PharmExec Blog

Mission Critical: Innovation and American Business

On the heels of President Obama’s unveiling of the American Jobs Act, Synta Pharmaceuticals CEO Safi Bahcall Safi Bahcall – who attended the president’s jobs speech last week as a special guest of House Speaker John Boehner (R-OH) – spoke to Pharmaceutical Executive about the role of government in supporting innovation.

As a member of a working group on the future of the U.S. science and technology research enterprise, which consults with the President’s Council of Advisers on Science and Technology (PCAST), you’ve participated in discussions with Congress and other high-level politicians on the role of government in supporting innovation in the biopharmaceutical industry. How can government help to facilitate job creation, and what barriers exist?

Making changes that encourage innovation are critical, not only for creating jobs but also for lowering healthcare costs, which is one the most serious threats to our economy and our competitiveness across the board, not just within our sector. The 20th century was an American century in terms of innovation and leadership in the economy, and a large part of that was due to our leadership in science and technology innovation, from winning World War II and the Cold war, to the laser and the transistor, to the rise of the internet and the eradication of polio, to the decrease in death rates from heart disease, stoke, tuberculosis and HIV. All of those developments occurred during the second half of the 20th century, and came from American innovations in science and technology. In the last five or 10 years, it has become very clear that we are dropping behind, competitively. We are going way down. For example, we used to be number one in R&D incentives offered to businesses among the 21 OECD countries that are offering such incentives. Today we’re number 17. That’s why some of the jobs are going overseas. I have a team that’s thinking about how to create jobs in France. Why? Because they offer a 45% R&D tax credit that is immediately reimbursable to development stage companies like [Synta].

What kinds of incentives should the government provide to stimulate job growth?

R&D tax credits, is one thing. What I want to emphasize is that this is important not just for job creation, but also for our economy overall. If we can’t get healthcare costs under control, then all of our businesses in this country are going to be at an increasing disadvantage relative to businesses in other countries, where they do have healthcare costs under control. We have $100 trillion of unfunded liabilities and an aging population, which is a double whammy. Innovation in medicine is a key ingredient in solving this problem. Just over 50% of all healthcare costs are related to hospital stay and services. Creating innovative drugs – a sector that represents only 10% of the total healthcare cost – can keep patients out of hospitals. Those drugs lower healthcare costs. I would argue that lowering healthcare costs is just as important as job creation, national security, and the overall health of the US population, in terms of competing successfully in the global economy.

There seems to be a disproportionate belief among the American public that drug spending accounts for a lot more than 10% of the total healthcare cost. Many industry critics and others argue that increasing generic utilization, and shortening product exclusivity periods are necessary reforms. What’s your response to that argument?

Every dollar spent on drugs lowers healthcare costs, depending on the disease, by anywhere from $2 to $7. There are a number of studies that have shown this. It’s different for each disease and drug, but you want to be very careful to avoid being penny wise and pound foolish. Imagine that you have a patient going in for kidney dialysis, the patient has to go in to the hospital three times a week or more, or has to stay in the ICU. Imagine the costs that are accruing to our system as a result of that patient, and then multiply that by the doubling in the number of patients that are going to require this type of care over the next few decades, not to mention other chronic diseases besides kidney disease, for example, the various complications from diabetes or Alzheimer’s disease. These are enormous burdens on our system. Take Alzheimer’s. As the percentage of elderly patients increases, and the time that people are living gets longer, the incidences and size of the Alzheimer’s patient population is increasing dramatically. Some very straightforward estimates show that the care required for Alzheimer’s patients in 2050 – a straightforward extrapolation from the size of the population and the incidence rates today, none of which are going to change dramatically – shows that Medicare and Medicaid will have to pay $800 billion a year [by 2050]. When you add in the other costs, it’s well over $1 trillion a year. That’s a major fraction of the government’s budget, for one disease. If you had one pill that could delay Alzheimer’s by even 5 years, the impact – which is fairly straightforward to calculate – would save close to half a trillion dollars in terms of costs that the government would have to pay. Then the question becomes, should we have $200 million of research into Alzheimer’s sponsored by the government, or $300 million? Now you’re talking penny wise, pound foolish. You’re talking about a burden of one trillion dollars to the economy. You multiply that by the burden of treating cancer, the burdens of treating kidney disease and other chronic conditions, and that’s a major threat to our economy and our competitiveness as a country, these looming healthcare costs.

How much has government R&D spend decreased?

We’ve gone from 2% of GDP invested in R&D, to 0.7%.

Why? Obviously the US is facing a significant budgetary deficit, but what are the reasons for this decline?

A lot of people in our generation don’t remember polio, for good reason. It’s gone. But if you think back 60 or 70 years ago, it was a fatal and debilitating condition with a very high cost burden to society. That was a very visible reminder to the public and to Congress of the benefits of R&D.  Tuberculosis almost disappeared in the 50s. When you got TB, and your lungs were going to cave in, you were told good luck and sent to a sanatorium for the final six months or a year of your life. In the mid-50s, isoniazid and a combo isoniazid and penicillin and PAS essentially wiped that out. It was no longer a death sentence. People got that, they saw what happened with polio and with TB. The foundation is people and knowledge. It’s education that generates good STEM talent – science, technology, engineering, mathematics – and investment in agencies like the NSF, NIH and DARPA, which led to these projects. It was the investment in R&D that led to the dominance of the US economy in the second half of the 20th century.

Almost every form of government expenditure is on trial politically these days. Is there a way to frame this kind of investment that would hold up better with the American public?

You have to start by understanding the benefits of innovation to society, period. Innovation helps national security, health and jobs. Once you get that, then the question becomes, what should the federal government do to reduce the barriers to innovation, and increase the incentives for innovations? R&D incentives for companies are one example. Another example is regulatory and reimbursement reform. The FDA is regulating 25% of this nation’s economy, and you have several hundred people looking at medical products, that’s it. We’re funding this agency at a miniscule amount of the resources it needs to create rules that are consistent, clear, and based on the latest and strongest science. This is counterintuitive for some folks on the Republican side, who may say, “Well, let’s just eliminate all government agencies, that would be great.” That’s not actually the case. If it were up to me, I’d double the size of the FDA’s medical product review group. That would actually reduce the barriers and increase the incentives to innovation. With reimbursement, there should be policies at CMS to allow parallel reviews, so companies can better understand how to get reimbursed. If you go to an investor and say, we’re going to spend 10 years and a billion dollars creating a drug, but when it’s done, we have no idea if it will ever get paid for, what investor would give you money? It’s like a natural gas company saying it’s going to drill 50 wells, and it’s going to take 10 years and $1 billion, and when they find natural gas, some agency comes in and says you can’t sell it, you used the wrong drill. You need to go back again and use a different drill, sorry about those 10 years and billion dollars. It’s not that you want to eliminate these agencies, or that they’re doing a terrible job. There are people there that are national treasures at the FDA, that get flack from every side all the time, and they manage to keep their eyes on the ball, sticking to the data, sticking to the science, looking at benefit/risk as best they can in a difficult situation. But you have to have the resources.

Speaking of resources, you mentioned a decline in the number of US biotechnology companies. What can be done to reverse this trend?

The costs of developing a drug have gone up 1000% in the last 25 years. They’ve gone from $100 to $200 million to $1-$2 billion. The Tufts study cites it as $1.2 billion, but that’s a real underestimate of the true cost today. The true cost is closer to $4 billion. The costs have gone up by this enormous factor, but the rewards haven’t changed. You still have roughly the same patent life or protection once a drug gets developed, once the drug gets approved. It’s basic mathematics. If the risks have gone up and the costs have gone up, and the rewards are staying the same or going down, who’s going to invest in that business? You need to reduce the barriers and increase the rewards. Put in a10-year minimum market exclusivity for an innovative drug. If there’s a drug that comes out that could lower total healthcare costs, give it 10 years of market exclusivity. Why should venture capitalists be investing in a better way to buy pretzels online, or different ways to poke people online? Who cares? That does nothing for our economy. It creates a few jobs, but it does nothing from the more global picture of lowering healthcare costs and creating new jobs.

What about public/private partnerships? Are there any specific policy changes that could better facilitate those kinds of partnerships?

There are many concrete specific changes: Updates of the Bayle-Doyle amendment, policy on the NIH, NSF, policies for getting university technologies into the private sector even faster. What many other countries are doing are government-enabled venture partnership, where the government provides a financial kickstart to sectors that are of high strategic interest, by partnering with venture funds, and augmenting them on a 1-for-1 basis. Additionally, we need a flagship project, a flagship public/private partnership, like the Manhattan Project or the goal to land a man on the moon. We need something like that for our sector. The European Commission representing the EU created a 2 billion euro partnership between the EC and the European Federation of Pharmaceutical Industries and Associations, to fund innovation in precompetitive technologies. Precompetitive technologies lower the cost for everybody and increase the probability of success for everybody. Predictive models in medicine are an example of precompetitive technology. If you can determine if a molecule in preclinical development is going to cause kidney toxicity or not, you can decrease your failure rate by a very significant percentage. Decreasing your failure rate decreases your cost. If we had models that were even 80% predictive of cancer, we could cure cancer in the next 20-30 years. We don’t have those models. If we had more predictive models for Alzheimer’s, of course you could actually get a pill that could lower heathcare costs by half a trillion dollars over the next several decades. Precompetitive technologies are often too expensive for any one company to invest in by itself. What you need is a flagship project like the Manhattan Project, or like Europe has done with a $2 billion investment, to bring together companies, agencies like the FDA, NIH, and universities, around a common goal. Better models for Alzheimer’s, better models for cancer, better models to predict kidney toxicity. Some of these things can only be done as a partnership. For example, there is clinical trial data from individual companies that have sponsored individual clinical trials. Or individual oncology groups like ECOG or SWOG that have sponsored individual trials. Each of those data sets has very rich patterns that could be seen if you pooled them together. But who is going to pool them together, there’s no venue for pooling those data sets together. A public/private partnership, a flagship like the Manhattan Project around precompetitive tools and technologies would help the entire industry, but it has to be funded. Take the FDA Critical Path Initiative, which is designed to find ways that reduce the barriers and increase the incentives for new technology. The funding for the FDA Critical Path Initiative in ’08, ’09, and ’10, was $8 million, $16 million, and $18 million dollars, respectively. Compare that to the close to $3 billion that Europe has committed. How do we expect to be competitive?

The interview has been edited and condensed.

This entry was posted in Europe, FDA, Global, healthcare, IP, leadership, R&D, Regulatory, Strategy and tagged . Bookmark the permalink. Trackbacks are closed, but you can post a comment.

One Comment

  1. Posted September 16, 2011 at 7:31 pm | Permalink

    some argue that drug price controls set forth by OECD countries also curb R&D indirectly by decreasing overall revenue from new drug products, while the US (a non-single-payer country) takes on the burden of paying for much of the R&D costs.

    “That’s why some of the jobs are going overseas. I have a team that’s thinking about how to create jobs in France. Why? Because they offer a 45% R&D tax credit that is immediately reimbursable to development stage companies like [Synta].”

    so does this mean that we are paying for more of the R&D AND the money we spend is now shifting more towards overseas laboratories?

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