Latest / Making Medicine / 9 Years vs. 13: The Problem With the Pill Penalty

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9 Years vs. 13: The Problem With the Pill Penalty · Making Medicine

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  Speaker 1: At Making Medicine, we're reporting on the headlines, not making
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  Speaker 1: medical recommendations. For personal health questions, always ask your doctor.
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  Speaker 1: Nothing in this episode constitutes investment, financial, or legal advice.
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  Speaker 1: Consult your own advisors before making decisions. Why would you
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  Speaker 1: invest with something that you can get a nine-year return
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  Speaker 1: when you can get a 13-year return? One of our members,
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  Speaker 1: a world-class VC, not so cynically said... Bring your innovation
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  Speaker 1: to me, but bring it as a biologic because Congress
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  Speaker 1: has told me that that's more valuable. Welcome back to
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  Speaker 1: the Making Medicine Podcast, where science, policy, and innovation meet.
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  Speaker 1: I'm your host, Jon Stanford. Today, we're going to share
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  Speaker 1: some clips from a few of our favorite conversations around
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  Speaker 1: the pill penalty. We're doing that because this Sunday is
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  Speaker 1: 9-13 day.
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  Speaker 2: Get it?
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  Speaker 1: September 13th. 9-13 day is our way of highlighting the
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  Speaker 1: discrepancy Congress created between small molecule drugs and biologics under
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  Speaker 1: the Inflation Reduction Act. Small molecules become subject to Medicare
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  Speaker 1: negotiation after nine years, while biologics get 13. That four-year
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  Speaker 1: difference matters because it changes the economics of developing new medicines.
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  Speaker 1: Investors and companies have to think years ahead when deciding
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  Speaker 1: which programs to fund, and cutting four years from the
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  Speaker 1: potential runway for a small molecule can affect those decisions
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  Speaker 1: long before a drug ever reaches the market. That's why Incubate,
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  Speaker 1: the makers of the Making Medicine podcast, has been the
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  Speaker 1: leading voice on passing the EPIC Act, which would eliminate
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  Speaker 1: that disparity and give small molecules the same 13-year timeline
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  Speaker 1: as biologics. We're proud to report that it has both
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  Speaker 1: bipartisan and bicameral support. But it's still going to be
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  Speaker 1: a difficult fight. At the same time that some lawmakers
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  Speaker 1: are looking to fix the pill penalty, others are pushing
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  Speaker 1: proposals that would move in the opposite direction. by bringing
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  Speaker 1: both small molecules and biologics into Medicare negotiation even sooner.
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  Speaker 1: That debate is likely to continue into the next Congress.
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  Speaker 1: So for 9-13 day, we wanted to go back to
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  Speaker 1: some of the investors, scientists, and industry leaders we've spoken
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  Speaker 1: with on the Making Medicine podcast and hear, in their
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  Speaker 1: own words, why this issue matters for investment, drug development,
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  Speaker 1: and ultimately patients. Here are some of our favorite conversations
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  Speaker 1: on the pill penalty. Let's get into the show. Before
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  Speaker 1: we get into the clips from some really exceptional people
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  Speaker 1: talking the pill penalty, I want to invite on the
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  Speaker 1: show someone you don't get to hear from, but without
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  Speaker 1: whom making medicine simply wouldn't happen. It's someone from our
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  Speaker 1: production and public affairs team, Grace Moster. And she's cultivated
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  Speaker 1: two questions about the small molecule penalty she sees on
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  Speaker 1: our social media and that we hear from policymakers. So
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  Speaker 1: without any further ado, I'll turn it over to Grace
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  Speaker 1: to ask a couple questions about the pill penalty.
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  Speaker 3: Well, thanks for the introduction, John, and great to be
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  Speaker 3: with you again, Making Medicine listeners on this side of
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  Speaker 3: the camera this time. And as someone who's been tracking
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  Speaker 3: the IRA conversation and the pill penalty as part of
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  Speaker 3: my role at Incubate and Making Medicine, and someone who
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  Speaker 3: was there for the very first 9-13 day, really wanted
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  Speaker 3: to bring some of the main questions we get from
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  Speaker 3: both policymakers and on social media to straight to Making Medicine,
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  Speaker 3: straight to the podcast, and have you speak to them
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  Speaker 3: and answer them directly. So the first question is something
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  Speaker 3: we get a lot on social media and something I
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  Speaker 3: know you and John Guy get a lot in our
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  Speaker 3: Hill meetings. And it asks, if the pill penalty is
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  Speaker 3: such a disadvantage, why are these large companies still buying
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  Speaker 3: up small molecules even four years out from the IRA
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  Speaker 3: when we're really seeing it take hold, especially in tools
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  Speaker 3: like our life science venture capital tracker?
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  Speaker 1: It's a great question, Grace, and one that we do
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  Speaker 1: get all the time because critics of incubates position, critics
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  Speaker 1: of the EPIC Act say, well, we still see some
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  Speaker 1: small molecule companies being acquired. Therefore, it can't be that
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  Speaker 1: much of a penalty. But the reality is every drug's
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  Speaker 1: market economics are different. And so it still does make
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  Speaker 1: sense under certain conditions. to still invest in small molecules.
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  Speaker 1: And that's what we've seen. And what our tracker shows
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  Speaker 1: isn't that there are no dollars going into small molecules.
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  Speaker 1: It's just that fewer dollars are going into small molecules.
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  Speaker 1: And that is going to have a profound impact on patients.
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  Speaker 1: But I can give two good examples why, from the
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  Speaker 1: investor perspective, you might still invest in a company that's
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  Speaker 1: developing a small molecule. The first is the patient's age.
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  Speaker 1: The Inflation Reduction Act touches Medicare. And so if your
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  Speaker 1: drug is treating something that impacts patients under the age
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  Speaker 1: of 65, it really doesn't impact you to have this
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  Speaker 1: nine-year Medicare negotiation impact your market economics. So that's one
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  Speaker 1: case where you might still invest. If it's something that
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  Speaker 1: helps pediatrics, if it's something that helps young adults or
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  Speaker 1: even folks well into their 40s and 50s, you might
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  Speaker 1: still see investment. But if the drug is likely to
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  Speaker 1: treat patients over the age of 65, you will see
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  Speaker 1: decreased investment. You will see decreased interest. So that's one
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  Speaker 1: case where you could still invest in small molecules. Another
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  Speaker 1: one that we've seen is in areas where the patient
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  Speaker 1: population is well understood and well mapped. Because if you
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  Speaker 1: can get to the market faster by bringing payers along,
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  Speaker 1: by bringing physicians along, and bringing patients along, then your
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  Speaker 1: nine years might be more effective than 13 years spent
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  Speaker 1: the first five years proving the real world value. Because
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  Speaker 1: let's remember, when a drug actually gets approved by the FDA,
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  Speaker 1: you can't knock down the door and go get it
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  Speaker 1: as a patient. It's something we're actually very frustrated about. Instead,
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  Speaker 1: you've got to make sure that your doctor knows about
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  Speaker 1: this new innovation. And a lot of times that takes time.
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  Speaker 1: That's why doctors keep going to conferences and reading papers.
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  Speaker 1: They're learning about new medicine that their patients may know
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  Speaker 1: about first. Let's think about the other major impact is payers,
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  Speaker 1: including Part D plans, have to begin to start building
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  Speaker 1: these drugs into their formularies. And insurance has to decide
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  Speaker 1: how it's going to cover and make things available. We
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  Speaker 1: know all too well that insurance uses utilization management, step therapies,
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  Speaker 1: and prior authorizations to limit access to the newest drugs.
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  Speaker 1: So oftentimes a drug may get approved one year, but
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  Speaker 1: it might be several more years before it's really picked
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  Speaker 1: up by the marketplace. If you can truncate that timeline,
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  Speaker 1: you can still make the math make sense at nine years.
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  Speaker 1: But the reality is, is those are the exceptions. The
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  Speaker 1: rule is, why would you invest with something that you
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  Speaker 1: can get a nine-year return when you can get a
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  Speaker 1: 13-year return? And that's why one of our members, a
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  Speaker 1: world-class VC, not so cynically said, Bring your innovation to me,
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  Speaker 1: but bring it as a biologic because Congress has told
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  Speaker 1: me that that's more valuable. That's what we're looking at.
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  Speaker 1: But it's a great question that we do get. Why
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  Speaker 1: do we see some small molecules still purchased? Well, if
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  Speaker 1: it's a non-IRA aged patient or it's a place where
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  Speaker 1: the patient population is really well mapped, it may still
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  Speaker 1: make sense. But we should fix it with the EPIC
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  Speaker 1: Act to make sure that we're not disincentivizing any innovation.
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  Speaker 3: Well, thanks for laying that out for our listeners, John,
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  Speaker 3: and the policymakers. I'm excited to clip that and package
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  Speaker 3: that up and get that directly into the folks that
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  Speaker 3: are asking these questions. So you may see this clip
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  Speaker 3: in the LinkedIn, Twitter comments. But we have one more
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  Speaker 3: question today that I think really hones in on something
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  Speaker 3: that a lot of people get fixated on in these conversations,
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  Speaker 3: and I think it's important to lay out for policymakers
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  Speaker 3: and for our listeners. And it's why is 13 years
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  Speaker 3: that magic number? Why not nine years or even less?
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  Speaker 3: Can you share what that number means and why it's
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  Speaker 3: so important to us?
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  Speaker 1: It's a great question. And my short answer is 13
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  Speaker 1: isn't a magic number. The reality is, historically, investors in
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  Speaker 1: the earliest stage needed to put a rough number of
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  Speaker 1: how many years a drug could be profitable before generic
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  Speaker 1: competition and substantially drove down the price and effectively pushed
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  Speaker 1: the innovator brand out of the market. And that was
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  Speaker 1: about 14 years. And so it's not that 13 is perfect,
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  Speaker 1: it's just that 13 is closer to 14. And that's
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  Speaker 1: what investors had gotten used to. On average, market exclusivities,
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  Speaker 1: as well as intellectual property protections, meant that a drug,
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  Speaker 1: and remember, every drug's path with exclusivities and IP is different,
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  Speaker 1: but on average, we could predict about 14 or 15 years.
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  Speaker 1: So when you think about 13 years, that does cut
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  Speaker 1: off some revenue. It cuts off some of the profitability.
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  Speaker 1: We can take that haircut. That's what we discovered in
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  Speaker 1: the post IRA world is that while we're still opposed
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  Speaker 1: to price controls writ large, that 13 versus 14 year
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  Speaker 1: haircut is something that investors are still willing to negotiate around.
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  Speaker 1: They're still willing to invest in a place that says
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  Speaker 1: you can really only make money off of this new
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  Speaker 1: innovation for 13 years. So hopefully we've cleared that up.
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  Speaker 1: 13 is in no way perfect, but it was pretty
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  Speaker 1: close to the historic average. The real problem is the
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  Speaker 1: nine years. And nine years may sound like a lot
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  Speaker 1: to the average listener. What do you mean companies are
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  Speaker 1: upset they can only make profits for nine years? Surely
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  Speaker 1: they can make enough in those years. Well, when you
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  Speaker 1: crunch the numbers... and we've seen the studies that say this,
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  Speaker 1: 50% of an entire drug's revenue comes in years nine
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  Speaker 1: to 13. So those are the magical years for the
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  Speaker 1: reasons we talked about with the last question. You figured
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  Speaker 1: out who your target patients are. Physicians are finally believing
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  Speaker 1: that your drug really works and they're advocating for it.
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  Speaker 1: And hopefully insurers have finally made peace with the data
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  Speaker 1: that shows it works and they're covering the medicine. And
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  Speaker 1: so those are really important years where half of a
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  Speaker 1: drug's revenues can come from. which means you're really talking
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  Speaker 1: about the difference between doubling your investment return and cutting
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  Speaker 1: it in half. That's why nine years is such a problem.
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  Speaker 1: So one of the things we hear sometimes is, okay, well,
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  Speaker 1: you don't want there to be a disparity between small
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  Speaker 1: molecules and biologics. What if we go nine and nine?
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  Speaker 1: What if, as some Democrats have proposed, we drop all
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  Speaker 1: the way down to five and five? I think what
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  Speaker 1: we've seen very clearly is that if the incentive isn't there,
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  Speaker 1: If we bring that down any further, we simply see
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  Speaker 1: money walk away. Remember that investors don't live in a vacuum.
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  Speaker 1: There is no minimum required amount of private sector venture
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  Speaker 1: capital to go into biotech. Biotech dollars compete with AI dollars,
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  Speaker 1: with tech dollars, with space dollars. And if we disincentivize
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  Speaker 1: this any further, we further see the leadership that USVC
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  Speaker 1: has created in this space. At a time when so
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  Speaker 1: many lawmakers are concerned about China's rise in biotech, pushing
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  Speaker 1: to nine and nine or five and five only hands
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  Speaker 1: over more of that playbook. So we have tried to
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  Speaker 1: caution as best as we can the incoming next Congress,
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  Speaker 1: whether it's led by Democrats or Republicans, expanding the IRA
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  Speaker 1: framework is proven to disincentivize investment in this space will
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  Speaker 1: lead to fewer medicines and even more so will undercut
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  Speaker 1: that American entrepreneurship. So in sum, 13 isn't perfect. We're
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  Speaker 1: still seeing hundreds of billions of dollars projected to come
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  Speaker 1: out of industry in government savings, not necessarily savings that
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  Speaker 1: have gone on to the patients, but the IRA is
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  Speaker 1: hurting this industry. There is no debate about that. 13
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  Speaker 1: isn't perfect. 13 is not magic, but it was close
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  Speaker 1: enough to the historic average that we continue to invest
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  Speaker 1: and we continue to see modernizations that hopefully will speed
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  Speaker 1: up the drug development timeline, which will also help the
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  Speaker 1: economics of investing in new drugs. So it's not that
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  Speaker 1: 13 is perfect. It's just that nine is terrible. And
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  Speaker 1: that's why this 9 to 13 day, we're calling once
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  Speaker 1: again for policymakers to pass the EPIC Act and do
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  Speaker 1: away with the pill penalty. With that, I'm happy to
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  Speaker 1: turn it over to a lot more informed individuals and
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  Speaker 1: all of the great conversations we've had about the pill
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  Speaker 1: penalty over the years. You mentioned already the pill penalty
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  Speaker 1: and hey, that's a great drug you've got there. Any
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  Speaker 1: chance it comes as a biologic? Because then I'd be interested.
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  Speaker 1: So obviously the EPIC Act not included in reconciliation, orphan
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  Speaker 1: cures was, which fixes one of.
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  Speaker 4: The key flaws in the IRA.
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  Speaker 1: The concern about small molecule versus biologic, still real, still
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  Speaker 1: something you think about.
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  Speaker 2: Oh yeah, no, it's, it's definitely something I think about
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  Speaker 2: and I think it, it really is, um, while it's around,
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  Speaker 2: it's going to be driving, uh, this preference for one
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  Speaker 2: therapeutic class versus the other. And I like to point
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  Speaker 2: out that like, um, small molecules are really useful. That's
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  Speaker 2: like penicillin, right? I mean, there's some really good drugs and, and, and,
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  Speaker 2: and they have a lot of advantages. They, uh, you know,
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  Speaker 2: you can take.
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  Speaker 4: Them at home.
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  Speaker 2: They don't need infusion centers. They, the biologics are great too,
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  Speaker 2: but they have some complexity. that small molecules don't. So
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  Speaker 2: it's really in our interest to have, to not really
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  Speaker 2: have a preference in the law one way or the other,
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  Speaker 2: because I think we need both, you know, good research
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  Speaker 2: in both classes of medicine. So I worry about this
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  Speaker 2: a lot. You know, in fact, when the IRA came out,
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  Speaker 2: I think there were some who hoped to repeal it entirely.
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  Speaker 2: And I thought that was probably unwise. I know there
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  Speaker 2: are aspects of the IRA that are very popular that
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  Speaker 2: that do things that, you know, it solves, however inelegantly,
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  Speaker 2: the problem that some drugs seemingly never went off patent,
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  Speaker 2: that they, you know, had these very extended branded lives
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  Speaker 2: that were hard to defend and it drove everybody crazy,
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  Speaker 2: you know, Republicans and Democrats both. And so the IRA
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  Speaker 2: was a solution to that problem and capping some of
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  Speaker 2: the out-of-pocket costs, very popular, some of the other things.
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  Speaker 5: Yeah.
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  Speaker 2: So I always say we should try and fix it.
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  Speaker 2: We should try and address those things that are the
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  Speaker 2: most detrimental to industry and to drug discovery and to
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  Speaker 2: helping the American patient. And one of those things was
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  Speaker 2: the orphan problem, where if you got your drug approved
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  Speaker 2: for an orphan designation, the IRA then created this massive
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  Speaker 2: disincentive to not ever seek orphan designation for anything else.
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  Speaker 2: And you'll know the details better than I, but that
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  Speaker 2: was in part fixed, if you will, in the reconciliation.
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  Speaker 2: in the one big beautiful bill in the reconciliation process.
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  Speaker 2: So what's left to me, the other problem that seems
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  Speaker 2: to make not great sense from my point of view
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  Speaker 2: is the pill penalty. And I do hope that will
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  Speaker 2: get fixed. I think that that would provide an incentive
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  Speaker 2: for Venture and people like me to work on small
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  Speaker 2: molecules again.
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  Speaker 4: It doesn't sound, if you don't.
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  Speaker 2: Kind of understand where 9 to 13 is that big
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  Speaker 2: a difference, But if you really think about, you know, pills,
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  Speaker 2: drugs in general make most of their money the longer
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  Speaker 2: they're on the market. As doctors feel comfortable using them
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  Speaker 2: and they get embraced. So the last year or two
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  Speaker 2: are by far the most valuable. So, you know, cutting
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  Speaker 2: the period from 13 to nine years, you know, is
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  Speaker 2: sort of like a 50% cut in the net present
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  Speaker 2: value of the asset. So, you know, those kinds of huge,
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  Speaker 2: you know, effects are, are going to disincentivize people.
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  Speaker 6: And we're all, we're only.
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  Speaker 2: Going to have biologics and, you know, biologics have their advantages, but,
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  Speaker 2: you know, we need small molecules as well. So, so
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  Speaker 2: I think, you know, fixing that seems like an obvious
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  Speaker 2: thing that still ought to happen. I believe there's bipartisan
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  Speaker 2: support for.
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  Speaker 4: This in Congress.
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  Speaker 2: I do think that this has got a decent chance. If,
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  Speaker 2: you know, Congress is able to pass laws and, you know,
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  Speaker 2: if things are going to happen, then this, I think
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  Speaker 2: has decent prospects.
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  Speaker 4: That's a big if, Ned.
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  Speaker 1: I wouldn't normally put a guess through scientific rigor, but
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  Speaker 1: you are a world-class expert in oncology. I did a
• 16:20
  Speaker 1: piece with JF over at Atlas about small molecule and
• 16:25
  Speaker 1: the next sort of revolution in oncology. And one of
• 16:29
  Speaker 1: his key points was that specific to cancer, there is
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  Speaker 1: so much that biologics just may not be able to
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  Speaker 1: do down the line in terms of reaching certain parts
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  Speaker 1: of the body, things like that. You're a world-class oncology expert.
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  Speaker 1: Agree with that statement that for the cancer community, we
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  Speaker 1: were actually kind of beginning to look back at small
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  Speaker 1: molecule and see what's there.
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  Speaker 4: Yeah, no doubt.
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  Speaker 2: I mean, you know, like one really obvious, easy to
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  Speaker 2: understand advantage of small molecules is it's like a pill
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  Speaker 2: you can take every day. And so, you know, Antibodies,
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  Speaker 2: like biologics, you often have to infuse. Even to do
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  Speaker 2: that weekly is a hassle. Often it's kind of every
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  Speaker 2: couple of weeks. So if you need a drug to
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  Speaker 2: be present at a decent pharmacological concentration to provide some
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  Speaker 2: effect for a long period of time, like leukemia, sometimes
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  Speaker 2: we do this for years. We treat our kids for
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  Speaker 2: ALL for like two years, right? You just need a
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  Speaker 2: small molecule to do that. There's really no way to
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  Speaker 2: do that with a biologic. So sustained pharmacologic effect is
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  Speaker 2: an obvious example where small molecules kind of win. The
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  Speaker 2: other thing where small molecules kind of win is you
• 17:37
  Speaker 2: can kind of do them anywhere. So you can pack
• 17:40
  Speaker 2: up a box of pills and send it to Malawi
• 17:42
  Speaker 2: to fight malaria. You know, CAR T cells require a
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  Speaker 2: complex GMP manufacturer and stuff like that. So small molecules
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  Speaker 2: have this, and they go generic. You know, there's a
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  Speaker 2: very appealing feature that there's a very straightforward path to
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  Speaker 2: them to become low cost medicines that can be used
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  Speaker 2: for worldwide impact.
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  Speaker 4: So we should, you know, love small molecules.
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  Speaker 2: Some of our best friends are, you know, I mean,
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  Speaker 2: these are medicines that we've all taken and used throughout
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  Speaker 2: our lives. And it's not like we found them all.
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  Speaker 2: You know, there are great ideas still left to be tapped.
• 18:13
  Speaker 2: So I think that it's a therapeutic class that really
• 18:17
  Speaker 2: is important.
• 18:18
  Speaker 5: What we need to be doing collectively is thinking about
• 18:21
  Speaker 5: a comprehensive competitiveness package. If we want to be a
• 18:26
  Speaker 5: world leader, stay a world leader in innovation, and not
• 18:31
  Speaker 5: just because it's a critically important economic engine for the
• 18:34
  Speaker 5: United States, but because it's a national security priority, we
• 18:39
  Speaker 5: should be doubling down and having concentrated investment and stability, right?
• 18:45
  Speaker 5: We should be investing more through NIH. We should be
• 18:48
  Speaker 5: clearly reauthorizing SBIR and doubling down on that. You know,
• 18:53
  Speaker 5: initiatives like ARPA-H lead to successful outcomes for large patient populations, potentially.
• 19:00
  Speaker 5: That's a good thing for the United States. We should
• 19:02
  Speaker 5: be continuing to invest in that. Things like we want
• 19:07
  Speaker 5: to onshore more. That's incredible. We want to do that,
• 19:10
  Speaker 5: but we've got to have vehicles to do that. We
• 19:12
  Speaker 5: should be prioritizing incentives around domestic manufacturing. We should be
• 19:18
  Speaker 5: continuing to incentivize research and development that's happening here. I mean,
• 19:24
  Speaker 5: all of these pieces, we should be fixing the pill penalty.
• 19:28
  Speaker 5: We should be modernizing FDA. You know, instead of sort
• 19:32
  Speaker 5: of hitting each stage of the life cycle in pieces
• 19:37
  Speaker 5: and sort of systematically dismantling it, we should be continuing
• 19:40
  Speaker 5: to concentrate investment so we can continue to stay the
• 19:44
  Speaker 5: world leader in research and development.
• 19:47
  Speaker 1: This Saturday is September 13th, or 9-13. a special day
• 19:51
  Speaker 1: around incubate where we call attention to the ongoing pill
• 19:54
  Speaker 1: penalty that was part of the Inflation Reduction Act. As
• 19:57
  Speaker 1: many of you know, this pill penalty, or small molecule penalty,
• 20:01
  Speaker 1: is how we refer to the fact that now small
• 20:04
  Speaker 1: molecule medicines only have nine years of protection before price control's.
• 20:08
  Speaker 1: whereas biologics have 13 years. This four-year disparity is a
• 20:13
  Speaker 1: significant deterrent to small molecule investment. As we've gotten into
• 20:18
  Speaker 1: so many times and have resources on our websites and
• 20:21
  Speaker 1: have shared with policymakers, almost 50% of a drug's revenues
• 20:25
  Speaker 1: might come after year nine. And so we like to
• 20:28
  Speaker 1: celebrate on 9-13 all the attention and effort that has
• 20:32
  Speaker 1: gone into passing the EPIC Act, which would, end the
• 20:36
  Speaker 1: pill penalty by giving both small molecule medicines and biologics
• 20:40
  Speaker 1: the same 13 years. Investors and entrepreneurs could get back
• 20:44
  Speaker 1: to doing what they do best, following science to bring
• 20:47
  Speaker 1: about new medicines. Incubate has been sounding the alarm on
• 20:51
  Speaker 1: the pill penalty and has been working hand in glove
• 20:54
  Speaker 1: with members on both sides of the aisle in Washington
• 20:57
  Speaker 1: to end the pill penalty through passage of the EPIC Act.
• 21:00
  Speaker 1: Earlier this year, we launched a national ad campaign that
• 21:03
  Speaker 1: called attention to the EPIC Act. We had hoped that
• 21:06
  Speaker 1: we could include it in the one big beautiful bill,
• 21:08
  Speaker 1: but we'll need to keep fighting in order to see
• 21:11
  Speaker 1: it included in an end-of-year health package. Another way Incubate
• 21:15
  Speaker 1: called attention to this disparity was our Small Molecules, Big
• 21:18
  Speaker 1: Voices campaign that keeps going, and I hope you'll check
• 21:21
  Speaker 1: that out, as well as our Incubate shorts filmed at
• 21:23
  Speaker 1: various conferences where we've talked with patients, biotech leaders, VCs,
• 21:28
  Speaker 1: and policymakers, all saying the same thing. The pill penalty
• 21:31
  Speaker 1: has to go. That's available on Incubate's YouTube page. And
• 21:35
  Speaker 1: they're real stories of what's at stake if small molecules
• 21:38
  Speaker 1: are left behind. But to change this policy, we're going
• 21:41
  Speaker 1: to have to do more than tell stories. We're going
• 21:43
  Speaker 1: to have to talk data. And that's why Incubate launched
• 21:46
  Speaker 1: the Life Science Investment Tracker, which has been tracking changes
• 21:50
  Speaker 1: in investment patterns since the IRA was passed. We've seen
• 21:53
  Speaker 1: 26 drugs discontinued and more than 50 research programs abandoned.
• 21:59
  Speaker 1: where in their own documents, companies pointed to the IRA
• 22:03
  Speaker 1: and the pill penalty as being one of the causes
• 22:05
  Speaker 1: for why they didn't move forward with a promising drug.
• 22:09
  Speaker 1: It's critical that this be the last 9-13 where we're
• 22:13
  Speaker 1: talking about the pill penalty. With this episode focusing on
• 22:16
  Speaker 1: 9-13 and the pill penalty, there's a great new article
• 22:21
  Speaker 1: out from the National Pharmaceutical Council in Health Affairs's that
• 22:24
  Speaker 1: interviewed a lot of VCs about their views on the
• 22:27
  Speaker 1: IRA and how it's impacted investment. There are a lot
• 22:30
  Speaker 1: of great takeaways in the scholarly piece, and we encourage
• 22:33
  Speaker 1: people to take a look at it. But we will
• 22:36
  Speaker 1: crib that 77% of those interviewed said the pill penalty
• 22:40
  Speaker 1: was impacting their investments. So thanks to NPC for adding
• 22:44
  Speaker 1: to the body of evidence that says what we all
• 22:46
  Speaker 1: seem to know. The pill penalty is bad, should be
• 22:50
  Speaker 1: ended via the EPIC Act, and we should all get
• 22:52
  Speaker 1: back to making new medicines that make a difference for patients.
• 22:55
  Speaker 1: It'll also potentially impact one of the biggest pitfalls in U.S.
• 22:59
  Speaker 1: biotech right now, the pill penalty. We've talked on previous
• 23:03
  Speaker 1: episodes that the pill penalty and giving only nine years
• 23:07
  Speaker 1: to small molecule drugs is gutting investment in that important
• 23:11
  Speaker 1: corner of science, instead favoring biologics and their 13 years.
• 23:15
  Speaker 1: How do these two issues link up? Well, let's think
• 23:18
  Speaker 1: about it. One of the arguments for more advertisements, or
• 23:21
  Speaker 1: at least to keep the same number of advertisements, is
• 23:24
  Speaker 1: they really do work. They make patients ask their doctors
• 23:28
  Speaker 1: about new drugs. They make doctors look into new drugs
• 23:32
  Speaker 1: that they might need to provide for their patients. And
• 23:34
  Speaker 1: over time, it plays a meaningful role in people taking
• 23:37
  Speaker 1: more medicine. Well, from the economic side of this, that
• 23:41
  Speaker 1: translates to recouping your investment in a drug faster and
• 23:45
  Speaker 1: being able to spend it more on R & D
• 23:47
  Speaker 1: on future drugs. And so the argument from some in
• 23:50
  Speaker 1: the investment community is that by slowing down the uptake
• 23:54
  Speaker 1: of medicine, we'll need longer to recoup that investment and,
• 23:58
  Speaker 1: of course, make a return on that investment. And so
• 24:01
  Speaker 1: maybe nine years, which we're already seeing isn't enough, becomes
• 24:05
  Speaker 1: 10 years or 11 years or even longer in order
• 24:08
  Speaker 1: for investors to stay excited about the risky, risky world
• 24:12
  Speaker 1: of biotech. So everyone probably has a personal opinion. Everyone
• 24:17
  Speaker 1: probably has a favorite jingle. And they probably have a
• 24:20
  Speaker 1: lot of drug ads that they'd rather not see. But
• 24:23
  Speaker 1: it'll be important that we look at the data and
• 24:25
  Speaker 1: the unintended consequences of making a move against this and
• 24:29
  Speaker 1: how it could exacerbate one of the known problems with
• 24:32
  Speaker 1: the IRA, the pill penalty. Price controls broadly because we have,
• 24:38
  Speaker 1: of course, under President Biden, we found ourselves stuck with
• 24:41
  Speaker 1: the IRA, the pill penalty, orphan cures, which has sort
• 24:45
  Speaker 1: of been since addressed in one big, beautiful bill. Instead
• 24:51
  Speaker 1: of going into the weeds of MFN specifically, the concept
• 24:55
  Speaker 1: of a price control. As someone who has created a company,
• 25:01
  Speaker 1: led to actual medicine creation, if we say, hey, X, Y,
• 25:06
  Speaker 1: and Z therapeutic is likely to be price controlled, walk
• 25:10
  Speaker 1: us through from your executive position, if price controls existed
• 25:14
  Speaker 1: tomorrow like they do in the EU, how could that
• 25:18
  Speaker 1: change things at Seaport?
• 25:20
  Speaker 3: Right.
• 25:20
  Speaker 7: Well, I mean, I would say, first of all, it
• 25:22
  Speaker 7: would change things for patients because in the EU, they
• 25:24
  Speaker 7: don't have access to the same medicines that we have.
• 25:27
  Speaker 7: And I think that's going to get even worse with
• 25:30
  Speaker 7: some of the MFN policies. So companies are going to
• 25:34
  Speaker 7: make choices about whether it's worth it to launch in
• 25:37
  Speaker 7: the EU in the past. And I completely agree with
• 25:41
  Speaker 7: the concept behind MFN, right? The idea that we want
• 25:44
  Speaker 7: to fix this imbalance, the free riding system problem. of
• 25:50
  Speaker 7: rest of the world over the US. 100% agree with
• 25:53
  Speaker 7: that approach. The question is how you do it. And
• 25:57
  Speaker 7: if you slap a price control, what you're doing is
• 26:01
  Speaker 7: you're limiting the upside. And so coming back to this
• 26:04
  Speaker 7: valley of death, right? One out of a hundred medicines
• 26:09
  Speaker 7: make it. And it's even like one out of 200
• 26:13
  Speaker 7: if you go back to like patented innovations. If you
• 26:15
  Speaker 7: go all the way back, like things that just are
• 26:17
  Speaker 7: ideas that get patented, versus those that actually get spun
• 26:20
  Speaker 7: out or into companies or licensed out, think about 1%
• 26:25
  Speaker 7: or less make it all the way. So if you're
• 26:30
  Speaker 7: an investor, and it takes 10 to 15 years or
• 26:35
  Speaker 7: more to take that new medicine from academia all the
• 26:39
  Speaker 7: way to patients, if you're an investor, there's all this
• 26:43
  Speaker 7: risk involved. And the only reason why you're taking on
• 26:45
  Speaker 7: the risk is because you know that every once in
• 26:48
  Speaker 7: a while, you're going to have a payout that's going
• 26:51
  Speaker 7: to be $ 5, $ 10 billion payout, which then recycles the
• 26:55
  Speaker 7: cash back. It pays off all the ones that didn't
• 26:58
  Speaker 7: succeed because there are going to be a number of
• 27:01
  Speaker 7: these that investors back that get shut down. So if
• 27:05
  Speaker 7: you cap the upside, what's going to happen is investors
• 27:09
  Speaker 7: are going to just move their money to other things.
• 27:11
  Speaker 7: I mean, already, if you look at the XBI over
• 27:15
  Speaker 7: the last five years versus the S & P 500, 500,
• 27:20
  Speaker 7: XBI has underperformed, right? So it's true that right now
• 27:24
  Speaker 7: we're in a situation where it's looking like XBI and
• 27:27
  Speaker 7: biotechs are really kind of on a roll and about
• 27:29
  Speaker 7: to be, I would say, almost like a safe haven
• 27:33
  Speaker 7: or outperforming.
• 27:33
  Speaker 1: That's what it's looking like.
• 27:35
  Speaker 7: We'll see. But if you do things that make it
• 27:38
  Speaker 7: less attractive, investors will just take their money elsewhere. Entrepreneurs
• 27:42
  Speaker 7: will choose different things to do because what we do
• 27:46
  Speaker 7: is really hard. It's really risky. And as an executive,
• 27:49
  Speaker 7: you asked me what it's like. I've been a leader
• 27:53
  Speaker 7: of a company where we're turning the card. Basically, we're
• 27:56
  Speaker 7: finding out whether the results of a clinical study went well,
• 28:00
  Speaker 7: whether it met the primary endpoint and was a success
• 28:04
  Speaker 7: or not. And it is a roller coaster for everyone involved,
• 28:09
  Speaker 7: for the entire team, for patients, for leadership, for the investors,
• 28:15
  Speaker 7: and often for it doesn't go the way people would hope. So,
• 28:21
  Speaker 7: you know, at least you know that on the other side,
• 28:23
  Speaker 7: if you did well and you did all this stuff
• 28:26
  Speaker 7: for years and years and you made it, then there's
• 28:30
  Speaker 7: a payoff. So I think it's any form of price
• 28:33
  Speaker 7: control is damaging. What we can do though, is look
• 28:36
  Speaker 7: at the middleman. So, and think about ways that, you know,
• 28:40
  Speaker 7: there's a whole number of things that we could do.
• 28:43
  Speaker 7: I think the problem is, I sort of feel like
• 28:47
  Speaker 7: there's an impasse where the biotech pharma industry doesn't necessarily
• 28:51
  Speaker 7: want to negotiate yet. So, like, we'll see. But they're
• 28:56
  Speaker 7: waiting to see if they can push back on it.
• 28:59
  Speaker 7: And at some point, people will start talking about what's
• 29:03
  Speaker 7: the best way to do it. If you're going to
• 29:04
  Speaker 7: try to address this issue, what's the best way to
• 29:07
  Speaker 7: do it? If it were up to me, I would
• 29:09
  Speaker 7: have done it sooner. But I'm not a lawyer at
• 29:11
  Speaker 7: a big pharma company. So, you know, they have all
• 29:14
  Speaker 7: of their considerations.
• 29:15
  Speaker 1: Inflation reduction act. So the IRA puts price controls in
• 29:19
  Speaker 1: place and even does some very specific things like decreased
• 29:23
  Speaker 1: incentives for small molecules. So you only get nine years
• 29:27
  Speaker 1: of rewards versus 13 years for biologics. We have something
• 29:31
  Speaker 1: called the life science investment tracker, and we immediately started
• 29:35
  Speaker 1: measuring decreased investment. We knew we'd have to, as the
• 29:39
  Speaker 1: kids say, bring the receipts in order to go to
• 29:42
  Speaker 1: policymakers and say, hey, you made a mistake here. We
• 29:45
  Speaker 1: can debate price controls broadly, but I don't think you
• 29:48
  Speaker 1: meant to see money flow out of small molecule, the
• 29:51
  Speaker 1: so-called pill penalty. And that's exactly what we saw, because
• 29:56
  Speaker 1: sometimes this is an industry that cries wolf. We didn't
• 29:59
  Speaker 1: want to be that. We didn't want to say the
• 30:00
  Speaker 1: sky is falling and innovation is over. But we wanted
• 30:04
  Speaker 1: to say what you've done here has caused lack of
• 30:07
  Speaker 1: interest by investors. Your decision to really tackle one of
• 30:12
  Speaker 1: the thorniest things investors are facing, and you recently added
• 30:16
  Speaker 1: your name to the EPIC Act, which would address the
• 30:20
  Speaker 1: pill penalty that has led to less investment in small
• 30:23
  Speaker 1: molecule medicines. What What encouraged you to support this legislation?
• 30:29
  Speaker 1: Why do you see it? What's the problem and how
• 30:32
  Speaker 1: is it fixing it? And why did you want to
• 30:33
  Speaker 1: put your name to it?
• 30:35
  Speaker 8: You know, we might want to go back a step
• 30:36
  Speaker 8: and talk about the IRA and how that got created
• 30:40
  Speaker 8: and how the pill penalty came about. Because actually, we
• 30:44
  Speaker 8: were looking at a much worse potential outcome than even that.
• 30:49
  Speaker 8: In a couple of Congresses ago, when the Democrats took power,
• 30:55
  Speaker 8: And when we had the trifecta, we had the house,
• 30:57
  Speaker 8: the Senate and the presidency, um, you know, speaker Pelosi
• 31:01
  Speaker 8: had a very good idea with some very bad features.
• 31:04
  Speaker 8: And the good idea was let's, let's negotiate prices, um,
• 31:09
  Speaker 8: with let's let Medicare negotiate prices with, um, with manufacturers, um,
• 31:15
  Speaker 8: so that we can keep the price for a senior.
• 31:19
  Speaker 8: We can limit it to $ 2, 000 a year out of pocket.
• 31:22
  Speaker 8: That's a great idea. Uh, and, um, the problem was
• 31:26
  Speaker 8: that part of that, part of that was to start
• 31:29
  Speaker 8: negotiations on the day that a drug was launched. And,
• 31:35
  Speaker 8: you know, I know, well, you know, but I knew
• 31:37
  Speaker 8: from San Diego that it's about a billion dollars to
• 31:39
  Speaker 8: get a drug to market. It's, you know, 95% of
• 31:43
  Speaker 8: them fail. And if you don't give some return on
• 31:47
  Speaker 8: investment to people who made these risky investments to create
• 31:50
  Speaker 8: these drugs, they're not going to invest in private drug discovery. And,
• 31:55
  Speaker 8: the NIH budget is around 45 trillion, 47 trillion. It's
• 31:59
  Speaker 8: up from 29 when I started. But the amount of
• 32:03
  Speaker 8: investment from the private sector is well over double that.
• 32:07
  Speaker 8: And the private sector is taking that basic fundamental science
• 32:11
  Speaker 8: that we generate out of government investment and turning it
• 32:14
  Speaker 8: into therapies and cures.
• 32:16
  Speaker 4: They won't do that if they can't make a return.
• 32:20
  Speaker 8: And so all I said was, I told the speaker,
• 32:23
  Speaker 8: I told my committee chair, I can't support this. We
• 32:26
  Speaker 8: have to create some space for people to make a
• 32:29
  Speaker 8: return on the investment before the negotiation kicks in, because
• 32:35
  Speaker 8: it's better to have something that costs a lot for
• 32:37
  Speaker 8: a while than not to have that at all, which
• 32:40
  Speaker 8: is what we were going to end up with. We're
• 32:42
  Speaker 8: not going to end up with these innovations. So my
• 32:45
  Speaker 8: proposal was to build in a period of time when
• 32:50
  Speaker 8: you could make a return before the The negotiation kicked
• 32:54
  Speaker 8: in and it caused quite a stir. I think, you know,
• 32:57
  Speaker 8: generally I only had four votes here for that position.
• 33:01
  Speaker 8: It's basically all I needed. They didn't have a vote
• 33:04
  Speaker 8: in the Senate for this at all. We were able
• 33:06
  Speaker 8: to convince Senator Sinema from Arizona that if we protected
• 33:10
  Speaker 8: the right, those investment incentives that she would join up
• 33:14
  Speaker 8: and we would land this plane because it wasn't going
• 33:16
  Speaker 8: to be an issue that went away. I voted against
• 33:19
  Speaker 8: my own party's reconciliation. I did it on video.
• 33:23
  Speaker 4: During COVID.
• 33:24
  Speaker 8: And oh my gosh, my poor district staff had to
• 33:26
  Speaker 8: take so much incoming. We had a protest at our
• 33:29
  Speaker 8: office that I was trying to kill seniors. They had
• 33:32
  Speaker 8: a die-in at my district office. They had signs all over,
• 33:35
  Speaker 8: like tell Scott Peters to get out of the way
• 33:37
  Speaker 8: of drug price reductions. They had one of those planes
• 33:44
  Speaker 8: that flew over the beach. And they really came after
• 33:48
  Speaker 8: me pretty hard for two months. But we held our
• 33:51
  Speaker 8: ground because it was the right thing to do. We
• 33:53
  Speaker 8: got that provision in there. And, you know, by the way,
• 34:00
  Speaker 8: we passed it and every Democrat ran on this as
• 34:05
  Speaker 8: a proud accomplishment. It wasn't like we lost anything because
• 34:07
  Speaker 8: we did get the $ 2, 000 cap for seniors. That was
• 34:11
  Speaker 8: the whole point. We got the same relief that Speaker
• 34:13
  Speaker 8: Pelosi had proposed in the beginning. But the negotiation was
• 34:16
  Speaker 8: ugly around that period because it came out the 9-13.
• 34:19
  Speaker 4: So nine for small molecules, nine years for small molecules.
• 34:21
  Speaker 8: 13 years.
• 34:25
  Speaker 4: For large molecules, biologics.
• 34:29
  Speaker 8: And while it was a better result than zero, as
• 34:33
  Speaker 8: we saw it play out, you've mentioned we've seen a
• 34:35
  Speaker 8: reduction in investment in small molecules, which is really kind
• 34:38
  Speaker 8: of stuff that's going to help us with Alzheimer's in particular.
• 34:42
  Speaker 8: And so that needs to be fixed. And that's why
• 34:46
  Speaker 8: I think the EPIC Act makes a lot of sense.
• 34:49
  Speaker 1: To that small molecule... Delta, what we call the pill penalty.
• 34:55
  Speaker 1: And I'm curious, when... A small molecule gets nine years
• 34:59
  Speaker 1: and a biologic gets 13 years. Did you find yourself
• 35:04
  Speaker 1: more interested in biologics? Does that four years delta in
• 35:09
  Speaker 1: the MPV actually play a role in your decision making?
• 35:12
  Speaker 7: It does.
• 35:13
  Speaker 6: And when that legislation came out, it got investors to
• 35:18
  Speaker 6: think about their financial models and how they model small
• 35:21
  Speaker 6: molecules versus biologics. So there's really been a trend actually
• 35:26
  Speaker 6: over the last five years, call it, when the IRA
• 35:30
  Speaker 6: has been settling in, maybe it's more like four years ago.
• 35:33
  Speaker 6: And investors have been spending a lot of time on
• 35:37
  Speaker 6: biologics and making antibodies to validated targets or making bispecific
• 35:43
  Speaker 6: antibodies to two different validated targets or making them more convenient.
• 35:48
  Speaker 6: And all of that is more conducive to having a
• 35:52
  Speaker 6: policy where you have a longer patent life. And so
• 35:56
  Speaker 6: that trend we've definitely observed. I think that's also coupled
• 36:00
  Speaker 6: with the fact that we went through a pretty big
• 36:03
  Speaker 6: re-rate of our sector post-COVID as interest rates went up
• 36:07
  Speaker 6: and there was a flight to safety. And really antibodies
• 36:11
  Speaker 6: allow you to do that on a very fast time scale.
• 36:13
  Speaker 6: There's also China, as you said, we can talk about.
• 36:17
  Speaker 6: They're very good at making antibodies. So I think the
• 36:20
  Speaker 6: confluence of factors there, and the IRS is certainly one
• 36:23
  Speaker 6: of them, we've seen biotech companies favor biologics.
• 36:29
  Speaker 1: It's a concerning one. And we do hope, you know,
• 36:31
  Speaker 1: just like we were able to get orphan cures over
• 36:33
  Speaker 1: the finish line in order to incentivize secondary indication research,
• 36:38
  Speaker 1: we're hopeful about the EPIC Act. Incubate definitely leads sort
• 36:41
  Speaker 1: of the fight on fixing the small molecule penalty. So hopefully,
• 36:44
  Speaker 1: if we can't get it done this Congress, We get
• 36:46
  Speaker 1: it done so you can get back to weighing small
• 36:49
  Speaker 1: molecules more favorably. That wraps up this episode of the
• 36:53
  Speaker 1: Making Medicine podcast. On behalf of our whole team here,
• 36:56
  Speaker 1: we wish you a very happy 9-13 day. Be sure
• 36:59
  Speaker 1: to subscribe on YouTube and follow us on other channels.
• 37:01
  Speaker 1: Thanks for listening. And as always, keep innovating.