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The DNA Behind Good Investing with Vincent Aita · Masters in Business

0:02
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
0:09
Speaker 2: This is Master's in Business with Barry rid Hoolds on
0:13
Speaker 2: Bloomberg Radio.
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Speaker 1: This week on the podcast, I have another extra spectral guest.
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Speaker 1: I met Vince Aida at a panel of emerging managers
0:24
Speaker 1: earlier this year, and I thought the work he did
0:27
Speaker 1: and his background was really so unusual and so fascinating,
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Speaker 1: he would make for a great guest, and he absolutely did.
0:35
Speaker 1: He comes out of a graduate background at Columbia stunning
0:39
Speaker 1: genomics and biotech and decides I don't want to be
0:44
Speaker 1: a research scientist the rest of my life. I want
0:46
Speaker 1: to see how I can apply This ends up moving
0:49
Speaker 1: to the Byside, eventually goes to Millennium and then Citadel
0:55
Speaker 1: Capital before launching his own firm, Cutter Capital. You'll be
0:59
Speaker 1: amused and you hear what that name is based on.
1:02
Speaker 1: Really interesting. They run a market neutral, factor neutral book
1:06
Speaker 1: of biotech of US and European stocks. Just a fascinating
1:11
Speaker 1: process and a fascinating way to think about the massive
1:15
Speaker 1: changes that are taking place in a space that not
1:18
Speaker 1: only has the potential for explosive growth, but the ability
1:22
Speaker 1: to change your life, the quality of life, and the
1:26
Speaker 1: length of your life. Really amazing, fascinating stuff. I found
1:29
Speaker 1: this conversation to be fascinating, and I think you will
1:32
Speaker 1: also with no further ado my discussion with Cutter Capitals.
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Speaker 2: Vince Aida Barry, thanks a lot for the invitation. Then,
1:40
Speaker 2: well looking forward.
1:41
Speaker 1: To yees same here. We had you on a panel
1:44
Speaker 1: back in June of Emerging Managers and I thought what
1:47
Speaker 1: you did is so fascinating and you have such an
1:50
Speaker 1: interesting background. Let's start with that. You're a post doctoral
1:54
Speaker 1: fellowship candidate at Columbia in the early two thousands at
1:59
Speaker 1: the Department of Genetics and Development. What was the career
2:03
Speaker 1: plan were you? Were you going to be a doctor?
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Speaker 2: I had thought originally that I was going to be
2:08
Speaker 2: an academic scientist. I did my PhD work at the
2:12
Speaker 2: Columbia Genome Center at a time where we had one
2:16
Speaker 2: of the chromosomes in the genome project, and so we
2:18
Speaker 2: were involved in that first push to sequence the genome,
2:23
Speaker 2: and I had thought that, you know, academics is what
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Speaker 2: going to carry me forward. My individual work was related
2:30
Speaker 2: to the study of actually evolution on a molecular level.
2:35
Speaker 2: There's a whole rabbit hole that you could go down,
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Speaker 2: you know, kind of chasing that but suffice to say
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Speaker 2: that I think that Darwin in his explanation of evolution
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Speaker 2: does not necessarily fully describe the phenomenon that you see
2:51
Speaker 2: on a molecular genetic level. And we were much more
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Speaker 2: in the camp of I was much more in the
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Speaker 2: camp of following Moto Kimura's neutral theory of evolution, which
2:59
Speaker 2: is a real let me go down yourself, so let.
3:02
Speaker 1: Me make sure I'm following you. In broad strokes, adaptability, survival,
3:07
Speaker 1: the fittest more or less right on a species by
3:10
Speaker 1: species level. But when you get down to mitochondria and
3:15
Speaker 1: what power sells and everything at that level, are you
3:18
Speaker 1: going even further?
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Speaker 2: We're saying, you know, the idea is that Darwin was
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Speaker 2: right on a more obvious phenotypic level for some of
3:29
Speaker 2: the things that are very easy to track. But if
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Speaker 2: you're talking about the actual fuel of evolution, what drive
3:36
Speaker 2: it on a molecular genetic level, it's much more driven
3:40
Speaker 2: by mutations that really don't have any impact on fitness
3:47
Speaker 2: and random genetic drift and so, and there's a ton.
3:49
Speaker 1: Of that out there. I mean, you think about all
3:52
Speaker 1: the little things. We're still trying to figure out what
3:54
Speaker 1: the appendix does at a cellular or even small moleculecular
3:59
Speaker 1: level that's not really fascinating.
4:02
Speaker 2: So that was, you know, an initial career path that
4:05
Speaker 2: I was, you know, kind of really intrigued to study. Obviously,
4:08
Speaker 2: I'm still excited to talk about that type of stuff,
4:11
Speaker 2: but I realized at a certain point that science was
4:15
Speaker 2: not going to be the path for me. It involved
4:19
Speaker 2: further and further specialization and doing work in centers of
4:22
Speaker 2: excellence that are not necessarily geographically where do you'd want
4:26
Speaker 2: to spend your life? And so I wound up choosing
4:28
Speaker 2: New York. And so then the thought was, if I
4:32
Speaker 2: wasn't going to be academic, where could I take the
4:35
Speaker 2: knowledge base that I had developed and find a passion
4:39
Speaker 2: to apply it in a different direction.
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Speaker 1: So theater, media, real estate is a lot of things, sure, absolutely,
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Speaker 1: but you know, you said, finance.
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Speaker 2: I came to the conclusion that the knowledge base I
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Speaker 2: had that finance provided an opportunity for me. For me personally,
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Speaker 2: I am a lifelong learner, and one of the things
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Speaker 2: in finance that's fascinating to me me going even till today,
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Speaker 2: is that you never stop learning, You never stop trying
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Speaker 2: to become more of an expert at what you're doing,
5:07
Speaker 2: but just more experience learning from the world, and it's
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Speaker 2: a constant, constant process, and that's fascinating to me.
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Speaker 1: I'm totally with you. Autodidactism is wildly underrated. But walk
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Speaker 1: me through this. So healthcare is your focus your entire career.
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Speaker 1: Describe what that transition is like, going from Hey, I'm
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Speaker 1: literally in a Columbia grad school fellowship to I want
5:36
Speaker 1: to move into the world of finance. How does that happen?
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Speaker 1: I did the same thing. I was practicing attorney, miserable
5:42
Speaker 1: and said, let's see if I can transition to something else.
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Speaker 1: So I'm always intrigued to hear other people's stories of.
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Speaker 2: Sure, absolutely for me, I thought the knowledge base that
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Speaker 2: I developed, this science itself was evolving so rapidly. You know,
5:57
Speaker 2: the unlocking of the sequencing of the genome was going
6:00
Speaker 2: to provide this, you know, the thought was going to
6:02
Speaker 2: be a new golden era of drug development. And it
6:05
Speaker 2: might have taken twenty years that come. But the genetic
6:09
Speaker 2: medicines that are being developed now, and the whole approach
6:12
Speaker 2: to medicine today is much more based on what I
6:16
Speaker 2: describe as biology first, as opposed to chemistry. First, where
6:21
Speaker 2: previous generations of drugs were really all oral pills that
6:24
Speaker 2: were chemical compounds that by serendipity they found out a
6:28
Speaker 2: way it might impact a disease. Now it's much more
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Speaker 2: biology driven. And so at that time, with the background
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Speaker 2: I had, I thought, you know, the world of finance
6:38
Speaker 2: might appreciate the domain expertise I had coming out of
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Speaker 2: coming out of a scientific background, and I could learn
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Speaker 2: the finance side of it. So I went straight to
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Speaker 2: the buyside at that point.
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Speaker 1: So go for a doctor in economics, who'd you first
6:55
Speaker 1: share your expertise with on the buyside.
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Speaker 2: Well, like in many things in life, there's serendipity to
7:01
Speaker 2: finding opportunities. And one of the professors at Columbia who
7:07
Speaker 2: was a mentor of mine and I had worked with
7:10
Speaker 2: Izzy Edelman. His son, Joe Edelman, founded Perceptive, which is
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Speaker 2: a firm that has been tremendously successful as healthcare investors.
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Speaker 2: And so when I was trying to network and find
7:23
Speaker 2: people in the world of finance, I spoke to Izzy
7:26
Speaker 2: about it and he said, wy, don't you talk to
7:27
Speaker 2: my son Joe. And then conversation with Joe, which he
7:30
Speaker 2: was kind enough to give me a portion of his
7:32
Speaker 2: time opened the door to other people to talk to
7:35
Speaker 2: you in roads into the industry and then just knocking
7:38
Speaker 2: on doors found an opportunity for me.
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Speaker 1: Huh, that's really interesting. So what was your first gig
7:43
Speaker 1: in the world of investing.
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Speaker 2: My first gig was at Paramount Capital Asset Management. Paramount
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Speaker 2: was a small boutique biotech firm that had investments in
7:54
Speaker 2: both private equity side and public They were crossover investors
7:58
Speaker 2: in the early days of doing that.
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Speaker 1: Is that that's not Deb Solomon.
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Speaker 2: That was lind Lindsay Rosenwald was the founder there and actually, interestingly,
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Speaker 2: Joe was director of research there for a number of
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Speaker 2: years before I moved on to start present.
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Speaker 1: So you begin as what a junior animal.
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Speaker 2: So I came in as a junior analyst. My role
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Speaker 2: was just to like dig through business plans, dig through
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Speaker 2: drug development and try to handicap what would work, but
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Speaker 2: equally as interestingly, what's going to fail. And I got
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Speaker 2: a lot of reps at seeing different attempts at drug development,
8:31
Speaker 2: rinse and repeat over a number of years to try
8:33
Speaker 2: to get those initial you know, kind of training on
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Speaker 2: how the drug development process kind of really works and
8:40
Speaker 2: how that interacts with the equity markets.
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Speaker 1: Huh really really interesting. So that's your first gig. How
8:46
Speaker 1: long did you stay there?
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Speaker 2: I stayed there for about three years. I moved on
8:50
Speaker 2: to another firm, Kilkenny Capital, which was a Chicago based
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Speaker 2: firm also focused mainly in biotech, but a smaller cap
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Speaker 2: healthcare investor, and and that was the next three years
9:01
Speaker 2: of my career. From there, I really started to get
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Speaker 2: my first inkling of process and thinking about the drug
9:09
Speaker 2: development world and a probabilistic lens. I think previously for commonly,
9:15
Speaker 2: you know, you go about the investment world looking for
9:20
Speaker 2: people who are tremendously successful because they find ideas and
9:24
Speaker 2: they have maximum conviction and those ideas play out and
9:27
Speaker 2: they look like heroes, which is terrific in those individual
9:31
Speaker 2: success cases, but is littered with failure of people who
9:35
Speaker 2: fail to find that opportu.
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Speaker 1: You're a little survivorship bias in what you actually say.
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Speaker 2: Absolutely so, I thought early on in my career and
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Speaker 2: it's been something that has carried through in my personal
9:45
Speaker 2: style to really kind of look at the world under
9:47
Speaker 2: a much more probabilistic lens, where you're just asking yourself
9:52
Speaker 2: where their situations, where the herd is thinking one thing.
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Speaker 2: Consensus has one level of thought, but you've got to
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Speaker 2: good foundation to believe why. Reality has a much bigger
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Speaker 2: percentage chance of not playing out that way.
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Speaker 1: So let's stay with that. I love the idea of
10:08
Speaker 1: probabilistic thinking. My prior bias with biotech, especially smaller biotech,
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Speaker 1: is it's not so much probabilistic as binary, which I
10:18
Speaker 1: guess technically as probability, but it seems either the drug
10:23
Speaker 1: works or it doesn't, the drug has side effects or
10:25
Speaker 1: it doesn't, the FDA approves it or not. Like I've
10:28
Speaker 1: always looked at, Hey, it's black and white. You're implying
10:33
Speaker 1: there is some more nuance here.
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Speaker 2: There is, And I think what I'm trying to imply
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Speaker 2: is there's a lot of informational value that's already held
10:42
Speaker 2: within the valuations the way these equities are trading, that
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Speaker 2: you can calculate, you know, a sense of the implied
10:49
Speaker 2: market probability of success for an opportunity for a company,
10:53
Speaker 2: whether it's a product embedded within a larger company or
10:56
Speaker 2: whether it's as you're referring to as smaller cap. You know,
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Speaker 2: kind of much more udosyncratic binary event and by looking
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Speaker 2: at that information and contrasting that with you know, an
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Speaker 2: independently formulated view that you may have if there's an
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Speaker 2: opportunity that arises between the two, to play some sort
11:15
Speaker 2: of kind of arbitrage and probabilities in your in your
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Speaker 2: portfolio construction. That's the goal of the style of investing
11:21
Speaker 2: we do.
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Speaker 1: So you're at a series of relatively smallish boutique healthcare
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Speaker 1: focused shops and you start developing a sense of there
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Speaker 1: is a set of probability analyses to be had. A
11:34
Speaker 1: lot of the industry or a lot of the crowd
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Speaker 1: isn't engaging in that. What led you to that approach?
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Speaker 1: And then where did that approach take you?
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Speaker 2: Well, I think where the second part of it is
11:46
Speaker 2: kind of easy to kind of start off with. Here.
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Speaker 2: Where it took me was the idea that there's you know,
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Speaker 2: mispricings to be found on either long or short opportunities,
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Speaker 2: depending on where you know, what kind of market view
12:01
Speaker 2: is on a lot of these names. For my own
12:04
Speaker 2: personal style and satisfaction, I didn't want to have part
12:09
Speaker 2: of the performance that I was measured against dictated by
12:13
Speaker 2: what the market did, and so I just kind of
12:15
Speaker 2: almost intuitively gravitated towards a market neutral style of investing,
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Speaker 2: where I thought, any year, year in, year out, regardless
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Speaker 2: of what macroeconomic conditions are, regardless of what the stock
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Speaker 2: market does, if I'm successful at trying to identify idiosyncratic
12:31
Speaker 2: stock opportunities, we could generate returns irrespective of market conditions.
12:37
Speaker 2: And so that was very appealing to me, and so
12:39
Speaker 2: that's what had me pivot back in two thousand and
12:41
Speaker 2: seven to the first market neutral hedge fund that I
12:45
Speaker 2: worked at, and I've been in market neutral investing ever since.
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Speaker 1: Let's talk a little bit about the next phase of
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Speaker 1: your career. After spending time at various healthcare boutiques, you
12:55
Speaker 1: join Millennium in twenty eleven. They are a giant and
12:59
Speaker 1: highly reguarded hedge funds. You join as an analyst. Tell
13:03
Speaker 1: us what you did over your three years at Millennium.
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Speaker 2: Sure, Millennium was intriguing as an opportunity for me because
13:11
Speaker 2: I had been through the earlier part of my career
13:14
Speaker 2: at a few, as you mentioned, smaller hedge funds, and
13:16
Speaker 2: I wanted to have an experience of what was already
13:19
Speaker 2: at that time. This is twenty ten, twenty eleven, we're
13:22
Speaker 2: talking about the emergence of a few of these larger
13:27
Speaker 2: hedge funds as really centers of excellence, as really kind
13:31
Speaker 2: of these multistrats that were already starting to dominate the landscape,
13:34
Speaker 2: and I wanted to experience, you know what it is
13:37
Speaker 2: about those places that allow them to kind of consistently outperform.
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Speaker 2: And so Millennium, to me, was another opportunity for me
13:46
Speaker 2: to expand out of the small cap biotech universe that
13:50
Speaker 2: I had been predominantly involved with for the first you know,
13:54
Speaker 2: call it portion of my career and move into broader healthcare.
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Speaker 2: So it was my first time covering your peace in healthcare.
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Speaker 2: I moved into larger cap pharma, generic spec pharma, the
14:05
Speaker 2: whole landscape of drug development. It really opened up the
14:07
Speaker 2: opportunity set for me.
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Speaker 1: Let's talk about some of the other sectors you focus on.
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Speaker 1: You start with small cap pharma or small cap biotech,
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Speaker 1: get more granular, where do you go from there?
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Speaker 2: At Millennium, So what's really interesting, I started off, as
14:23
Speaker 2: I kind of mentioned before, focused on trying to come
14:28
Speaker 2: up with identification of opportunities in biotech where I felt
14:34
Speaker 2: like risk was mispriced at its heart. That's what we're
14:36
Speaker 2: talking about here from a probablistic lens of asking, you know,
14:40
Speaker 2: what the market is pricing into an equity for an
14:42
Speaker 2: event versus what I think the view is of that
14:44
Speaker 2: particular event. What's really interesting when you get into the larger,
14:48
Speaker 2: more complicated companies that have robust operating businesses, moving into
14:52
Speaker 2: big pharma, moving into especially farmer companies, Investors at the
14:57
Speaker 2: same time have to hold views of the cash flow
15:00
Speaker 2: generative potential of the operating business and the scientific complexity
15:04
Speaker 2: of the pipeline. And depending where they are in the narrative,
15:08
Speaker 2: there's oftentimes one part of that story might prevail over
15:11
Speaker 2: the other part of the story and lead to a
15:14
Speaker 2: skew in the pricing of that other aspect of the business.
15:17
Speaker 2: And so while the moves are maybe not as flashy
15:21
Speaker 2: as what you'll see in small cap biotech when a
15:23
Speaker 2: piece of news comes out and stocks up one hundred percent,
15:26
Speaker 2: they're definitely idiosyncratic moves in nature and often have a
15:29
Speaker 2: bit of an asymmetry to them in terms of upside
15:31
Speaker 2: versus downside when that event happens, And so there's a
15:34
Speaker 2: lot of fuel for investment opportunities throughout the kind of
15:40
Speaker 2: story arc of larger companies in shorter time intervals. And
15:44
Speaker 2: that's really kind of what we rinse and repeat and
15:47
Speaker 2: did a lot of when we're at Millennium.
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Speaker 1: So all the science is fascinating. You're doing all this
15:52
Speaker 1: at Millennium, which is really known as a very hard
15:55
Speaker 1: charging trading shop. I'm curious your time at Millennium. You're
16:01
Speaker 1: there for a couple of years, do you start to
16:03
Speaker 1: get the bug, do you start saying to yourself, Hey,
16:06
Speaker 1: I can manage a portfolio. I want to be involved
16:09
Speaker 1: long store. I want to start training some of my
16:12
Speaker 1: high conviction names. How long does it take before you're
16:16
Speaker 1: an analyst at Millennium before you say I really need
16:19
Speaker 1: to start managing money?
16:21
Speaker 2: Well, I mean that is that was definitely a big
16:24
Speaker 2: part of the motivation for coming, for going in there,
16:26
Speaker 2: and also for eventually for leaving. For going in there,
16:30
Speaker 2: I thought to be a well rounded investor, I needed
16:33
Speaker 2: to have a wider aperture than just covering smaller cat
16:36
Speaker 2: biotech names. So I moved there to expand my coverage universe.
16:40
Speaker 2: After a few years of following that world, I really
16:43
Speaker 2: felt like I was ready to take the next step
16:45
Speaker 2: and to find an opportunity where I would be given
16:48
Speaker 2: that opportunity to prove myself and start to manage money.
16:51
Speaker 1: Huh. Really interesting, And so you depart Millennium to go
16:54
Speaker 1: to survey or Capital part of investing giants Citadel tell
16:59
Speaker 1: us without So.
17:01
Speaker 2: Again, you know, serendipity plays an interesting role in this.
17:04
Speaker 2: I had a colleague of mine from my Healthcore days,
17:07
Speaker 2: Jeff Green, who was brought on to start a new
17:11
Speaker 2: team at Citadel, and I knew that Citadel has and
17:15
Speaker 2: I could tell you from having been there for seven years,
17:18
Speaker 2: it's absolutely true. You know, a culture that tries for
17:21
Speaker 2: an organization that large to really lean into being a meritocracy,
17:26
Speaker 2: to evaluate the performance of analysts at various steps of
17:29
Speaker 2: their career, and to promote internally people who are strong performers.
17:33
Speaker 2: And so I thought it is a bet on myself
17:36
Speaker 2: to go there that if I could be, you know,
17:38
Speaker 2: just as strong as analysts as I could be for
17:40
Speaker 2: the first year or two, that there would be an
17:42
Speaker 2: opportunity that opened up to grow there. And in fact,
17:44
Speaker 2: that's exactly how it played out. I was an analyst
17:47
Speaker 2: there for two years, and then when an opportunity opened
17:50
Speaker 2: up for an internal promotion, to portfolio manager. In the
17:53
Speaker 2: beginning of twenty seventeen, they promoted me to that seat.
17:56
Speaker 1: So talk to us about what that transition was like
18:00
Speaker 1: from being almost you know, I think of analysts as
18:03
Speaker 1: almost academic researchers, to actually running money, having real capital
18:08
Speaker 1: at risk. Tell us about the transition and what were
18:11
Speaker 1: some of the highlights and pitfalls.
18:14
Speaker 2: Sure. Well, Again, one of the things I'd fall back
18:17
Speaker 2: on in terms of the culture of Citadel and how
18:20
Speaker 2: they develop people is at every step of the way
18:23
Speaker 2: when you're on your journey, when you're an associate, they're
18:26
Speaker 2: training you to do the analyst job. When you're an analyst,
18:28
Speaker 2: they're training you to do the portfolio manager's job. So
18:31
Speaker 2: as an analyst there for a year of my tenure,
18:34
Speaker 2: I actually had a carve out of a smaller sub
18:37
Speaker 2: sector book that I was able to manage on my
18:39
Speaker 2: own under the watchful supervision of my portfolio manager. But
18:44
Speaker 2: I had the opportunity to start taking risk on my
18:46
Speaker 2: own in step with that. Citadel has you know, reputational
18:50
Speaker 2: that's pretty well known, a risk framework that I think
18:54
Speaker 2: is probably second to none in terms of how they
18:57
Speaker 2: put guidance in place for you to understand the various
19:00
Speaker 2: risks your portfolio carries, and if you lean into learning
19:04
Speaker 2: that kind of system of investing, it really helps in
19:08
Speaker 2: the transition from going to analysts to portfolio manager.
19:11
Speaker 1: I'm really intrigued by the concept at some of the
19:13
Speaker 1: big farm of the big pharmaceutical companies and their pipeline.
19:18
Speaker 1: How does anyone have any clarity to the dozens of
19:21
Speaker 1: compounds and endless potential drugs that A fives or or
19:28
Speaker 1: you know, Johnson and Johnson are any of the big
19:30
Speaker 1: shops are working on. It's got to be fairly difficult
19:34
Speaker 1: to look into the future must much less what's going
19:38
Speaker 1: on right now.
19:39
Speaker 2: Well, what's actually really interesting about healthcare as a sector
19:43
Speaker 2: of the market is I would argue you have more
19:47
Speaker 2: visibility and a longer time period to evaluate the future
19:52
Speaker 2: cash flow generative drivers of those businesses than any other sector.
19:57
Speaker 2: I mean, sure, Apple every year might give you a
19:59
Speaker 2: look what they're launching that year, but you don't really
20:01
Speaker 2: have a couple of years look into their R and D.
20:04
Speaker 2: You really don't have look into R and D for
20:06
Speaker 2: you know, utilities companies or you know what other whatever
20:10
Speaker 2: hotail or energy consumers what they're working on but the
20:14
Speaker 2: nature of the drug development process mandates that the clinical
20:19
Speaker 2: research for these drugs at various phases of development, starting
20:23
Speaker 2: when the drug is first put into man gets published
20:26
Speaker 2: and gets presented at medical conferences, and even the conduct
20:31
Speaker 2: of future studies is publicly posted, so you're able to
20:35
Speaker 2: then have a lot of information that can help you
20:39
Speaker 2: formulate a view on the probabilities of success or failure
20:43
Speaker 2: and the ultimate end user markets for those products that
20:46
Speaker 2: you can't really have in other sectors. And it also
20:49
Speaker 2: provides a big opportunity for investors to misprice those assets
20:54
Speaker 2: because they're taking, you know, kind of behaviorally driven bets
20:58
Speaker 2: on things they love, things they hate, and since you're
21:00
Speaker 2: years away from ultimately being proven right or wrong, there
21:05
Speaker 2: are a lot of ups and downs along the way.
21:07
Speaker 2: So it's a really fascinating sub sector to be delving
21:11
Speaker 2: into from an event driven perspective.
21:14
Speaker 1: Really interesting. Giving your background at Columbia, I'm kind of
21:18
Speaker 1: intrigued by what's been going on with genomics and the
21:22
Speaker 1: concept of custom tailoring a sort of set of treatments
21:27
Speaker 1: to your specific genome and whatever specific type of issue
21:33
Speaker 1: is ailing you. How do you have any visibility down
21:37
Speaker 1: that route? It seems like it's such an immense opportunity set.
21:42
Speaker 1: Obviously I'm not in that space, but I can't wrap
21:45
Speaker 1: my head around just the vast opportunities that have to
21:48
Speaker 1: be coming in.
21:49
Speaker 2: Well, what's amazing now is we're finally seeing the realization
21:54
Speaker 2: twenty thirty years later of a lot of the work
21:56
Speaker 2: that was done at the turn of the century to
22:00
Speaker 2: provide those insights into the genetic underpinnings of a lot
22:04
Speaker 2: of human disease. And today, more and more we're no
22:08
Speaker 2: longer seeing diseases defined by what tissue that they affect
22:13
Speaker 2: or what you know organ system is involved, but they're
22:16
Speaker 2: more and more being defined by the genetic underpinnings of
22:20
Speaker 2: those diseases. Even in cancer these days, before you used
22:24
Speaker 2: to have two types of lung cancer, it was either
22:26
Speaker 2: small cell or non small cell, and maybe you've got
22:28
Speaker 2: granule enough to ask if it was squamous or add
22:31
Speaker 2: no carcinoma. In pistology today we're asking, you know, are
22:36
Speaker 2: you alkpositive, are you EGFR positive? You know, are you
22:39
Speaker 2: ross positive? Genetic yes, And that's allowing for the creation
22:46
Speaker 2: of much more precise, targeted therapies that are not only
22:50
Speaker 2: delivering better efficacy, than your former mainly chemistry driven medicines,
22:56
Speaker 2: but also having a better side effect profile because they're
22:58
Speaker 2: more targeted to what's wrong with it is. So it
23:00
Speaker 2: is tremendously fascinating that this is going on. It continues
23:04
Speaker 2: to emerge, it's starting to move into cardiology, it's starting
23:07
Speaker 2: to move into other areas of medicine. The medicines themselves
23:11
Speaker 2: are becoming more genetic in nature. Whether we're starting to
23:14
Speaker 2: utilize i mean even coming out of the pandemic and
23:16
Speaker 2: mRNA based therapeutics, but you're starting to use you know,
23:20
Speaker 2: target anti by therapeutics. Gene therapy is being approved now
23:24
Speaker 2: at rates that we've never seen previously, even if they're
23:26
Speaker 2: freniche diseases. It's a proof of concept that that's all
23:29
Speaker 2: on the com So it's very exciting time and healthcare
23:31
Speaker 2: for innovation.
23:32
Speaker 1: So I want to make sure I'm hearing this correctly
23:33
Speaker 1: from you because it's really so fascinating. It was chemistry
23:38
Speaker 1: for a long time, Hey, this chemical seems to have
23:40
Speaker 1: this reaction in the body and maybe it helps this disease.
23:44
Speaker 1: Then it becomes biology, which is a little more focused
23:48
Speaker 1: and then ultimately down to the genomic level.
23:51
Speaker 2: Yeah, genetic medicines being being the next wave of innovation
23:54
Speaker 2: and healthcare.
23:55
Speaker 1: And what does this mean for managing future diseases, what
24:00
Speaker 1: does this mean for fighting cancer, and what does this
24:02
Speaker 1: mean for longevity.
24:04
Speaker 2: Longevity is still an open question because of so many
24:07
Speaker 2: different things you've got to tackle all together, and that
24:10
Speaker 2: that pulls into it a lot of other lifestyle related
24:14
Speaker 2: and more you know, kind of metabolically related issues, and
24:17
Speaker 2: so that's almost delving more into the world of nutrition
24:20
Speaker 2: and health. So it's it's hard to go down that route.
24:22
Speaker 1: Wait, I'm waiting for the little nano robots to take
24:25
Speaker 1: care of my cholesterol or.
24:28
Speaker 2: Whatever, shooting them with lasers.
24:30
Speaker 1: Right, that's right, even better, Oh, that's phase two. That's
24:33
Speaker 1: science fiction. I'm right there with you.
24:35
Speaker 2: Yeah, I think that's a little bit far afield. But
24:37
Speaker 2: in terms of healthcare innovations impact near term, it's driven
24:43
Speaker 2: more so by taking what was previously viewed as you know,
24:47
Speaker 2: kind of kind of very loosely defined conditions and narrowing
24:51
Speaker 2: the definitions of them based on the underlying biology of
24:55
Speaker 2: that disease and a tighter, more well defined, biologically defined
25:00
Speaker 2: subgroup of patients, and then developing therapeutics that target that,
25:04
Speaker 2: and that's where we're headed. And it's fascinating to be,
25:08
Speaker 2: you know, a witness to that and get to invest
25:10
Speaker 2: along the way.
25:11
Speaker 1: So we've been fighting the war on cancer since Nixon
25:14
Speaker 1: was president. It sounds like the tide is really beginning
25:19
Speaker 1: to turn. I know survival rates have gone way up
25:22
Speaker 1: for very specific types of cancer, and I know things
25:25
Speaker 1: that used to be fatal are now very treatable. Where
25:30
Speaker 1: are we in this process.
25:32
Speaker 2: I think it's going to be very variable based on
25:35
Speaker 2: the underlying type of cancer, because some of them are
25:38
Speaker 2: still much much more amenable to intervention than others. So,
25:43
Speaker 2: for example, pancreatic cancer, which is slow to really kind
25:47
Speaker 2: of have improved outcomes on it's really because the ability
25:51
Speaker 2: to diagnose it early is so difficult. Ovarian's another one
25:54
Speaker 2: where it's so difficult to diagnose early. Whereas cancers that
25:59
Speaker 2: kind of show up a little bit more readily, breast cancer,
26:03
Speaker 2: a lot of different forms of blood cancers, we've had
26:06
Speaker 2: much more of a head start in trying to develop
26:09
Speaker 2: new therapeutics for. And so I think, you know, CLL
26:13
Speaker 2: might be on the verge of chronic lymphysifical leukemia, might
26:16
Speaker 2: be on the verge of becoming one of the first
26:19
Speaker 2: diseases that's no longer you know, actually different in your
26:23
Speaker 2: death prognosis than an age matched, unaffective person. So in
26:27
Speaker 2: other words, you're no longer dying of that disease.
26:29
Speaker 1: And that's like lymphoma and related.
26:32
Speaker 2: And so this is starting to happen where you're seeing
26:35
Speaker 2: you know, survival rates pushed out so far that it's
26:38
Speaker 2: converting them into livable diagnoses.
26:41
Speaker 1: So let's talk a little bit about launching Cutter Capital
26:46
Speaker 1: right in November twenty twenty two, not a bad time
26:49
Speaker 1: to launch post pandemic stocks which had just bottomed after
26:53
Speaker 1: an awful twenty twenty two How fortunate was that? Was
26:57
Speaker 1: that timing?
26:58
Speaker 2: Well? I I would like to try to take more
27:01
Speaker 2: credit for the timing than maybe I can. A lot
27:03
Speaker 2: of it was dictated by the timing of my decision
27:05
Speaker 2: to leave Citadel. But at the same point, you know,
27:09
Speaker 2: when I left Citadel, I hadn't escaped my attention that
27:11
Speaker 2: we were in the midst of a significant regime change
27:14
Speaker 2: in the market. And it's not a bad time to
27:16
Speaker 2: sit it out if you're going to pick a time
27:18
Speaker 2: to sit it out.
27:19
Speaker 1: Yeah, to say the very least was it a challenge
27:21
Speaker 1: raising money during twenty twenty two. That was a pretty
27:24
Speaker 1: rough bear market, even though it only lasted, you know,
27:27
Speaker 1: less than a year.
27:28
Speaker 2: So I think it's hard to necessarily speak for, you know,
27:34
Speaker 2: kind of the broader fundraising environment at large. I think
27:39
Speaker 2: for myself, I had the benefit of an experience set
27:44
Speaker 2: that was very attractive to the market on the heels
27:48
Speaker 2: of significant outperformance that Citadel and Millennium were having relative
27:52
Speaker 2: to other peers at that time. I am willing to
27:56
Speaker 2: admit that Pedigree probably helped start the at least open
28:00
Speaker 2: the doors, and then the conversation is what follows. But
28:04
Speaker 2: you know, that allowed to have the initial conversations get started,
28:08
Speaker 2: so I think I probably benefited from their performance in retrospect.
28:12
Speaker 1: So, speaking broadly about the healthcare industry, a lot of
28:15
Speaker 1: interesting things going on coming out of COVID. You mentioned
28:19
Speaker 1: mRNA tell us a little bit about what you were
28:21
Speaker 1: seeing in that space at the time as a pandemic
28:26
Speaker 1: was kind of lifting well.
28:27
Speaker 2: I think one of the unique attributes of healthcare, among
28:31
Speaker 2: the others that we've kind of discussed here, is that
28:33
Speaker 2: there's never want of newsflow, and so you know, the
28:37
Speaker 2: strategy that I'd been running for a while previously and
28:41
Speaker 2: look to emulate at the start of Cutter is really
28:44
Speaker 2: the harvest thing of volatility around the healthcare drug development
28:49
Speaker 2: process on both along and the short side. And so
28:53
Speaker 2: I'm not really necessarily looking to take a bet that
28:57
Speaker 2: innovation in general is at a certain you know peak
29:01
Speaker 2: or nader. I'm just happy that it's happening so that
29:05
Speaker 2: there's an opportunity set for us to get involved with.
29:08
Speaker 1: Well, if we look at the pandemic era, there were
29:10
Speaker 1: a lot of you know, remote work work from home stocks,
29:15
Speaker 1: everything from docu sign to teledoc to Peloton that all
29:20
Speaker 1: had these huge moves. What is Peloton ninety seven percent off?
29:23
Speaker 1: It's you know, highs And I always assume something similar
29:27
Speaker 1: was happening with all the companies that got those giant
29:31
Speaker 1: contracts to manufacture the COVID vaccine or the variations of them.
29:38
Speaker 1: What did that space look like to you at that point?
29:41
Speaker 2: Yeah, absolutely, I think that it was probably driven by
29:45
Speaker 2: a search for you know, any sort of thematic lens
29:48
Speaker 2: that could drive returns that had investors crowding into anybody
29:55
Speaker 2: who was helping while everybody else was being hurt. Difficulty
30:01
Speaker 2: in that investing at the time was people putting, you know,
30:05
Speaker 2: multiples of value longer term on what was inherently a
30:11
Speaker 2: short term stop gap contracting. I mean, you know, realistically,
30:16
Speaker 2: those contracts were really only worth the profit they generated
30:19
Speaker 2: a near term, and putting a multiple on them didn't
30:21
Speaker 2: make sense because there's no annuity value.
30:24
Speaker 1: It's not once the picture of the python that's.
30:27
Speaker 2: It, exactly, And so I think there was a lot
30:30
Speaker 2: of that taking place at the time, driving companies like
30:33
Speaker 2: Maderna and Bio went to and even Pfizer at that point.
30:36
Speaker 2: Pfizer trading off for multiple that is derived from a
30:41
Speaker 2: huge proportion of its revenue coming from COVID just didn't make,
30:45
Speaker 2: you know, valuation sense either.
30:47
Speaker 1: Your banning COVID was going to stick around in a
30:50
Speaker 1: much broader way than it did and continue to drive profits.
30:54
Speaker 1: But then the rest of your portfolio has other issues,
30:56
Speaker 1: and it was sort of either we come out of
30:58
Speaker 1: it and everybody can get back to normal. But that
31:01
Speaker 1: means the pharmaceutical companies that did so well, and a
31:05
Speaker 1: lot of them began rolling over before that was obvious.
31:08
Speaker 2: Right, sure, I think there was a little bit of
31:10
Speaker 2: a realization ahead of time that this was its own
31:13
Speaker 2: type of bubble and that that was going to wind
31:15
Speaker 2: up passing.
31:16
Speaker 1: So since that point in time, we've seen all of
31:19
Speaker 1: these new weight loss drugs, the GLP one drugs, that
31:24
Speaker 1: not only are people talking about these as treatments for
31:28
Speaker 1: diabetes and weight loss, but it seems every day I
31:31
Speaker 1: read a different headline this is good for alcoholism or
31:34
Speaker 1: drug addiction, or you know, go down the list of
31:37
Speaker 1: all of these things that you wouldn't have thought were
31:40
Speaker 1: somehow related to diabetes. But the biochemical mechanism that's being
31:45
Speaker 1: used to, I guess, feed more dopamine. If you can
31:48
Speaker 1: interrupt that, you create a reduction of demand for whatever
31:53
Speaker 1: that addictive substance is tell us a little bit about
31:56
Speaker 1: what you're seeing in the GLP space.
31:58
Speaker 2: So I think that that's correct. I think that there's
32:01
Speaker 2: two phenomenon that are going on there. One is an
32:06
Speaker 2: understanding that obesity itself is such an integral risk factor
32:11
Speaker 2: to a number of different, seemingly potentially unrelated conditions that
32:16
Speaker 2: when you reduce that burden of obesity, you're reducing its
32:21
Speaker 2: impact in a number of ancillary diseases.
32:23
Speaker 1: When you say unreal.
32:24
Speaker 2: Apnea, you know I mean, there's always thought that obesity
32:28
Speaker 2: was a risk factor that might have an increase the
32:30
Speaker 2: currens of sleep apnea. Oh really, but it's now demonstrated
32:33
Speaker 2: that by reducing obesity you're actually improving sleep apnea outcomes.
32:38
Speaker 2: As one vignette, like.
32:40
Speaker 1: I immediately when I hear OBESID, I immediately think blood pressure, cholesterol,
32:44
Speaker 1: cardiac diabetes. Hey, that should be enough to do damage
32:50
Speaker 1: to most people. You're saying it goes far beyond that.
32:53
Speaker 2: There are definitely other elements of related. They call it
32:58
Speaker 2: a metabolic disorder, and it's a broader of things that
33:00
Speaker 2: can be that could be positively impacted by this. I
33:04
Speaker 2: should say it's not necessarily clear that they're impacted because
33:07
Speaker 2: of clip one versus being impacted because you're losing weight,
33:11
Speaker 2: but the net of it is still a positive.
33:14
Speaker 1: So when you look at the GLP drugs, what are
33:18
Speaker 1: you looking at? What companies do you find interesting? What's
33:22
Speaker 1: happening in that space? Has this gotten ahead of itself
33:25
Speaker 1: or is there still plenty and runway for this to
33:27
Speaker 1: keep ramping up?
33:28
Speaker 2: So I think that by and large, for the incumbents ELI,
33:33
Speaker 2: Lilly and Novo Nordisk, you know, a lot of the
33:36
Speaker 2: easy money on this is done. You know, they've already
33:39
Speaker 2: reached levels that you know, in terms of both multiples
33:42
Speaker 2: and market cap that you haven't seen. You know, I
33:45
Speaker 2: think there was a portion of time this year where
33:48
Speaker 2: Novo Nordisk had a larger market cap than the GDP
33:51
Speaker 2: of its host country. So you know, it's it's impressive.
33:55
Speaker 2: It's impressive, and a lot of that's already kind of
33:58
Speaker 2: baked into the expectation there. What's fascinating now if pharma
34:03
Speaker 2: does absolutely nothing else, well, they're very good at being copycats,
34:08
Speaker 2: and knowing that this mechanism works and has this potential
34:11
Speaker 2: has everybody chasing a better version. And what's really interesting
34:17
Speaker 2: right now in terms of the investment world are the
34:19
Speaker 2: second generation obesity drugs that can look at how the
34:24
Speaker 2: successes of Novo and Lily and iterate on it. And
34:29
Speaker 2: there's a wealth of that in development now and those
34:32
Speaker 2: are really fascinating. One example of that is a company,
34:36
Speaker 2: another Danish company, Zeeland Pharma, who are developing a amlin
34:41
Speaker 2: based therapeutic which is related in overall biology but not
34:47
Speaker 2: quite the same target as glip one, and they've shown
34:50
Speaker 2: some of the first data over this past summer of
34:53
Speaker 2: weight loss levels that are comparable, but with a better
34:56
Speaker 2: tolerability profile. And the goal here is going to be
34:58
Speaker 2: able to make these drugs experientially better for patients. And
35:03
Speaker 2: that's not just the vanity perspective or convenience perspective. It's
35:06
Speaker 2: going to help patients stay on these drugs longer and
35:09
Speaker 2: tolerate the whole therapy.
35:10
Speaker 1: You know, I recall it wasn't that long ago, I
35:14
Speaker 1: want to say a decade ago. There was sort of
35:17
Speaker 1: this sense, hey, all these big farmer companies, you know,
35:21
Speaker 1: they've shot there. Well, their best days are behind them.
35:25
Speaker 1: They're not developing new drugs, they don't have the new technologies.
35:28
Speaker 1: They don't they're not into the genomics aspect. They really
35:33
Speaker 1: are being left behind by what's happening. That turned out
35:37
Speaker 1: not to be all that accurate. It seems like the
35:41
Speaker 1: big farmers still have more than a few tricks up
35:44
Speaker 1: their sleeps.
35:45
Speaker 2: They do. And I think that the pharmaceutical industry right
35:49
Speaker 2: now in general, has reached a really good balance of sourcing,
35:54
Speaker 2: of having competition for sourcing products internally and extern and
36:00
Speaker 2: they're targeting their R and D efforts more and more
36:04
Speaker 2: in specific areas of expertise where they have previously shown
36:09
Speaker 2: successes and they have the infrastructure built and are no
36:12
Speaker 2: longer trying to be one stop shops that do research
36:15
Speaker 2: on everything. They have internal R and DA what they're
36:18
Speaker 2: good at, and then they look externally at bringing in
36:22
Speaker 2: other products that could have the benefit of helping their
36:27
Speaker 2: growth rate and long term value creation for their shareholders,
36:30
Speaker 2: but also really leverage their internal commercial capabilities and regulatory
36:34
Speaker 2: capabilities to aid these smaller companies and getting over the
36:37
Speaker 2: finish line. So it's a really good symbiotic relationship that's
36:40
Speaker 2: going on.
36:40
Speaker 1: So either through acquisitions or licensing, they can find new molecules,
36:44
Speaker 1: new drugs, new whatever and building on it. So you
36:47
Speaker 1: run a long short portfolio. I'm kind of curious given
36:52
Speaker 1: this wide birth of new technologies and companies and drugs
36:56
Speaker 1: that are coming along. First of all, do you run
36:59
Speaker 1: you know, a one twenty twenty or one thirty thirty
37:03
Speaker 1: or is it more opportunistic? How do you structure your book?
37:07
Speaker 2: So the goal at Cutter when we came out was
37:11
Speaker 2: looking at, if you take the experience base that I
37:15
Speaker 2: had had previously at the multi strategy funds that I
37:18
Speaker 2: had worked at and the industry in general. If you
37:21
Speaker 2: expanded to the ballyasn, The's in point seventy twos and
37:23
Speaker 2: everybody else. There is this convergent evolution of interaction with
37:29
Speaker 2: the market that these firms have all developed to have
37:32
Speaker 2: teams of a certain size sector specialist managing certain amount
37:36
Speaker 2: of capital in that sub sector in a market in
37:39
Speaker 2: factor aware type approach, And we thought it cutter. Why
37:45
Speaker 2: not democratize that a bit and allow the broader investor
37:49
Speaker 2: community to plug and play in their portfolios one of
37:52
Speaker 2: those high performing teams and be able to take that
37:55
Speaker 2: expertise in house to their own personal portfolios if you will.
37:59
Speaker 2: You may not be able to get a spot as
38:01
Speaker 2: an allocation in Citadel, but you could get a spot
38:03
Speaker 2: an allocation in someone who runs a Citadel style equities portfolio,
38:07
Speaker 2: which is the what we do. So our risk parameters
38:10
Speaker 2: market neutral and factor neutral are very similar to what
38:14
Speaker 2: you would have inside one of those other firms, such
38:17
Speaker 2: that if you kind of dropped our strategy into one
38:19
Speaker 2: of those firms, we wouldn't have to change what we're doing.
38:21
Speaker 1: Right, So let's define some of those terms for some
38:24
Speaker 1: of the lay people may not be familiar market neutral
38:27
Speaker 1: means your long half your book or some percentage your short,
38:31
Speaker 1: and it doesn't matter what the market does. If the
38:33
Speaker 1: market goes up, your lungs go up. If the market
38:36
Speaker 1: goes down, your shorts do better. And the expectation is
38:41
Speaker 1: over the fullness of times, your lungs will outperform the
38:45
Speaker 1: equity market, while your shorts will ultimately go in the
38:50
Speaker 1: right direction, even if it's not down as much as
38:54
Speaker 1: the market has gone up.
38:55
Speaker 2: I think that's a good description of it. I mean,
38:57
Speaker 2: what we're trying to do is really focus on this
39:02
Speaker 2: thematic style of investing that is really trying to harvest
39:07
Speaker 2: the inflection points in innovation and medicine and how that
39:10
Speaker 2: impacts the related equities to that, and take kind of
39:14
Speaker 2: market dynamics out of the mix, take exposures to different
39:20
Speaker 2: style factors in the portfolio out of the mix, so
39:23
Speaker 2: things like momentum, things like a growth verst value bias,
39:27
Speaker 2: and et cetera, et cetera, pulling their exposures out of
39:30
Speaker 2: the portfolio and really leaning into the bets you're making
39:33
Speaker 2: on a scientific basis. So we ask the question at
39:37
Speaker 2: Cutter over the next three, six, nine months, what are
39:41
Speaker 2: the inflection points in the practice of medicine and who
39:46
Speaker 2: are the winners and losers in that, and we try
39:49
Speaker 2: to build thematic trades that will be constellations of winners
39:53
Speaker 2: and losers that allow us to kind of hedge some
39:56
Speaker 2: of those other exposures and really extend our exposure to
40:01
Speaker 2: the scientific driver of performance in those names.
40:04
Speaker 1: So let's talk about the difference between the long half
40:07
Speaker 1: of your book and the short half of your book.
40:10
Speaker 1: My assumption, or let me just ask you this way.
40:13
Speaker 1: On the longside, you're looking for companies that are potentially
40:18
Speaker 1: putting out a new product that you think the rest
40:21
Speaker 1: of the marketplace hasn't recognized, either the likelihood of success
40:26
Speaker 1: or the potential upside. I'm reluctant to use the word
40:30
Speaker 1: value play because it really is less of a Hey,
40:34
Speaker 1: we think this drug, this technology, this new approach has
40:39
Speaker 1: this sort of commercial application and it's not reflected in
40:42
Speaker 1: stock price. Is that a fair way to describe how
40:45
Speaker 1: you think about it.
40:45
Speaker 2: I think so, it's pretty close. The one thing that
40:49
Speaker 2: I'd layer on top is it's not so much I
40:51
Speaker 2: wouldn't say that we're so much solely driven by a
40:55
Speaker 2: value mindset so much as we're driven by recognizing the
41:00
Speaker 2: potential for upside optionality. So sometimes companies that in their
41:04
Speaker 2: current market conditions you wouldn't call cheap, right, but they
41:08
Speaker 2: have additional accelerators on performance, They have additional upside in
41:13
Speaker 2: their pipelines that could continue to have them outperform that
41:18
Speaker 2: might not be fully appreciated by the market. We'll still
41:20
Speaker 2: be interested in those names.
41:22
Speaker 1: Right, Just because something's expensive doesn't mean it can't get
41:24
Speaker 1: more more right, And I'm always fascinated. People seem to
41:28
Speaker 1: think shorting is a mirror image of going long, but
41:31
Speaker 1: it really isn't. It's a very different sort of experience.
41:35
Speaker 1: Tell us what sort of screens you do to make
41:37
Speaker 1: downside bets. I mean, how much of it is hedging
41:40
Speaker 1: the long book and how much of it is just Hey,
41:43
Speaker 1: we think the stock is wildly misunderstood and there's a
41:47
Speaker 1: lot more downside than upside.
41:49
Speaker 2: If you'll indulge me for a moment. Cutter Capital itself
41:52
Speaker 2: is a baseball reference. I'm a big sports fan. That
41:55
Speaker 2: cut fastball is a pitch that Mariano perfected that's equally
42:00
Speaker 2: effective on left hand hitters and right hand hitters, depending
42:03
Speaker 2: on how we delivered it. For us, that represents our
42:06
Speaker 2: research process, which by doing the same type of analysis
42:10
Speaker 2: over and over. Emerging from that are opportunities where we
42:14
Speaker 2: find events as they are reflected in the underlying equities
42:18
Speaker 2: to be either indexed to over enthusiasm or underappreciated. And
42:23
Speaker 2: when there's over enthusiasm in a situation, when you know
42:26
Speaker 2: equities are reflecting fully an expectation that this innovation is
42:30
Speaker 2: going to work, that provides you an opportunity to find shorts.
42:34
Speaker 2: Because if that doesn't work out and everybody's got to
42:36
Speaker 2: change their view on the opportunity, you know those equities
42:39
Speaker 2: are are going to suffer.
42:41
Speaker 1: So how do you deal with the timing and the
42:43
Speaker 1: technicals of shorts because you could be right and a
42:46
Speaker 1: little early, and it's very painful on the short side.
42:49
Speaker 2: No, absolutely, That's why I think part of the style
42:53
Speaker 2: of investing we have looks at individual investment opportunities through
42:59
Speaker 2: more of a thematic lens, where we will then look
43:02
Speaker 2: at constellations of winners and losers and put them together
43:06
Speaker 2: in one trade. So our trades are often three four
43:09
Speaker 2: positions that are combinations in a particular therapeutic class, incumbents, innovators,
43:16
Speaker 2: fast followers that are all going to have different varying
43:20
Speaker 2: levels of their value influenced by these news events, and
43:25
Speaker 2: by pairing them up long and short, you're hoping that
43:28
Speaker 2: why you're waiting for that event to play out, you're
43:31
Speaker 2: hedging some of your market exposures. So to put it
43:33
Speaker 2: your way, if that's short, is the short which is
43:36
Speaker 2: the key to the trade is going up with the market.
43:38
Speaker 2: Hopefully your lungs are protecting you and making enough on
43:42
Speaker 2: the upside while you wait to get paid for the short.
43:44
Speaker 1: Are you restricted to only the healthcare sector? Or Like
43:48
Speaker 1: when I first started reading about glps, what immediately came
43:53
Speaker 1: to mind was young brands and McDonald's and Dunkin Donuts,
43:57
Speaker 1: and Hey, how are supermarkets going to deal with this?
44:00
Speaker 1: You know, the food in the perimeter of the supermarket, meat, poultry, fish, fruit, vegetables, dairy,
44:07
Speaker 1: their lowest profit margin stuff, all the junk in the
44:10
Speaker 1: middle that GLP users are not going to be consuming. Hey,
44:16
Speaker 1: does this mean Kroger's is a GLP downside play? And
44:21
Speaker 1: I have no idea, but it just it's a fascinating
44:23
Speaker 1: thought process.
44:24
Speaker 2: So I would say we stick to our domain expertise
44:29
Speaker 2: and we have a team that's highly specialized and focused
44:32
Speaker 2: in their career history and path to be healthcare specialists,
44:36
Speaker 2: and so we prefer to kind of kind of stick
44:38
Speaker 2: to where we have that level of domain expertise, and
44:41
Speaker 2: then beyond that for a second, I would just say
44:43
Speaker 2: that the glip ones are an exciting introduction to the
44:49
Speaker 2: broader investment world into what we do in healthcare every day.
44:53
Speaker 2: But it's relatively few and far between the type of
44:56
Speaker 2: drugs that have such an impact on a macro level
44:59
Speaker 2: that you could think madically bet outside the sector on
45:02
Speaker 2: their impacts. So you know, we have a preference to
45:05
Speaker 2: remain in the healthcare.
45:06
Speaker 1: World, So you also like to play in European pharmaceutical
45:10
Speaker 1: and healthcare stocks. Generally speaking, over the past couple of years,
45:15
Speaker 1: European values were much cheaper in the United States, and hey,
45:20
Speaker 1: if you were betting on that mean reversion ten fifteen
45:23
Speaker 1: years ago, we're still waiting. How do you look at
45:26
Speaker 1: the way things are priced in Europe and are the
45:30
Speaker 1: same discounts that we see in banking and other areas
45:34
Speaker 1: in Europe are they taking place in the healthcare sector.
45:37
Speaker 2: So I think what's interesting about investing in Europe for
45:42
Speaker 2: US might not necessarily be directly related to a view
45:46
Speaker 2: we have on the discounted valuations there, although what I
45:50
Speaker 2: would say about that is, by and large, US investors
45:57
Speaker 2: tend to be more speculative at earlier stages of development,
46:01
Speaker 2: being more willing to credit companies for future cash flows
46:05
Speaker 2: well in advance of the realization of whether those products
46:09
Speaker 2: will come to market or not.
46:11
Speaker 1: Meaning American investors tend to be more speculators and gamblers
46:15
Speaker 1: than their European counterpart.
46:16
Speaker 2: They tend to be more aggressive in their willingness to
46:19
Speaker 2: price in early data as proof of concept. I mean,
46:24
Speaker 2: there was even a time period during the height of
46:28
Speaker 2: the you know, kind of low rate biotech boom where
46:31
Speaker 2: you know, we used to sometimes joke that, you know,
46:33
Speaker 2: proof of concept was having a concept. You know, these
46:37
Speaker 2: things just ran as soon as companies announced they were
46:39
Speaker 2: working on things. European investors buyinglizes a generalization, but European
46:44
Speaker 2: investors generally want to have a more solid proof of
46:48
Speaker 2: concept before they start pricing in those opportunities to those equities,
46:53
Speaker 2: and so there is interesting opportunity there for you to
46:55
Speaker 2: get ahead of that curve and bring a little bit
46:58
Speaker 2: of US style speculation into European biotech and look at
47:01
Speaker 2: some of those those names. So that's an interesting reason
47:05
Speaker 2: to be in Europe. Another quick vignette and why it's
47:08
Speaker 2: interesting to be in Europe is in US, particularly for
47:12
Speaker 2: you know, kind of the market neutral world where we're living,
47:15
Speaker 2: there are times where, whether you want to call it
47:19
Speaker 2: positioning or crowding in names, or unwind regime, however you
47:24
Speaker 2: want to describe it, where US equities tend to act
47:28
Speaker 2: together in a de risking, you know, kind of mode,
47:31
Speaker 2: and it's based on what's popularly owned by the major
47:34
Speaker 2: hedge funds and they're de risking themselves. Europe in general
47:38
Speaker 2: doesn't behave in the exact same lockstep with the US.
47:42
Speaker 2: So if you have a relatively robust European book, it
47:45
Speaker 2: allows you to head yourself from some of the US
47:47
Speaker 2: crowding exposure because you're in a different world of investors,
47:51
Speaker 2: in a different mindset and different you know, drivers of
47:54
Speaker 2: those equity markets. So it provides a little bit of
47:57
Speaker 2: diversity to the approach and portfolio.
48:00
Speaker 1: Let's talk about another difference. What is the regulatory environment
48:03
Speaker 1: for new drugs, new procedures, new ways of applying the
48:10
Speaker 1: science to healthcare in Europe VERSUS the US, how do
48:14
Speaker 1: they compare contes.
48:15
Speaker 2: So it's interesting the way I described the US equity
48:19
Speaker 2: markets and the earlier speculation and success that we see here.
48:24
Speaker 2: I almost see an analogy in the way the regulators
48:27
Speaker 2: think on a drug approval process, because the US FDA
48:34
Speaker 2: in recent years has become much more active in allowing
48:40
Speaker 2: drugs to get approved based on so called surrogate markers
48:45
Speaker 2: of efficacy. In the past, for drug to be approved,
48:49
Speaker 2: you had to demonstrate against a tangible clinical endpoint that
48:53
Speaker 2: your drug worked. And now we're moving more and more
48:56
Speaker 2: in the interest of getting drugs to patients faster, to
49:00
Speaker 2: approve drugs based on predictive markers of efficacy and confirming
49:05
Speaker 2: they work later in follow up studies, whereas Europe is
49:10
Speaker 2: still kind of old school and wants to see more
49:13
Speaker 2: proof of clinical benefit before you know the government payer
49:17
Speaker 2: starts doling out cash to pay for these things. So
49:20
Speaker 2: there's actually, I think a little bit more willingness to
49:23
Speaker 2: be speculative in the approval process here in the US
49:29
Speaker 2: than there is in Europe.
49:30
Speaker 1: So it sounds like you're suggesting private insurance is allowing
49:36
Speaker 1: the FDA to be a little more aggressive in Hey,
49:39
Speaker 1: maybe this safe some people, let's try it, versus you
49:43
Speaker 1: have a government saying, we don't want to pay for
49:44
Speaker 1: this unless we know it's safe and effective, and so
49:47
Speaker 1: far you haven't demonstrated that.
49:48
Speaker 2: One hundred percent. And in the past that was FDA's
49:51
Speaker 2: mandate also, and I would imagine if you have FDA
49:55
Speaker 2: you know, administrators in front of you, they would try
49:56
Speaker 2: to insist that's still their mandate. But you know, as
50:00
Speaker 2: a matter of just observation, there are more and more
50:04
Speaker 2: drugs that are getting approved on the basis of predictions
50:08
Speaker 2: of their efficacy rather than proof of their efficacs.
50:11
Speaker 1: What about all of the off brand approvals we see
50:13
Speaker 1: in the beginning, which really is what the GLP began, right,
50:17
Speaker 1: The most famous example is Viagara was supposed to be
50:20
Speaker 1: a cardiac medicine or a blood pressure medicine. How does
50:24
Speaker 1: that play into what the FDA is doing in terms of, hey,
50:27
Speaker 1: let's get it out there at least if it's safe.
50:30
Speaker 1: We'll find out if it's effective only after it's out
50:32
Speaker 1: there for a while.
50:33
Speaker 2: Right. That's It's an interesting part of I think just
50:36
Speaker 2: the you know, the cultural differences between America and Europe
50:39
Speaker 2: and kind of how you know, we embrace, you know,
50:42
Speaker 2: certain levels of freedoms here that we talk about as Americans,
50:46
Speaker 2: and one of them is the concept that you know,
50:48
Speaker 2: once drugs are approved by FDA, physicians have the ability
50:52
Speaker 2: to use them in ways that they think are appropriate.
50:56
Speaker 2: Whereas in Europe, you know, to really be able to
50:58
Speaker 2: use a drug outside of its prescribed usage is going
51:03
Speaker 2: to be difficult because the government's not going to pay
51:05
Speaker 2: for it.
51:06
Speaker 1: Question on Cutter. You know, when we look at out
51:10
Speaker 1: in Hedge fund Lands, we know allocators tend to buy
51:13
Speaker 1: brand their's safety in numbers. I'm looking at big shops
51:17
Speaker 1: like not just Millennium in Citadel, but go down the
51:20
Speaker 1: list of oak Tree or Bridgewater or you know whoever
51:24
Speaker 1: you want to think of. That's a large, reputable shop.
51:28
Speaker 1: You were previously at a multi manager shop. Now that
51:31
Speaker 1: you're on the other side outside of Citadel, how are
51:36
Speaker 1: you managing dealing with the consulting worlds and the institutional
51:39
Speaker 1: investors as a single strategy manager.
51:43
Speaker 2: One of the things I think when I embarked upon
51:45
Speaker 2: that was an unknown to me that I've been somewhat
51:49
Speaker 2: pleasantly surprised to the upside of. As now a launched
51:53
Speaker 2: manager is there's a relatively robust infrastructure of support that
51:59
Speaker 2: has developed around emerging managers such as us to provide
52:04
Speaker 2: a lot of the tools, a lot of the operational
52:07
Speaker 2: infrastructure that you're accustomed to at one of those larger
52:10
Speaker 2: firms as third party vendored services. And so while we
52:16
Speaker 2: are independent of what is a well developed infrastructure one
52:20
Speaker 2: of those larger firms, we were able to replicate substantive
52:25
Speaker 2: portion of that enough to have a robust investment process
52:29
Speaker 2: through identification of other vendors who realize the value of
52:34
Speaker 2: providing that service and provided to a much broader community.
52:36
Speaker 2: So it hasn't been as bad as I first feared
52:41
Speaker 2: when we came out.
52:42
Speaker 1: Really fascinating stuff, Vince. Let's jump to our favorite questions
52:46
Speaker 1: that we ask all of our guests, starting with what's
52:49
Speaker 1: keeping you entertained these days? What are you either watching
52:52
Speaker 1: or listening to?
52:53
Speaker 2: In terms of streaming content. I just wrapped up season
52:58
Speaker 2: three of The Bear, which is a terrific show. I
53:00
Speaker 2: actually lived for a few years in Chicago, so that
53:02
Speaker 2: kind of pulls at my you know, reminiscences of being there.
53:05
Speaker 1: Even if it was season three wasn't as good as
53:07
Speaker 1: season two, it was still it.
53:09
Speaker 2: Was still terrific. Yeah, and now.
53:11
Speaker 1: Some of the reviews kind of missed the point.
53:13
Speaker 2: They missed the point of what it is. It really
53:14
Speaker 2: was a year of just delving into the background of
53:17
Speaker 2: these characters in a in a richer way than most
53:19
Speaker 2: shows spend the time doing. And so right now working
53:23
Speaker 2: our way through Bad Monkey, which is really you know,
53:25
Speaker 2: I think sometimes you need a little bit of lightness
53:28
Speaker 2: and levity in terms of what you're watching. Vince Vaughn
53:32
Speaker 2: on Apple TV. And it's just a really easy watch.
53:35
Speaker 2: I mean, there's nothing so amusing, there's nothing fascinating about it.
53:38
Speaker 2: It's just a very easy watch. And I'm looking forward
53:41
Speaker 2: to season two of Pachinko. It speaks a little bit
53:44
Speaker 2: to my Korean heritage. Season one was just a fascinating
53:47
Speaker 2: immigrant story of Korean family based on a terrific book.
53:51
Speaker 1: I saw that go by in previews and I never
53:55
Speaker 1: got around to seeing it. Strong endorsement, Yeah, worth the
53:58
Speaker 1: watch for sure, really really interesting. I'm gonna definitely check
54:01
Speaker 1: that out. You hinted but didn't really dive into a
54:04
Speaker 1: lot about your early mentors. Tell us who were some
54:08
Speaker 1: of the people who helped shape your career.
54:10
Speaker 2: Sure, so I think that probably one of the most
54:14
Speaker 2: talented healthcare investors the world hasn't heard of is Jeff Green,
54:17
Speaker 2: who I spent years with at Healthcore and who was
54:21
Speaker 2: my first portfolio manager at Citadel. And what Jeff brought
54:25
Speaker 2: to me was this ability to really appreciate the power
54:30
Speaker 2: of the rate of change in a story, the second
54:33
Speaker 2: derivative of movement in a narrative. And he had the
54:38
Speaker 2: ability to look at very very complicated stories, very complicated topics,
54:42
Speaker 2: complicated drug development studies, and kind of point out if
54:47
Speaker 2: you understand this, it's the key that unlocks the view
54:51
Speaker 2: of the whole trade, if you understand this portion of
54:55
Speaker 2: the income statement, this portion of the tamp And so
54:57
Speaker 2: he was able to go from story to story and
54:59
Speaker 2: really hone in on all other things being equal, this
55:03
Speaker 2: is what you need to know. And so I learned
55:05
Speaker 2: a lot from working with him. More recently in the
55:09
Speaker 2: launch of Cutter, I have to say that a mentor
55:13
Speaker 2: for me is actually my fiance, who runs her own
55:17
Speaker 2: business and who in times where I faced a little
55:21
Speaker 2: bit of self doubt or challenges about going down this path,
55:24
Speaker 2: I had this relentless attitude of where failure was not
55:27
Speaker 2: an option and you know, pick yourself up and carry
55:30
Speaker 2: to the next day because you're going to do this,
55:32
Speaker 2: no tapping out, no, yeah, and she's she's terrific at that.
55:36
Speaker 1: Huh. Let's talk about books. What are some of your favorites?
55:39
Speaker 1: What are you reading right now?
55:40
Speaker 2: So right now reading Marshall Goldsmith has his book The
55:46
Speaker 2: Earned Life. He is a life coach for a number
55:50
Speaker 2: of executives. He's written a ton of books just kind
55:53
Speaker 2: of about, you know, the whole self discovery process. I
55:57
Speaker 2: think he incorporates some takes from buddhistfulosophy that I kind
56:01
Speaker 2: of feel speak to me. And in particular, it's about
56:05
Speaker 2: defining your own success. We're in a world where you
56:09
Speaker 2: can get very very much focused on, you know what,
56:14
Speaker 2: certainly what other people make, or what other people's performance are,
56:18
Speaker 2: or just in general comparing yourself to other people in
56:20
Speaker 2: this field, and I feel like it's important to have
56:24
Speaker 2: perspective on the definition of success being something you define
56:28
Speaker 2: for yourself and being satisfied, you know, in terms of
56:32
Speaker 2: your own personal journey, which is unique to everyone. So
56:36
Speaker 2: that's really fascinating. In terms of prior books that I
56:38
Speaker 2: read that I have to discuss that are influential. Annie
56:42
Speaker 2: Duke's Speaking Bets is really one that I think spoke
56:45
Speaker 2: to me in terms of resonating with our investment process,
56:50
Speaker 2: understanding that for her in her career in poker, there
56:54
Speaker 2: was really nothing to be gained from just dwelling on
56:56
Speaker 2: bad beat stories, and there's really nothing to be gained from,
56:59
Speaker 2: you know, kind of worrying about success of failure of
57:01
Speaker 2: an individual hand. It's really about the process.
57:03
Speaker 1: Right, resulting is failure. You have to if you're only
57:07
Speaker 1: looking at the outcome. She's great at that.
57:10
Speaker 2: So that's taking in bets is really and yeah, thinking
57:13
Speaker 2: in bets and and i'd have to say the last
57:15
Speaker 2: book I would mention, which I know has been mentioned
57:17
Speaker 2: numerous times in this podcast, but there's a reason for
57:20
Speaker 2: that is if you're in this business, it's almost like
57:23
Speaker 2: a cult need to read Reminiscences of a stock operator.
57:26
Speaker 2: It comes up over and over, and there's a reason
57:28
Speaker 2: for it.
57:28
Speaker 1: It was one of the first things I read when
57:30
Speaker 1: I began on a trading desk, and you it really
57:34
Speaker 1: arguably was the first behavioral book because it was not
57:38
Speaker 1: about by the cell that it was about here's how
57:41
Speaker 1: traders go wrong. It was it's really fascinating and it
57:44
Speaker 1: still holds up a century later.
57:46
Speaker 2: Absolutely.
57:47
Speaker 1: All right, our final two questions, what sort of advice
57:49
Speaker 1: would you give to a recent college grad interested in
57:53
Speaker 1: a career in healthcare investing?
57:56
Speaker 2: I would say, and I'd broaden this, you know, for
57:59
Speaker 2: a moment into whatever type of avenue you'd want to
58:02
Speaker 2: go down. It really helps to spend time at this
58:06
Speaker 2: point of your life speaking to a college grad to
58:09
Speaker 2: become more of a domain specialist in whatever area that
58:12
Speaker 2: really fascinates you. You can pivot into the finance world later.
58:15
Speaker 2: The finance skill sets are the basics you'll have to learn.
58:18
Speaker 2: Their training is very, very fungible, and it's almost commoditized
58:21
Speaker 2: to kind of know what it takes to be informed
58:23
Speaker 2: on the underpinnings of finance. But really, your expertise is
58:27
Speaker 2: going to come from finding something you're passionate about and
58:30
Speaker 2: learning as much as you can about it, immersing yourself
58:32
Speaker 2: in that world, and coming out of that you'll think
58:35
Speaker 2: better about how to make investments in something you have
58:37
Speaker 2: that level of domain expertise.
58:39
Speaker 1: And our final question, what do you know about the
58:43
Speaker 1: world of investing today? You wish you knew twenty twenty
58:46
Speaker 1: five years ago, when you were first getting started.
58:48
Speaker 2: I would say thirty years ago, I would tell myself
58:55
Speaker 2: that the idea that a good successful investor leans in
59:02
Speaker 2: on conviction and intuition as their guide posts is kind
59:07
Speaker 2: of like false idolatry. I think, you know, if you
59:10
Speaker 2: take any talented investor in general and you ask them
59:12
Speaker 2: to give you your ten best ideas for the next year,
59:15
Speaker 2: if they get seven, eight correct, terrific. But then if
59:18
Speaker 2: you tell them to rank order them, it's not eight,
59:20
Speaker 2: nine and ten that fail all up your conviction scale.
59:23
Speaker 2: You fail. So I think I would tell myself previously
59:27
Speaker 2: it's much more important to develop a robust set of
59:31
Speaker 2: guide posts in investing, a robust process of investing, rather
59:35
Speaker 2: than just worshiping this idol of like, look, I need
59:38
Speaker 2: max conviction on an idea that's going to be you know,
59:41
Speaker 2: career setting.
59:42
Speaker 1: Quite fascinating. Vince, thank you for being so generous with
59:45
Speaker 1: your time. We have been speaking with Vince Aida. He
59:48
Speaker 1: is the founder and chief investment officer of Cutter Capital Management.
59:54
Speaker 1: If you enjoy this conversation, well check out any of
59:58
Speaker 1: the previous five hundred or so we've done over the
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