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