Giachino (00:05.0170 - 00:29.0520)
Welcome to IP Protection Matters. I'm your host, Renee Giachino. Today we are joined by John Stanford, Executive Director of Incubate. We'll be talking today about how strong IP protections enable the private investment fuel that drives innovation.
John, welcome to the show. Before we dive into the topic, I'd like to ask you to tell us what Incubate is up to these days.
Stanford (00:29.0540 - 01:40.0330)
Absolutely. Well, thank you so much for having us on.
Incubate is the national voice of life-science venture capital and by extension, the early-stage ecosystem where so many fascinating things in drug development and bringing new medicines to patients really happens. We're entering our seventh year, and we really formed because we really didn't see the voice of that early-stage investor - the risk capital that gets put forward - participating in dialogue around the future of medicine, around things like drug prices and our broken health care system. And so Incubate has been that national voice, and we've been really focused on looking at the new era of medicine, both from a scientific standpoint, as well as some new policies that are having some good and bad impacts on the life sciences ecosystem.
And in... I know we'll get into this in the show, but we're really looking at some incentives and disincentives that are now making scientists and investors not be led by science, but be led by Washington, which is giving us real concerns. I'm just really excited to talk about that and all things IP with you on the show today.
Giachino (01:40.0819 - 02:28.0339)
One of the things I'm really excited about, and I think this is critically important - and I want to make sure that folks know where they can go to learn more about the wonderful work that your organization does, and that is IncubateCoalition.org. Recently, Incubate launched the Life Sciences Investment Tracker to monitor and analyze the impact of the Inflation Reduction Act. Which I've talked about with other guests on the program, so I won't ask you to dive too deeply into that. But what I would like you to share with us is, what prompted this effort? And already when you visit that website, the data is already showing the critical importance of why this needs to be monitored and analyzed. So share with us if you will, what prompted this and what it is already showing?
Stanford (02:29.0259 - 05:10.0600)
Sure. I think it's important to remember that you can't have good policy without an agreed upon set of facts. I think if there's been anything regardless of your political stripe in this country, that much has become clear.
And so Incubate, looking at this very contentious debate around the cost of medicines amid a much broader, broken healthcare payer system, we wanted to say, how can we contribute real data from the field?
I think our industry at times, both the small biotech all the way up to the large pharmaceutical companies, are our collective reaction to proposed bad policies like price controls is, "price controls will stop innovation." And I think that's been a mantra for advocacy in this industry for decades. And we now have a point where we've entered into this era of price controls. And so it was really important from Incubate's perspective that we not be the boy who cried wolf, because we're now really testing the theory of, if we limit rewards on the upside, will there be consequences on the downside? And the Life Science Tracker is doing our best effort to capture, after the Inflation Reduction Act what changes are we seeing? And we are beginning to see changes. And I think it's important that we recognize that there is a tradeoff.
It's funny, I sometimes talk to younger students, and maybe it's how close they are to Econ 101 that it clicks for them in a moment. The Inflation Reduction Act will take 200 plus billion dollars out of the pharmaceutical industry. Now sure, some of that would have been profit and would have gone back to shareholders. But the bulk of that would have been forward-looking R&D. And if you remove that money from the system, you simply can't produce the same number of medicines that historically we've produced. And that's what the Tracker is measuring. We're looking at companies or investors and other analysis that says, because of these policies, we no longer are funding X,Y or Z program.
And already to date, we've shown that the Congressional Budget Office, which did acknowledge that we would lose some medicines, we can now show that they actually already undercounted for that lost medicine. And we're also starting to see trends about which therapeutic areas, which patients, are losing the most. And that's one of the most impactful pieces I think of all of the work we've ever done to date. You can't look a rare disease advocate in the eye or an oncology patient in the eye and say that you're not paying the price here. And I think it's going to be important, as we work on future looking policies, that we have an honest conversation about the tradeoffs involved in price controlling medicines.
Giachino (05:10.0829 - 05:45.0000)
Well, let's talk a little bit then, take us forward. We know we have to remedy this situation. The fact that, in less than two years, since the IRA was passed, at least 20 promising research programs have already closed. Many of which represent, as you mentioned, multiple drugs that may never be developed and may never reach patients. Life-saving drugs. The big question, can we remedy this? Can you fill us in ... I know you've written about and researched the Ensuring Pathways to Innovative Cures Act. What is that about?
Stanford (05:45.0630 - 07:54.0299)
Yeah, the Epic Act. What we've looked for is, where are the real disincentives?
So if you think about the construct of the IRA, we've effectively put price controls in at 13 years for biologics and nine years for small molecules. This is what we call the small molecule penalty. That under this new system, you can realize revenue for a whole four more years based on the type of drug you developed. Not on how many patients are taking it or what the value is or how innovative it is, how much of a breakthrough it is. We've just decided arbitrarily, here are two classes of drugs and we're going to reward them differently.
Well, investors pay attention to rewards. And especially when you consider in this industry, 50% of all revenue with a drug will come in years 10 to 13. So it's not just saying, hey, you're getting a little bit of a haircut if you invent a small molecule. We're saying your revenues are going to be cut in half in the aggregate if you go the small molecule direction. Right out of the gate this was a fundamental flaw.
We would have loved to see, if we're going to have price controls, 13-year parody for both small molecules and biologics. Historically, we've been used to about 14 to 16 years of revenue generating years before intellectual property provisions expire. So yes, it was a haircut to go down to 13, and a painful one for some particular companies. But we can still survive and we can thrive at 13 years, we can make do. There'll still be some problems with the price control setting, but at nine years it completely upends the calculations that investors are making.
So we've worked with members of Congress on both sides of the aisle. And we have Democrats and Republicans both saying, this is a problem, this isn't what we intended, we want to fix this. And that's exactly what the Epic Act would do. And we hope it gets signed into law and gives both biologics and small molecules 13 years before the price controls set in. And that will mean that we let scientists, not Washington, pick what kind of medicines can get to patients.
Giachino (07:54.0540 - 08:15.0820)
So we hear critics - and we've had a lot of hearings of late up on Capitol Hill - and they want to blame patents for the frustration that many patients face when they're paying at the pharmacy. Or even for access to, you know, the access challenges that they face to these drugs. Fact or myth? Are patents to blame?
Stanford (08:17.0450 - 10:55.0400)
I have seen a lot of analyses from people I respect deeply who just simply say that's not the case. And I think it's really important that we tackle this, because intellectual property has gotten a bit of a bad rap over the last decade. And it's important to remember that IP is so foundational to a free-market, enterprise-based ecosystem. My entire career is centered around entrepreneurship, and how do we get more businesses and ideas flowing through the American economy instead of a top-down, state-driven, state enterprise zone that you would see in China or the Soviet Union. So I think one, we have to take a step back and agree that intellectual property is a great thing, because sometimes we've cast it as this villain in the ecosystem. And it's almost regardless of who you talk to, if they believe that, you can't get them to understand a bit of the wonkiness that answering this question entails.
Drug development is extremely risky. We fail even more than the industry average on the early end. And the industry average is 9 in 10 projects go absolutely nowhere. You sink hundreds of millions, if not billions, of dollars into an idea and unfortunately, it just doesn't work. It's not safe enough for patients or it doesn't have the efficacy. And that's why the FDA does such an incredible job as the world's gold standard for what is effective and what is safe.
Patents are the trade off in this drug development system that allow investors to take the risk of developing a new drug. If I, and I want to make this crystal clear: If IP protections don't exist, the private venture capital that funds all the early-stage development in this country would not and could not invest in new drugs. And so when we think about answering your question of, is it a myth that patents are driving up these prices? It's just the opposite. If you remove intellectual property from this equation, then what you have to commit to is making government develop drugs from start to finish. And we have about 200 years worth of experience saying that if we want something to happen and happen fast, we want to set American entrepreneurs on that.
Look at COVID, for example, the moment COVID happened, 400 startups all the way up to large companies stopped what they were doing and threw the kitchen sink. In exchange for that, we got three or four companies. So most companies, 99% of companies that tried to do anything around COVID got nowhere, but the ones that did make it got it further. Not a single one of them would have considered doing that if our intellectual property provisions weren't rock solid.
Giachino (10:55.0909 - 11:43.0166)
Our guest is John Stanford, Executive Director of Incubate. To follow their work, you can go to IncubateCoalition.org.
So you have been very active. Incubate has been in all of the issues surrounding IP protection. And in a recent letter to the Senate Judiciary Committee, Incubate expressed concern about lawmakers and critics who are trying to misrepresent the efforts and to misuse the Bayh-Dole Act, you know, a long-standing law, the march-in provision, to weaken drug patents. Well, let me ask you first to take a step back, what is the march-in provision? What is meant by that? And then is this really a proposal, a solution in search of a problem, do you think?
Stanford (11:43.0176 - 13:07.0090)
Well, I think it's important to zoom all the way back down. We have to go back in time about 40 years. I promise I won't talk for 40 years to get us up to real time. But 40 years ago, Congress realized that inventions being done in academia, in government, really weren't going anywhere. And they weren't so much inventions as they were findings in data or novel uses for existing products. And what they realized is there was really no incentive to bring those forward into commercialization.
Enter the Bayh-Dole Act, which creates the infrastructure that does all of this. And I won't get into the weeds - you've had some really brilliant people on to talk about it. Fast forward. 40 years, the Bayh-Dole Act has been transformative in the American innovation economy. With it, it's not just allowed life sciences to thrive but tech, green tech, any investment that we have seen can point back to Bayh-Dole to some extent and say, that belief that we will allow the American economy to commercialize that which was invented in academia and government is foundational for so many technologies that we use today.
Within the Bayh-Dole Act. There were four provisions under which the government could quote march-in and take back that intellectual property and that's where the term march-in comes from.
Stanford (13:07.0280 - 16:18.0219)
Those are. And again, you've, you've had wiser folks than me on this. None of those march-in provisions have to do with the price of a product.
Imagine if we were fed up with the increasing cost of an iPhone. I remember when I got my first iPhone, it was a couple hundred dollars. Now, they're measured in the low $1000 plus for a new iPhone. Imagine if the government wanted to say, we think every iPhone should be $100. And if you're not going to do that, we are going to march-in and take the intellectual property because 30 years ago, you used one government concept in the development of what would become some element of the technology. That's what we're talking about here.
And I understand the frustration of advocates. Our healthcare payer system is fully broken. A report just a couple of weeks ago from the FTC pointed to the monopolistic tendencies of these PBMs - these middlemen that seem to suck in 50 cents on the dollar of every dollar spent on drugs. I think the manufacturers wish that full dollar were making it to them. And certainly patients aren't any better off losing that money to the system. So the idea that Americans can't afford their health care is a very valid reality that we all have to address.
And I think in the effort to do that, some, on the more extreme fringe parts of both parties, are throwing the kitchen sink at the wall. And I think looking for boogeymen where they don't exist, this gets to the rest of your question. And so some have said, we're going to let the government march-in if we don't think the price of a drug is acceptable. And that's why we sent a letter to the Senate saying, if you make - this goes back to earlier... if the IP that is driving money investment as an investor is questionable, I'll do one of two things. Either that investment gets much more expensive, because you're going to, I'm going to make you cover the cost of my risk. Or I'm just not going to make that investment. And that's what we've told Congress.
And that is why members of both parties, in both Houses, in both chambers of Congress, have said, you know what, this isn't a real provision. And they've left it to frankly the more extreme wing of the Democratic Party, who there is no idea too extreme for them. To bring down prices. And some of them have been honest, "we don't care if we never invent another medicine. We want the cost of medicines today to come down." And if you believe that, then you are willing to kind of throw out the Constitution and throw out historical precedent that says this is not what march-in is for. And so we do not believe this is a solution.
We believe the solution to Americans not being able to afford their medicines is to make insurance act like insurance. We supported provisions in the Inflation Reduction Act that capped out of pocket costs. But frankly, these arguments about march-in distract from that. There is no silver bullet to taking back or taking medicine from a company. And I think we've seen that across the board. Those aren't the solutions. If we're going to get serious about this, we need to talk about making sure that our health payer system goes through, frankly, very significant reforms.
Giachino (16:18.0510 - 16:35.0049)
John, thank you so much for sharing your thoughts today. I think you've helped us better understand why IP protection matters. Before I let you go. I do want to ask you if you would just fill in the listeners about your podcast, Making Medicine. Tell us a little bit about that.
Stanford (16:36.0130 - 17:35.0348)
We try to bring that reality of the early stage ecosystem to life and a whole lot of means, including our Making Medicine podcast. And we welcome any listeners to check that out where we talk to investors, biotech CEOs, patients and even policymakers about what's ticking in the early-stage ecosystem.
And I want to say there's so much hope there. One of the reasons I love what I do is, we are right at the foreground of breakthroughs. Gene therapies that can be transformative for a child born with the ultra-rare condition that can lead an entirely normal life. But we're going to have to figure out how do we bring those forward. How do we make them accessible? And that's a challenge, but we shouldn't get lost in this. That for thousands, if not millions, of patients who have no treatment, have no cure, have no therapy, the early-stage ecosystem is where the hope for the next generation of patients lives. And that's what Making Medicine explores and hope folks will give it a listen.
Giachino (17:35.0749 - 17:48.0040)
We certainly will. Well, John, thank you again for your time today. Our guest has been John Stanford, Executive Director of Incubate. Check him out at IncubateCoalition.org.
Thank you so much for your time. We'd love to have you join us again.