390: FDA turmoil, election intrigue, AI, and more

What It Covers

Adam Feuerstein and Mizuho Securities analyst Jared Holtz assess biotech sector conditions in early 2026, covering the Gilead-Arcellx $7.9B acquisition, FDA regulatory inconsistencies affecting rare disease drugs, the widening Eli Lilly versus Novo Nordisk valuation gap, midterm election implications for drug pricing, and AI's potential disruption of the industry.

Key Questions Answered

• •M&A Timing Strategy: The Gilead-Arcellx deal at $7.9B illustrates that acquisitions of co-development partners carry minimal surprise risk for investors. Gilead already held equity in Arcellx and manufactured their CAR-T therapy through KITE. Deals structured around existing partnerships signal lower integration risk and tend to be priced in by markets well before announcement, making timing the only real variable.
• •FDA Regulatory Inconsistency Risk: Companies developing rare disease therapies face a specific investment hazard: FDA guidance can reverse between application cycles. Atara Biotherapeutics resolved manufacturing issues over a year per FDA direction, then received new clinical deficiencies upon resubmission. Investors like RTW's Rod Wong are actively reducing rare disease exposure specifically because the regulatory pathway shifts unpredictably between review teams.
• •Obesity Drug Valuation Divergence: Since 2021, Eli Lilly shares have risen approximately 450-500% while Novo Nordisk shares remain essentially flat, despite both Zepbound and Wegovy delivering comparable 15-20% body weight reduction outcomes. Novo's aggressive price-cutting strategy to recapture market share has compressed pricing across the duopoly faster than anticipated, with prices already halved within roughly two and a half years of launch.
• •Biotech Sector Volatility Pattern: Despite biotech indices trading near recent highs in early 2026, daily individual stock moves of 3-5% have become routine, a pattern not seen in prior years. Investors are buying on weakness even after negative clinical data, driven by M&A speculation and short-covering. This creates a floor under beaten-down names but also signals elevated day-to-day risk for position sizing.
• •Political Scenario Planning for Pharma: Midterm elections shifting House control to Democrats are unlikely to meaningfully reverse existing drug pricing agreements, as pharmaceutical stocks have already priced in current arrangements. However, RFK Jr.'s potential 2028 presidential run could trigger HHS leadership turnover by 2027, and any departure of FDA leadership figures like Vinay Prasad would likely produce an immediate positive sector re-rating.