NLS Conversation: Ted Fjällman and Tim Opler

TF: If I talk about Stifel’s most recent newsletter, you’ve predicted a continual shift towards more big drugs for big diseases, such as heart failure, COPD, autoimmunity, and of course, obesity. What’s the main reason for this shift?

TO: This industry really got its start, I would say, in the 20th century. It’s fair to say that initially, drugs were for things that really mattered. But somewhere along the way, in the early 2000s, Genzyme had this idea that you could actually make a drug that would serve people with a relatively rare disease but charge a much higher price. This example electrified the business side of the pharmaceutical industry because the realization arose that you could charge much more for drugs that really made a huge difference. Cancer drugs went from costing, say, USD 20,000 to USD 200,000. Suddenly, by 2015 to 2020, the industry’s focus became much more on specialty drugs and drugs for rare disease. That was driven by the ability to charge much higher prices. 

So there was this shift, and what we’ve seen, really, I would say, in the last four or five years, is that the companies that are focused on the larger diseases have done much, much better.

At some point, things started to shift, and I can’t tell you the exact moment. I think probably the best big recent event was when Novo Nordisk showed a study where people lost dramatic amounts of weight on semaglutide. And it wasn’t just that they lost weight, their health also improved, and the light bulb went off, this semaglutide, it’s not cheap, right? It’s say, USD 10,000 a year, something like that, but it’s making just as much of a difference as those rare disease drugs. Then the idea quickly spread. Well, okay, how many people will use semaglutide? Do the math. Semaglutide could be a USD 50 billion drug. Well, if that’s true why am I spending all my resources as a venture capitalist on these rare disease drugs? So there was this shift, and what we’ve seen, really, I would say, in the last four or five years, is that the companies that are focused on the larger diseases have done much, much better. Suddenly, inside the pharmaceutical companies there is a lot of scrambling going on, because many plans have been laid for developing a lot more of these rare disease drugs. They’re still with us, but I think the emphasis has shifted.

I’ll make a comment as we sit here in 2025. I think the emphasis is changing even more, and there are two things that are really new and different that we’re starting to see in the last year or so. The first is, again, the GLP-1 drug class. It’s not one disease that they are impacting. You’re impacting a patient’s vulnerability to 20, maybe even 50 different diseases by controlling their obesity. The realization has arisen that there are certain types of drugs that can change underlying physiology in a more fundamental way. As opposed to being drugs for a specific organ system, they can be drugs aimed at a specific aspect of physiology, for example an anti-fibrotic drug. The interest in drugs that impact fundamental physiology, I think, is going up a lot.

Suddenly there is less focus on drugs that you must take this pill every day for the rest of your life, to drugs that will really change you in some very fundamental way, quickly.

The second comment I would make, and I call this ’going from treatments to cures’, is that suddenly there is less focus on drugs that you must take this pill every day for the rest of your life, to drugs that will really change you in some very fundamental way, quickly. That has become much more of the emphasis and I’m not speaking so much of gene therapies or gene edits, that sort of thing, but just to say, let’s develop drugs so that this person is no longer obese.

I thought the most exciting moment of 2024 was a paper in the New England Journal of Medicine by a group of German scientists that used T-cell engagers, specifically a CD19 by CD3 T-cell engager on patients with autoimmune disease. They found that after about six weeks of treatment, the autoimmune diseases were gone. When the patients came off the engagers the autoimmune diseases still were gone. That’s a relatively inexpensive drug to make and there’s hundreds of diseases, hundreds of millions of patients that can benefit from that treatment. It’s a very special moment for all of us to be alive, we are lucky to see these developments.

TF: I agree with your assessment that a lot of money is to be made in the larger indication areas. But as an investor in the early clinical stages, it often means that it’s hard to stay with the company long enough because you really require quite a lot of capital to do a good phase 2 efficacy study or even a phase 3 study if you want to try and bring something to market. Especially in the European context, it is quite difficult to bring together large enough syndicates to be able to carry a company forward that far. What’s your view on the solution for that?

TO: I’ve spent a lot of time thinking about this problem and I wish I could tell you I have really good answers, I don’t. But I’m going to answer your question with an answer to a slightly different question, like a politician. The number one mistake that biotech CEOs make is that they confuse regulatory success with financial success. What I mean by that is for a company to be financially successful it must be able to raise money and display the efficacy of its drug to the market. What happens is that companies end up spending this enormous amount of money without actually getting to the data. The most important thing is to not listen to what the FDA is telling you to do, which is you have to run two phase 3 studies for this new drug for autism and instead say, to fund this drug for autism, what I need to do is to show five patients whose lives are radically changed. Kind of like that autoimmune study I was referring to. If I can do that, then I can fund this thing probably in the public markets. Why not go to say Australia, where the barrier to running a study is relatively modest, and generate that data.

The number one mistake that biotech CEOs make is that they confuse regulatory success with financial success.

I always encourage CEOs to focus on what is the lowest cost route for the data set that you need to get to actually be able to raise money. As you said, you are not constantly struggling to put together some syndicate in Europe and hundreds of companies are running around with the tin cup trying to get money right now. In a way, what I like to say is if you’re in the Valley of Death and you can’t raise money, you wrote the wrong business plan. You have to write the business plan in the first place so that you can display the data set at a reasonable cost that you’re going to need to get to get your drug eventually approved.

TF: The alternative to the public markets is of course M&A. There are, and there ought to be players who are willing to buy up companies at earlier stages. What’s your view on the M&A market going forward? Will it move down the scale as we all hope?

TO: There has always been and always will be an M&A market for early stage stories that are transformational in some way. If you’re doing earlier stage M&A, you’re essentially giving a pharmaceutical company’s R&D division access to either a technology or drug that they don’t already have. To state the obvious, that has to be really something quite special, quite innovative, quite interesting. There’s a lot of that opportunity out there. I do expect to see more and more M&A of platform companies and new technologies.

TF: At Flerie, we focus a lot on platform companies for that reason. We think that there are ways that you can also do partnerships with big pharma to partly fund development and therefore get to that point where you’re showing that you have a business case and for a particular drug in one area, maybe it’s also a ‘pipeline in a drug’ type play. I think there are ways, but you have to be smart and really do it. Think about it early on. That’s how you move forward. Switching gears a little bit to these (M&A) transactions that you are of course involved in through your work. You’ve been involved in some really impactful transactions. Are there any particular transactions that really stands out in your career?

TO: I mean, there were a couple of moments where I met companies where something needed to happen. I remember meeting with Howard Pien, the CEO of Chiron, many years ago. He was in a situation where Novartis was a major owner of his company, and his company had a lot going on. He had three divisions. It wasn’t particularly well understood. I listened to him and he said, my number one goal is to make sure that the science here at Chiron gets to patients and I want to make sure that my scientists have a bright future. We advised Chiron on its sale to Novartis. It was quite a large transaction, over USD 5 billion in size. Much of the negotiation with Novartis was about preserving what Chiron had done. To their credit, the Novartis team were absolute gentlemen. They understood Howard’s priorities, and they really made sure that that happened. I was very proud that a major biotech company was able to be absorbed by Novartis and become even more successful under them than before. 

Another situation that I remember very well is Royalty Pharma, which today is quite a large company, maybe USD 20 billion type company today. They approached me in 2004 or 2005, and they had just failed to go public. They were in quite a tough situation because their shareholders were not aligned. Some members of the board wanted to go one way, some members of the board wanted to go another way, which is to liquidate.

We sat down with Royalty Pharma and showed them a financing strategy that would allow them to make their unhappy shareholders happy, but allow the other shareholders that wanted to continue the company to continue. We raised USD 385 million for them in 2005, and the rest is history. They have not looked back since then. I’m very proud of what happened. I will only take credit for the five minutes where I’m like, no, you can do something. This is what it is. Other people went out and made those transactions happen. But those are some examples of things I worked on that I will not forget.

TF: Indeed, I think it’s a good reminder for people who are making investments and big decisions today that some of the great successes we look at now, they were teetering on the brink of the abyss, so to speak, on multiple locations.

TO: This industry is quite challenging and quite difficult. The companies that have done really well, think of a Regeneron or a Vertex. Those types of companies, they have all been through great difficulties. What really defines a biotech company, in my view, are two things. The first is the resilience of the company. In other words, the willingness of the company to be creative and navigate its way through tough times.

In many ways it is really the key to the whole industry, how do you design a business plan and a financing strategy that can survive for 20, 30 years?

The second is the company’s financing strategy. You need a financing strategy that will allow you to survive. Too many companies are very reluctant to raise enough equity and so on. Both Regeneron and Vertex, if you talk to them, came close to death on more than one occasion. The companies that end up getting sold, typically there’s something about their strategy or organization where they reach a point of criticality that they cannot get through it. Survival is really important. It’s quite tough to do these projects, so you need an organization that has long-term staying power. In many ways it is really the key to the whole industry, how do you design a business plan and a financing strategy that can survive for 20, 30 years?

TF: Do you have any view on how the obesity market will expand in terms of the GLP-1s? They reduce weight loss, but they have systemic effects. Some people don’t stay on them forever. They sort of go on them and then they stop and then they go on them again. It could also be for pricing reasons, they can’t afford to stay on them. So you would imagine that there would be a breadth of complementary drugs coming to the market that help, for example, people stay at the weight that they have achieved after taking GLP-1s, or complementary to, reduce weight further while taking a lower dose of GLP-1s. Do you see anything like that happening?

TO: It’s a great question. I see three future directions. The first is obviously if you take a GLP-1 drug, you do experience nausea. It’s one of the reasons you don’t want to eat. It would be nice to engineer out the nausea. The second is you have a relatively expensive weekly injection. It would be nice to be able to do something with that, once a day oral pill as opposed to this expensive injection, that would obviously improve access. The third thing is that it would be nice to make this available in the pharmacy as an OTC drug. I actually see the OTC opportunities absolutely huge. The reason I say that is that both doctors and insurance companies are very reluctant to prescribe these drugs. I know people that have gone to their doctor and the doctor gave them a long lecture, why don’t you eat less? Why don’t you exercise more? Doctors don’t view obesity as something that they necessarily want to treat with the drug. Allowing people to go down to the local pharmacy or shop and to be able to pick up a bottle of pills that they can use to control their weight, I think would be one of the biggest opportunities from a humanitarian perspective we could have, and also one of the biggest opportunities from a business perspective one could imagine.

TF: I want to change gears a little bit because Flerie, of course, is a Scandinavian company, a Swedish company. You being an American, with the position that you have, you can spend your time looking at anything in the world, yet you are doing a little bit of business in Scandinavia. What’s your view on the Scandinavian market? In particular, do you have any recommendations for other Americans who are looking outside of the US when it comes to doing business in Scandinavia?

TO: I’ll make some comments. The growth of intellectual property industries typically starts with university systems. There are two things that are very unique about Scandinavia. The first is the great universities. In Sweden, for example places like Lund and Uppsala, have been there since the 1600s and the Swedes, I guess, attacked the Danes and then the Danes attacked the Swedes. And so it’s not been so easy to maintain this academic strength. But there’s really strong science in Scandinavia and these days, like the stuff that’s coming out of Uppsala and proteomics, is the best in the world. You’ve got access to really good science.

The second thing that I think is very interesting about Scandinavia is many of the companies have this ownership structure that is more long-term. Foundation ownership is very common. In Denmark, Sweden, you have slightly different setups where you have family, have a stake, or a pension fund that has a stake that may go on for 10, 20 years. What makes Scandinavia so interesting is that you have sources of capital that are aligned with the timelines of this industry, as you were asking before. I think that’s interesting. Of course we’d love to go see the Scandi companies because there are some really very good companies both in Sweden, Denmark, now also Norway are seeing it as well.

We are hoping to start to see Sweden, maybe Flerie can be part of this, to really hold on to this stuff and stop viewing it as a buy-and-sell opportunity and instead a Charlie Munger-opportunity, that we’re going to buy this and we’re going to own this.

The sad thing is, historically in Sweden every biotech gets sold, right? Even Astra got sold to AstraZeneca. We are hoping to start to see Sweden, maybe Flerie can be part of this, to really hold on to this stuff and stop viewing it as a buy-and-sell opportunity and instead a Charlie Munger-opportunity, that we’re going to buy this and we’re going to own this.

TF: Of course my colleague and our chairman Thomas Eldered did a fantastic job with Recipharm. Exactly like that. Building up a Swedish company. Ended up being present in 11 countries around the world. It can be done and I think it definitely can be done in Sweden.

To wrap up with a final question, I promised myself not to talk too much about macroeconomic trends but I do want to ask one thing. The S&P 500 has been up especially for tech stocks, probably driven by AI. I don’t follow the tech space that well, but that’s my gut feeling. Why has the biotech XBI Index only increased slightly in comparison during 2024? What should we think about in 2025 in terms of volatility and the financing climate? When you look at 2024, the XBI is not that impressive. Is there some light at the end of the tunnel for the biotech sector?

TO: First of all, biotech’s actually done much better. If you look at companies that are non-commercial stage, you’ll see that they were up globally 22 percent last year. They actually did much better. The XBI is mainly weighted with some of these commercial pharma companies that have really struggled in the last year or so. Interestingly, Novo and Eli Lilly, the two companies that have done really well, are not in the XBI. It’s a bit of a selective index. But nonetheless you are correct, the techs have done better. I think the answer relates very much to the topics we’re discussing here, which is really getting companies that have the right bets on these big drugs for big diseases really playing out the obesity play in the right way, really being smart about development and not running off to run high risk clinical trials.

We need to think hard about redesigning healthcare businesses in general to essentially exist and grow without the benefit of patent protection.

I do think that there’s a deeper problem in the pharma industry. I think about it a lot, which is drugs are protected by patents. Tech companies have technologies that are not protected. They actually get natural monopolies through customer lock-in and a variety of other mechanisms. We need to think hard about redesigning healthcare businesses in general to essentially exist and grow without the benefit of patent protection. I think that this can be done and I’m hopeful that we will see evolution of business models in the next 20 years.

TF: That’s a fantastic way to end this interview, because it’s kind of a call to action to the young Tim Oplers of this world.

TO: Yes, aspiring generations need to think about this. Here’s a hint, who says that a pharma company just has to make a little white pill? Why doesn’t a pharma company design a way of treating a patient, the entire treatment algorithm that might include the pill?