Ep. 16 - Trump's Ultimatum, RADx & Preclinical IPOs

[00:00:00] Jeff Cranmer: The biotech IPO market remains hot, NIH has announced benchmarks for its COVID-19 diagnostics initiative, RADx, for which it hopes to expand testing capacity so that by December, 6 million people or 2% of the U.S. population can be tested per day and President Trump has issued an ultimatum to biopharma CEOs.
[00:00:26] I'm Jeff Cranmer, Executive Editor of BioCentury and I'm joined by my colleagues,
[00:00:31]
Steve Usdin:
Steve Usdin, Washington Editor,
[00:00:33]
Karen Tkach Tuzman:
Karen Tkach Tuzman, Head of Preclinical Content,
[00:00:36]
Simone Fishburn:
Simone Fishburn, Editor in Chief.
[00:00:39]
Jeff Cranmer:
Late Friday, President Trump gave biopharma CEOs a choice: accept an international reference pricing scheme for biologics or propose an alternative that achieves the same goals. The ultimatum was issued at a White House event, where Trump signed four executive orders that he said would quickly lead to massive reductions in drug costs. The Trump administration is coming out with drug pricing orders now, in the middle of a pandemic and a hundred days from the election.
[00:01:11] Steve, what's going on here?
[00:01:13]
Steve Usdin:
Well look, the timing isn't fooling anyone. If drug pricing was so important, the Trump administration would have addressed it years ago   -- some of these proposals have been floating around for a long time. And as you said, you know, we're a hundred days from an election and a thousand people a day -- approximately -- are dying in the United States from COVID-19.
[00:01:31] This is primarily intended to distract attention from those things I think, rather than actually to bring down prices. But if you want to get into the nitty gritty of it, there's about five moving parts and each one of them sounds like a big deal until you dig into the details. And there's a
but
for each one that kind of makes it much less of a big deal than you would think.
[00:01:54]The most important two are the rebate rule and what Trump calls most-favored nation status. So under the rebate rule, the rebates that drug companies pay to PBMs for favorable placement of their drugs on Medicare Part D formularies would be passed directly to patients. And if that happened, it would be a huge relief for patients who have high out-of-pocket costs. The Trump administration abandoned a proposal to do exactly this a year ago because it would have increased the cost of premiums. The problem with the executive order is that it says the rebate passbacks can only happen if the HHS secretary certifies that it won't increase premiums or government costs.
[00:02:38] HHS Secretary Alex Azar knows that's not possible. I've heard him personally make the argument that the rebates are immoral. That they're perverse because they create perverse incentives that PBMs and plans use to subsidize the premiums of patients who aren't as sick on the backs of patients who are sicker and need expensive drugs.
[00:02:58] I mean, he knows that most of these rebates are going to the PBMs to bring down premium costs. A congressional budget office estimated that scrapping premiums would cost the government $177 billion over a decade from increased premiums they would have to subsidize for some beneficiaries.
[00:03:15] So this really leaves Azar and the administration at a choice. Either they don't implement the rebate rule or they implement it and lie about what its impacts are on premiums. And if it does that, the PBMs are gonna sue and it seems to me that they're likely to win.
[00:03:30] So then there's the second big order, which is supposed to create what the administration is calling most-favored nation status for drugs... leaving aside the fact that most-favored nation is a concept that means something really different.
[00:03:43]The idea here is to create a maximum price for Medicare Part B drugs. Those are the drugs that are administered in a doctor's office or a hospital like biologics for cancer. And under the proposal, the top price would be the lowest price that's paid in any of 16 countries. And it's mostly big developed countries, but not exclusively. There's countries like Slovakia and the Czech Republic that are in the list also.
[00:04:08] My view on it is that, you know on the one hand, nobody can say with a straight face that the current system for pricing Part B drugs makes any sense. It creates financial incentives for physicians to prescribe and use the most expensive drugs. That doesn't make any sense. On the other hand, it's really hard to see how allowing Slovakia to set the U.S. prices make sense either. There's gotta be something that's better than that.
[00:04:32] In any case, there's a bunch of big
buts
in this policy. One of the big
buts
is that Republicans hate the idea of reference pricing. So Trump has decided to give the drug companies 30 days to come up with an alternative. We don't know whether they will or what it will be. And the other is that even if the Trump administration decides to implement this policy, it's going to take a long time, it's going to get tied up in the courts and nothing will happen certainly before the elections.
[00:05:05]
Simone Fishburn:
Steve, is there any real onus or weight on the pharma companies to come up with an alternative? You know, if they don't does he turn around and say, "Look you know what? I put it to them. They didn't do anything."
[00:05:17]
Steve Usdin:
It's interesting. You know, it's very clever and it puts them in a difficult position. What the administration has said is that the drug companies have to come up with something that would have the same practical effect as a policy that they've rejected. And I'm not sure how they can do that, but I'm sure there are smarter minds in mind that are at work on this and they're trying to come up with some way to bridge the gap. Maybe they'll propose something...
[00:05:41]
Simone Fishburn:
And I think one of the things that we should sort of inject into this discussion is biopharma companies are probably enjoying their best public relations situation that they've had for years, if not decades. And, you know, they're broadly seen as the saviors, the people who can get us out of this mess.
[00:06:00]So, I'm sure that there's going to be some desire on their part at least publicly to be showing the face of trying to act right on drug pricing. Is that naive of me to think that?
[00:06:12]
Steve Usdin:
Certainly they want to be seen to be doing that. And, maybe the best among them actually want to be doing that. That's one way to look at it. The other way to look at it is that they know that not only is the world depending on them to deliver here, but Trump is depending on them. He has shifted his entire focus of his public messaging about the pandemic from public health measures, which have been disastrous and continue to be disastrous, to the development of vaccines and therapies, which arguably is going extraordinarily well. So the Trump administration needs the drug companies, the world needs them to succeed, right? But I would also argue that politically, the last thing that Trump wants to do is to create a perception that he's at war with the companies that he's also saying we need to save us.
[00:07:06]
Simone Fishburn:
Right, that it is true. I agree with that, but let's be clear. Even the drug companies... there's no one on earth who's saying they're going to have any serious countermeasure before the elections. He's not going to have a win that he can point to to say this happened on my watch.
[00:07:23]
Steve Usdin:
Well, what he's going to say is that there are Phase III results, which look very promising. And there's a massive manufacturing that's ramped up and is ready to go as a result of policies that his administration has put in place. My guess is that he won't say it in as nuanced or common way as I just said but he will take credit for that. And to be fair, the Trump administration has done an extraordinary job of accelerating the development of vaccines and therapies and of investing massively in at-risk manufacturing.
[00:07:58]
Simone Fishburn:
Right, well we can talk more about that. There's also been a sort of tainting of his word through the whole hydroxychloroquine saga. And there was no way we were going to get a podcast out without saying hydroxychloroquine, was there?
[00:08:11]Jeff Cranmer: Steve, next steps? There's a meeting tomorrow at the White House?
[00:08:14]Steve Usdin: President Trump requested that pharma CEOs come to the White House on July 28th -- that's tomorrow -- to discuss alternatives to the most-favored nation proposal and he said that he wants proposals that will have exactly the same effect as the most-favored nation proposal. I've heard that the pharma CEOs aren't even going to come to the White House. They've basically decided that the President isn't negotiating in good faith and they don't have any interest in trying to come up with a plan that would do exactly the same thing as something they've already rejected.
[00:08:52]Jeff Cranmer: What's likely to be the fallout of that?
[00:08:55]Steve Usdin: You know, it's interesting. I think that the White House needs the pharmaceutical industry as much -- or maybe more -- than the pharmaceutical industry needs the White House right now. I mean honestly, the whole world needs the biopharmaceutical industry to succeed. To create vaccines and to create therapies that are going to tame COVID-19.
[00:09:17]  I think that there are other things that are going to happen. One of the executive orders was about importation and the FDA has got a big role to play in making that happen. It's a little complicated to go into it here, but there's three different kinds of importation measures that are envisioned in the executive order.
[00:09:36] All of them rely in one way or another on actions from FDA. FDA commissioner, Stephen Hahn immediately tweeted out. He was at the event and he immediately tweeted out that FDA is going to act quickly on these things. So, I wouldn't be surprised if the next shoe to drop besides the White House meeting is some kind of an announcement about importation policies. It's particularly important because politically, Florida is a key state for the President. It isn't a coincidence that the governor of Florida was at the announcement of the executive orders on Friday.
[00:10:12] And the administration wants to be able to show some forward movement on the importation. Particularly for the Medicare population in Florida.
[00:10:23]
Jeff Cranmer:
So another big push by the government is NIH's rapid acceleration of diagnostics program, or RADx, which feels like it was named by a surfer in the early '80s.
[00:10:37]They've released what you Karen have called aggressive pushes for rapid and pooled COVID testing. What did you mean by that?
[00:10:46]
Karen Tkach Tuzman:
So in RADx, we're seeing a pretty significant departure from how NIH typically funds things. Normally, and for example the cancer moonshot is an example of this... What they mean when they say they'll put a bunch of funding into a certain area or they'll push research in a certain area is that they'll put out a call for applications for funding and really leave it up to the research community to send in proposals and then fund those and kind of keep tabs from afar. But here with the RADx program, we're seeing them take in lots of proposals, run them through an innovation funnel or shark tank-like environment, where they triage them pretty aggressively -- including bringing some of the top tests into labs in their rapid diagnostics network and testing them directly -- and then making a commitment to ramping up manufacturing of the winners.
[00:11:41]  So it's a much more hands on approach that follows the entire product lifecycle. And, you know, arguably is maybe a more efficient way of promoting translation that we should be applying in more areas.
[00:11:54]
Steve Usdin:
So that sounds really rad. The question I had is who's going to be making the decisions -- the funding decisions -- and what confidence should we have that they're the right people making those decisions?
[00:12:09]
Karen Tkach Tuzman:
So, the reason we're talking about this now... They had announced the program a couple months ago but they just came out with a special report in New England Journal of Medicine that kind of walks through in detail what it is they're doing and how. And they did say that they had sort of elevant experts doing the triaging.
[00:12:26] They pointed specifically -- and I alluded to this earlier -- to the rapid diagnostic network -- point of care technologies research network -- that's already part of NIH's National Institute for Biomedical Imaging and Bioengineering.
[00:12:41] So, they're leveraging system they already have in place of point of care diagnostics experts too to do some of the hands on battery testing of these diagnostics.
[00:12:51]
Simone Fishburn:
So Karen, you know, one of the things that they said is that they put this together in five days. You and I talked about the fact that they really put it together in 40 years and five days. There's no reason why this couldn't have been done before and you sort of talked about it maybe prefacing the way things can be done in the future. Do you think this is broadly applicable this kind of strategy?
[00:13:11]
Karen Tkach Tuzman:
I think so. I think that when you focus it around a specific type of technology -- so here, they're saying rapid diagnostics for COVID-19 -- you can have this innovation funnel approach, and you can have more of this side-by-side independent testing, which I think would benefit drug and diagnostic development in other settings beyond COVID-19.
[00:13:33]
Jeff Cranmer:
Sounds good. Well before we go I think we need to touch on the IPO market, which continues to be on track for a record-setting year. More than 60 companies have gotten out this year. Twelve of those -- surprisingly perhaps -- have been preclinical. The willingness of buy-siders to invest in companies at such an early stage is a relatively recent phenomenon. Of 55 preclinical biotechs that have gone public on NASDAQ, 50 of those offerings occurred since 2013 according to our BCIQ database.
[00:14:14] Simone, what's driving this appetite?
[00:14:17]
Simone Fishburn:
Well, I think there's two overarching things behind this. On the one hand, this has been an incredibly long bull market. There's loads of money around. And I think that investor appetite for risk has gone up. So they're prepared to take what are traditionally seen as riskier bets. And in fact preclinical companies are of course riskier bets.
[00:14:41]I think there's another really big thing driving this though. And it's a sort of wave coming over drug development. We've got many, many new technologies and in particular new modalities coming into the pipelines. And what that means is there's whole new ways of thinking about addressing diseases on the one hand. But also for several of them,  there's actually a shorter time to get proof-of-concept in the clinic. And so I think that the whole paradigm that it's really built around... It used to be that stocks would move on clinical proof-of-concept data, which I think originally meant Phase III but then meant Phase II...
[00:15:23] Those would be the catalysts and now we're seeing people wanting to get in early before they see that. And in addition, in some of these cases, like with cell therapies, gene therapies and CAR Ts, you actually get a fairly good read on whether it can work in Phase I. So you've got a shorter timeline.
[00:15:41]We've seen though some extraordinary things. I mean gene therapies are a large cohort in this, especially in 2020. Gene editing has been an incredibly hot area where we've seen stocks moving on preprint publications -- that means not peer reviewed publications -- of preclinical studies... and stocks have gone up or down based on that. And we've written about that every time it happens at BioCentury.
[00:16:06] So, there's incredible frothiness over some of them. But you know what, I think it's not going away. Gene therapy, cell therapies and gene editing companies collectively made up 37% -- that's just more than a third of the IPOs since 2013 -- and another third was made up by small molecules -- which are you know, traditional sort of modalities -- but also the preclinical ones.
[00:16:29] So I think we can expect these new modalities to be part of the scene going forward and I think that we can probably expect some continued interest in preclinical IPOs. But obviously, I don't need to tell anybody here or listening that it really depends on how well they do.
[00:16:47] If they all bomb, this is going to go away. People are going to wait. But if they're actually successful, then those guys who got in early at preclinical IPOs, they did well. So I think it's going to be very interesting and we won't know within the next six months, we'll know within the next two, three years really, whether some of these modalities lived up to their promise.
[00:17:10]
Jeff Cranmer:
Just a parting question here, Simone. Is this year an anomaly? I mean, 12 preclinical IPOs... We've only had 50 in the last seven years, how much of this is being driven by investors that have nowhere else to go right now?
[00:17:24]
Simone Fishburn:
Well, I actually don't know that the preclinical part of it is investors have no place to go. I think that, you know, companies are bold enough to put their things forward. It's certainly an outlier compared with previous years but ask me next year. And then again, the year after. I can't tell you that this is going to go down.
[00:17:45]
Jeff Cranmer:
Sounds good. Well, that's all we have time for this week. All of BioCentury's coverage is available at biocentury.com where you'll also find Karen's story on RADx. Our coronavirus coverage is available at biocentury.com/coronavirus. All of the podcasts are available at our website, on Spotify, Stitcher, Apple and Google.