Dear Reader,
Readers of The Bleeding Edge are certainly familiar with Gilead and its antiviral medicine remdesivir. I’ve written about it many times in these pages, profiling the drug as one of the most promising candidates to treat COVID-19.
Remdesivir received emergency use authorization from the U.S. Food and Drug Administration (FDA) on May 1. It was the first therapy to demonstrate efficacy for patients with more severe symptoms in clinical trials.
Upon FDA approval, however, there was one major question. How much?
What would Gilead charge for a course of remdesivir?
I don’t envy the position that the Gilead executives were in. It was a no-win scenario. Price too high, and activists and watchdogs attack and slander you.
Price too low, and shareholders, analysts, and the entire biopharma industry will blame you for destroying well-established pricing models. And the biggest problem is that “too high” and “too low” are completely subjective.
On June 29, the world found out. In an open letter from the chairman and CEO of Gilead (who I heard speak at a small gathering at MIT not too long ago), the pricing was announced.
The charge to U.S. hospitals is $3,120 for the typical patient with private insurance. For patients without private insurance, the cost to the hospitals is $2,340 per patient. And other developed countries will pay 25% less than those prices. A typical treatment course takes place over five days with six vials of remdesivir, which equates to $390 per vial.
Historically, the price of drugs is derived from some formula related to the overall value to society. The reduced time spent in a hospital… the months or years of extended life… the added productivity that life-enabling and life-extending drugs provide to society… These are all factored into pricing models.
These metrics might feel a bit fluffy, but they are quantifiable.
Gilead, by the end of this year, will have spent more than $1 billion on the development and manufacture of remdesivir. Its efforts on the antiviral go back years, as it was tested on Ebola patients. The vast majority of drugs never receive FDA approval, so the ones that do have to offset the investment on all of the candidates that failed.
How did Gilead come to its pricing? It took an unusual course.
It determined that an earlier hospital discharge would save an average of $12,000 per COVID-19 hospital patient. Then Gilead discounted from there to get to $3,120 and $2,340 for a treatment of remdesivir.
What happened?
The internet blew up with claims of profiteering and price gouging. The biopharma industry exercised restraint, but it was not happy either. Gilead broke course and heavily discounted a very valuable, life-saving drug.
Gilead is a multibillion-dollar corporation. Its enterprise value is $96 billion to be exact. It has $24 billion in cash right now, which might sound like a lot. But it also has $24 billion in debt.
The company will do well this year, generating about $7.7 billion in free cash flow. Most of that will go right back into research and development (R&D). Last year, it spent more than $9 billion on R&D.
And the company is taking an incredible risk ramping up production for remdesivir despite the dramatic decline in COVID-19-related deaths and the numerous other vaccines and therapies that are also showing promise. In other words, it may be for naught.
Nonetheless, Gilead will have produced two million treatment courses for COVID-19 patients by the end of this year… whether they are used or not.
Like I said, it was a no-win situation.
Except, of course, for COVID-19 patients who recover with the help of remdesivir.
Go Gilead.
Last month, we talked about how Amazon was in talks to buy autonomous driving company Zoox. This is one of the more prominent self-driving startups out there.
Zoox developed a car that can drive both backward and forward. What’s more, Zoox developed the software that powers its self-driving cars. It’s an all-in-one solution, or what we call a “full stack” approach to tech development.
That’s unique in the autonomous driving space. Tesla is the only other company to have pulled it off. We can compare that with Google’s Waymo, which has software but no vehicles of its own design.
Have a look at some of the Zoox prototypes in action…
Zoox’s Prototypes
Source: Instagram (Zoox)
Well, the deal has been finalized. Amazon will acquire Zoox for about $1.2 billion. Zoox was valued at $3.2 billion after its last funding round in 2018. And the company had raised nearly $1 billion since its founding in 2015.
So Amazon is getting Zoox for roughly the same amount of money that’s been invested in the company to date.
Autonomous driving tech companies are now being acquired left and right. They get to the point where they require a ton of R&D, and it makes sense to have deeper pockets help bring the tech to commercialization.
This move reminds me of Amazon’s acquisition of Kiva, which was the robotics company that became the foundation of Amazon’s warehouse automation systems. Amazon used Kiva’s technology to automate nearly all the work done in its warehouses and fulfillment centers.
Today, Kiva’s robots zip around Amazon’s warehouses, moving entire shelves of products to facilitate sorting and packaging when orders come in.
So what is Amazon going to do this time?
Zoox had plans to develop a self-driving taxi service that could compete with Uber and Lyft. It’s not that big of a stretch to think that Amazon could continue those plans. After all, its entire business is centered on creating marketplaces. Why not create a new marketplace for autonomous ride-hailing?
But I think Amazon’s most likely first step is to use Zoox to shuttle goods back and forth between warehouses and distribution centers as needed. That would cut costs and boost margins, and it will add even more efficiency to Amazon’s logistics operations.
And the second step would be last-mile delivery.
Amazon’s Whole Foods already offers grocery delivery. We can imagine those deliveries being done with Zoox’s self-driving cars instead of delivery drivers. We place our order online, and then we get a message on our phone when the Zoox-based delivery car is outside.
We simply walk out, use our phone to flash a code to a scanner, and the car opens. Then we grab our groceries and go back inside. Such a service would be incredibly convenient and completely contactless.
So I’m excited to see which way Amazon goes with this one. And we won’t have to wait long – Amazon didn’t spend $1.2 billion just to sit on the tech.
And for the record, this move is very bullish for Amazon. Self-driving tech will boost both margins and free cash flow, and we know what that does to share prices. Amazon is valued at $1.4 trillion today. The next stop is $2 trillion.
Amazon isn’t the only tech giant making big moves. Last week, Google announced that it will acquire augmented reality (AR) glasses maker North for $180 million. This is an interesting development.
Augmented reality is a technology that overlays video, images, and data on top of the user’s actual surroundings. Augmentation can be projected onto windows, windshields, smartphones, tablets, and most importantly, glasses.
As regular readers know, I believe AR is set to become the next mass-market consumer mania. I estimate this market is worth more than $100 billion annually. And I ultimately think AR glasses will replace our smartphones. That’s how bullish I am on this technology.
As for North, I have been following this company for several years, and I liked its approach. North’s AR glasses are relatively simple. They aren’t super high-tech, like Magic Leap’s, but they are very practical. The form factor is just like regular glasses. That’s important because consumers have shown that they aren’t interested in big and bulky goggles.
North’s AR Glasses
Source: North
North launched its AR glasses with a $1,000 price tag. But sales were awful, so the company dropped the price by $400. Rumor has it that North still only sold about 1,000 units. That’s why it was looking for an acquirer.
And here’s where it gets interesting…
North was generating less than $1 million in annual revenues. Yet Google is buying the company for $180 million. That’s an absurd 180+ enterprise value-to-sales valuation.
On the surface, Google overpaid by a long shot. But we know better. Google must have seen something behind the scenes that would justify the big price tag. I suspect it was the technology that North was working on in its laboratory, its second-generation AR glasses.
And the timing isn’t a coincidence.
Google just launched its ARCore software that runs on both Android and Unity (a popular gaming engine) platforms. The latest version supports bleeding-edge 3D graphics and lighting features.
Clearly, this is a tuck-in acquisition to support Google’s augmented reality aspirations. And I suspect it can learn a lot from North’s form factor after the bulky Google Glasses failed miserably.
So this is our sign that the war for AR is going to heat up over the next 12 months.
My prediction is that Apple will launch its own AR product next year – either in June or September. And we know Facebook is also racing to launch its own consumer AR product. Plus, Amazon’s Alexa-powered smart glasses will likely be upgraded to AR at some point as well.
It is going to be a battle of the titans for market dominance in the AR space. I can’t wait to watch this story unfold.
Poseida Therapeutics (PSTX) is a promising early stage company focused on genetic editing therapies to cure cancer. And the work Poseida is doing is bleeding edge. I have it pegged as one of my top up-and-coming genetic editing companies.
Poseida filed to go public with a $115 million initial public offering (IPO) on June 19 – just a few weeks ago. And somewhat oddly, the company just raised $110 million in a Series D venture capital (VC) round at the end of June.
That’s right – Poseida Therapeutics snuck in a big VC round right after announcing its IPO. That doesn’t happen very often. But clearly, there was demand from institutional money to invest ahead of the IPO. And early stage biotechnology companies rarely pass up the opportunity to raise capital.
Poseida Therapeutics was valued at $568 million prior to this latest raise. This new infusion of capital will bump that valuation up even higher as it heads into the IPO. And Poseida will likely have two to three years of cash runway after the IPO is complete. That’s always critical for these early stage biotech companies.
So Poseida Therapeutics is absolutely a company to watch. I’m excited to see how the company puts all of the capital to work… and the potential it has as a possible investment recommendation in the future.
Regards,
Jeff Brown
Editor, The Bleeding Edge
P.S. We’ll keep a close eye on Poseida. But in the meantime, there’s another biotech story that readers should pay attention to…
This company is on the verge of curing a form of blindness right now. And we aren’t talking about blindness in mice. We are talking about blindness in humans.
That’s right – this company is using CRISPR to help blind people see again. How incredible is that?
And here’s the best part: The first patient has already been treated in an FDA-sanctioned clinical trial. We are weeks – maybe days – away from data from that trial coming out, revealing to the world that CRISPR has the power to make the blind see.
I expect this company’s stock price to soar hundreds of percent… maybe even 1,000%… after this news comes out. And that means this is a stock every tech investor needs to have in his or her portfolio. Simply go right here for all the details.
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The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
