Episode summary
Why Biotech Is Struggling in Today’s Market (and the Future of Healthcare)
How I Invest With David Weisburd
· · 31 min · Hosts: David Weisburd · Guests: David Berry
Summary
David Berry argues that biotech returns are structurally getting worse even as science keeps advancing. He distinguishes between biotech, which is drug development, and life sciences more broadly, saying rising R&D costs, IRA-driven pricing pressure, and the threat of MFN pricing have compressed the upside for new drugs. In his view, the market now offers a higher floor and a lower ceiling, which means lower multiples and a harder case for long-duration drug investing. He also says investment in small molecules has already fallen something like 70% since the IRA, and that the balance of power has shifted against developers.
Berry says China is now a major competitive force, with a large share of new drug starts and faster, cheaper development. That pressure, he argues, should push US innovators toward AI and toward new business models that rethink how drug discovery and development are done. He points to AI-enabled clinical trial design, including a portfolio company that he says could cut years from development by getting the FDA to accept a single study in a Parkinson’s program.
Beyond drugs, Berry’s fund is focused on what he calls the tech transformation of health, a roughly $5 trillion US market spanning care delivery, administration, consumer health, wearables, and longevity. He says the middle stage of venture is undercapitalized, creating opportunity for investors willing to back companies that are too late for seed capital and too early for mega-fund attention. He closes by emphasizing team quality, complementary cofounders, and disciplined focus as the basis for his strategy.
Key takeaways
- Berry says biotech’s return profile is weakening because drug pricing pressure is rising while the development cost and timeline stay high.
- He claims the IRA and MFN talk threaten total drug revenue, and says small-molecule investment has fallen something like 70% since the IRA.
- Berry says China is now producing a major share of new drug starts and is forcing US firms to compete on speed, cost, and AI.
- He thinks AI can materially reduce clinical-trial time and NPV loss, citing a company that may save about 2.5 years in development.
- Berry’s fund is targeting the undercapitalized middle of healthcare venture, where he believes supply-demand imbalance can create better entry prices.
- He says complementary cofounders and durable team relationships matter more than speed alone when strategies get tested.
Notable quotes
“the world around biotech has completely changed. But first, what do we think about when we talk about biotech”
“the price is up, but the ceiling is coming down. And from my perspective, knowing that you're going to be in a drug discovery and development company for 5 10 years”
“China is a massive game changer. So I think the statistic I saw is that about 60% of new drug starts came from China last year”
“Tech transformation of health is perhaps the single most important trend over the next decade or several decades even”
“we think about AI in the context of durable businesses and how you can otherwise fundamentally change those those durable businesses”
How the episode opens
So David, you're one of the top partners at Flagship where you were for 18 years, one of the top biotech funds. While you were there, you founded seven unicorns. Today you have your own fund a 450 million AUM. Why is now a difficult time to invest in biotech?
So I think there's two different topics. One is biotech and one is life sciences and on one hand I think this is an amazing time to invest in life sciences. But the world around biotech has completely changed.
But first, what do we think about when we talk about biotech? Biotech is really developing drugs and whether that's small molecules or proteins or cell therapies or gene therapies, all of that tends to get bundled up together in what we think about as biotech. And there's a set of things that have happened.
One, of course, the cost of developing drugs has continued to rise. Um, I think obviously AI has offered some insights into how that might change, but it's not systematic yet. Uh, but what we're starting to see is very severe pricing pressures.
We hear it in the headlines all the time. Of course, it goes back to the inflation reduction act. What the IRA did is it put in place mandatory negotiations on pricing for the most uh revenue generating drugs.
Look, that it's great for patients because it helps to get better access to really really interesting drugs at lower prices, but on the other end of it, there's the developers. Now, we've also been hearing under this administration um under the Trump administration around MFN or most favored nation pricing. And the net of this is the total potential revenue of drugs is threatened.
So you could look at the IRA and you would say, okay, you take that in place that probably leads to about 30% NPV hit for drugs.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- biotech returns declining
- ai in clinical trials
- drug pricing pressure
- china competition
- healthcare innovation beyond pharmaceuticals
Companies and tickers mentioned
- Flagship Pioneering
- Valo Health
- Averin Capital
- AlphaSense
Watch the episode
Watch “Why Biotech Is Struggling in Today’s Market (and the Future of Healthcare)” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
More from How I Invest With David Weisburd
-
Hunter Walk: Why Venture is Getting Harder, Picking Great Founders, and Investing Against Consensus -
True Anomaly’s Even Rogers on Space Warfare, China’s Military Advantage, and the Defense Tech Boom -
Finding the Next Anthropic, Quantifying Venture Capital, and the Science of Picking Winners -
Why 95% of AI Projects Fail, Anthropic still at $2T?, and Why AI Is Still in the First Inning -
Peter Thiel's 27-Year Partner on the AI Bubble, the Venture Capital Crisis, and the PayPal Mafia -
Why Venture Is Eating Public Markets, Picking Great VCs, and the AI Boom w/Brijesh Jeevarathnam
How I Invest With David Weisburd, this episode and its artwork belong to David Weisburd. Octagon is not affiliated with the show; this page is an independent summary.
