RA Capital's Tess Cameron: biotech stocks rose on EO because market sees it as trade lever, not price control

Summary

Tess Cameron, a principal at RA Capital Management, argues that biotech and pharma stocks rose on Trump's most-favored-nation drug pricing executive order because the market read it as a trade lever, not a price control — and that distinction matters enormously for investors.

The EO itself is not new territory. MFN pricing appeared in the first Trump administration in 2018, returned twice in 2020, and was eventually knocked down in court because CMS didn't follow required Administrative Procedures Act processes. Cameron says the biotech investment community had been anticipating something similar was coming, so the policy itself wasn't the surprise. What surprised the market was the tone. Trump's language focused blame on foreign governments paying too little rather than on drug companies charging too much — a framing Cameron describes as genuinely positive for the sector, even if the outcome is still uncertain.

The mechanism Cameron highlights is that the US backs 75% of global biopharma R&D, while European countries set prices through health technology assessments that, according to a study published days before the EO, undervalue the societal benefit of medicines by more than 90%. Drug pricing in Europe is country-by-country, with Germany typically the first ex-US launch, followed by Japan, then smaller markets that cross-reference each other's prices — which is why launches outside the US are often delayed by several years. Cameron's read is that if the US government steps in as a negotiating counterparty and links drug market access to broader trade terms, pharma companies gain leverage they currently don't have in those take-it-or-leave-it country negotiations.

The price control risk

The positive reaction hinges on how the EO gets implemented. Cameron says stocks also rose partly because implementation appears likely to go through rulemaking rather than direct top-down action, which reduces the probability of a broad-based price cut across the board. The harder scenario — importing European-style price controls into the US — is what the sector genuinely fears. The Inflation Reduction Act already instituted a version of this by setting Medicare price negotiation timelines at 9 years for small molecules and 13 years for biologics, against an investor expectation of roughly 14 years of exclusivity. Cameron says that compression has already damaged small molecule innovation, shifting development toward biologics and away from pills. More price controls could compound that.

The broader industry consensus, Cameron says, is simple: let the market compete. Generic entry can push prices down 98% — Medicare pays roughly 3 cents per Lipitor pill. That outcome comes from market competition, not government price-setting. Direct price controls remove the incentive for second-to-market branded competitors, which are often what drives the first wave of price pressure before generics arrive.

Biotech's structural differences from tech

Cameron walks through why biotech companies go public far earlier than tech companies despite being pre-revenue and high-risk. The short answer is capital depth. Public market pools for biotech are simply larger than private pools, and with development timelines of 10 or more years and a probability-adjusted cost of getting a drug to market above $2.5 billion, companies need access to capital that private markets can't consistently provide at scale. Drugs with commercial products almost never stay private. Private valuations tend to lag public market moves by roughly six months — if the XBI is down, private company step-ups compress accordingly.

Deal flow comes primarily from academia, venture fund incubation (Cameron cites Flagship Pioneering and Moderna as a reference point), and experienced operators spinning out of larger companies. Cameron says the process has become overly institutionalized and argues the ecosystem needs more garage-style biotech formation — but acknowledges that even early animal model testing costs millions, which structurally pushes formation toward institutional pathways.

China's pace of biomedical innovation is a pressure point Cameron raises explicitly. The cost base and iteration speed coming out of China is, in her words, "pretty astonishing," and she says the US biotech ecosystem needs to find ways to become more efficient and move faster in response.

Quick-take rounds

• AI in drug development: Overhyped as a standalone drug discoverer, underhyped as a tool. Every serious company is using it; any company claiming not to is a red flag. Any company leading with "we're an AI company" deserves scrutiny on what's actually differentiated.
• RNA therapeutics: Cameron is bullish on the broader RNA therapeutic category beyond mRNA vaccines, but says the central unsolved challenge remains delivery — getting the therapy to the right biological target.
• GLP-1s: Underhyped. Cameron calls them phenomenal drugs with real problems still to solve around oral and patch-based delivery, tolerability, and insurance coverage. The market isn't pricing the opportunity fully yet, in her view.
• Longevity: RA Capital's focus is health span over raw lifespan — prevention, early identification, risk management through algorithms, and combining existing tools with novel agents. The fund brings PhD- and physician-level scientific rigor to filter what has genuine validation from what doesn't.

On early-stage investment returns

Cameron doesn't dispute that pharma IRRs have been running below cost of capital on average. Her position is that the solution is functioning market competition, not less investment. The government's most useful role is ensuring strong competitive dynamics and, as she heard in the EO language, pushing other countries to fund their share of global R&D. She calls the pace of biotech innovation accelerating, driven by better tools — but flags the US clinical trial system as the primary bottleneck, with too many trials competing for the same patients at the same hospitals.