, you know, but, um, so these aren't like wide open opportunities, you know, we call them rare diseases, but there's often already treatments that exist for them. Uh, and some of those are also very safe, effective and convenient genetic

medicine. So we don't know how this is going to go, right? No, no, uh, gene editor base has ever been approved. Obviously there's still very early stages, but, um, yeah, you know, I mean, in the long run, this could be a pretty big company or, you know, if it works best case scenario. Um, and there's some other reasons as well that it might not be a very big company. Uh, it has to do with the ownership of the opportunities. Okay. And yeah, there's, you know, clearly with a lot of these pre-revenue, there's a lot of uncertainty. And I think with this one specifically, it sounds like there's a lot of risks or people can get a little worrisome about testing in humans.

Now, this may be a weird question, but we've seen, I guess, recently there was that big news from, I think, Google's DeepMind about they were able to either simulate or build digitally all the proteins in the human body. Do you think simulation could help mitigate some of that risk, or is it still way too complicated to help testing on that front or do any sort of thing on that in that regard so i think what you're talking about is uh deep mind has that program alpha fold something like that yeah yeah yeah so they could determine the

structure of a protein just by looking at the sequence of the protein usually with around all these really expensive experiments and they're really expensive machines that are pretty rare and it takes many years and sometimes that's not perfect because you need to have get the protein in the right temperature and the right it's just very hard to figure it out and study it um because you know when you're putting it in those machines that's probably not what it looks like in the human body anyway so if we go and develop drugs against that protein based on the structure we came up with maybe that's not even how it actually forms you know in biology so predicting that you know computationally just from having the sequence that's like a huge huge game

changer um you know i mean there's protein structures we've been trying to figure out for like 25 years if you can just run it on a supercomputer and uh you know a couple days or whatever i mean that's it's hard to understate how important that is so that's actually going to accelerate a lot of this research um i guess i'm not sure how it would impact necessarily like companies working on dna because um you know that's a little bit different um it's actually relatively straightforward if you're trying to go and edit genes and dna in terms of like how to design those drugs uh for the most part um so that's kind of why like intelli therapeutics had the data in june and it was like from six patients and the phase one trial is not even

done yet and it went you know i think it was valued like 12 billion dollars or something eventually that's because everyone just said oh so you know this is kind of modular we can just design tools for different diseases we can we know we can get to the liver we kind of know it's safe and effective so if you can at least target the right gene like maybe this is gonna just have a you know it's gonna be pumping out uh drug candidates and drug products years from now of course you know i explained some of the risks for why that might not be so easy but um uh yeah okay and yeah or god doesn't say yeah i read something this morning when i was looking at it and verve jumped like 25 on intelia's news i was wondering how that kind of corresponded

uh way back in june but i guess you kind of hit that yeah there's just there's a lot of excitement for a lot of these, like pretty much anything CRISPR, you know, there's like this, it's kind of sucked all the air out of the room in terms of like genetic medicines. And yeah, when Intelli Therapeutics had their announcement, all CRISPR stocks rose by a significant amount. You know, so there's just like a lot of excitement among investors. I don't think there's a whole lot of understanding of how this could all go wrong or things like that. You know, so Verve Therapeutics, I mean, I guess it's been caught a little bit in some of the recent market volatility. I don't know what it's doing today, but, you know, it was valued at like a three and a

half billion dollar market valuation. And, you know, we're just in this really weird period of the market. I've been pounding the table about this everywhere I go, but that is very atypical. That's usually not how it works, right? Pre-commercial, preclinical companies that are public usually don't even trade over a one billion dollar market valuation. So there's that, that should be a sign of how, you know, there's, there's a lot of froth in the market right now and in specific areas as well.

You know, we see this a lot with like the CRISPR stocks, they're all trading at some pretty healthy valuations. I'll say, um, yeah, yeah. And like, you know, protein degraders, a lot of excitement there, all those stocks rise just because one company announces good news. And a lot of those are also pre-commercial and they're valued at like the $4 billion range or more. that's kind of a little silly. So the problem here isn't, it's not like you're investing in

like Amazon and you're just like, well, wait, and they'll eventually grow into that market valuation. When you're investing in a drug developer, uh, you know, they have to hit certain de-risking events, right. In order for them to earn that valuation. So like if you're investing in companies that are kind of where Verve is, and then maybe something goes wrong or they get a delay or somebody develops something that's better. And you bought in at like a three and a half billion dollar market value, you might actually never get back to that level. um so you have to be careful about what's already priced into shares uh when you're buying some of these early stage drug developers you know it's important to look at not just the opportunities

but the challenges as well because uh as we've all seen you know even you can have a successful clinical trial and your your um your share price can still fall actually editas medicine just this morning announced some data from their lead drug candidate their in vivo drug candidate anyway and their shares are actually down quite a bit. Not a whole lot of enthusiasm for that company's approach and that specific drug candidate. But, you know, another example, like those results weren't terrible,

but the company is losing hundreds of millions of dollars in market valuation today. So just a different animal investing in these drug developers and pre-commercial drug developers, different fundamentals, different metrics that matter. So you do have to kind of be mindful of those things. Right.

The, okay, last one, I guess, on VIRB's potential and opportunity. In the S1, they kind of give a broad overview of their goal over the long term. Maybe this kind of goes encapsulating more than just cardiovascular drugs. They say, and I'm quoting here, they want to develop manufacturing capabilities to reduce in vivo gene editing medicines at scale. You've mentioned in vivo, you may have already defined that, but can you explain what that is? Because that comes up a lot for investors in these companies? Yeah, perfect. All right. So this is good. This is a good question. So there's in vivo and there's ex vivo. Ex vivo is we're taking cells from you and we're engineering them in the lab. So ex vivo means outside of the body, right? So we can take

cells from you. We can apply CRISPR or some other gene editing tool or base editing tool in a laboratory setting where we have a lot of control over the process. We make the edits we want maybe we grow those cells back up the edited cells and then we re-administer them back into you so that is an ex vivo uh treatment and usually that's made you know that's that's to make cell therapies right so crisper is not the therapeutic it's more of the tool and then the resulting cell therapy that we create is the therapeutic in vivo means inside the body so this is like you're sitting in a chair you're getting an iv infusion we're putting a gene editor a base editor into you and we just cross our fingers and hope it gets to the right organ and it makes all their edits

and we don't have a whole lot of control once we put it into the body right that's what all the pre-clinical studies are for we're trying to like really make sure we optimize all of those different metrics so verb therapeutics is only working on in vivo tools um so everything we talked about was an in vivo base editor so that just means like the actual therapeutic is the base editor um so that's what base editing means or i mean i'm sorry that's what in vivo means um the company is predominantly just focused on cardiovascular diseases though i i don't think it's going to um move into a different therapeutic area so like treating cancer or something it could but i think it's going to have its hands full and the opportunities is quite large enough in

cardiovascular diseases and remember you know a lot of the founders and executives board of directors um trained cardiologists medical doctors so um you know this is their focus and i think they're going to be quite busy with that for some time additionally if anyone's read the s1 filing you know you guys have maybe i always encourage other investors to do the same thing as well you'll see that uh again relating to that intellectual property web for crisper tools the company's licensed a lot of its tools a lot of its ip from bean therapeutics that's the other crisper base editing company that's publicly traded and beam therapeutics actually has opt-in rights to all the programs at verve so it can opt in after uh i think the last patient is dosed in

the phase one uh clinical trial for its lead drug candidate and then beam can split the development and maybe later the commercial cost 50 50 with verve therapeutics on the one hand you want to see companies that are this small and this immature actually land partnerships, hopefully with a deep pocketed partner, because that will actually spread risk around, right? It helps to de-risk the development and the financial side of things, right? If Beam Therapeutics opted in, for example, Verve Therapeutics would probably receive some type of a upfront payment. So that would extend its own cash balance and it would be splitting the development costs. So that would preserve cash or help the cash runway go a little bit longer. But of course, the flip side of that

is if the drug is ever approved, well, Verve Therapeutics is now only getting a 50% cut instead of 100%. For these areas, this is important to bring up for cardiovascular in particular, and cardiometabolic diseases. This is a therapeutic area where you require very large clinical trials. So a phase two clinical trial for any of Verve Therapeutics drug candidates might need hundreds of patients and it's going to be long right to conduct that and the same thing with a phase three clinical trial might even see a thousand patients eventually if they get into the general population studies years from now verb therapeutics those are not strengths of this company right and that's going to be insanely expensive it doesn't have the commercial

infrastructure in place doesn't have global infrastructure doesn't have like regulatory teams like that so we see a lot of these tiny companies um what's kind of been going on in the field lately, and this is true for all of drug development, you see the startups and the small companies, they focus on the science and they're moving the field forward in that way. And then they kind of go to partner with like an Eli Lilly or a Novo Nordisk, like large companies with established expertise, global footprint. They know how to run clinical trials that are thousands of patients. They know how to deal with the FDA. They know how to eventually scale sales teams if something's ever approved on the market and ramp those sales. And of course they have a lot

of money, right? So we want to see Verve kind of partner with some of these more established companies in these spaces. But of course, that's going to reduce the economic opportunity for the company. So investors do have to keep that in mind. As amazing and as large as some of these opportunities are, these diseases it's going after, it might only end up with like 20% royalties on all the drugs it develops. I think the scientists who founded the company be pretty pleased with that. And from a societal standpoint and the healthcare system, that'd be great, right? If these work in a best case scenario. But for investors, this might not be like a $100 billion drug developer. Of course, it's still quite a bit smaller than that. So I

think if it works out, you're going to be just fine. But do have realistic expectations and do read the S-1 filing because a lot of those details are pretty important for your investment. I'll say we didn't read the whole thing. It's 800 pages. So we read, I read, I tried to read some of it, but you know. How do you go about trying to do valuation work on a company that's pre-clinical trials? Is it just kind of, you're just taking like, does TAM actually matter here? Because I know we usually disregard TAM with some things, with some companies we look at.

So I'm curious, just how do you even try valuing a company? Yeah, I also hate TAM. I'm happy you said that. Yeah, it doesn't really come into play here for drug developers. Again, like they'll always say, you know, lately we're seeing in gene editing and base editing, you know, companies will say, well, you know, there's 10,000 human diseases that we could potentially treat. And that's not really accurate at all. Have you heard of the globe? We have, you know, that's right.

Yeah. Or they'll say how many millions of patients might have the diseases that they're going after. And again, like no drug ever treats 100% of all patients. And so, and, and not a hundred percent of patients are diagnosed for that matter. So it's, uh, um, always some trickier math if you read the fine print, but, um, um, yeah, I don't know. It's just don't, how do you evaluate these? So what I do, I mean, you know, I have a different framework, but I've been building these for

over a decade. So, uh, I start off with, I actually start with a technology that I'm interested in. Right. So let's say I was looking at base editing. So all maxi here starts with looking at all the nerdy scientific literature. And, you know, scientists are like, it's not like an investor presentation, you know, they're not just like, we're going to change the world. Yeah. Scientifically, it's just dry. It's boring. It puts you to sleep. But they just go over like, here's what it could do. Here's where the challenges lie. So you get a pretty balanced and objective take of like, what the technology might be able to do. And I read different studies across that. So for the same technology. Then the next level up after I understand like, you know, advantages and disadvantages of any tool, I'll go look at the competitive landscape, right?

So I'll say, okay, who are the companies in base editing? And then of course, you can't just focus on that because again, if you only focus on base editing companies, you might be like, well, Verve's the only one doing it. They're going to own, they're crushing it. But if you just look into other therapeutic modalities, you see those RNAi companies working on it. There's monoclonal antibodies working on it. There's going to be some other tools working on it.

So you need to be careful in how you determine your competitive landscape. You need to look at both the diseases that they're going after and also the tools and technologies. And of course, if you read through the SEC filings at that point, too, you'll see like there's also some weird ownership of some of the CRISPR IP. And that's true for everybody. And then after that, maybe I'll look at, you know, I'll try to find like what's the best one or two companies or however many. And then I'll really focus in on that. So I'll read the SEC filings. I'll maybe just get acquainted with them.

Sometimes, oftentimes I'll, not in a pandemic anyway, but I'll try to meet with management or tour the facilities or something, right? So you can just ask more pointy questions. You can have some off the record conversations as well. And sometimes after all that, I don't decide that anything meets my criteria and I don't invest at all. But, you know, that helps you to kind of get a good gauge of what's out there. So I think a lot of investors start with like the, you know, my last step there, right?

But I take that bottom up approach. so i try to just laser in on like what's the best one or two companies in this opportunity um so that's what i do but you know i've i can also like understand the technical details of things so uh hopefully i can convey those to anyone who reads my work as well but um so most investors might not have that and a top-down approach can work as well right if you you're just like gene editing is cool we're gonna own all those companies and the winners will make up for the losers i mean that's not my approach but that is that is one approach but yeah for preclinical companies, you obviously don't have any data to go on. You need to be careful about

translating animal model data. You can't just say, wow, it worked in mice. It's going to be awesome. Like a lot of times that actually doesn't work. Right. And one way I put it, this is, you know, getting a long winded answer if you guys, sorry, but you know everything looks good in mice, right? Like by definition, if something's in phase one clinical trials, then it looked amazing in preclinical trials, right? Like that's how it got to clinical trials in the first place. Um, but still only 8% of drugs that ever reached phase one, reach the market. So still a lot of failure prone, uh, high failure prone field here. So keep all those things in mind.

So all these things are just discounting, you know, how much, like everything that you said there, if it kind of turns, maybe there's negative potential, that's just another thing that you're going to discount. And those all add up to how much you're willing to pay for the, a certain stock. Right. Right. So, you know, here, I mean, let's see, it's, uh, I guess we'll just say it's at a two and a half billion dollar market cap who knows the market could go up or down to 10 percent by

the time this publishes right guys but uh you know so in this rare disease that's going after for the lead drug candidates um you know again there's treatments on the market um some of those are pretty safe effective and convenient but yeah maybe this can be a blockbuster there and um companies typically you know a drug developer like a really really really basic rule of thumb is like companies tend to trade at five times peak sales of their drugs, of their drug portfolio. So if this ever got to a $1 billion in annual revenue, you're looking at like a $5 billion market cap, but you'd also have to price in the pipeline. So some of that would have value. And then there's some crazy ways to do that. But so yeah, I mean, this could easily be a company

that's valued over $10 billion in time. But it's certainly, I think, a little expensive given like relative to what it is. I do think like eventually when they get some of their first data, if it's good, we might have like the same thing that happened with Intelia. I don't know if it'll go up

to the same exact market valuation and who knows where the stock market will be doing by then. But, you know, people might start to read through that and say, well, everything in the pipeline is going to work. So, you know, there's always a lot of nuance and context you have to kind of keep in mind.

But, um, yeah, what you guys said at the, at the top here, you know, this is an early stage company. If you did want to put a little bit of money in this or, you know, um, and you understood all the risks and everything, if it works, you're probably going to be doing just fine. So, uh, you know, I wouldn't necessarily wait until it's like a, a hundred percent de-risked, right. That's kind of the point of investing in these pre-commercial drug developers. But, um, yeah, I don't know.

No, that's a great overview. our last question was going to be on risks, but I think we covered those. So why don't we Yeah, I think that's all we have. Thank you for coming on. So where can anyone find you? I know you're not the most active on Twitter. Don't find me. I'm in a cabin in the woods. I'm trying to get away from all of you. Now, if you look at the 7investing Twitter handle, you can find me from there. But I'm at 7, the number 7, Max Chatzko. Good luck spelling my names. But again, you know how to find me i'll be on twitter somewhere i'm not very active as you guys said but uh you know i i try to go for quality over quantity guys exactly exactly one more time for the

shameless plug you can find him at seven investing using our code ccm exactly and you're on the you guys have other like podcasts and video stuff and articles that you're doing so if anyone's i mean interested in this sort of biotech stuff i mean you got your back catalogs you know it's it'll be bigger a few years from now but you guys you got a lot of back catalog on on the seven investing stat for anyone that can research correct absolutely and i actually have an article it's about 80 done on exactly this topic gene editing base editing pros cons advantages challenges all that stuff um so that should be out in the first week of october just a little teaser perfect sweet all right well i'm gonna try to hit the outro without uh butchering it so we are not

financial advisors here at uh chit chat money so anything we say or discuss is not formal advice or recommendation. We are, however, general partners at Arch Capital, so clients may have positions in the securities discussed in this podcast. Thank you all for listening. We'll see you next time.