Transcript of BioCentury This Week TV Episode 154
PRODUCTS, COMPANIES, INSTITUTIONS AND PEOPLE MENTIONED
Obamacare / ACA
National Institutes of Health
Federal Drug Administration
Centers for Disease Control
Rep. John Boehner (R-OH)
Edward Kennedy, former Senator (D-MA)
Arlen Specter, former Senator (D-PA)
John Porter, former Congressional Representative (D-IL)
Newt Gingrich, former Congressional Representative (R-GA)
Francis Collins, Director, NIH
Human Genome Project
Steve Usdin, Senior Editor
Eric Pierce, Publisher
Erin McAllister, Senior Writer
STEVE USDIN: Washington's reopening for business. What does the rest of the year have in store for Obamacare, life science innovation and the biotech bull market? I'm Steve Usdin. Welcome to BioCentury This Week.
NARRATOR: Your trusted source for biotechnology information and analysis, BioCentury This Week.
STEVE USDIN: When Congress cranks back up on September 9, they'll have three weeks to pass budget legislation or risk a government shutdown. And by year-end, it must act on the debt ceiling to avoid a default. Beyond the partisan brinksmanship and political spectacle, decisions made in the next three months will have real consequences for the lives of patients, for NIH and the biomedical researchers it supports, for FDA and the biotech companies it regulates, and for investors in life sciences innovation.
With enrollment in healthcare exchanges set to start on October 1st, some Republicans view the budget and debt ceiling battles as the final opportunities to scuttle Obamacare. It's impossible to predict how the gridlock over the Affordable Care Act will be resolved or how the law will unfold if it does go into effect. But it's clear that fiscal austerity isn't going away.
The question for NIH, FDA, and the Centers for Disease Control and Prevention is whether budget sequestration will become the new normal, or if they can persuade Congress to make exceptions for public health. While sequestration hasn't stopped the biotech bull on Wall Street, could it be stopped by a government shutdown or the President's choice of a new Fed chairman?
For a look at what may make headlines this fall, two familiar faces return to join me for a "BioCentury Reporters Roundtable." Senior Writer Eric McCallister covers healthcare reform. She recently investigated prescription drug coverage under Obamacare. BioCentury Publisher Eric Pierce hosts our quarterly financial market report and tracks the pulse of bio banking on Wall Street.
Erin, there's going to be a huge amount of brinksmanship and headlines around first, the budget deal, and then the debt ceiling crisis that's going to come up. In both cases, there's going to be a significant fraction of the Republican Party who are going to try to use those as a way to slay Obamacare -- they're going to say this is the final line in the sand to do that. Are they going to succeed?
ERIN MCCALLISTER: There's a letter. It's got 80 Representatives who have signed it, sent it to Representative Boehner, asking him to tie any budget decision to defunding Obamacare. Chances are very slim that it will even happen. So we'll be looking at October 1st. Enrollment in the exchanges starts for coverage beginning January 1, 2014. I think that will happen.
STEVE USDIN: So what else? So we've got some things like Donald Rumsfeld used say, some things we know we know, some things that we know we don't know, and some things we're not sure of -- or however he used to say it. What do we know is going to happen between now and the end of the year? And what do we know that we don't know?
ERIN MCCALLISTER: So we know that starting October 1st, it might not all start on October 1st, but people uninsured or underinsured Americans will be able to enroll in an exchange by their insurance on these state health exchanges. Most of them will be online. It's questionable whether or not they will all be up and ready online on October 1st. But they have to have coverage come January 1st.
And then some of the things we don't know, we don't know yet what drugs are going to be covered. Specifically, we don't know what those formularies will look like. We have an idea. States had to choose benchmarks about a year ago, benchmark plans that then set the minimum amount of coverage that the plans had to provide.
But now, what specific drugs those are, we don't know. We just know that, for example, California picked a benchmark plan where in the case of diabetes drugs, the number of drugs they have to offer is slim. But other states picked much more generous benchmark plans.
ERIC PIERCE: Before we get into the coverage topics which is clearly germane, we still have to get patients enrolled. And so how do you handicap that, because this is a huge campaign?
ERIN MCCALLISTER: I think that millions of dollars are being spent on the states that are running their exchanges. There's about 13 of them. And the federal government is helping to run or running the exchanges in the other states. And they're also spending a significant amount of money on outreach. And they're trying to basically reach that group of people that are called the young and invincibles.
They're healthy, they're young, and they don't really think they need health insurance. So they're not going to go on an exchange on October 1st and try and buy it. So there's huge outreach campaigns there.
ERIC PIERCE: So they'll have a communication challenge, because they'll have to sell the benefits of why you need insurance when you're maybe 22 years old. But then beyond that, you also have this IT challenge. I think that's a really interesting challenge.
STEVE USDIN: And not only an IT challenge, because what you have to do is you have to match up people with the subsidies that they're going to be eligible for and get all that right. And even a small number of people getting that wrong is going to cause a tremendous amount of heartache.
ERIN MCCALLISTER: Even the government recognized that. The federal government came out and said they're not necessarily going to check the subsidy requirement on everyone. It's based on the amount of income you make. In this first year, the government isn't going to be able to verify your income.
So that part's been put on hold. But you can still get a subsidy. And the way it'll work is that you say that you only make a certain amount of money. That will be fed into the federal government's system. And then eventually the federal government will spit out the subsidy to the insurance provider. It won't ever go to John Q. Public.
STEVE USDIN: So one of the things we've covered on this show quite a bit in the past is the large contributions, tens of billions of dollars, that the pharmaceutical industry, that the device industry, that other industries have they put into the Affordable Care Act in the form of taxes, rebates, other kinds of fees. They did that with the understanding that their market size was going to increase.
The idea was a lot more people were going to get insurance. There are going to be a lot more people using those medical products. And they're going to get that money back, so they have to pay a little bit up front. Is that going to happen?
ERIN MCCALLISTER: I think that if the outreach campaigns work and these young and invincibles join the pool, no, because they don't need drugs, unless they go to the doctor and on the off-chance they find out they have some chronic illness. That might be a minority. The other pool are going to be these people who are already sick, who maybe are already receiving their drug, either through private insurance or maybe through a discount program with the pharmaceutical company.
And if it's mostly those sick people that enroll, sure, they might get some of that money back. But if it's mostly the healthy people that enroll, probably not.
ERIC PIERCE: Looking around the corner, how many years down the line will we be able to say ACA is affecting the standard of care. People are getting healthier because of it. How far along is that?
ERIN MCCALLISTER: I think that that's a great question, and I don't think anybody really knows the answer to that. I think it's going to be at least three or four years out is what people have told me, before we know whether or not it's actually impacting drugs.
STEVE USDIN: In addition to the Affordable Care Act, Congress will have budget issues on its plate. Sequestration even has NIH Director Francis Collins singing the blues.
FRANCIS COLLINS: (SINGING) I'm a rational guy, if you know what I mean. But I wasn't prepared for 2013. Cutting medical research makes all Americans lose. We could do so much, but we're plum out of luck.
I got the low down sequester blues. Oh, yeah, I do. I got the blues.
NARRATOR: You're watching BioCentury This Week.
ERIC PIERCE: What will sequestration, budgets, and the debt ceiling mean for American healthcare? I'm Eric Pierce, and this is a special "BioCentury Reporters Roundtable" with Steve Usdin and Eric McCallister. Steve, we ended the last segment with Francis Collins singing the blues. How much of an impact is this next potential round of sequestration going to impact the NIH?
STEVE USDIN: Well, we don't know exactly what's going to happen with sequestration. But whatever happens, NIH is really in a hard place. And Francis Collins has a reason for singing the blues. Since 2003, in real terms, inflation adjusted terms, NIH's budget has gone down 20%.
Sequestration last year knocked off another $1.6 billion. They're looking at billions of dollars more potentially in lower budgets in the next few years if things continue on their current trend lines. That means hundreds of fewer research grants being funded. And it means that the success rates for researchers who propose grants are atrocious.
A researcher now in many, many fields who proposes a grant that's fundable, that's something that's good science, that can advance medicine in many fields, has only got an 18% chance of having that grant funded.
ERIC PIERCE: But if you take away the inflation-adjusted, because all of our salaries, we don't adjust for inflation, that sequestration knock was maybe 8% to 10% on the first go around. And I think if you ask company CEOs, if you ask household Americans, a lot of people have been asked to live on a lot more of an 8% belt tightening.
STEVE USDIN: So there's two kinds of sets of answers to that. One is that the sequestration had a particularly huge effect on NIH, because NIH allocates its research grants typically for four year periods. You can't do much science in one year. So what that means is that they already had three quarters of their money for this year was already allocated.
So all of the cut for sequestration had to come out of one year's research. That's part of the answer. The other part of the answer is that the American biomedical research establishment is kind of set up structurally for growth. And you could argue that it's been set up for unsustainable growth. And there needs to be some kind of structural changes in order for it to keep America's position as being --
ERIC PIERCE: As a leadership position.
STEVE USDIN: As a leadership position.
ERIN MCCALLISTER: And that restructuring, companies have restructured, biopharma companies, large pharma companies have started to outsource that early R&D. So they've restructured. Doesn't that put even more pressure on NIH to figure out how to do more with less to fill the gap left by these companies, kind of pushing that out?
STEVE USDIN: It does, because if companies are saying they're not going to invest in research until it's gotten farther down the road and then NIH has got less funds to be able to move things further down the road, then there's going to be things -- I don't know what the metaphor is -- they're going to be left by the side of the road. They're not going to happen.
ERIC PIERCE: It's the valley of death.
STEVE USDIN: It's the valley of death. So what has to happen? Either you have to get a lot more money infused into basic biomedical research if you believe that it's the basis for biomedical and for medical progress in the United States. Or you have to change what you're doing. The United States made some decisions a generation ago in science.
They said look, we're not going to be the leader in particle physics. They said go ahead and let the Europeans do that. We're not going to build a super collider. And all that money got invested in Europe, and the Europeans are ahead.
And American scientists are in the second or third tier. So when we look at the life sciences, we have to ask well, are we going to try to stay ahead, broadly speaking, across the board in life sciences? Well, we can't do that on the budgets that we have now. Or are we going to shrink part of it? Are we going to cede our leadership in some areas to someplace else, or say well, this just isn't so important, it is not going to happen?
ERIN MCCALLISTER: And so what about FDA? You have this going on at NIH where it's very much at the front end of research, and then you have the other end, FDA, where it's at the back end. What are the implications of sequestration for FDA?
STEVE USDIN: At FDA, you have one of the most -- broadly speaking, the effect hasn't been as dramatic. But you have one instance of something that's so absurd it would make Lewis Carroll blush, which is that there are user fees that companies pay to the FDA in order to help fund drug reviews. The amazing thing that happened in sequestration is it they sequestered user fees. That's money that companies have paid to the government.
ERIC PIERCE: Rather than coming in to keep the FDA on time.
STEVE USDIN: So that's the sequester. So the amazing thing is the companies pay that money, they have to keep paying it. The FDA can't use it. And then nobody else in the government can use it, either. It can't go to pay down the debt.
It's put in some kind of nebulous fund somewhere. And nobody has access to it. And this is so dumb that everybody agrees, even members of Congress who support sequestration think this is a dumb idea. But they haven't been able to figure out technically how to fix it so far.
ERIC PIERCE: Steve, in the past, there's been this bipartisan support for the NIH. Why aren't we seeing that now?
STEVE USDIN: I think in large part, it's because we don't have anybody in the Congress, we don't have anybody in the White House who wakes up every morning and looks at themself in the mirror and says what can I do today to advance biomedical innovation. In the past, we've had people like Ted Kennedy, Arlen Specter, John Porter, Newt Gingrich from both parties who basically, they've all said, if there was a threat to NIH funding, they would lie down on the railroad tracks and say we're going to shut down everything until we get this solved, until NIH gets more money.
There isn't anybody in the Administration or in the Congress now who has that kind of passion for biomedical research.
ERIC PIERCE: So what's changed? Is it that Congress has their eye on other factors? Or are we just not recruiting the type of people who will champion the healthcare budget?
STEVE USDIN: I think it's a third thing, which is that the things that the biomedical research community has done in the past to connect with Congress and to connect with the American people aren't working anymore. There's all these other concerns. And biomedical research, if it's going to generate the kind of support that it has had in the past, has to find new ways to engage with the American public.
There was a certain amount of engagement and excitement around the Human Genome Project. People got that and were excited by it. But it's ironic, because there's even more possibilities, there's more promise now from science, but there isn't a sense of engagement.
ERIC PIERCE: There hasn't been that flash point, if you will.
ERIN MCCALLISTER: And with ACAs -- the Affordable Care Act -- is there any way to tie NIH into that and try and spur that?
STEVE USDIN: That was an enormous opportunity was that was missed, really, because all the talk about drugs, all the talk about technology, all the talk about science in the context of the Affordable Care Act is that it's a cost, a cost of the system. And the problem is that people haven't looked at it and said the way to drive the cost down, the way to drive quality up is to invest more in science and technology.
In any other field, if you were to look at energy, what do you talk about? You talk about how we're going to get alternative energy sources, how we're going to get clean tech. All the talk in the American public policy is about how we can invest in fracking, how we can invest in new technologies that are going to improve things. In healthcare, somehow that got left out of the equation.
And science and technology are either an afterthought, or they're just considered a cost. And that's what has to change.
ERIC PIERCE: So if Congress isn't carrying the water, who should carry the water with those types of messages?
STEVE USDIN: I think what should happen is there needs to be more of an alliance between researchers and patients. There have to be ways to bring patients on board so that they feel that they're there in the system and that they're participating, that science isn't just something that's just out there that those people do and new pills are going to magically appear on the shelves. They have to feel like they're part of the process, because they are.
They're an essential part of the process.
ERIC PIERCE: We hope they do. So far when it comes to biotech, Wall Street has largely ignored the political gridlock in Washington. Here's a look at the numbers.
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NARRATOR: Now, back to BioCentury This Week.
ERIN MCCALLISTER: I'm Erin McCallister. We're talking about the biotech bull market with BioCentury's Steve Usdin and Eric Pierce. Eric, the biotech markets have had a record year, and yet we have sequestration and the rollout of the Affordable Care Act. So I think it begs the question, how long can this all really last?
ERIC PIERCE: That's a good question. It's not only been a record year, it's been a record five years. So the bull market that we're in for biotech right now started in March, 2009. So we're almost five years into what is a record biotech bull market. And if somebody would have said the best time to buy biotech was two years after Lehman Brothers and Bear Stearns went under and the economy was looking to fall off the side of the cliff, I would have said, you've got to be kidding me.
But biotech has performed very, very extremely well over that time. In that four and a half year window, biotech is up 220%, which is a fantastic number. The Dow Jones, just to put it in perspective, is doing well, but only up about 128%.
STEVE USDIN: So one of the questions I have also is that when we started this show, we did a bunch of interviews, we did some with investors and prominent venture capitalists. And one of the things that they said at that time was that it was an enormous problem, because there was no IPO window. There was no ability for startup biotech companies to think that they were eventually going to be able to go public and for investors to get their money out that way.
That's not true anymore. Is it?
ERIC PIERCE: No, and that's one of the really key drivers for this market. The IPO market has returned. So the young innovator companies that had been frozen out of the market three or four years ago are now able to participate in the IPOs. So far this year, we've had 33 biotech IPOs. They've raised more than $2.2 billion.
To put that in comparison, last year, in the first eight months of the year, there was only $800 million worth of IPOs. So almost three times as much of IPO liquidity are coming from these young, innovative companies that are now able to tap the market.
STEVE USDIN: So what's changed? We're in Washington. Is there a connection between legislation in Washington and this explosion of IPOs in biotech?
ERIC PIERCE: There's been a few things. And definitely Congress and the White House have had their hand in the impact of passing the JOBS Act, which was passed in 2012. And one of the impacts of the JOBS Act was that it was proposed to be basically an on-ramp to Wall Street for young innovator companies. To top line a couple of the things that it's helped with is it's created a communication conduit from companies and investors.
Before the JOBS Act, when companies wanted to sell an IPO, they would have to file a prospectus. And then they would go into a quiet period, which essentially means you couldn't communicate with investors. In an industry with the complexity of biotech, you really need to do a lot of due diligence on not only the management, but the science. This isn't making widgets.
This is highly, highly complex science. So the JOBS Act has allowed this quiet period to effectively go away, in the sense that companies can have these test the waters meetings, which allow them to communicate directly with investors while they have a prospectus on file with the SEC.
ERIN MCCALLISTER: And it isn't just the number of IPOs. It's the fact that a lot of these IPOs, they're still trading at or above where they opened at. And how much of that is the fact that the maturity of these companies. Like you said, they'd been frozen out for so long.
ERIC PIERCE: There are sort of two things that's going on right now. One is -- you're right -- the maturity of these companies, since they were frozen out for so long, were really dealing with the successes. These are the ones that made it through those tough five years. And now, they're --
STEVE USDIN: Those are the kind of Darwinian --
ERIC PIERCE: There's very much a Darwinian effect.
STEVE USDIN: And so the question I have -- everybody looks at trends, and you always think trends are going to continue indefinitely, but of course they don't. Is there anything that can happen in Washington? We said in the set up to this piece we're going to have a new Fed chairman. There's the possibility of some brinksmanship -- definitely there's going to be brinksmanship around the rise in the debt ceiling. Are those kind of external factors that could bring the biotech bull to an end?
ERIC PIERCE: I think Wall Street's largely trading independent of that. I think a couple things that could maybe move the meter one way or the other is we keep a close eye on the flow of funds, money that's going into healthcare and biotech. And that's been actually extremely positive this year. More than $11 billion has gone into biotech and healthcare funds.
And so that's a very, very positive impact for future demand for biotech stocks.
ERIN MCCALLISTER: Well, next, fourth quarter predictions for Obamacare, Congress, and Wall Street.
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STEVE USDIN: Let's wrap up our Reporters Roundtable with some predictions about what we may see this fall. Eric, obviously, what's going to happen with the markets?
ERIC PIERCE: So I have a key prediction. It may not happen around the corner. But I'm hoping that the IPO market and the robust trade sales that we've seen are going to end up creating an environment where VCs are going to start funding younger, more innovative companies. The last five years was really hard on the VC community. The lack of IPOs caused a lot a liquidity issues.
As I mentioned earlier, $2.2 billion has come back to the VCs. Obviously, that's going to flow back to their limited partners. But my hope is that when the VCs come back to raise another fund, the limited partners said hey, you did a great job for me over the last couple years. I'm going to give you some more money, and that's going to allow more money for these VCs to put to young innovator companies.
STEVE USDIN: Is that really what they're likely to do? Or are they going to take the message and say well, look, there's still another raft of companies that have been underfunded that are a lot further along, there's a lot less risk in it, let's go there?
ERIC PIERCE: I think we'll see it on the margin. We're not going to have all the VCs all of a sudden say we've got more money, and we're going to just go seed and Series A route. That's clearly not going to happen. But I think what we'll see is some of the VCs that moved from maybe they did some Series A early investment and some later stage investment, and in the last five years, they just went to late stage investments. I think you're going to see some of those people who did early stage to move back into the early stage investment.
STEVE USDIN: Erin, some predictions for the ACA?
ERIC MCCALLISTER: The first, I don't think anyone should expect that it's going to go off without a hitch. There will be bumps in the road. I think it's a matter of how quickly they fix those bumps in the road and that people do have insurance come January 1st. I think the bigger prediction is that it will be mostly sick people, because the penalty to forgo insurance is only $90 in the first year. So that means if you don't sign up for insurance on the exchange, where the premiums average from $200 to $400 a month, you only have to pay $90 at the end of the year.
That penalty goes up in 2016 and can be as high as 2.5% of your household income. The premiums will go up too. And I think if that all does come to fruition and it is mostly sick people that enroll, the next step then is going to be that carriers start to drop out, because there's a lot of high risk people in the pool. And those healthy people that they were promised, they're not there.
STEVE USDIN: What's your prediction -- the Administration's looking for seven million people enrolled in the exchanges by January 1st, I think. Are they going to hit that number? That's a big number.
ERIC MCCALLISTER: That's a big number. I think if California works, they might hit it. If California goes off without a hitch, sure, they might be able to hit it. There's a lot of uninsured people in California.
STEVE USDIN: That's this week's edition of "BioCentury Reporter's Roundtable." We'll be following these stories and much more in the coming weeks.
ERIC MCCALLISTER: We always like to hear your perspectives about today's show. Remember to share your thoughts about today's show on Twitter. Join the conversation by using the hashtag #biocenturytv.
ERIC PIERCE: For Steve Usdin and Erin McCallister, I'm Eric Pierce. Thanks for watching.