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[Applause]
interesting background I mean MD, PhD, your academic
positions at UCSF, Stanford, Harvard and then went to become
an entrepreneur. Tell me a little bit about why you made
that transition and what you saw the kind of differences in
impact between being in academia and being an entrepreneur
founding and running a small company.
So my academic interest were not in business but were in
science and medicine. I started out with a curiosity about
becoming a scientist and physician in an academic medical
center. I went through the whole multiyear prolonged
adolescence so that required in order to get trained as both
an MD and PhD. And then when the job offers came, I got job
offers from the number of universities including Harvard and
WSU and University of Washington and none of them felt
particularly compelling because in all of these situations I
never have felt that the science and medicine would actually
meet one another. I thought that there is going to be
science component and there is going to be a medicine but
there were two separate jobs. I could be working in the film
industry on one and working as a scientist, however they
didn't seem to relate to one another. And that was back in
the 80s and 90s when I think the truly was more of a two
solitudes field between science and medicine.
So out of curiosity I went to visit a number of companies
and low and behold I felt that within these companies this
was where science and medicine actually met one another. And
actually had a dialog and a conversation whereby the
clinician could think about clinical trials and think about
clinical development from a scientific viewpoint. And the
scientist could think about what they were doing within
output towards patients and in the end Rob that's what drove
me out of the university and into companies. And the other
thing I will feel and I don't know how many of you are,
university professors working in, the universities were
awfully slow and I just felt that the pace at which things
happened there were glacial and that also bothered me. So
things moved faster in a startup, things moved faster in
companies and I thought that medicine and science could meet
one another.
I think even the more interesting transition is when you are
CEO of two biotech companies, one of which you went through
the whole taking public being very, very successful and then
did a transition that I rarely see. It's very common in a
bio-pharmaceutical industry for people to go from large
companies, for senior executives at Merck, at Pfizer, at
GlaxoSmithKline to then run or take a senior position at a
small company, you did the opposite. You went from not just
being an officer of these companies but actually running the
companies to taking a senior position at Genentech. I would
be curious, want to know a little bit what your motivation
was but also what have you seen as the differences between
doing science and development and the small companies and
doing it in a world class larger organizations such as
Genentech.
What allowed me really to make the transition were two
things; one is that I had to let go of being the guy in
charge. So I have got actually for those of you who would
eventually become CEOs and for those of you on the panel who
are CEOs and
[inaudible] because I was the CEO in a company you were in.
You get attached to the job, you get attached to the fact
that you are the guy, or you are the guy, you are the person
running it, it's your story. And I was that way for many
decades and in order to go from there to a position where I
wasn't the person in charge, the biggest thing I had to do
was actually let go of that, I had to let go of being the
guy in charge and get really comfortable with being a person
on the team and not being the person who is running it -
that was number one and I think the reason many CEOs don't
end up doing what I did is because they can't let go.
Number two is that I was interested in what it would be like
to move into an environment that had a, what looked to me
like infinite financial container in terms of the size and
the amount of capital that it had. So I was spending about
30% of my time as CEO of Cytokinetics - a publicly traded
biotech company servicing Wall Street, servicing fund
managers and servicing other investors and I know it was a
big and important part of my job but it was a consuming part
of my job, fascinating and seductive at the beginning and
got a little bit tiresome at the end. And I was yearning for
something that would connect me more into the science and
medicine of what the actual business was.
And so when I got a call to run business development at
Genentech that seemed like a natural choice. It was one of
those calls you get where you immediately just say, yes I
will take the job. And it's literally a five second thought,
so it was the run to a company where you didn't have to
worry about fundraising and I could think about bringing
science and medicine in a place where the hubosphere if you
want was infinitely large and the other one was letting go
being the person in charge. Now what is different about
being from discovering development at Genentech versus that
at a biotech company again relates primarily to the size and
not the money that we have.
Right now biotech companies in the therapeutics areas are
limited by the amount of money they can raise. It's limited
to whatever $60 million, $70 million, $80 million may be at
the most. When I was running Cytokinetics we could raise
hundreds of millions of dollars even before the public
offering and about a hundreds at the public offering. For
innovative ideas the size of the financial container has to
be larger than for non-innovative ideas because you don't
really know what path you have to go down therapeutically.
And so now you have companies that want to be innovative but
have a smaller container. They can't things through into the
clinic as effectively as they could five or six, or 10 years
ago. And as a result they have to partner and guess who they
have to partner with? They have to partner with us. And so
moving into the role on the partnership side where I knew
what these guys were going through. And I could actually
solve a lot of their economic problems while at the same
time developing a positive partner relationship, it struck
me as a wonderful place to go and I think that's been the
biggest difference it's been literally, we have the money to
actually do a proper development plan around these products
and not cut corners.
May be you can talk a little bit about what you are trying
to accomplish in your current role and what do you see as
the main opportunities for Genentech over the next five
years on the scientific side.
Genentech is now owned by a large Swiss company that you may
have heard of called Roche, so they acquired us although
many people in Basel feel it was the other way around. And
at least culturally we had a major impact on Roche. The job
of business development at Genentech in the past and that
continues to present time has been solely to bring the best
sides into Genentech. We have one of the best research and I
would argue the best development organization in the
industry, especially in the area of cancer. And my goal is
to scour the world for great scientific ideas and bring them
into Genentech.
It turns out that those great scientific ideas are almost
all pre-clinical because as I said companies don't have the
financial ability to bring something forward into the
clinic. So most of the partnerships we do, we did 20
partnerships last year in my first year there, all of them
were pre-clinical and they were all pre-clinical that's
where the best science was. So my role at Genentech is to
bring the best science in Genentech and the future what I am
really excited about and what I think is going to turn out
to be the real reason why the acquisition or merging
whatever you want to call it these two companies is going to
turn out to be positive, is the combination of innovative
therapeutics that attack disease mechanisms combined with
companion diagnostics to predict who is going to respond to
those medicines.
In fact it is one of the only ways we have to dramatically
increase the productivity of R&D and change our healthcare
industry. We have to move from drugs that work in 40%-50% of
the patients to drugs that work in 80%-90% of the patients.
And the only way we can do that at least in the next 100
years in my opinion is to decide who is going to respond to
the drug. And Genentech started that with Herceptin but it's
now going to become a clear part of almost everything we do.
I am sure David and Bala are glad to hear you say that. Last
question is Genentech over the course of the time I have
been in the industry has been without doubt the most
successful innovative company. The best science is really
push frontiers in many ways, it's been really the place
great scientists wanted to go to. What has Roche done to
preserve that culture really to reserve the secret sauce
that made Genentech so successful?
So when Roche acquired us they specifically set Genentech
aside as a separate unit and they called it gRED which is an
acronym that stands for Genentech Research and Early
Development. And what it means is the 2,000 scientists and
clinicians that were in Genentech's R&D engine are now set
aside and fundamentally bubble wrapped. And by saying bubble
wrapped meaning we have our own governance, we have our own
budget and we don't actually, our reporting relationship
into Roche is right to be CEO. We don't report into an R&D
unit within Basel, I don't report into a business
development unit within Basel. We report into one person who
heads up gRED Richard Scheller who is the former Stanford
Professor, and Richard reports directly to Severin Schwan
who is the CEO of Roche. And so what Roche did very cleverly
unlike say Pfitzer when they would acquire a company what
they would do would be to shut down that company and ask if
they want to move to Groton.
Roche didn't say we are going to shut down San Francisco and
everyone moved to Basel or Nutley, what they did is say we
are going to bubble wrap you, we want you to keep doing what
you are doing. And they gave us full governance as well as
financial capability to do that. So within gRED things
haven't changed a whole lot except our cost of capitals gone
down we are connected to the largest diagnostics company in
the world and we have a more stable financial base so I
think those are all positives.
Well thanks James, I would like to move on to David. David
is a CEO as I mentioned of CardioDx which is a pioneering
company in the genomics diagnostics fields focused on the
cardiovascular field. Unlike James, David came up through
the business side as I learned earlier David is a Stanford
MBA somewhere in the 80s.
Somewhere in the 80s.
[Informal Talk]
And before that he was an Economic & Computer Science major
and now is running one of the really premier and most
interesting companies in the life sciences skills. You are
kind of doing what a lot of the MBAs I teach wanted is like
they don't have a technical background and they come to me
and say I really want to run a really exciting hot early
stage company in the life sciences field. So may be we can
talk a little bit about your path and what advice you would
have for people who want to emulate that?
Yeah, happy to do that. So take everything that James said
about his background and think the opposite and you got me.
So I think the last biology class I took was somewhere early
in the high school days and actually grew up here and
thought I would be involved in technology forums that was
sort of my love and my passion Business School of Stanford
and coming out of that program I got an offer to be the
first employee at a company that another former GSB or a
couple of years before was starting in the oncology space
and I was flattered to get the offer, he and I had known
each other a little bit and I said thanks but no thanks I
know, I couldn't even spell oncology I knew it was related
to cancer but I couldn't even spell oncology. And so I went
off and spend a couple of years in the venture business all
in the IT side but the guy that wanted to hire me was a
persistent guy and the business model that he had started
with didn't really work out so it sort of changed a couple
of times. And he called me two years later and said now we
had a different business model and this is something I
really think you should do. And what I have been trying to
do in those two year post business school was find the right
portfolio company to jump into. That's why I went into the
venture business not because I wanted to be a venture
capitalist but because I thought that was the right form
figuring out and taking a long interview process to say okay
this is the company that I want to jump into. And I did I
just didn't happen to jump to into one either in the IT
space or in the portfolio the venture firm I was working
with.
And so I came into this with my eyes wide open but not this
pair of glasses I needed to have I would say. And I started
as the fourth employee of this company and it was sort of
serendipity at some point which was I was there to sort of
launch a new business unit and good fortune shown down upon
us and this business unit went from zero to a billion
dollars in six years, we are number four in the Inc 500 list
of fast growing companies and it was in oncology space we
were distributing products to medical oncology delivering
chemo. So I would like and take a lot of credit for my
career path and deliberateness and all that kind of things,
complete serendipity. My philosophy had been if you
associate yourself with really good smart people good things
will happen to you and in this case it did and I sort of
leveraged that into at least passing somewhat for having
known something about the healthcare business and I have
done three other companies since then.
Well talk a little bit about CardioDx what's the mission of
the company, what's the product, what's the status.
Sure I am going to leverage off something that James said. I
would like him fundamentally believe that the only way we
are going to improve our healthcare system dramatically in
the next 100 or 50 years is to spend our current dollars
more effectively and more efficiently. And the trajectory I
had on from a career path I did intersperse a couple of
venture world so I have actually gone back and forth through
an operating world and venture world. And I spent three
years at TPG before I started at CardioDx and as I was
sitting in the meetings at TPG when entrepreneurs were
coming to present particularly on the diagnostic side I
would only ask one question, it was always the same
question, what's the doctor going do differently with this
piece of information than they can do today? And some of the
great science, most of which that went right over my head
the guys who were presenting, the entrepreneurs said well
not much but it's really cool science, and I thought to
myself something is wrong with this picture. We have all of
this incredible new technology that allows us to look at
biology in a different way and that technology is really
driven by the map in the human genome and all of the
technologies that spun off of that I said something is wrong
with this picture. We have got a better flashlight than we
have ever had before, we are not using it appropriately and
CardioDx was really started in that vein and we looked at a
lot of different therapeutic areas. So we approached this
from as non-technical side as you can get.
I said what are the biggest markets where the variability of
care is so huge that even small improvements in diagnostics
can have a big impact on patient care? Cardiology was
clearly at the top of that list. And we interviewed 1100
physicians to find out what their key challenges were in the
delivery of care and we wrote the products pack. And then we
went to the scientists and said can you make a product that
meets this need and so we came at this from a very different
standpoint.
It seems like totally obvious to me that having better
information to make treatment decisions is, that's sort of
the future I mean that's what James said, you don't see very
many companies yet that have been really successful in the
space. There is you know Genomic Health which took a long
time to build a business and they have
[Overlapping] in the oncology space. But you haven't seen, I
would have thought there's sort of be a flood of companies
in this area.
Yeah I think there have been a number of road blocks that
have and are still in our way. One is just inertia. One of
the other companies that I started and sold was in the
handheld prescribing space. We write over 3 billion
prescriptions by hand in this country and given the
technology we have you think that's probably not the right
thing to do. And so we developed a handheld device to write
a prescription and I use that example because basically when
you were going and to sell that to a clinician to say you
should use this device, it is better for patient care,
better information for you and will reduce the number of
times we kill patients by giving them the wrong script.
Based on what you are telling the physician is what you have
done for the last 30 years is substandard. They don't get
often the fact that this is new technology so you don't beat
yourself up for the last 30 years but the same thing has
happened with CardioDx. We go in and tell the physician that
this genomic test is often better than the imaging
technologies they have and what they hear is I am not
practicing the best medicine and so there is a reluctance at
that point - that's number one.
Number two the FDA rightly or wrongly had stayed out of the
diagnostic space and yet are fully engaged in the
therapeutic and the device space. So when you come with a
diagnostic and they say is it FDA approved and you say, no
it doesn't need to be, all they hear is no. And so then
there is a question of what's the utility and so there is
lots of papers we have to write and those kinds of things.
And the third piece is really on the reimbursement side and
that's true of most healthcare, even more so of the
diagnostic space. We could be selling my estimate is 10
times more test than we are today selling the i.e. the
physicians are ordinate but I don't want to do that because
the payers aren't yet on board to pay for the test. So in
terms of a capital need that James is talking about every
time I run the test and it doesn't get paid for this
insurance company says thanks but no thanks that's the cost
that we bear. And so there is a big financial incentive to
limit adoption until you get the reimbursement piece done.
Once those problems get addressed may be they will take a
while to do that, talk a little bit about the business
model, the business model here it seems really attractive
because the development cost is far less on the therapeutic,
the odds of success are far higher but you get similar sort
of lifecycle links and you can charge a good amount for it.
It's one of things that really attracted me to the whole new
molecular of diagnostic space, just to give you a sense it
was exactly two years in the day we enrolled our first
patient in our prospective trial which is really the key
clinical trial the time we are on the market. So two years
versus 10-20 years so you can do it in a much shorter space,
it's not cheap, we spend almost $40-$45 million to get
product one to market that counts the coldest accident dead-
ends we went down but it's not particularly cheap.
And the business model is if you can provide better care to
the clinicians and be cost effective for the payers this
should be adopted broadly in the industry. Now what does
adopted mean, does that mean I would be on everybody's
guidelines, just means you got lots of users, any one of
those things would qualify and the upside is huge. Genomic
Health has proven that they can really change the standard
of care in breast cancer.
Really thanks David.
Welcome.
We would like to move onto Bala here. Bala Mainan is one of
the most prolific and successful in ventures life sciences
fields around imaging, optics and diagnostics. He has been
the founder or driving force behind more than a half dozen
companies, may be even more I probably I couldn't count them
all, and holds more than 30 patterns. And I can safely say
Bala is the only person at this conference who has won an
Academy Award which he won for advances in digital
cinematography. His latest venture is ReaMetrix and I want
to come back to that because I think ReaMetrix is very
interesting both from the technology side but frankly from
the business model the innovation side as well. But before
going to ReaMetrix I was wondering if you just might talk a
little bit about one or two of the other ventures you have
been involved in and sort of the impact that that's had in
the medical field.
I guess I could start with my entry into the whole area of
life science was an accidental event as talking about both
of them saying one coming from the medical side and the
other from the business side. Whereas in my case I had
nothing to do with, in some of the talks I gave my life is
one of contradictions and I started out and I aspired to be
academician and joined the faculty at the University of
Rochester. And then fell a victim to the exuberance of a
naturalistic effluence and left the academic world and came
to Silicon Valley in 1975.
So basically I started working on writing images onto film
and have done quite a bit of work in that area and
accidentally I found out that there was an unmet need in the
area of medical imaging of taking digital data and writing
it on to film that's how I got into medical imaging. And so
I have developed the first generation of laser film
recorders for medical imaging. And that has fundamentally
changed the way in which the images are being presented to a
radiologist and taking the depth of information that is
generated in the computer and presented. I mean today you
can't find any other technology, every image that you see in
any digital modality whether it's CT, MRI or any of that and
I could say hey, I had a roll to defining that 30 years ago.
Just why don't we talk a little bit about ReaMetrix, I mean
I know a little bit about the company and it's really
fascinating on multiple dimensions - a little bit of the
original concept of ReaMetrix, what products you are
developing and talk a little bit about the innovation model
within the company as well.
One of the advantages that I have is that I have been in
Silicon Valley since 1975. And what motivated me to think
out and actually think in terms of going to India is that I
looked at everybody looking at developing part of the world
and either they had an approach to looking at it from a
charitable point of view, social entrepreneuring, things of
that nature or cost arbitrage model where can I go and save
money getting things done over there.
David Kelley of Design School from Stanford, I have known
him for a long time and that one statement that he had made
that probably had more impact on me is, "Innovation starts
with how you frame the problem". So I looked around and I
said I started my first company with $350,000 investment,
this is in 1980. Today that pays two weeks worth of payroll
may be when we started company. And that's just not
sufficient. And that really the opportunity exists in India,
to be able to do what I did 30 years ago. So the question
really is what can you do there, you cannot do anymore here.
And then combined that with the statement that David Kelley
did is "let's define the problem or frame the problem in
terms of how do you solve develop technology to address the
bottom of the pyramid". And then by definition if you have
the cost economics worked out, then you will have a solution
that's not just for the bottom of the pyramid, but for the
rest of the pyramid as well, so that was the motivation with
which ReaMetrix got started.
And it has been really a fascinating experience because
defining the problem from the developing work point of view
has opened up innovation opportunities that would have never
been possible if I had done the same thing, here in Silicon
Valley.
So, if you can talk a little bit, one of the things that's
interesting about ReaMetrix is you have a foot in San Carlos
in Silicon Valley and another even bigger footprint in
Bangalore. Talk a little bit about the cultural differences
between innovation in Silicon Valley and the types of people
who do here and managing innovation in India.
Yeah. I would say that probably this is the most difficult
challenge I have faced. I would say that as much I felt that
because I have been successful in Silicon Valley that I
ought to be able to take what I learned here and translate
that to India. That was the most unmitigated disaster that I
ever encountered, because the tendency in the eastern part
of the world is not just India. I think this is true of
Asia, I was in Singapore on Monday running a workshop over
there. The tendency to want to own the task rather than own
the problem and that if you really are talking about
innovation, you have to own the problem.
And second thing is failure is inherent in the process of
exploration. I continually tell the people, if you are
afraid of height you will never be a mountain climber. And
the concept of facing and accepting failure is amazingly
absent in that part of the world because the competitive
nature of that upbringing and etc. Even the society they
don't want to face failure. And without caring through that
barrier, it's been a real problem. So while it has been very
cost effective to try different things in that part of the
world, the innovation spirit has been lacking because of the
inability to face failure.
One last question and this is around assuming ReaMetrix is
successful in developing the diagnostic box that you are
working on now. What do you see as the barriers to adoption
in India? And particularly around how medicine is practiced
differently in India than it is in the developed world?
And in fact it's been a really fascinating understanding. In
the west that people going to medicine, go to medicine after
an undergraduate degree and quite a bit of scientific
training and so on, whereas in the British system people
actually go right out of high school and their undergraduate
program itself is into medicine. So what you find is that
what you assume in this part of the world, in terms of how
medicine is practiced, is very different from the medicine
practiced over there. There are much more clinicians than
quantitative medicine focused. And therefore trying to
whatever the solutions that you are going to provide and to
put it in the context that in which they practice medicine
and then I have a way of saying that you have to think like
a biologist and act like a biologist in a way that you serve
their unmet needs and that same things applies to medicine
in that part of the world.
Great, thank you. Don, if we have you back clean up here,
Don Joseph is the Chief Operating Officer for BIO Ventures
for Global Health, which is a nonprofit that has the
audacious mission of trying to create basically the
environment and incentive system to get biotech
pharmaceutical diagnostics, companies to develop drugs for
unmet and underserved global heath conditions. And it was
interesting just thinking through what the backgrounds, we
have James from medicine and science. We have David who came
up through business, Bala who is kind of through optics and
science and Don through law. I think we have a lot of
different root to end up in this industry.
And Don, it would be interesting if you can talk both the
transition from law into the biotechnology field. And I
think more so from going from for-profit, actually Don
worked with James and worked with a number of other
successful companies in the biotechnology industry and then
going into the non-profit sphere and whether you, why you
made that transition and what do you think for people who
are considering going into non-profit later on, if it makes
sense to start off on the for-profit side.
Sure, I am happy to and I can't back clean up because these
guys have hit it out f the part already. I will take it from
there. My past is even more sorted because I have a solid
humanities background before law school. So I was literally
inarticulate in life sciences through my schooling. But what
I, I was always interested in it and wanted to work in it,
my law practice had involved somewhat peripherally but again
not any great degree until about 10 or 12 years in my
career. And what I have decided Rob was that, the great
thing about being in a law firm is you touch to lot of
different projects, in many different industries and that's
a great thing. But what ultimately I found to be frustrating
was you don't really get embedded in any project, you get in
and do a deal or provide advice or structure or solve a
problem.
And then they move on and keep doing what they are doing and
you are left to start over and work again with someone new.
There are many parts of that that are fun but ultimately to
me it was frustrating. I wanted to get in and get my hands
dirty and really be a part of something. So I consciously
looked out for an opportunity in life sciences, again partly
through serendipity as has been said before, I had the
chance knowing, sitting in a law office in San Francisco the
odds were that life would take me either toward life science
or technology. And my preference was on the life science
side because I saw the potential for the impact. This is
when companies like Genentech and Amgen and others were
making a huge difference in the world and opening up all
kinds of opportunities. And although again I didn't have a
scientific training, I really wanted to be part of that.
So I made the jump roughly 15 years after my law career
began into a neuroscience company here locally called Athena
Neurosciences. And we worked on Alzheimer's disease and
epilepsy NMS and other things. And I have found it hugely
fulfilling to be able to learn about that so ongoing
learning was fantastic. And also to watch these drugs go
through the process, get approved and begin to change
people's lives. So I was in the industry side of things for
another 15 years or so, in initially legal roles and then
beyond into business roles, corporate development, business
development, operating roles of one type and another.
And again I found personally it was time for me to try
something new to come at the industry from the different
direction. And I was lucky enough to have the opportunity to
do that, initially with a group called OneWorld Health which
develops drugs but for neglected diseases and in that
particular case things like malaria, leishmaniasis and some
other things. So again I was challenged by learning
something new, seeing the industry in a different way,
putting what little skill I had to use from a different
direction and again the chance to make an impact in a
different way and to challenge myself.
Oh, the second part of your question, so I will just real
quick. So having said that I would say that my personal
advice generically or an abstract is it's far more helpful
and it would be interesting to hear James' viewpoint on this
later, but I think it's far more helpful to get a functional
skill, learn it and acquire it and then you can go out and
market yourself with that skill as opposed to taking kind of
"Kumbaya" approach I really want to help what can I do, I am
really excited, I am really motivated.
Now admittedly the world is different today than when I did
this even a short time ago, much less or long time ago and I
wouldn't say this is absolute but I do think that anyone
interested in the non-profit sphere, would be well served to
get functional skill and training because just as Brook
Byers has always said a small company is not a training
ground, I can guarantee you that non-profit world is not a
training ground. So you are not going to get guidance and
mentorship from a functional point of view, anywhere near
the depth that you would, even in smaller companies much
less larger companies such as Genentech that can offer that
to you. And then translate that into, one, you will know
your sphere better, you will know where you potentially can
make a play, have an impact and then look into whether non-
profit is right for you.
So yeah if you can talk a little bit about the mission of
BVGH, what are you trying to accomplish and what are the
organization's goals?
Sure. What we want to do very simply is bring the innovation
of Biotech to global health and neglected disease work. If
you look at the numbers over the last 10 years roughly half
of the new drugs approved in the United States have come
from the Biotech side of the industry as opposed to
pharmaceutical companies. That number is only going to go up
year-over-years as the Big Pharma pipelines are challenged
and the Biotech techniques take hold and pay off, more and
more and more.
So much of the innovation in drug development generally is
coming from the Biotech sector. We think it's far
underrepresented and we know it's far underrepresented in
the global health's sphere. And what we are trying to do is
to breakdown some of the barriers that keep the Biotech
sector from having a greater involvement in global health.
We think that innovation comes from two primary directions
you can't innovate unless you have information, unless you
have an incentive. And those are the two things that we try
to provide assistance to Biotech companies in assessing
potential opportunities in global health. The information
side we have content on our website, we provide information
about neglected diseases through our Global Health Primer
that you can look at both from a disease point of view and
also from a target or pathway point of view.
If you are a Biotech company wondering how you can get
involved and incentives we worked on things like the "
priority review voucher" which is a very elegant tool, I
won't describe it fully but it's an incentive to Biotech
company to get a drug approved for a neglected disease,
because it lets you then shorten the review time for any
other drug that you have or that you can sell that voucher
to a third party. So information and incentives for global
health aimed at the Biotech sector is what we are all about.
How much success have you had yet, because I understand why
the large companies are getting into this because the
Mercks, GlaxoSmithKlines, they have a global reach, they see
a big market and emerging markets. And they also have for
many reasons a PR reason that they want to get into
Entrepreneurship Global Health. The smaller companies, I
know you are working on the incentives, but how much success
there have been for smaller companies and what do you think
is really going to be sort of the change that has to happen
there for there to be far most of the smaller more
innovative companies working in the field.
Well it's a real challenge Rob, you are right. And let me
take a local example to illustrate the situation a little
bit. There is a company up the road called Anacor. Anacor
has a specific chemistry, boron chemistry platform that they
use to develop drugs with potential commercial application
in a couple of different areas. They have partnerships with
GlaxoSmithKline and they are very prototypical recently
public, initially venture backed small Biotech company. But
what they have that many other Biotech companies don't have
is a developed portfolio where their chemistry platform can
be used for neglected diseases. So they have an advanced
collaboration in human African trypanosomiasis (HAT)
sleeping sickness that's about to bear fruit and payoff.
And the way that they have convinced their board who are a
very typical venture board, very keen on return, very keen
on resource, very keen on the business model that they have
in front of them, the way that they convinced their board is
if we can do this on a cost neutral basis, without
interfering with our commercial platform we can then make a
difference in the world and these areas where it's
desperately needed.
And they have accomplished that through partnership with
non-profit groups such as DNDi, Drugs for Neglected Disease
initiatives and Gates Funding that have allowed them to
reach cost neutrality and the potential care of their
selling point to is to say this will help inform our
chemistry platform, it will read on our technology and
assist us in the development of our commercial products.
Okay, just one last question. Measuring non-profit, success
in a non-profit is always hard, measuring it in some place
like you know BVGH where you trying to create an environment
rather than doing a specific product is even hard, how does
the organization measures success?
We don't do that anymore, we just try to have fun. No, that'
s a joke for Rob who is on my board. I would say Rob, it
depends on the program because for example in the Priority
Review Voucher setting, we measure success by how many
vouchers are issued and how many have been utilized and the
answer to that one quickly is one has been issued and it has
not yet been utilized. And that's tells us that that program
needs more clarity so we are working on that with the FDA to
try to smooth out some of the speed bumps.
In our incentives program which is nascent on the drawing
board the answer will be if we can get traction where to
sponsor the fund the development of point-of-care diagnostic
tool for differential diagnosis of fever which is what that
incentive is about, then that's a huge success right there.
And getting developers to enter a competition to generate
that diagnostic tool will also be a measure of success. But
you are right, we deal on ideas, we are not a development
company per se, we don't have drugs on our pipeline or
diagnostics to be able to measure sales or revenues from.
And it is challenging but with the advent of venture
philanthropy and some of the metrics and techniques that are
now used in our sector generally we think we can track our
progress.
Right, thanks. I am going to open it up to questions in a
few minutes so everybody get ready this is going to be the
audience participation portion of the program in a minute.
While you are thinking of your question I want to prime with
one or two questions for the panel. My first question is, in
the areas that you are working in right now, what are one or
two trends that may not be obvious to the casual observer,
but is really going to impact the field over the next five
to 10 years?
I can actually talk about it. I think having spending that
amount of time that I am spending both in India and in
Africa, fundamentally I would say that the mindset needs to
be changed. In the sense we have always thought about health
care deliver or health care as an economic burden and what
we are not really looking at is actually an opportunity to
create economic activity. And I think that the key here is
to run the healthcare just like the way you would run any
other services that you would do in economics. And so
fundamentally what ReaMetrix is trying to do, is to first
define both affordability and access, and then define what
is the appropriate technology that's going to allow you to
deliver the goods and services within that affordability
index. So if you do it that way and you also do it in a way
that is a compelling economics at the local level, in terms
of value add, in terms of income generations then the people
who make the income generation have the goods to sell, buy
the goods and services you are trying to sell.
I think the concept of micro-financing applied to healthcare
is more or less going to be the new model. 87% of all health
care dollars spent in India comes out of individuals
pockets. So you don't focus on what the third party
reimbursement is, you really think about what is the
discretionary expenditure that they can have and then you
develop the technology to work within those economic
constraints. I think this approach what ReaMetrix is doing
is I think is going to if we are successful in breaking
through all the barriers that we see, I think it will be a
different way to do that. If you can do a diagnostics for
less than $10 who cares where who, what the reimbursement is
and the idea is the technology is there to be able to
deliver that today.
I guess I was going to say, I think there is an economic
squeeze play that's going to happen within the healthcare
industry because of two trends that you are all very much
aware of and that's aging and obesity. These are by far the
most important trends that are going to affect not only
within the developed world but also within developing world
as well. And the reason that these particular trends are
particularly potent is because they are both post
evolutionary and that is that our own mechanisms for
fighting disease don't work very well, because we weren't
designed to have 40% body fat and we weren't designed to
live longer than 25 or 35 years and yet both things are
occurring in rampant increase in our society. And so because
of that the medicines have to actually enter into a biology
they never had to enter into before. So this combined with
the fact that both these trends take people out of the
workforce, which reduces the GDP if you want of the country,
generates this squeezed play because the amount of money a
society is going to spend on healthcare as a percentage of
GDP has to go up with those two trends. And if the amount of
money it's willing to spend as a percentage of GDP is kept
by some reasonable economic number. And all that means is
that pricing power is going to go down for the
pharmaceutical industry and for healthcare in general, which
comes back to I think the issues that both Bala and David
and I were talking about which is efficiency or
effectiveness turns out to be far more important than the
actual cost. You have to be able to show that what you do
truly makes a difference for patients.
In the past, you can get by with minimal benefits. But I
think what you are going to find over the next five to 10
years is that's going to be replace by having to have drugs
and diagnostics that dramatically change the way patients
are managed. We are starting to see this at the FDA now and
this is the part you may not be aware of is for the first
time, in the last year for the first time, the CMS guys,
they are involved in pricing are sitting in with the FDA
guys on product approval. Now they came to those meetings
under a part of the government regulation which allows them
to see non-approved drugs "in order to get the ball rolling
for eventual CMS approval". But I think we should all be
aware that the reason they are there is because one of the
biggest toxicities we are going to see if drug is going
forward is price.
We are seeing this as Genentech with a vast end where there
is a lot of pressure on the company with you guys to how
much it charges for this drug. But this is going to be true
for every pharmaceutical and biotech company and I think
that the companies that can face this head on by being more
efficient in terms of the way they develop drugs and more
efficient in the way they spend money are the ones that are
going to eventually win.
I want to add one comment and the comment that you have
made. In the United States today, there are 65,000 people
who are 100 years or older. The oldest person died at the
age of 114 four weeks ago and those people retired between
the age of 58 to 62. I don't think they ever thought that
they were going to live that long. So to a large extent, we
may need to change the shift of focus in managing patients
instead of focusing on the illness, how do we maintain
wellness. But I think that I always say if I was 30 years
younger, I would focus on how do you use technology to have
people actively engage and productive contribution to
society because all of us have to do that for a long period
of time than we had originally -.
We have fixated on 65, roughly as our retirement age and
when that was put in place in Germany in the mid 1800s the
average lifespan was four years. We only live four years
past our retirement. Now as you point out, the average
lifespan is 20-30 years and it's only getting longer and
longer. And so can a country really afford to have that many
retired people or people not productively contributing to
the GDP? I don't think so. I think we have to go back in
some ways to the way it was even before that where people
just continued to work and the idea of retirement at 65 is
an idea that can't be afforded these days.
I would like to mention a trend that I see coming from
another direction and may be this is a little bit of a
wishful thought but along with globalization and the
integration of world markets and the emerging power of the
brick countries and others comes a desire on the part of
those countries to make lives better for their own people.
And I think that needs addressing the neglected diseases
which affect billions worldwide. Last year, the total global
health spending on neglected diseases was about $3.2
billion. Pfizer alone spent more than double of that in
their R&D and that's not at all a criticism of Pfizer, that'
s simply to say that not nearly enough money is being spent
on neglected disease research.
And it's been too easy to ignore that segment of the
population and of the world. But again, as integration
happens is boundaries blur, as travel increases and as
markets become more attractive even to the US and European
based and Japanese companies, they will have an incentive to
be more interested in solving those local problems in those
countries. They will be more affected by it, they will have
more at stake and there will be more of a reason and again,
I hope that's true.
And let me add two comments. One is leveraging off as
something what James said for the non-MD PhDs in the
audience, but he said in the beginning I have
[inaudible] long side if I can translate is for obesity and
diabetes, doesn't matter. We get those diseases after we
have had children and natural selection doesn't work in
terms of weeding out the weak ones.
[Informal Talk]
So we have a fundamentally different medical problem than we
have ever had before. And the only other comment I would
make is I think particular to the US Healthcare system, one
of the fundamental changes is we cannot forget who are the
gatekeepers to our healthcare. We can't continue to spend
that the rate they we are spending, it doesn't work, it
blows up very quickly. Is it a primary care physician that
is the gatekeeper? Is it the specialist who knows that I had
to treat that disease or is it the payer? And today, it's a
combination and a very awkward combination of all three of
those and I think one of the things we need to do as a
society is to figure out where we are going to make those
decisions, do we go to the English system where a
governmental body makes some of those decisions or we can
afford to spend or do we let it happen in the free market
system. I think it would be a very fascinating thing to
watch over the 10 years.
One of the comments that I want to make is that often you
think of the developing world or the bottom of the pyramid
and you think about it only from a technology innovation
point of view. It is also an opportunity to create new
economic models. For example, you can't go in and talk about
an incentive-based healthcare delivery in this world I mean
I would be driven out of any discussions at any point.
Whereas because so much of healthcare delivery comes out of
pocket, you can begin to think in terms of incentive-based
mechanisms with regard to the cost of healthcare that they
get. And one of the approaches we are looking at in India is
India tremendously, there is a cost, the idea of savings is
so prevalent and India savings rate is north of 20%.
So the idea is instead of similar to credit card score, can
you think in terms of wellness score that the wellness score
actually impacts the amount of savings that they get because
you are simply arbitraging the long-term interest rates
versus short-term interest rates. And if somebody has a very
high wellness score then it's a long-term deposit into their
medical savings account. So essentially used diagnostics as
a way of assessing the risk arbitrage, and on an actuarial
basis, how somebody manages this. And from a banking point
of view, from an insurance point of view, this is the well-
established practice but those kinds of concepts cannot be
applied in the healthcare context.
And a place like the developing world may actually be
wonderful incubation areas to try these different business
models and once we, they work over there, we can bring them
back over here.
They can teach us.
It's a very interesting idea. It would be interesting to see
if it develops where diagnostics for prevention become more
prevalent there whereas here the diagnostics are really more
of treatment decisions.
Yeah. And in fact, I will go one step further than that and
well I talked about managing old age, and I would say today,
we have the technology by which we can actually proactively
warn person living by themselves saying something the way in
which they walk and the way they face looks when they go
shave in front of the mirror. You can actually be proactive
in saying from a preventative point of view rather than
waiting for the clinical symptoms to develop. I think we
need to take a different approach to maintenance of wellness
rather than just focusing on illness.
And I think technology is going to have a role to play
there. It's a simple equation of calories in versus calories
out and I have got a tool that tells me every text my
children send to me everyday, but I don't have a tool that
says how many calories do I burn by walking around and
exercising and running the dog and what I ate. And if those
tools are close they are not quite here yet, but I look at
the menus and say this is 600 calories or 700 I mean if you
have the data, I fundamentally believe you will change your
behavior. We don't have the data today and I think that's
where technology will help us.
Then there is a program in Stanford called Stepped up
Steptastic with Accenture that they have a program in which
that you actually get a parameter. And then depending on how
many steps you take if you are a platinum, gold or so on,
and then the points you win are actually used to play a game
in which you win dollars. So there is a fantastic program I
think it comes out of the computer science program. And so I
think the tools are there to be able to do that.
So I have to put a pitch in here for our company on the
board I would call HopeLab which has just spun out a company
called Zamzee which is doing exactly the thing and same
thing. Zamzee is parameter that you give to kids. And if the
kids run around they get points within the parameter
downloads that download on their computer and allows them to
go further levels on a game. So this is not money, these are
kids so what they are actually doing is going to the next
level. It's kind of Farmville but in order to get further on
you have to walk around. They did a clinical trial with
children between the ages of eight and 14, all of them
obese, all with BMIs over 30. So these are reasonably obese
kids. They all increased their amount of walking or running
to be equivalent of one marathon per month based on Zamzee
and they loved it. And so here is a device to go back to
what David is saying and you are mentioning to Stanford and
this is simple device. I mean these things are in every
iPhone that allows you to measure that and people are
changing that behavior. I think in some ways that's going to
be more for health than any type of medication we can come
up with for obesity or as an exercise by medic
pharmaceutical.
Professor Chess, thank you. Thank you for your comments
which come from I guess lot of experience and looking at it
from the other end of the tunnel. I think there are some of
us here who are this end of the tunnel thinking of starting
enterprises building a company. And I have a particular
question in the diagnostic sphere and we had a speaker early
on from Fortis I think who talked about making medicine
available to all, and some of us, we are trying to do that
in cancer diagnostic and we want to deal with data, patient
data. And we have a choice to make at this stage as to
whether we go in and try to see cooperation with established
big medical device companies who are very proprietary about
the data they keep or build something ourselves and take the
risk that it will not be adopted that the layers and layers
of purchases within the system, we will have to persuade to
get it adopted. And as a starting company, as a nascent
company, how do you think about this? I mean do really bite
the bullet and go down partnerships with the GEs and the
Siemens of this world or do you stick it out in try and
create something that you think is really good and take the
risk that it will never be adopted? And probably, David and
James, you may have thought about this in your views and if
you could just give us some guidance on that.
Yeah I guess everybody is to have something to try on this
one.
I can chime in, data and the clinical samples that you use
which is the raw materials of the development of diagnostic
are absolutely the most important decision you will probably
make in the life of the company. And our philosophy has been
go out and find if those samples with the clinical data
already exist but be prepared for the chance that it's very
unlikely that they will be in exactly the same form you want
with all the clinical data. So there is a hybrid approach
that we took which I think this worked for us which is, we
went and found a couple of small courts of patients that
gave us some early looks at the science and the data to see
whether directionally we were correct.
But once we got that Proof of Concept to some extent we had
to do it all ourselves because we could never collect
exactly the right patients with all the right clinical data
and samples handled properly. And even if all of that
existed in a large pharma or medical device company as you
had pointed out, their reluctance to share it with you is
very-very high. And so I think you should try going down
that path because it's lot cheaper but I think you should
prepare with a backup plan for doing it yourself because the
chance of success there is going to be low.
I think since I have been down this path over the last 35
years and six companies, each one of them went to a certain
point and I believe in evolution in the sense, either you
will be eating or you eat so unfortunately in the all
companies that I started they went public and then be eaten,
or they were eaten before they went public. So to a large
extent, I really believe that in the space that we are
really talking about two points that I want to make. One is
we always think in terms of the data has to come from here.
Biggest revelation that I had was in the last company before
ReaMetrix that I did in Silicon Valley, it took me six
months to collect data on CD4 counts on *** patients. It
takes me two weeks in India to collect the same amount of
data and the cost of collecting data is very different.
So I think often times we do Ken Mauldin who used to be the
dean of the School of Medicine here, he used to say, you
look for lost key under the light and so true in medicine.
We tend to be operating where we already have intimation.
Sometimes putting yourself into a different situation opens
up opportunities. So I think in trying to address the
questions that you ask, I would say that may be the pathways
that we have followed in the last three decades may not be
the pathway that's going to work for the next decade and we
need to think out of the box of how do we go about doing
this.
I have one comment to make. I think within - I can speak of
the therapeutic area. It's really clear that the most common
way companies in therapeutic areas fail is because the drugs
don't work, it's attrition. 9% of molecules that start into
development make it on to the market, that's a remarkably
low number. And so everything that one does as a CEO of a
company in therapeutic should be to increase that
probability. If you can raise enough money, you can do
proper clinical development with companion diagnostics I
would recommend companies do it on their own and partner as
late as possible. It gives you control, you maximize the
value, it's your baby. On the other hand, these days you
can't do that and so forming partnerships early on is the
only way not to erode that probability of success because if
you start cutting corners in discovery and in development, I
will guarantee you the probability is going to go down. And
if it starts going down any further than 9%, you have got a
business that just by the end of statistics is very unlikely
to work.
So kind of a non-traditional point of view on this would be
and may be I didn't understand the question fully but I
think the first question you ask yourself is what do you
want to do because if you are out to make money then
everything that's been said is exactly right, and even if
you are not out to make money what's been said is right
because you do have to validate the date.
[Informal Talk]
Where I am headed is if you think about PLoS for example, is
an open source literature kind of resource. So the basic
question is do you want to make revenue or not? If at some
point, you don't care about that or your backers don't care
about that, then you might explore different kinds of
models. So there is a company called Napo Pharmaceuticals
for example, and they are a little bit of a hybrid. They are
developing a drug for age related diarrhea. And the way that
they went about their partnering program, they definitely
have partners and they definitely are for-profit entity. But
they signed up their global health partners first in China
and in India, and then they found their commercial partner
for US and Europe. Now, that is definitely an out stream
approach but it was an approach that the board was willing
to back because they felt that global health need was so
great and that was actually their priority. So there might
be more than one way of thinking about it from a modular
point of view but certainly any sort of revenue driven, exit
strategy, type of model involves everything that's been
said. But if you are a little more open to non-revenue or
exist, you might consider some of these other ideas.
Thank you for joining us at the conference today. I wanted
to ask given how hard it is to get drugs approved and part
of the reason is navigating the FDA and some of the
regulatory approval processes, do you think that US is bound
to lose its leadership position in medical innovation? And
what I mean is in developing game changing innovative
therapies that are often the most expensive to develop, and
if so, what do you think, what do you propose those
solutions to prevent this loss in leadership?
Somebody asked that question, no is the answer. We are not
going to lose our leadership position. In fact, most of the
pharmaceutical companies are placing their research and
development units in the United States from other countries
because of the clarity that they have that the best science
is going on right now is in the United States by a long
shot. Now I think that both China and India are ramping up
but in terms of true innovative science that has generated
medicines, they are way behind us and I think we should make
that clear. To view your question about the FDA, the
probability that a drug it's approved by the FDA once a new
drug application is been put in front of them is about 80%
right now.
So there is a lot of crinkle paper and a lot of crinkle
psyches around the FDA in our industry and I think that it's
time that we combine our discussion with the FDA with some
inward looking about what kind of drugs we are making. And
in fact, the best way to get a drug approving FDA is to give
them data that either increases survival or increases the
quality of life of a patient with the disease. If you do
that, the FDA will approve your drug. They are not likely to
not approve it at this point because of price certainly. But
the discussion becomes one of what is the amount of benefit
that they are willing to pay for and that I think is going
to be, is going to continue to be a discussion with them.
But I think the main issue in our industry and most of the
failures that occur, occur for scientific reasons before we
are able to get to the FDA and the reason for that is
because we don't understand enough biology, frankly. And the
more biology we understand, and the better we are about
being able to use our biological understanding with
diagnostics to choose who responds to a drug, the better
drugs are going to be put in front of the FDA. I think the
FDA is going to do what is always being done since its
inception in the 1930s and it's going to swing with
political pressures one way or the other. And there are
things it does that I don't agree with, and I can give you
some specific examples if you wish. But on the other hand, I
think the larger level we can pull is actually building
better drugs.
But James, did the political borders matter anymore?
Genentech being a great example I think 13 straight phase
three trials to succeed that in work, South Francisco based
owned by Swiss company. I mean does it matter where you are
domiciled anymore?
It doesn't matter where you domiciled, what matters is where
the scientists are and so my point that the United States is
going to play this important role in Research & Development
is because most of the good Research & Development in the
pharmaceutical factory is occurring within the boundaries of
this country. Novartis had decided to move all of its
research to Boston, has very little left in Basel although,
it's a Basel based company. Roche has decided to focus its
energies in Research & Development in California and in
Basel as well as putting in a major effort in Shanghai but
frankly, the capacity what we are doing here it's a drop in
the bucket.
You know James, I do support what you said. I would actually
put the biggest source is not the pharmaceutical company
setting up that research facilities. It's the $20 billion to
$30 billion NIH funding because that's where the seed corn
comes from and there is no other country that can compete
even remotely closely, the generation of the seed corn that
leads to, I mean pharma companies actually spend more
dollars on D not in R and I think it's very important to
recognize that in the rest of the world the Seed Corn comes
from R&D funding, from the government in the United States,
whether it's neglected diseases or advanced diseases or
that's where the source of information is.
I am probably more concerned that Americans
[inaudible] in medicine as much as they were before. The
good news is that people who are investor, they are coming
here at least for sometime.
Just need to make it little easier for them.
Yes, very much so.
I wanted to ask a question about personalized medicine. When
do you think you will see genomic information being
innovated into Electronic Medical Records? And if obviously
it's not there now but when do you think that might happen?
And what is it going to take for that transition to happen
where it becomes actionable for providers?
I will think the first, I mean another way to ask the
question is when are we going to have Electronic Medical
Records, I mean when is the health care system going to
generate the kinds of the efficiencies that the rest of us
do in managing our music. Palo Alto Medical Foundation,
middle of Silicon Valley well funded they were late to the
game on the middle of the record. I think it's a long way to
go but I think the key question you ask is when is it
actionable. And that's why I challenged with some of the
personalized medicine models that are more on the consumer
side 23andMe and Navigenics know those folks well. I know I
should exercise more, I know I should eat better, getting a
genetic test isn't going to change my behavior. So I think
it all has to be around the actionable piece. And then we
are focused on and it's personalized medicine is you
shouldn't think about as a block buster, we are not going to
have everybody do everything simultaneously.
It's very much taking million patient populations and
cutting them down into a 100,000 or 200,000 patient
populations that I will treat this 100,000 differently than
this 100,000 and this 100,000. So it's going to be brick-by-
brick, I think it's going to be very evolutionary and not
revolutionarily, genomic health being one but I think there
are going to be lots of little niches and we are going to
turn around some days and say boy, we really are in the age
of personalized medicine even though it never get us over
that.
Mike, the answer to your question is I think having been
part of genomics companies since long, I think we tend to
always think of in a very narrow sense. The way that I think
it's important to look at disease is a process, disease is
not a state and that it is important not only to know
whether the process onset as occurred, but where you are in
that process. My own sense is that it is not going to be
just genomic data, it may be proteins, it may be the
metabolic parameters that you have to make measurements at
multiple level to not just look for your previous position
for getting the disease or even the onset of the disease,
but actually now where you are, so that treatment process is
that one would undertake would be very, very different.
The way we look at diagnostics have to fundamentally change,
it has to be thought of as the instrumentation in a
petrochemical industry. You don't just go and look at the
raw material going into the factory, but you are monitoring
at various stages. And I think if we take it from that point
of view in my context, the personalized medicine is really
about where are you in the process, what is the right course
of treatment that with which you are going to impact that
process.
Let me add to Bala statement, I think it's a fundamentally
different way that we can think about our healthcare. We
tend to think about our healthcare like we think about our
automobile. We run into something breaks, we take it to the
shop they take that part out and they put it a new one and
we run it again till it breaks. That's the way we think
about healthcare.
You are exactly right, we need to monitor everyday how well
is the engine working, is one cylinder not working and that'
s sort of personalized medicine is, is monitoring that on a
very frequent basis to be able to see the trends and not
wait till something breaks.
And the only way that's going to happen is we get off this
third party reimbursement for diagnostics and really make it
such a way that when you are actually monitoring the
functionality of the car, you are not asking whether or not
your insurance is going to pay for it. And you do it because
that makes sense for you and I think that's where the
affordability that is going to drive the delivery of the
healthcare.
I think, so I agree with what they have said, so there is
going to be a kind of diagnostics that relates to defining
your clinical state or defining your physiological state,
which is really what you are talking about. There is another
part of diagnostics it's already happening, it's happening
both at a protein level and a genomic level and that is in
order to predict who is going to get the drugs. So a drug
that Genentech and Roche are working on from Plexxikon which
is not for malignant melanoma only works if you have a
mutation at residue 600 of a protein that drives that
cancer.
If you have that V600E mutation you get the drug and it does
dramatic things for you. If you don't have a mutation it's a
useless drug. So in that sense those tumors are going to be
genomically "characterized" because you are going to be
looking at DNA. In fact I think the future is there is going
to be no drug without a test for it. So we are going to lose
our about therapeutic in the absence of a diagnostic. They
are going to be flip sides of the same coin which really
changes the way we think about diagnostics. We think about
diagnostics now as an yield to a therapeutic, as a different
form of diagnostics. In addition to what you are talking
about which are those diagnostics which will allow you to
more effectively monitor the clinical and physiological
state.
Thanks. You guys have touched a little bit on the
misalignment of incentives in our system. So I am wondering
how you plan to address some of the misalignment with the
doctors, especially around diagnostics they will be seeing
patients less and possibly having less revenue from imaging
and whatnot.
That one was sort of pointed to me so I will take it first.
So it's a fascinating question, we provided test to
clinicians, the way they don't make any money on, so they
don't get any fee for either ordering the test or
interpreting the test. So it's like prescribing a drug for
them. And yet we are competing against a technology and a
process and a procedure imaging that they do make money on.
So you can imagine that our sales and marketing focus is
different for those folks that make money on Imaging and
those that don't. It's interesting the first customer we had
was a guy that runs at a very large imaging center in
Phoenix. And the reason he was our first and in some
respects our best customer is he understands the limitations
of imaging.
So what we were trying to do and it gets back to the
personalized medicine question, genomic and genetic
information shouldn't be treated any differently than
everything else you know about this patient. And so I think
about this as all of these things need to go into the
combined knowledge of that physician has for that patient.
And all we are saying is there are lots of times when
imaging may not be the right first step or second step, use
something else first and we have got to convince the
physician that that's better patient care. And I
fundamentally convince them it's better patient care they
will put their economics aside. They maybe na?ve but
What if eventually we started paying for performance, I mean
I think that in the end which is eventually going to go to a
situation. And this is going to be and I am big believer,
this should be true for pharmaceuticals as well. If the drug
works you pay us, if it doesn't you don't. Now you have to
get really confident about your drugs in order to do that.
And as a physician you will have to get really confident
about your ability to perform care. But if you really want
to align incentives half the physicians get paid for how
well the patients do.
Again the example of that I talked about in the device world
particularly is incredible to fibrillates beautiful elegant
devices but we don't know who to put them in and they only
firing about 20% to 25% of the patient we put them in. I was
talking to the senior folks at Medtronic in Guidant in
Boston and they are all trying to eke out another half of
percent market share because the devices were all
essentially the same. And I said I can tell you how to get a
100% market share tomorrow and they obviously didn't believe
me and I said here, James, said don't be paid, go to CMS and
say don't pay me when the device is put in pay me when it
fires, and you will have a 100% market share tomorrow. They
didn't take me up on that.
Eventually, I think it's going to have to happen by the way
I think economically we don't have any choice, I went to
this I am going to have to align that way and this goes back
to the issue about preventive medicine, about exercise etc.
And Electronic Medical Records so that we can define what
success is.
I would say another fundamental change in our philosophy I
have to change is somehow we are willing to assign the
probability with regard to the way we cross the street. When
it comes to medicine we want to be deterministic. And in
fact if we actually look at the way medicine got practice,
150 years ago physicians made the decision based on
observation. The error bar was very large and the role of
diagnostics was to continue to provide information to
minimize that error bar. To assume that we are going to
eliminate that error bar if you believe that I own a piece
of Golden Gate Bridge, I can sell that to you because I
think we are in a mindset, we think in terms of everything
to be 100% certain, in fact the FDA problem is really about
not understanding biostatistics.
In clinical trials when you actually think about it, 30% is
placebo effect. And in fact in India the placebo effect is
greater than 50%. So you are really talking about affecting
a small percentage of people one way or the other. And even
in diagnostics we need to be cognizant of the fact that what
we are providing the information we are providing is we are
increasing the probability, that the decision being made is
the right decision. And so that's a very fundamental
different approach to looking at managing patients.
If you haven't figured it out yet, if you want to go into
healthcare do it because there are so many problems to solve
you will find one to solve, let's go back.
[Informal Talk]
James you mentioned earlier about innovation continuing to
occur in the US and various members of the panel supported
that assertion that we still continued to be the leader and
will continue to be the leader. And then you also made a
point about cost being a larger consideration now, which is
certainly true you see examples like the CMS and the FDA
sharing more data now. And so I would like to get some sense
for how you see the course of innovation changing and I ask
that because one example that I see is larger emphasis on
the "D" rather than the "R" with say branded generics for
example. And so I would like to get a sense of what your
take on that would be. Thank you.
I think as this economic squeeze starts to happen innovation
becomes more powerful, because it's the only thing that will
retain pricing power. There is no reason we should have "me-
too drugs". I am going to say that, I don't think, I think "
me-too drugs" are an expense the society can't afford. Why
should we spend millions of dollars to build that are
fundamentally identical drugs that already exist? Why don't
we, in reality have a discussion about what the prices
should be for drugs that exist? I would rather that money
gets spend on new drugs for new diseases than on simply
replicating what we already have. The reason people go to "
me-too drugs" is because they are attached to the thought
that "me-too drugs" are less risky, which they are. At least
less risky to get onto the marketplace, but are the less
risk ones they get there? That's a decision of our society
has to make.
So I am a big believer that innovation has been important
and it's going to get even vastly more important over time
as the economic squeeze occurs and this pricing power for
generics and this pricing power for even drugs that have
minimal effect continues to collapse.
Where do you see that, do you still see innovation happening
at the "R" stage then I mean do you see?
Absolutely, R&D I mean development, we have to realize in
the pharmaceutical industry development and research are
very closely in yield to one another in the best of
companies. Because development is really that which occurs
after you have identified your candidates. And there are
some scientific questions as well as eventually some
economic questions you are trying to answer in development.
So the companies that are really good at this, the
scientists and the developers are talking to one another
constantly as the drug is going through, it's pre-market
phase before it makes it onto the market. I think they will
continue to be for those companies that will succeed, a
continued significant expense 20% to 25% of revenue being
spent on R&D.
I think there is also a couple of trends here to keep in
mind and one is that, these things tend to happen in cycles
too. So undoubtedly we are in a trough, we have been in
troughs before as an industry and we will be again which
also it means as Greenspan used to say I know rates will go
up, I know they will fall, I know they will stay steady I
just can't tell you when. So we will have a surge in
innovation, a surge in productive research and the fact of
the Human Genome Efforts that there will be surges in
different areas, I think that's probably clear targeted
medicine, targeted therapies, the combination of diagnostics
with therapeutics. So there will be different areas of
innovation. The days of the blockbuster are not gone but
there are certainly far more limited. So from a business
model point of view certainly if a larger company level
that's why Pfizer is talking about breaking itself down so
that their investor expectations are reduced and that's why
Amgen is paying a dividend so that they can get another
class of investors to pay attention.
But fundamentally I mean I agree with everything that's been
set up here in terms of the capacity for innovation, the
drive for it, the need for it, the demand for it, because
the demand is coming from out there. It's not demand that's
internal within the companies, I mean that happens but it
happens because it's driven by an insatiable appetite by our
country and our colleague countries for constantly improved
healthcare. And that's not going to go away.
We always think about innovation happening in isolation.
There is always an enabling technology, whether we talk
about genomics it's a sequencing, that brought on the cons.
It's almost like it's the microscope that brought in the
concept of antibiotics and things of that nature. So there
needs to be an enabling technology and the way that I see is
that from an embryonic cell related technologies for example
GE Healthcare today is actually taking embryonic stem cells
and converting them to hepatocytes and cardiomyocytes so
that we can begin to do screening at a human cell level
rather than the surrogate animal models or in V-12 targets
that we have used. So there is always some new enabling
technology that allows somebody to look at the same problem
with the different light. And the trough that you are
talking about is that when we exhaust that, new innovation
begins to come in. So the way that I look at is that some of
the cell based technologies is going to be the foundation on
which the new innovation, a new ways of doing things is
going to happen this way.
[Informal Talk]
Thank you all for being here. My question is mainly to Don
but may be James can chime into this too. One big difference
with biotech drugs is that yeah they have been coming along,
great innovation but they are expensive to make, to produce
to manufacture and to pull that in order to get them cheaper
the ideas are with biosimilars, but there is a lot of push
and pull going on with the biotechnology companies, with
biosimilars they are not really similar they are one of the
same drug, you cannot get them approved and so forth. So how
do you get these biotech drugs that are expensive now,
cheaper so that more people in the world can use them and
it's available to them?
I think Bala answered that, I think that answer is it's the
next level of innovation that will allow the fermentation
and culturing and purification and production to scale other
biologic product as opposed to a little white pill that's
made chemically. We may not have that capability right now
and in fact that is a big challenge for the delivery of
biologics into the developing world. But again I am
confident that there will be a next level of innovation that
will facilitate that because it's everyone selfish interest
to do that in additional to their altruistic interest to do
that.
I sit on the board of Biocon which is a very large company
with whom that it's partnering with all the major companies
Pfizer, Mylan etc. And what I see there is that if those
companies are no longer just looking at Biocon is the place
where you can make inexpensive biosimilars. But more
importantly use that relationships, it's almost like ask a
Kennedy's type question, what can you do with this
relationship that you could not do before. So I think
innovation is going to be occurring across global, we live
in a global village there are no geographic boundaries. And
they are going to be the catalyst that's going to bring in
the new ways of looking at developing things differently,
executing on development programs differently to make them
affordable.
The other thing that there is plenty of room for innovation
for us beyond the biologic production techniques itself and
for example there is a drug called amphotericin b, that's
effective in treating leishmaniasis with a single dose as
opposed to a 30 to 45 day course of treatment that some of
the other drugs require. Well ampho B is a liposomal
delivery which is pretty complicated but they figured out
how to get it and put in a cold pack on the back of the
motorcycle. So that
[inaudible] you know about this problem. So it can be
transported into some of the remote villages in India, so
it's not just sometimes the production techniques itself it'
s how do we think about the value chain, how do we think
about delivering, what does Coke do to get Coca Cola into
the most remote village you would ever find in Africa or
Asia. And what can we learn from that how can we think
outside the box there. So there is room for that as well.
Just make one comment, the reason that the drugs are
expensive is not because they are expensive to manufacture.
And that's true for biologics as well as small molecules.
Biologics are more expensive, manufactured in small
molecules but the real reason is because the, right now it
costs us about $1.8 billion to put a drug on to the market.
It's not $800 million the way the test study suggested it
was number of decades ago. It's probably more like $1.8
billion, and then some studies I think that number may be as
great as $3.5 billion. So the reason that drugs were
expensive is because the attrition rate is so high.
It turns out that for biologics the attrition rate is half
that of the attrition rate of small molecules. So in reality
it's much cheaper to develop and sell biologic for most of
the lifecycle that product then it is a small molecule. The
answer to your question about how to make them more
expensive, the most powerful ways to increase the likelihood
that it's going to succeed in development.
Let me offer just one more thought on that too and there is
another way to come at the problem completely, which is to
provide other sources of support and incentives. So on
things like the Advanced Market Commitment a pre-arranged
volume purchased commitment on the part of funding
governments. So that companies who are producing the vaccine
in question will actually do it, Priority Review Vouchers
that some of the other incentives, support coming through
Gabi or the airline tax that pays to help reduce these
costs. And the bigger thing on that to me is that this is a
multilateral problem. This is not a problem that the drug
companies can solve or should be asked to solve on their
own. That's not rational, it's not reasonably fair. So there
has to be a multilateral approach to this and again I come
back to the fact that the global health spending in its
entirety it is a tiny sliver of what's spent on for-profit
R&D sector and there needs to be more support from
governments and other agencies.
Thank you. Well this brings us to the end of the panel and
actually to the end of the conference today. I hope you have
all enjoyed being here at Stanford. This has been a
fascinating day. And I want to think our panel. I think they
have kept it off with everything from drug pricing, science
innovation, the role of the US to evolution in Darwin. So
thank you very much.