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From the JP Morgan Conference: The Impact of the Inflation Reduction Act · Making Medicine

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  You're listening to Making Medicine Stories from the Early Stage Life Sciences Ecosystem, a
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  podcast that explores the people and deals that have led to the medicines, devices,
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  and technologies that keep us healthy. Let's get into the show. Hello
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  everyone, this is Ashlan Roberts, the coalition manager of Incubate, wishing you
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  a happy New Year, live from JP Morgan in San Francisco. Today's a
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  special episode to kick off the year, and I'm here with John Stanford,
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  the executive director of Incubate live from this scene. Thanks for joining us today,
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  John, great to be here in Happy New Year to all of the
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  Incubate listeners. So despite the gloomy weather, how's the conference going so far?
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  Weather aside, and it's certainly been interesting to see these atmospherics rivers come
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  through. That was a new weather term for me this time around. It's
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  been a great conference. It's great to be back in person to see some
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  of incubates members and founders in person where we haven't had a chance to get
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  together. And of course it's kicks off the year for a conversation of innovation
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  excitement. There were some big deals announced, there were some breakthroughs announced,
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  and so it's really been a great place to be to just get revitalized for
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  the year ahead. Incubate and the Making Medicine podcast will be covering a lot
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  of the excitement that we're going to see in twenty twenty three, hopefully some
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  great news for patients. And so this just sets a tone and hopefully has
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  gives us the energy to get through what will be another long and busy year.
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  That's great. Well, thank you for Sharon and so far for the
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  events that you have attended. What are some notable ones that really stuck out
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  to you? Well, I think everyone is watching and waiting to see what's
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  going to happen in the broader economic environment, and a lot of folks,
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  I think, as much as this was a reset for being in person,
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  a lot of us are wondering is this going to be a reset for the
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  economic challenges that we've seen over the last couple of years. And so I've
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  heard a lot of people talk about how excited they are for twenty twenty three.
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  I've heard people talk about some anxiety for twenty twenty three. I think
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  for some of the small biotech CEOs, I've had the pleasure of sitting down
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  and talking with over the last couple days. Some of them are raising,
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  some of them are well capitalized. The theme that people are going to continue
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  to need to do more with less is definitely there. I think everyone would
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  agree that, coming into the hard economic situation that's been the biotech sector for
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  a little while, that right now you really have to have good science and
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  you have to have good data, and in a couple instances that wasn't the
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  case in the last couple of years. Is big ideas could attract big funding.
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  But you definitely see a discipline in the conversations that I've had, where
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  folks are still keen to invest, and the reality is there's lots of capital
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  that has been stored up over the last couple of years, but there's definitely
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  a need to be disciplined in investments. And people are asking some really critical
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  questions about clinical trial data, about the science underlying platform technologies, and so
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  I think it's really required the entrepreneurs to up their game in order to answer
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  some of the tougher questions from vcs. And of course, strategics are here,
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  and partners are here, and the large corporates are here, and in
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  fact, we've seen some big announcements right out of the gate, as we
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  often do of acquisitions, and it's clear that there's there's still an appetite for
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  the virtuous cycle of entrepreneur to large manufacturer to continue, but there's definitely an
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  intensity about making sure that people are putting their money in the right place.
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  That I won't stay is new, but is certainly back in force. That
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  is really interesting to hear that that is really one of the high level themes
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  that are sticking out. I know, more with less is something that we
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  anticipate to see this upcoming year, as especially in the current economic climate.
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  Were there any other high level themes that you're hearing well? As our listener
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  knows, incubate and making medicine is all about policy and advocacy. You know,
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  we are the voice of life science venture capital to policymakers in the United
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  States, and a lot of times we're sort of at the periphery of JP
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  Morgan. You know, we're not here pitching a product or an asset.
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  We're not raising and we're not here to make deals or be acquired or acquire
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  someone else. So you know, sometimes we're not the star of the show,
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  to be sure, but this has certainly been a year where there's been
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  a lot more questions headed incubates way about the role of policy and about the
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  role of government. And that is without a doubt because of the Inflation Reduction
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  Act, and I had the legislation passed last year that louted effectively the biggest
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  change to drug pricing and even drug development and the whole industry and probably the
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  last two decades, or certainly at least since the Affordable Care Act. I
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  had the pleasure of joining Charles Rivers Associates panel that dug deep into this,
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  and I want to thank my fellow panelist because we really got into the practical
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  business effects of this legislation. And so the other trend I'd see is a
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  lot more interest in the role the US government is going to play in folks
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  business plants. And that's something we told Congress. By adopting and told the
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  administration. By adopting this arrangement and by inserting the US in in terms of
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  price controls, the US government becomes much more a seat at the table for
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  business calculations. And so it'll be critical that we remove as much uncertainty as
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  possible. And I know we're going to talk more on the show about the
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  Inflation Reduction Act, but that interest in Washington is certain higher than in years
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  past, and that's obviously because of the legislation past last year. Absolutely,
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  and I know that especially all of the work that we've done around the IRA
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  and hosting some VCS in Washington. It's interesting to see that industry is now
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  seeing the growing concern as well with the downstream impact. So now talking about
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  IRA since it has passed, and it really is impacting how some companies are
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  making decisions. So we'd love to hear any conversations you had there and any
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  insights on how incubates tracking this well. I think this is certainly going to
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  be one of the defining features for incubate in twenty twenty three. How this
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  legislation is implemented is going to be so critical for the entire industry, but
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  particularly the early stage ecosystem. So I'll break my comments I suppose up into
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  two buckets. Just today we got some information out of the Centers for Medicaid,
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  Medicare Services CMS and HHS and the Administration about how they intend to implement
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  this wide ranging legislation. All of this, by the way, is available
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  at Incubate Coalition dot org. We put out a blast about it. We've
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  got more information on the website. So if this is something you have questions
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  about, we'll be continuing our series with DLA Piper that it'll be digging deep
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  into the weeds of the practical effects of this. So that was a long
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  way of saying, stay with incubates, stay with making medicine throughout the year,
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  to stay informed on the Inflation Reduction Act, and we're pulling apart.
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  And I want to thank the folks at CMS for putting out some initial guidance
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  and for committing to an open dialogue about the implementation of this law. There
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  is no doubt that Incubate was opposed to some of the drug pricing provisions.
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  There was some good stuff in the Inflation Reduction Act around some pro patient reforms
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  that we've been fighting for, capping out of pocket costs, really trying to
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  make insurance feel more like insurance. Unfortunately that was only limited to the Medicare
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  population that two thousand dollars out of pocket cost and we saw patients smoothing,
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  which is something that was a bit of a no brainer for quite some time,
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  and finally saw over the finish line. That's something that our friends over
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  at the MAP, OURX coalition and patient groups have been clamoring for. And
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  all that will really do is allow people to not be burdened with an enormous
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  payment at the beginning of their insurance calendar year, but can smooth those costs.
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  And so we're excited that CMS is working quickly to implement those provisions and
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  is open to hearing feedback as they put the drug pricing provisions. But there
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  are so many questions. Yeah, multiple panels that I've been speaking on and
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  some of the one on ones with investors and companies while I've been here,
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  our questions about, Okay, how can I strategize around this legislation, how
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  can I plan? How can I allocate capital? How can I think about
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  my pipeline or R and D And there's just so much we don't know,
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  and so it'll be several years before how the true impact of this will play
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  out. But one of the interesting takeaways, at least for me from some
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  of the conversations is the small biotech exemption that is temporary was brought up a
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  number of times, but until we sort of know more about it, it
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  really sounds like it'd be a very unique case where that would come into play,
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  and so I think that's something to look at because small biotech will not
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  have the ability to really assess this legislation and be patient. You know,
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  if you're bootstrapping your biotech, you're going to be trying to get your product
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  to the market as soon as possible, and you might not have the opportunity
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  to really understand the full ramifications of the law before you have to go to
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  market. And hearing more and more people talk about that there does seem to
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  be a bit of a negative on small biotechs despite being called out with a
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  particular exemption, I think that's something that's not going to play out the way
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  maybe Congress thought it would, and so that's something we're going to be watching
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  pretty closely. But pivoting over to what's Incubate going to do about it.
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  We believe that there are some key flaws in the legislation that are going to
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  lead to unfortunate disincentives in the market, and that's where we're going to focus
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  our energy. We're going to work with the White House and with Congress in
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  a bipartisan way to say we see what you're trying to do here, but
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  in a couple places, we really do need to amend this legislation to make
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  it not be a negative influence or externality on the innovation ecosystem. The first
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  example is one we've talked about, we've written about, and we really are
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  diving head first into, and that's this so called small molecule penalty. The
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  legislation really in the price control arena, installs the price control after a certain
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  amount of time, and so a company can go out and recoup its investment,
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  hopefully and make profit that it can then put into other investments and other
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  r and D. For the first period of exclusivity that they receive for biologics,
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  that's thirteen years. Now, generally speaking, we know that it takes
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  somewhere between thirteen and fifteen years to be recouping that investment, and so that's
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  on the lower but in the right ballpark of exclusivity that would allow companies to
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  remain incentivized. One of the big problems, however, is that small molecules
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  or anything filed with an NDA at the FDA, as opposed to a BLA
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  for a biologic that only has nine years. And this is something that came
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  up a lot throughout my conversations here at JP Morgan is that's quite a big
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  difference to be awarding small molecules only nine years of exclusivity, and that's so
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  far from the thirteen to fifteen year range that most investors are looking for or
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  have historically sort of put into their NPV calculations. So we've got to fix
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  what we call the small molecule penalty and lift that up to thirteen years.
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  Alongside biologics. We do not want and I think this is something almost everyone
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  can agree with. We don't want the government picking winners and losers in the
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  biotech and biopharmaceutical space. We want science leading the way, we want patient
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  impact leading the way, and small molecules have enormous value. When we talk
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  about these single greatest value in the American healthcare system, it's without a doubt
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  the drugs that have gone generic over the last century, and small molecules can
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  go generic in a much easier fashion than the similar the biologic to biosimilar pathway.
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  I want to stress for our superlisteners out there that you know, a
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  generic and a biosimilar aren't exactly equivalence, but the pathway of bringing competition to
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  the marketplace for a small molecule is certainly easier, and that's why we've seen
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  just an impressive amount of market based competition drive down those prices. But small
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  molecule shouldn't be thought to mean that it's not a place of tremendous innovation.
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  And our concern is that I mean small molecule. Yes, it's aspirin,
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  penicillin, insulin, and to moxifin, but it's also sibaldi and Harvoni,
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  which is a cure for hepatitis C. GLIVEC was an enormous one, but
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  the advent of immune immuno oncology monoclonal antibodies, these are all small molecule as
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  well, and we've got a long way to go to explore the opportunity there.
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  And so I'd hate for people to say, well, I've got much
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  more of a reward from an exclusivity standpoint if I go to biologics, when
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  we know we need so much more innovation. Another huge thing about small molecule
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  is small molecule can get through the blood brain barrier, and I think a
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  lot of folks are familiar that. In order to really make progress on neurodegenerative
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  diseases. Getting through the blood brain barrier is critical, and we would hate
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  to be disincentivizing that. I'm excited for what President Biden has called for with
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  this cancer moonshot, but we've got to align than this policy. So,
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  because small molecules are what are going to get us to so many more improve
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  in brain health, proteins and antibodies sort of the biologic drugs they can't get
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  through the tight junctions of the blood brain barrier, and so why wouldn't we
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  want to keep incentives not weighed down. We really want science to lead the
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  way here, and so that's something we'll be fighting for. You know.
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  Similarly, the legislation put some disincentives in place for post approval research. I've
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  talked about some of those breakthrough monoclonal antibodies. We know they work in one
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  cancer, why wouldn't we want to test them in so many others? And
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  something we've already seen in the marketplace is companies not being incentivized to do that
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  post approval research because of some of the elements of this legislation. And so
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  Incubate has launched a working group on this and will be working in a bipartisan
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  way. We know that for there to be a change here, we're going
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  to have to make the case to Republicans and Democrats alike. But the science
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  and the marketplace and the economics of all of this are on our side that
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  we really do need these changes to the Inflation Reduction Act. That was more
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  than you bargain for their Ashland and what we've been hearing on the Inflation Reduction
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  Act. But it's going to be an important part of what Incubate does this
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  year. Thank you for that. No, that was incredibly helpful, and
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  could not agree more that both small molecule and post approval research are critical in
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  the development of new medicines and really should continue incentive around their development. I
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  also did want to take this opportunity to underscore Incubates Life Sciences Investment Tracker that
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  we launched earlier this year really to measure the immediate and longer term impacts of
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  the IRA and also the current landscape of investments in industry. And so this
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  tracker really follows two key indicators, one public shifts and activity and specifically as
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  it relates to new more price controls and to the public announcements of decreased R
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  and D activity due to a broader investment environment, and that of course can
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  be viewed at Incubate Coalition, dot org, Backslash, Life Dash, Science
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  Dash Investment dash Tracker. So thank you for that lay of the land,
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  John, I think that dovetails nicely with kind of looking ahead at twenty twenty
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  three and what else is to come well, I think I wish I could
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  say that concerns about the inflation reduction acts impacts are the only thing that's going
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  to be on our agenda. But this industry, in particular life science,
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  venture capital, in the early stage ecosystem, we'll have to do more in
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  education and awareness. It's really complex how we fit into the broader healthcare landscape,
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  and we really need to ensure that policymakers understand the critical role we play,
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  and not just on the economic side, where we spend a lot of
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  time talking about. But we really didn't do enough, in my view,
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  to advance a propatient agenda, we being sort of collectively the country during the
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  last Congress. There are so many places where we need good, strong policy
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  to benefit patients, and a lot of that got left on the cutting room
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  floor. The first of which was the Pasteur Act. We have a real
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  challenge and it's incredible that we're coming out of this global pandemic where some breakthrough
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  vaccines made all the difference for the world, and yet we are unable to
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  confront the growing threat of antimicrobial resistance. And the Pasteur Act, which we've
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  had a couple episodes on, would have helped further incentivize entrepreneurship and engagement,
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  as well as the Disarm Act, and so that's something we've got to pick
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  up and run with right away. I've heard just some really compelling and damning
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  statistics about the role MR is going to play in life. I think most
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  recently that there'll be ten million deaths around the world attributed to MR in the
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  coming years, and that's something that science and industry we can do something about
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  that, but we've got to get the policies in place, and the Pastor
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  Act was a good example. So we hope to see that back on the
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  table and really get it over the finish line this year, and so to
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  some extent, make sure the US is aligned with other countries around the world
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  in our prioritization of antimicrobial resistance. I think we're also watching a couple of
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  other areas where we know detractors from the work we do in life sciences are
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  continuing to push misconceptions. One of those is around intellectual property. Now,
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  for those who are regular listeners, you know intellectual property is fundamental to the
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  work investors do. There's quite frankly, not much to invest in if the
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  intellectual property is not there. And so these threats to intellectual property or something
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  we're watching closely aggressive calls for what are called marchin rights, or the idea
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  that in certain circumstances we should just be able to take away IP. I
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  know how good it can feel in the moment to call for something radical like
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  that, but the damage and the destabilization of science and of innovation that would
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  happen from voiding IP as some people have called for it would be cataclysmic,
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  and so we'll need to continue to make sure that policymakers are aware of the
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  linkage between IP and investment, and we'll continue to do work there. I
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  think one of the biggest question marks that I'm hearing about it at JP Morgan
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  and we went into last year is obviously we've had some very high profile approvals
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  in the Alzheimer's space, and then we've seen corresponding non coverage decisions or a
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  blanket non coverage decision from CMS, and I think this is an area.
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  These are things that came through the accelerator accelerated approval pathway at the FDA.
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  I think this is a place where we need to watch closely and make sure
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  we are getting the facts to policymakers. The accelerated approval pathway is responsible for
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  a host of drugs, oncology products, others getting to patients faster, and
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  there are real lives that have been saved because that because of that, and
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  it's a recognition that the traditional pathway is not one that can be done in
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  a truly expedited manner, and that's one of the reasons why FDA approval is
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  really the gold standard in the world. How we move forward from here and
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  think about non coverage decisions at CMS, how we think about I think the
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  broader question is how are we going to think about paying for the next breakthrough
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  cure, and if it is in Alzheimer's where we have six million Americans afflicted
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  by this disease, talk to any of them, talk to their families,
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  talk to the patient associations. Everyone is dreaming for progress, and that progress
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  will be stepping stones. It would be tough to conceive that we will just
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  stumble upon a perfect cure. But we need from a policy landscape to start
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  thinking about the kinds of value based systems we'll need to have in place for
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  when that day arrives. I do lose a little bit asleep about the exciting
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  science of today, but payer and reimbursement systems not just of yesterday or yester
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  year, but yester decades. And how are we going to be able to
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  think about a selling gene therapy that we need to pay for that has a
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  tiny, tiny, ultra ultra rare population or an Alzheimer's sized population. We're
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  not even prepared with our payer systems and from a policy landscape to think about
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  that. And I think that drove some of the concern around at CMS and
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  the non coverage decision. And so I don't think we want non coverage decisions
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  to be substitutes for We haven't modernized our reimbursement policy, so that's something we've
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  got to put good, hard work into a bipartisan way. The last thing
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  I'll probably say is we really need to again to do more on the pro
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  patient agenda. I talked about MR and I talked about some of the good
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  patient pieces of the Inflation Reduction Act, but we really need to dedicate attention
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  to expanding things like that into the commercial market. I saw a recent I
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  believe it was Kaiser Family Foundation put out that the average high deductible health plan
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  has now reached twenty two thousand dollars of deductible before insurance really kicks in.
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  And in a country where the average American has something like four hundred dollars in
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  savings, I think we've got to really be thinking about is our insurance market
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  structured in the right way where insurance can truly act as insurance. Because if
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  five hundred dollars is going to bankrupt the average American family, twenty two thousand
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  dollars is going to be the kind of medical debt that we hear about as
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  being catastrophic and leading people to make very challenging decisions. So I think we've
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  got to step back and look at how we're offering healthcare. We are a
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  country that is leading the world in the development of next generation medicines, medicines
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  which, by the way, help keep people out of the hospital and help
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  keep people out of long term care. That is by far the driver of
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  our healthcare costs, and I think we have to remember as much attention as
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  we put on the drug provisions of the Inflation Reduction Act, we're still only
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  talking about ten to twenty percent of total healthcare costs. So that means in
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  the last Congress, we left eighty percent, eighty plus percent of healthcare unaddressed,
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  and I think that's something this Congress has to tackle, in this administration
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  has to tackle if we're going to get serious about healthcare reforms. You know,
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  PBMs something we've talked about before on the show. We really didn't see
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  any of sort of the attention on them that had been sort of called for
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  or expected. I know the FTC has launched some actions looking into some of
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  those practices, but I think we need to have a hard look at our
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  entire healthcare system. You certainly the pharmaceutical industry, both the early stage and
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  large manufacturers have been under the microscope, but I think we need to expand
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  that lens to look at a holistic healthcare system because there are a lot of
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  places where policy really is out of date and we really need to bring forward.
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  And so I think by doing that, that's what putting the patients first
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  does, because I think patients are a little tired of being caught in these
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  policy debates without seeing policies that necessarily are making a meaningful difference in their life.
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  And that was one of our concerns with the Inflation Reduction Act is that
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  for all of the discourse, at the end of the day, it will
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  not move the needle for millions of patients. And until we address out of
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  pocket costs, until we get those truly under control, we're still going to
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  hear terrible stories from the American patient population about an inability to access these breakthrough
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  medicines that we spend so much time, energy and money developing. And so
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  I think Incubate really needs to lean in there and really bring that pro patient
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  voice forward quite a robust perspective on everything that is happening in the one hundred
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  eighteenth Congress. Thank you for that, John, and for a quick precap.
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  I think the detractors on accelerated approval and intellectual property, and then also
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  looking at kind of that propatient of agenda lens as it relates to Mr.
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  Patient focused insurance and expanding marketive initiatives as a whole, and really bringing that
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  holistic lens that is propatient to the healthcare system will be very front and center
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  this year. This is fantastic insight as usual and on what to watch as
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  we enter the hundred eighteenth Congress and as this year begins to unfold. Thank
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