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00:09
Danny Levine
You're listening to the Bioverge Podcast with Neil Littman. Neil, we've BV BV Peter Kolchinsky show today. For listeners not familiar with Peter, who is he?

00:35
Neil Littman
I am incredibly excited to welcome Peter to the show today. Peter is a founder and managing partner at RA Capital Management and the author of The Great American Drug Deal. Peter is active in both public and private investments in companies developing drugs, medical devices, diagnostics and research tools, and serves on the boards of publicly and privately held life sciences company companies. Peter also leads the firm's engagement and publishing efforts, which aim to make a positive social impact and spark collaboration among healthcare stakeholders, including patients, physicians, researchers, policymakers, and industry. He also serves on the board of the Global Science and Technology for the National Academy of Sciences. He's the author of The Entrepreneur's Guide to a Biotech Startup. He holds a BA from Cornell University and a PhD in virology from Harvard. Importantly for this conversation, Peter is also the founder and serves as the director of no Patient Left Behind, a nonprofit advocate for healthcare reform to ensure medicines are affordable to patients and promote innovation in the healthcare industry, which is the focus of today's conversation.

01:40
Danny Levine
Peter has promoted a couple of powerful ideas about drug pricing the notion of a biotech social contract and the metaphor of a mortgage for drug payments. The notion that we collectively pay for innovation over a period of time before low cost generic versions of drugs become available. What effect has Peter had on the public conversation around pricing?

02:05
Neil Littman
Yeah, that's a lot of the advocacy work that he's doing these days, and I just want to set the context and provide a little more detail, Danny, because I think this is really important for our audience to understand going into the conversation with Peter. In Peter's book, he presents what you referenced and he calls the biotech social contract, which is essentially a different model of how we should think about drug pricing, which takes into account the value of a drug to patients and to society as a whole, rather than simply its cost of development and production. Peter's argument under the biotech social contract is that all drugs should go generic, and as a society, we should take this into account when determining the value of a given drug. In fact, when we see a high priced drug, the reality is those profits accrue to the creator of the drug, its investors, et cetera, which in turn stimulates and ensures continued innovation.

03:00
Neil Littman
That's a healthy ecosystem, and that's how the model should work to incentivize the development of new drugs. However, what's left out of the discussion is those returns accrue only for a fixed period of time, which is determined by the life of the patent. On average, let's say ten years or so after that time, as you mentioned, Danny, the drug will go generic and will be inexpensive to society indefinitely thereafter. All future generations will have access to a very cheap drug that society essentially paid off during the life of the pen. You mentioned as well, Danny, this idea of paying a mortgage. Peter likes to make this analogy of paying rent versus paying a mortgage. You can pay rent forever and your rent will likely increase over time, or you can pay a mortgage for a fixed period of time, and at the end of that period, you own your house and have no future mortgage payments.

03:55
Peter Kolchinsky
Right.

03:55
Neil Littman
You paid off your house. Peter advocates for viewing drug pricing and the value that accrues to society through that specific lens. I think that's really it's nuanced, but I'm really excited to get Peter's point of view and dive into that in more detail.

04:11
Danny Levine
One of the challenges around all this is how you determine value of a medicine. How do you think that discussion is shaping up?

04:20
Neil Littman
Yeah, that's a really good question, Danny. Peter likes to talk about this idea of bad math when it comes to how drugs are currently being priced. Peter is actually arguing that the biopharma industry is perhaps being tactical about how they think about and talk about drug pricing, but certainly not strategic in how we as an industry communicate the value of a drug. I really specifically want to get into this idea that Peter has put forth around this problem of the bad math that goes into how we account for the value of a drug today, what inputs it's missing, and how we really should be thinking about it. All of this is within service to incentivize innovation in the interests of patients. There's a lot to dive into here, Danny. I'm excited to invite Peter to the show. Well, if you're all set, let's do it.

05:18
Neil Littman
Peter, I am incredibly excited to welcome you to the show today. I have been looking forward to this conversation for some time, so thank you for joining us today.

05:26
Peter Kolchinsky
Thanks for having me.

05:27
Neil Littman
We are going to talk about innovation, affordability and the nonprofit you founded, no Patient Left Behind, which advocates for policies to ensure that medicines are affordable for every American. Peter, before we dive into some of those specifics and nuances, I'd like to start with the framework in which you're approaching this highly complex problem. Most people know you as the founder and managing partner of RA Capital, a multistage investment firm that invests in public and private healthcare and life sciences companies. I'd like to start with how your experience as an investor led you to focus on things like affordability of drugs, out of pocket expenses, what seemed like macro level policy issues. Was there something specific you saw as an investor or point of frustration you experienced that led you to focus on these topics and start no Patient Left Behind?

06:15
Peter Kolchinsky
Yeah, I'm a scientist by training first and became an investor. Basically, my first job out of grad school evolved into that, where I started managing my mentors money and then just built on that. Our team grew and the assets grew. One day I wake up and realize, this is it. I'm a professional investor now. I'm still a scientist at heart. The investing we do is very much grounded in science. We're constantly looking for new R and D projects. People come to us with ideas of how they might be able to cure or treat a particular disease. Sometimes it's quite personal. At this point, RA Capital has grown to be quite large. We've got 150 people, like $9 billion or so under management. You can do a lot with those resources to create medicines, diagnostics, medical devices that will alter our relationship with disease. Right? During COVID our team funded companies that were working on vaccines.

07:26
Peter Kolchinsky
We felt very much like our decisions are going to shape the outcome in some small way. Now we're just part of an entire ecosystem. Our assets are a small fraction of the total assets that are devoted to biomedical innovation. For me, this has been a 20 year journey, right? I started off with, really, a myopic view of my job. It's find companies that are undervalued based on their science, invest in them, hope their value goes up if it goes up, generate a return, have a good year and feel like I'm a good investor. Somewhere around 2015, when there was a real reaction, a backlash against the drug industry in response to Valiant and Turing pharma, if you recall the price jacking of an old drug called Deraprim, I watched how our industry responded to accusations that we're not really innovating, that we're just engaging in all kinds of tricks and slice of hand, playing around with old drugs.

08:35
Peter Kolchinsky
I saw that the industry's response to outcries like, and I can't afford my medicines. You bastards, look what you're doing. You're making it impossible for me to get the treatments that I need. Was R and D is expensive. I thought, no, that's not the right answer. First, it's not empathic to the people who are crying out that they can't afford their medicines. We need to tell them it's like, that's wrong. It's wrong that you can't afford your medicines. We didn't invent these medicines for you to not be able to afford them. It's essential that your insurance cover you. Right? That means we need to reform insurance. We need to lower your out of pocket costs. The fact is, a lot of companies offer free drug or discounted drug to people who have these broken, flawed insurance policies or even no insurance. I knew the people in the drug industry have a whole lot more heart than they're represented to have.

09:36
Peter Kolchinsky
Right. People really take pride in the idea that they might be able to dent the universe in some way change the trajectory of human health forever. They work on something for ten years, and so when they get that drug to market, it's a tiny chance that any given project is going to get to market. You finally get your medicine to market, it's like working on some NASA project or SpaceX and watching that first landing of your probe on Mars or whatever. It's an amazing feeling. That when you then see insurance deny patients access to your medicine, it's gutting. That's why companies offer free drug programs to people who need it. On the other hand, these companies absolutely need to get paid. It's not that they need to get paid because the medicine will somehow uninvent itself if it's not rewarded. Society needs to make sure that these companies make money for a lot of money and generate a lot of profits from their wins when their wins are worth it in order to send a signal back to the investment.

10:51
Peter Kolchinsky
Community and innovators that, hey, go back to work, come up with some more treatments and cures like this, and you too might get a big payoff, right? Companies find themselves having to deny access to a European country that's trying to play hardball, and it means that patients are getting delayed access to that medicine, it's gutting. And yet someone has to do that. Because if you're a pushover and you just let any country that plays hardball and withholds your drug from the patients there, if you give in and say, okay, fine, we'll just give you the drug for however low a price you want, then that's it. Like your drug will exist, but all innovation will stop, and we won't be inventing any new medicines, and our kids are not going to better off. What was missing from the industry's response was this notion of long term societal value, that our drugs are worth it.

11:52
Peter Kolchinsky
Because unlike everything else in healthcare, unlike hospitals, nursing homes, drugs are only temporarily expensive. They continue to upgrade our quality of life for the rest of time as inexpensive generics or inexpensive biosimilars. If a drug fails to go generic, if it's so complicated that nobody can copy it, or if some companies engage in patent games or price jacking schemes, let's just call that what it is. It's wrong. It's rent seeking. That aspect of the drug industry is wrong. It's not the majority of what the drug industry has done over decades. It's a comparatively small portion of it that still adds up to tens of billions of dollars out of an industry that relies on probably about five to $600 billion of branded global drug revenue. But it's still wrong. And that's what we could give up. We could acknowledge that if there were policy that ended rent seeking by the drug industry in exchange for insurance reform that would make all medicines generic and branded affordable for the people who need it, that would be a major step forward.

13:05
Peter Kolchinsky
That was kind of the thought that came to my mind in 2015, but I didn't hear other people saying it. We've got industry groups, we've got bio, we've got pharma. You kind of assume when you're just one little player on a massive in a massive ecosystem, you kind of assume that these larger organizations that have hundreds of companies as members and sophisticated experts on policy involved you kind of figure that they'll find a way to convey that idea that our products have tremendous societal value because they go generic unlike anything else, and that society should preserve temporary high rewards for new medicines. But no one did. No one said it like that. They just kept focusing on how expensive and risky R and D is, but they didn't make the case for why medicines are so worth it. It just so happened that I was reading a series of biographies at that time about Benjamin Franklin and George Washington and Alexander Hamilton.

14:16
Peter Kolchinsky
It struck me, as I was reading Alexander Hamilton's biography, how he argued for the merits of the constitution because there was a time when states were contemplating whether or not to ratify the constitution. Lots of states said, oh, well, I see this problem and that problem, and it wasn't clear whether it would be passed, right? He and some others, Madison, Jay, they banded together and they wrote their hearts out. They wrote piece after piece, publishing them in various newspapers, arguing for this and that feature of the US. Constitution in order to ultimately cajole everybody into ratifying it. And they succeeded. Would it have been ratified without their work? The way the story is told now? Probably not, right? Maybe it would have. The point is, they didn't leave it up to Chance or other people to make these cases. They just buckled down and they wrote.

15:17
Peter Kolchinsky
I kind of tapped into that energy. It's cheesy to say that Alexander Hamilton inspired you to do anything, but I decided I was going to buckle down and just write these ideas that were in my head and lay them out and subject them to the scrutiny of my peers. It took me about a year to really get my thoughts down on paper. I worked with Chris Morrison, who's actually one of my colleagues and works with me in a lot of other pieces, and showed my drafts to some peers. Ultimately, I got comfortable that I was right in saying that the majority of people in our industry would support a grand bargain where in exchange for policymakers fixing insurance and making sure that all patients could afford their medicines which means lowering out of pocket costs, deductibles out of pockets, copayments, coinsurance, all those kinds of features, making them affordable.

16:31
Peter Kolchinsky
What industry had to offer in that grand bargain was giving up the kind of rent seeking, the extraction of high profits from old drugs that it was engaged in. I used a term that I had heard someone else use before, the Biotech Social contract, to describe that. My book we titled it the Great American Drug Deal. I didn't try very hard to find a publisher, but the few publishers I pinged were like, no, this sounds too pro pharma, so we're not going to publish it. And it's like, really? I mean, I'm advocating for essentially price controls on natural monopoly drugs, but that sounds pretty wonky. Most publishers are not going to understand what that means. They didn't understand that I was ultimately arguing for something that Bioinforma would never have said officially. Like, yes, there are certain cases where we should impose price controls, like Gene Therapies, for example.

17:40
Peter Kolchinsky
They can't be copied, they're not going to become inexpensive. We have to price control them after some time, after a reward period that is typical for drugs, like 14 years, let's say, or a typical initial patent length. Nobody saw that nuance. They just said that it sounds like you're saying that everything's fine with pharma and that we just need to pay whatever companies want. Fine. So I self published the book. Not very many people read books these days, but enough did that. I found that there were other people that were frustrated by our industry's formal responses, and they wanted to be able to speak their minds more clearly about what they felt was right and wrong, that we needed to fix insurance, and that we did have some compromises to offer, like ending this rent seeking behavior off of old drugs. Essentially, the analogy I would use is that Congress was fishing about for a pound of flesh to take from the drug industry, and it was reaching for our heart.

18:41
Peter Kolchinsky
It was proposing price controls from the moment of launch. What we could do was guide Congress's hand down to a tumor and take that pound of flesh, because rent seeking behavior is a tumor. It's corrosive, it's the wrong thing to do. We should enjoy the rewards of that initial patent period, and then we should allow our innovation to gracefully become a public good, a generic drug, and then work on new medicines. We should always be innovating, right? Ultimately, with a fair number of people saying, like, we can get behind these ideas, we want to advocate for this. The real consequence of that book and all that writing effort was the launch of no Patient Left Behind. We recruited a great executive director, Peter Rubin, who had experience in Washington at insurance companies, at a small biotech company. He really understood all aspects of this framework, this ecosystem, and he could speak to people from all of these different parts.

19:54
Peter Kolchinsky
It's not insurance versus the drug industry. We are a single ecosystem. It's insurance and the drug industry and hospitals together, they all represent what people experience as a health care system. We fail to see that, we all have to function as allies. We create a broken system that traps people in its cracks and denies them access to care. They can't get the medicines that exist today, and it threatens to deprive them of the medicines that we might be able to invent and launch tomorrow. I'll pause there. That was just one breath.

20:36
Neil Littman
No, that was great, Peter. I mean, there's a lot to dive into there. I want to start with a public perception of the biopharma industry because on the surface, you would think that it should be a popular industry, but obviously it's not. For many of the reasons that you mentioned, public perceptions around drug pricing, price gouging, out of pocket costs, unexpected medical bills. There is in particular a line in one of your presentations on the no Patient Left Behind website that you make publicly available. I'm just going to quote because I think it sums up this disparity and how many people feel drugs aren't worth today's prices, so it's fine to not pay for them or price control them. If that means less innovation, that's okay because the drugs we won't get weren't going to be worth it anyways. So, Peter, what doesn't the public get about the industry and what doesn't the industry get about how the public feels and the public perception of it?

21:33
Neil Littman
Underlying all of this, you talk a lot about some bad math that underlies how the value of drugs are calculated. Could you talk about some of those nuances?

21:44
Peter Kolchinsky
Yeah. You've zeroed in on, I think, the absolutely most critical issue at the root of all this flawed policy, anti-pharma rhetoric, the public sentiment, everything rests on something that almost nobody in the industry thinks is all that important. It's actually really surprising to me how oblivious the industry is to the role of let's just call it bad math in bringing us to this point. What do I mean by math in health economics, a branch of economics, I guess there are some formulas for trying to estimate whether a drug is worth its price. This basically says, well, how much benefit does a drug generate and what's it cost? Let's just divide the cost by the benefit and figure out whether it's worth it. Well, first you got to figure out, like, well, how much would you pay for a certain amount of benefit? How much would you pay for an extra year of somebody being alive?

23:04
Peter Kolchinsky
That itself is a really tough question. The truth is we have some benchmarks. There's a certain amount that we spend on seatbelts, for example. All cars are more expensive because of seatbelts, . You look at the number of lives saved versus the cost of seatbelts, you get to some numbers around like $10 million is the value of an average human life in the US. Which you then divide by life expectancy, which I think is, I don't know, 80 years or 85 years or something like that. You might conclude that the value of a human life year is a little over $100,000 a year. If a medicine can buy you an extra year of life, then you would pay $100,000 for it. Now, if that's a medicine that you have to take for your entire life let's just say for 50 years of your life, you might be diagnosed with some disease at 40, and you have to take that medicine for the next 40 years in order to get an extra year of life.

24:06
Peter Kolchinsky
You would divide that $100,000 or whatever by 40 years, and that would be how much you would pay per year. You can break it down per month. You would say that price is worth it per month, but don't pay more. If the medicine costs more than that per month, you're overpaying. Now, the trouble is that this is such simplified math, such a simplistic way to look at things, that the end result of a lot of this math is that, strangely, medicines don't seem to be worth their prices. And what do I mean by that? Why is it simplistic? Well, let's consider the example of smallpox drugs. What benefit do we derive from them? Nobody today gets smallpox, right? That disease has been wiped out. There's some smallpox virus sitting in some military facilities, and there's still a fear that it might escape from one of those laboratories and cause a global pandemic that will make COVID seem like the common cold, right?

25:10
Peter Kolchinsky
So, governments, including the US. Government, pay money every year to maintain a stockpile of vaccines and other medicines that serve as countermeasures in case, in fact, they spend about three to $400 million a year lately building that up and maintaining it. We are spending three to $400 million a year. That's how much we're spending per year. For how much benefit? Well, according to health economists that do this simple math, the answer is zero. Since no one has smallpox, no one's benefiting from these. Therefore, the benefit is zero. What happens when you divide three to $400 million by zero? What you get is a broken formula. It's infinity. In fact, if you were to ask these health economists, should governments spend so much as a dollar on medicines and vaccines that would protect us in the event of a smallpox outbreak or pandemic? Their answer would be, well, gosh, as an ordinary human being, it feels like, yeah, we should.

26:12
Peter Kolchinsky
On the other hand, my formula says, no, we shouldn't. They themselves would recognize that their math is broken. It's failing to account for something that's obvious to any person that thinks about it. We derive a lot of reassurance peace of mind from knowing that medicines are there just in case, but their math has absolutely no room for worry. It's not any math that you would relate to if you really thought about it. It has no room for peace of mind, it only looks at how much value are you getting from using the medicine today? If the answer is none, then it tries to talk you out of paying for it. Essentially it's math that repudiates the very notion of insurance. Why do healthy people buy insurance? Just in case. What this math would tell you is you shouldn't be buying insurance. All you have to do is ask these health economists a few basic questions like should I be buying insurance?

27:20
Peter Kolchinsky
If they use their math to answer it, they would give you a nonsense answer and you would know, jeez, I really should not be counting on these people for anything. An analogy I would give you is if you were living in a terrible apartment, crowded neighborhood, you're about to have kids, you wanted to have a little grass, and your rent is rising. Let's just say you pay $1,800 a month in rent and there's an opportunity to buy a house in a nice area with a lawn, and you could pay $3,000 a month in a mortgage to buy it. Should you buy it? Now, a lot of people would look at that and say, well, I'd have to think about it. They might decide that the answer is like, yes, it's worth it. Right? Imagine asking a financial advisor that says, no, it's quite simple. 3000 is more than 1800 and therefore the house is overpriced.

28:19
Peter Kolchinsky
Unless the house is under 1800, you shouldn't do it. And it's like, well, wait a second. Have you considered that a mortgage is finite and rent is forever? In fact, it's not just forever, but the rent is rising? No, I haven't considered that. I'm just looking at the price of the mortgage today and it's 3000. Well, that's assuming that a mortgage is infinite, that it never ends. That's just dumb. That's how this math is done. It ignores that drugs go generic. It ignores the fact that there's grass there that your future kids might enjoy. It ignores so many things. It ignores what's called caregiver spillover a drug doesn't just help the person who's treated, it also liberates their family who might otherwise have been constantly pulled away from their jobs, taking member of their family for doctor visits, er visits. It ignores so many things.

29:11
Peter Kolchinsky
And there's another analogy I can share. Imagine somebody plucks a flower up and looks at it and it's beautiful and it's got all these petals and they then rip off the petals and basically say, now this is a weed, it's not worth buying. Right? Well, economists, there are health economists that have been arguing that the math we've been doing to assess the value of medicines has been really terrible oversimplified. They said it's important to appreciate a medicine's value flower. They represent all these different things like, that a drug goes generic, that a drug reduces our risk. Not just smallpox drugs, but we all feel better knowing that there are antibiotics out there, right? Think about how anxious people are getting just thinking about antimicrobial resistance, thinking that we may not have antibiotics that we've taken for granted in the future and a scrape might kill us.

30:05
Peter Kolchinsky
That anxiety, it's pervasive. They point out that peace of mind, risk reduction, caregiver, spillover, all these things are like petals of a flower and that we should more fully appreciate those petals when we're doing the math. If we did that, what you'd find is that all these medicines that the petal strippers, if you will, like the health economists and insurance plans that have been plucking the flowers, ripping their petals off and telling us aren't worth it, in fact, these medicines are worth it. We've redone some of the math no Patient Left Behind work with some of these more comprehensive math models, work with economists that really do want to get to a better approximation of the societal value of medicines. What we've seen is that the kind of math that the UK and Australia and Canada and here in the US, a group called Icer does it's off by oftentimes like tenfold.

31:03
Peter Kolchinsky
Sometimes there are medicines that these groups would say, oh, well, all right, fine, so they are worth their price, they are cost effective, but it's still going to be expensive. When you do the new math, it's like, are you kidding? This is going to save money, this is cost savings, right? So forget cost effective. This is a great way to save money. You can flip drugs that have been called cost ineffective to being cost effective, and you can flip drugs that previously, these simple mathematicians have grudgingly said, all right, they are worth their prices to not only being worth their prices, but they are majorly cost savings. Consider statins, right? Like, people used to talk about how expensive Lipitor was and how Pfizer was making a killing, selling billions, tens of billions of dollars to Lipitor. Now nobody talks about it. It's cheap as long as your insurance plan makes it cheap.

31:57
Peter Kolchinsky
Mark Cuban has been out there fighting the fight to basically say, these medicines are ridiculously cheap if you don't go through your insurance plan and pay, like massive middleman. Markups right. He's right. Insurance plans make even generic drugs unaffordable for some people. The truth is, drugs like Lipitor, at this point, a torvastatin, as many people know it today, are absurdly cheap. Pennies a pill, if that. Yet they keep you out of the hospital, they keep people from showing up with heart attacks and they will save us money for the. Rest of time, right? Our industry needs to get better at countering the message that our drugs are overpriced by really investing in better math. And it does require an investment, right. Because the math doesn't do itself. There are human beings that have to learn how to do this more expansive math. Somebody's got to employ them.

32:52
Peter Kolchinsky
Someone's got to ask them to work on studying the traits of particular medicines. How much of a benefit does a given medicine offer to the caregivers, not just to the patient? Right? And you got to understand these diseases. How scared is society of a given disease? You have to quantify our fear of Alzheimer's in order to then be able to quantify the value of some peace of mind derived from seeing that a new Alzheimer's drug just got launched and it seems to slow the progression of Alzheimer's by a quarter. That may not seem profound to any one patient, but if this is a major step forward that's going to be followed by other major steps forward in the coming decades, then maybe we can really push out Alzheimer's from our out to our beyond, right? We can't live forever. It sure would be nice to know that we'll have more years of our lifespan without the oppression of Alzheimer's, because that's a terrible way to go.

33:58
Peter Kolchinsky
You got to study, what's the magnitude of fear? How much does it cost us? Weigh on our minds in order to then credit a medicine with alleviating some of that fear. There's got to be investment in this approach in order to reassure policymakers that actually you've been getting a bargain all this time. The whole patent system is based on the idea that innovation is worth it and society will figure out how much it wants to reward breakthroughs with new products with as long as all that innovation eventually becomes a public good, eventually goes off patent or off copyright and becomes an inexpensive commodity. And that's what drugs are. They are a manufactured good that like anything like cars or new machines or solar panels or whatever, they are expensive at first and then gradually, as competitors are allowed to step in, they become extremely inexpensive, right?

34:59
Peter Kolchinsky
That's how our quality of life improves. Meanwhile, hospitals, they're not that. They're services, they are rent. What we pay for health care in hospitals and nursing homes will forever be tied to the cost of land and human labor. It is a rising rent expense for us. If we don't find a way to supplant all those services with manufactured goods like medicines and diagnostics and medical devices, we're going to spend a fortune over the next 50 years. Centuries. Centuries. It's kind of funny if you think about it. The IRA, the bill that has saddled the drug industry with really discouraging price controls for certain medicines, like small molecules, pills. The other side of that bill, what made it famous was all the work that it did to promote investment in climate technologies, right? Clean energy, carbon capture. The math that was done to justify those policy changes and incentives and subsidies looked out over 100 years, it looked out to the year 2300 and it said, we can't afford to do nothing.

36:15
Peter Kolchinsky
We're going to pay such a high cost in the coming centuries if we don't do something to bend the curve, at least develop technologies that can mitigate the risk of climate change, but ideally avert rising temperatures. Well, on the drug side, it uses math that basically ignores that mortgages are finite. Right, so it's really strange. Yet Alzheimer's may as well be like climate change, right? And it's coming for us all. It's threatening to take over more and more of our budgets, of our general social budget. Imagine if the people that did the math that justified why we need to invest today to avert the worst of climate change had done the math on medicines. What do you think the policy would have been for medicines then? I think that the conclusion would have been like, wow, we've already got a really vibrant biomedical innovation framework here.

37:19
Peter Kolchinsky
We need to tweak it at the edges. There's some medicines that are not going generic and we got to ensure that they do. In fact, Scott Peters, a congressman from California, put out a bill that I thought was really smart. It would have limited medicines to their initial patent period and then after that would have imposed price setting, otherwise known as Medicare negotiation. It would have left the market to set the reward amount for different medicines because there's a lot of transactions that go on, like thousands of decisions by doctors and insurance plans as to which medicines are going to be standard of care and rewarded. This idea that companies can just name their price and they're going to make a ton of money, it's false. Some medicines indeed aren't worth it and insurance plans deny them and nobody complains. Patients are like, yeah, it wasn't really that important to me.

38:23
Peter Kolchinsky
Right. This idea that we need to do math because the market doesn't work is wrong. There has been a market all this time rewarding certain medicines and not rewarding others, that has signaled to investors what they should be funding next. We do not need math to override the market. Since we have all this bad math that's trying to talk us out of trusting the market mechanism for discovering appropriate prices for medicines, I guess we need to develop good medicine to reassure everybody that all along, the market's been functional.

39:01
Neil Littman
Peter, there are two points of the IRA or Inflation Reduction Act that I really want to get into, because there are some really important nuances. I would assume that a lot of patients would view price controls as net positive, but can you explain why price controls will actually stifle innovation?

39:23
Peter Kolchinsky
Well, yes. First of all, the idea that price controls are a solution for affordability is easily disproven with a few examples. If you have an expensive cancer medicine, let's say it costs $100,000 or $200,000 a year for treatment, right? You may think, well, that's too much. All right, let's set that aside for now. The price is the price, and the doctor says it's right for you badly want it. It will buy you some more time with your family, maybe a shot at a better treatment that's in development if it keeps you alive long enough. Right now, your insurance plan pays for that. Now, they can make it feel virtually unaffordable for you. They can say, well, you have to pay 20% of the price of the drug out of pocket, right? If you can't afford that, there are charities that will help you pay your out of pocket costs.

40:29
Peter Kolchinsky
Those charities are funded by drug companies. Essentially, the drug companies are attempting to compensate for the injustice that the insurance plans are perpetrating by making a medicine you need unaffordable to you, right? You've paid healthy insurance premiums all your life as a healthy person. When you get sick, they make you pay so much out of pocket that if not for the assistance, you basically wouldn't be able to get the drug, right. That's terrible. Now, if they have, say, a $5,000 deductible and you can't afford that, then even if the IRA were to price control that drug down by 80% and that $100,000 drug becomes $20,000, your out of pocket is still $5,000. It doesn't do anything for your affordability. Right? We already have examples where drugs go generic. Their prices drop by 90%, 95% in some cases, right? Insurance plans still layer on a whole bunch of their own fees on top of these medicines, and patients still can't afford it.

41:40
Peter Kolchinsky
What these two examples show is that affordability is a function of insurance. Insurance can make cheap drugs feel unaffordable, and insurance can make expensive drugs feel unaffordable. They can also, when they function right, make both cheap and expensive drugs feel perfectly affordable. Affordability is a function of insurance design. If we can accept that, then hopefully what we can agree is that the reward for medicines is borne by society as a whole. It's paid for out of our taxes that pay for Medicare and Medicaid, and it's paid for by all of us out of our insurance premiums if we're not yet of Medicare age, if we're under 65 or if we're not on Medicaid, right? We pay for the safety net for knowing that we'll get medicines if we need them by buying insurance. At any given time, insurance is spending that money on people who happen to be sick today, right?

42:43
Peter Kolchinsky
It's not that different from how we pay for a town's fire department. We hope we don't need it. We hope that our house never catches fire. The ideal insurance plan is one you never need to use, right? In case our house catches fire, the fire department shows up, and they don't demand a copayment when your house is burning, they just put it out. They save your family. Imagine if there were a fire department that demanded a high copayment. And why would that be? Well, it would because we're not fully paying the cost of the fire department. Let's say the town decided it was going to pay only 80% of the mortgage that it had to take out to build the fire department, right? Because fire departments are buildings. You buy the fire engines, you got to build a building. Let's say the town's got a 2030 year mortgage to afford that, but they decide that they will only pay for 80% of it with taxes, and the other 20% they will collect in the form of out of pocket costs of whichever families are unfortunate enough for their homes to catch fire.

43:57
Peter Kolchinsky
Let's say every year, ten families experience a house fire in a given region, and eight of them are able to afford the out of pocket costs and their homes are saved, and two of them can't. The fire department lets their houses burn, right? That's kind of what we have as a healthcare system today. Yet what will then happen is that eventually the mortgage will be paid off, and now everybody will find that they can afford to have the fire department continue to provide them that security, right? Only those people who were unlucky enough to get sick for their homes to catch fire during the mortgage period are subjected to this high out of pocket costs that leave some of them unable to get treatment. Well, that's not how we provide fire protection to people today. There are no out of pocket costs for fire protection.

44:49
Peter Kolchinsky
We recognize that a fire department doesn't just help the people whose homes are on fire. It provides reassurance for everyone else in that town. It provides peace of mind. People are more likely to move to a town and pay higher prices for homes if they know there's a fire department there, right, as well as a school and a hospital and things like that. We can make all medicines and health care affordable to everybody who needs it if we all pay what it costs to provide that. I do not see a reason why there should be an out of pocket cost for insulin. I don't care whether it's $35 or is no justification for why somebody who clearly has diabetes and whose doctor says, you need insulin here's a prescription, should pay a single penny for insulin they clearly need. They're already paying insurance premiums. That's what insurance is for.

45:45
Peter Kolchinsky
Yet people still seem to think like, well, I don't know, what about moral hazard? Won't people overutilize, really? Who's gone joyriding insulin on a weekend, there are medicines that have to be injected in your eyeball who's like, oh, I think I want to get me some of that. Who says, oh, come on, let's go scam the insurance system and fake having cancer so we can all get infusions of medicines that will make us feel horrible and lose our hair. People don't do that. They think of V*****. Fine. For something like V***** if you insist, okay, you can have out of pocket cost. Well, that's generic now, that's really inexpensive, so you can go get yourself some whether you need it or not. The medicines we have today that are expensive, they're not like V*****. These are not medicines anybody would joyride right. I think we need to be really specific about what it is that we're trying to achieve with out of pocket costs.

46:41
Peter Kolchinsky
If we are, we'll realize that the only purpose today of out of pocket costs is to dissuade patients from taking medicines that are in fact appropriate for them. If a doctor is misprescribing that's on the doctor, don't make all patients suspect that their doctor is wrong by having to, by essentially deputizing them with out of pocket costs. Because when you do that, patients basically will abandon a prescription at the pharmacy. Their doctor tells them they need it, but they go to the pharmacy, they see the out of pocket cost, and they just walk away. That's essentially a patient second guessing what they need based on price, right, and they get it wrong. The consequences of that, if somebody's not taking their statin or now their PCSK nine, or their stroke medication, is that they'll show up later with a heart attack or a stroke in the hospital and no one's going to deny them that care.

47:35
Peter Kolchinsky
Now, that's going to be really expensive. If you don't provide, like, fire extinguishers or make sure that fire extinguishers are affordable for everybody, if people don't have that incentive from their fire insurance plans to have fire extinguishers in their home, then you're just going to pay that much more for a fire department, right? Preventative measures are worth encouraging, and medicines oftentimes are preventative of much more expensive procedures and hospital stays and nursing homes down the line, but that's not how they are valued by health economists that insist on taking a simplistic view, right. They're not really fully appreciated as that. What you end up with is insurance plans that are focused on this year's budget that say, well, this is an expensive drug. Yeah, it's expensive from a budget standpoint, but it's worth it for society. What we absolutely need to make sure of is that our insurance plans are required to cover medicines, even if they're branded and expensive, because that is the stream of incentives for promoting biomedical innovation and making sure that we displace more of our long term hospital and nursing home costs with medicines that are only temporarily expensive.

48:59
Peter Kolchinsky
And that's a problem. Insurance plans are focused on this year's budget and yet they are our agents for incentivizing innovation that will serve us for centuries. It would be like tasking utilities that are just trying to balance their budget this year with incentivizing investment in clean energy and carbon capture and all that. Don't be surprised when they don't because they're just trying to make sure that they make their expected dividend payments this year.

49:34
Neil Littman
It certainly seems like we're called in a world of short term thinking when we really need longer term thinking for longer term societal solutions here. Peter, we could talk for probably the next two weeks about some of these topics. They're critically important, but I do want to be cognizant of your time. How can people learn more about what no patient left behind is doing? How can they support the organization or otherwise get involved in what you're doing?

49:59
Peter Kolchinsky
First go to the website Nopatientleftbend.org and then click on some of those animations that you see there. Click on some of the slide decks. I helped create some of those as of my colleagues. We've poured everything we understand about how healthcare works, how insurance works, how medicines are made, to answer a lot of the questions that people have that keep them from embracing what we call a biotech social contract. The idea that affordability is a function of proper insurance and that the drug industry really should be incentivized to make medicines that will go generic without undue delay. Right? Everything you've ever heard about like, well, Europe pays less or Canada pays less or why can't the NIH invent drugs? We've probably already tackled it with something that is pretty gettable. Right? So first, inform yourselves about this stuff. If it comes up at the dinner table, try it out.

51:04
Peter Kolchinsky
Try explaining to your family member who thinks that drug companies are evil. Why that's not really the full story, right? Yes, there's some bad behavior, but actually, on the whole, these are people who are solving problems for us. Also, I'd say mentally, stop thinking about patients versus healthy people. We are all patients. If not today, then eventually. Right? All of this, all this policy is not just about helping some sick people, but our family is fine. So whatever. Someday that'll be us. That'll be your child, your parent. It will be you. We have to stretch our minds over time and recognize that everything that is difficult for patients today is going to be difficult for the rest of us eventually unless we solve it. Right? If you're industry, then I would really encourage people to think about how they can get involved with no patient.

52:13
Peter Kolchinsky
Behind. Any organization like this needs funding. It's actually only got a couple of employees. The overhead is minimal. The money that we raise goes towards funding some pretty wonky research, like these generalized cost effectiveness models that show what medicines are worth, as well as other research projects. Also they fund the development of these more engaging explainers animations because we're trying to demystify how innovation is funded and how it can be made affordable for everybody. So this is a long term plan. I don't actually know what it is that we're going to do to be able to fix the problems with the IRA now, this year, next year, in order to avert some of the defunding that's happening today. I do know that if we keep up an effort over the next decade to educate people, even children, imagine explaining how innovation happens. Imagine when you're reading your kid a children's book about animals living in a community.

53:19
Peter Kolchinsky
Somebody says, oh, little baby squirrel is sick. Who could help? Somebody says, oh, well, scientist. Rabbit might have an idea. Scientist Rabbit says, well, I'm growing my own carrots and I can't take time away to invent a medicine. If the squirrel said, well, we'll give you nuts, and other rabbits said, well, we'll give you our carrots to tide you over if you'll do this, Scientist Rabbit develops a medicine. When that medicine works, they want them to keep making new medicines because it turns out everybody else has problems. Think of the people that are in the drug industry as members of your community who have the talents to solve problems that we all have. Think about how we can ensure that ultimately the incentives are there for investors to keep giving those talented scientists, rabbits, if you will, the money to keep doing what they can do, right?

54:18
Peter Kolchinsky
We have to tell these stories to everybody so that someday the staffers that we have working for senators and members of Congress really understand what kind of policy we need. Because honestly, it's the staffers that are deciding our future. Very few politicians themselves understand this stuff. They count on people who work for them, people whose names you probably don't know. Some of them are young, some of them are 25 years old, and they're entrusted to tell a senator what their stance should be on drug pricing. If their background is English or political science or whatever and they've never really learned how innovation is funded, well, what do you expect? Ultimately, they're going to go for the shiny, simple answer it's just price control medicines into becoming affordable, right? So we've got to make this investment. It starts by all of us first, understanding the underlying math, understanding the flaws in the rhetoric that's used against the drug industry, accepting our own errors, our own spites of hands and wrongs that our industry has perpetrated, and advocating for those to be fixed.

55:38
Peter Kolchinsky
Ultimately, it then means banding together and taking an argument to society, to the public, finding a way to win people over, to supporting the drug industry and celebrating wins. Maybe we could band together and celebrate every time a drug goes generic, the way that we commemorate a book. When Pride and Prejudice entered the public domain, that was a special day. When Catcher and the Ride did, that was a special day. Right? We call that public domain day for books. We could do the same for drugs, except you don't have to wait decades like you do for a book, like 70 years after the death of an author. I think that typically happens about 14 years after a drug is launched. I have witnessed the funding of early stage research for a medicine, then its launch, its effect, and its curing of millions of people. I am going to preside over the genericization of those medicines.

56:45
Peter Kolchinsky
I will have seen the whole thing in the span of my career. You don't see that for books. As an industry. We should celebrate that because we truly fulfilled our duty. We contributed inexpensive public good to our medicine chest for the rest of all time, and then let's go back and do it again and again. I don't think we have that vision of ourselves yet. If we don't, how can we expect to inspire society with that vision?

57:14
Neil Littman
Peter, I for one, applaud all of your efforts and all the materials that you make public that you do with no Patient Left Behind. Your book The Great American Drug Deal was just a really incredible read and goes into so many different nuances and complexities and explains it in such a way that people can understand and get. I found everything that you have done and no Patient Left Behind produces incredibly helpful and insightful. Thank you for all that you do, and thank you so much for joining me on the show today.

57:43
Peter Kolchinsky
Thank you. I appreciate the airtime for these ideas.

57:49
Danny Levine
Bonia, what did you think?

57:51
Neil Littman
I thought that was a really great and wide ranging discussion with Peter. There are some nuances to this discussion, but at the end of the day, it's pretty straightforward. Because of the bad math problem that Peter highlighted, medicines don't appear to be worth their cost today.

58:07
Peter Kolchinsky
Right?

58:07
Neil Littman
You heard him give the example the government paying for the smallpox vaccine, for example, which, according to the Matthews today, those drugs have zero value. However, we know that's not true, right? So that's sort of a ridiculous notion. He also talked about ending what he calls this rent seeking behavior in our industry, which are various tactics we don't need to get into, that companies use to extend the patent life or game the system to artificially keep drug prices high. Actually, he's really advocating for a form of price controls in the industry for the betterment of society and patients over the long term. As you heard him say, in exchange for ending this rent seeking behavior, peter and no Patient Left Behind is really advocating for reforms to ensure all patients have access to the drugs they need by eliminating copays and these really high out of pocket costs, which, as you heard, Peter talk about, is really a misguided notion of skin in the game anyway.

59:03
Neil Littman
I thought that was all just really fascinating. I think Peter presents it in a really logical and coherent way that should generally be easy for more of us to understand.

59:15
Danny Levine
In a lot of ways, I'd argue the biopharmaceutical industry has been its own worst enemy. It's done a very poor job of explaining pricing. Listening to Peter, though, I think one of the things that struck me is he's not only got to win over consumers and policymakers, but do you think he needs to win over the industry itself?

59:37
Neil Littman
Well, I think he does. As I mentioned before, I think the industry has been tactical but not strategic in terms of how they talk about the value of medicines to society. The fact that the biopharma industry isn't more popular in the public polls and public opinion is mind boggling to me. Why can't we talk about how valuable these drugs are to society in a more effective way? You heard Peter talk about the Inflation Reduction Act. What jumped out to me specifically was the stark difference in how we as a society view fighting climate change versus fighting disease. Specifically, you heard Peter talk about this long term view that the IRA took with promoting investment into the climate realm, right? 100 year view or more. We're looking out to the year of 2300 plus. Yet we take a very short term myopic view of healthcare innovation and so over the long term drugs that we consider cost ineffective, if you have a longer term view and account for the fact that these drugs go generic, are not only cost effective, but cost saving.

01:00:49
Neil Littman
I don't understand why it's so hard for us to shift that way of thinking. You heard Peter specifically mention the case for Alzheimer's, right? Think about Alzheimer's as the same equivalent to climate change.

01:01:04
Peter Kolchinsky
Right.

01:01:05
Neil Littman
How can we not afford to do something about this and take a much longer term view? Those are all really important distinctions here that Peter brought up.

01:01:14
Danny Levine
You did talk about the bad math with Peter. One of the problems with this is that these numbers are pliable depending on what parameters someone uses. Not a lot of people focus on the formulas being applied, but instead on the conclusions of organizations like Iser. How big a challenge is finding the right level of nuance and complexity for public discourse?

01:01:41
Neil Littman
Well, there's no question there are some nuance and complexity and people do tend to focus on the outcomes and the final report of places like ISR. Bad data in, bad data out, right? As the saying goes. If the assumptions are wrong, then the output is going to be wrong. I don't think it's that hard to wrap your head around that. A lot of the healthcare economists are using bad models. They have the wrong assumptions. Of course you're going to get the wrong output out or an incorrect output from these models if you're using bad math and the wrong assumptions going in. Yeah, sure, there's some complexities, but at the end of the day, garbage in, garbage out. I think we need to reframe the discussion around what are the parameters that should be used and why aren't we talking about healthcare in the much longer term view like we talk about climate change?

01:02:33
Danny Levine
His arguments about copays and out of pocket costs, in my mind, are spot on. They're counter to the interest of patients and good medical care. Do you see this having any traction on the policy front?

01:02:47
Neil Littman
I would certainly hope so. Obviously that's an uphill battle, but he makes really good points and you heard him give an example about even if price controls were implemented that reduced the cost of a therapy by 80%, it still would likely not have an impact on the patient's copay or out of pocket cost. And that's ridiculous. That's a very clear example where there needs to be some reforms. Hopefully what no patient left behind is doing what Peter is doing. Some of these advocacy efforts will actually help change policy going forward because we, at a minimum at least, need to have a national discussion around some of these really important topics. Well, until next time, thank you Danny.

01:03:34
Danny Levine
Thanks for listening. The Bio Verge Podcast is a product of Bioverging, an investment platform that funds visionary entrepreneurs with the aim of transforming healthcare. Bioverge provides access and enables everyone to invest in highly vetted healthcare startups on the cutting edge of innovation, from family offices and registered investment advisors to accredited and nonaccredited individuals. To learn more, go to bioverge.com. This podcast is produced for Bioverge by the Levine Media Group. Music for this podcast is provided courtesy of Jonah Levine Collective. All opinions expressed in this podcast by participants are solely their opinions do not reflect the opinion of Bioverging or its affiliates. The participants opinions are based upon information they consider reliable. Neither Bioverge or its affiliates warrant its completeness or accuracy and it should not be relied on as such. None contained in accompanying this podcast shall be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to purchase any security by Bioburg, its portfolio companies, or any third party.

01:04:48
Danny Levine
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