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America leads in biopharmaceutical innovation and drug development, in large part due to effective life-science policies, including significant federal investment in basic research, robust intellectual property protections, effective technology transfer policies, investment incentives, and, importantly, drug pricing policies that enable companies to invest in high-risk drug development. Rob and Jackie talk about conducive environments for biopharmaceutical startups—and what the federal government can do to maintain U.S. competitiveness—with Josh Bilenker, CEO of Loxo Oncology at Lilly.
- Robert D. Atkinson, “Why Life-Sciences Innovation Is Politically “Purple”— and How Partisans Get It Wrong” (ITIF, February 2016).
- Stephen Ezell, “Ensuring U.S. Biopharmaceutical Competitiveness” (ITIF, July 2020).
- Stephen Ezell, et al., “The Critical Role of Biopharmaceutical Startups in Driving Life Sciences Innovation,” ITIF webinar, July 16, 2020.
- Joe Kennedy, “The Link Between Drug Prices and Research on the Next Generation of Cures” (ITIF, September 2019).
Rob Atkinson: Welcome to Innovation Files. I’m Rob Atkinson, founder and president of the Information Technology and Innovation Foundation. We’re a DC based think tank that works on technology policy.
Jackie Whisman: And I’m Jackie Whisman. I handle outreach at ITIF, which I’m proud to say is the world’s top ranked think tank for science and technology policy.
Rob Atkinson: And this podcast is about the kinds of issues we cover at ITIF from the broad economics of innovation to specific policy and regulatory questions about new technology. And today we’re going to talk about a critical area of innovation, biopharma innovation.
Jackie Whisman: All right, this is my favorite topic. So, let’s just get right to our guest. Josh Bilenker is founder and CEO of Loxo Oncology, a cancer focused biotechnology company that was acquired by Eli Lilly in 2019. Prior to founding Loxo, he spent eight years in Venture Capital in New York, was a medical officer at the FDA, and a resident fellow at U Penn hospital. Thanks for being here, Josh, I’m excited.
Josh Bilenker: Me too.
Jackie Whisman: So, most people have heard of Eli Lilly. It’s one of the largest pharmaceutical companies in the U.S. but can you tell us a little bit about Loxo?
Josh Bilenker: Loxo Oncology started as a small company based in Stanford, Connecticut, that focused on certain genetic drivers of cancer, such that we could identify subsets of cancers—lung, breast, thyroid—some of the big ones and some of the smaller ones and identify that certain gene that went wrong in the cell to make it become a cancer cell. And we built very specific medicines that were designed to inhibit these pathways gone awry.
One of our drugs is approved in a tissue agnostic fashion, meaning the side of the body is not even named in the FDA label. Rather, the genetic alteration that drives the cancer is. And so, we treat over 20 different cancer types with this one drug albeit very small subsets of each cancer. And then we have a second drug that was approved for the use in lung and thyroid cancer, but again, only the subsets where the certain gene had gone awry.
Rob Atkinson: So, I looked on your website and you have a list of drugs that are either... I think there’s one approved in a number of different stages of development, and many of them were inhibitors. Can you explain to the listener, they’re different kinds of inhibitors, what is an inhibitor of the kind you’re doing? How does it work? Why that as opposed to traditional chemotherapy, which bombards the cells and kills good and bad cells?
Josh Bilenker: The two drugs that are approved now inhibit a category of proteins called kineses, which involve signaling within the cell. Basically, the cell is sampling from its environment and deciding what genes to turn on or when to divide or grow, and in cancers, they’re doing all of that too much. And so, we’ve identified in these two instances, specific nodes in the cell, these kinase proteins that are always in the on position, when in a normal cell, they’re more tightly regulated. And so, since they’re always on in the cancer cell, but really don’t do much in the normal adult host, we can go in with a drug that inhibits, shuts it down so it’s always in the opposition and in so doing, the cancer cell shuts down and self-destructs.
Rob Atkinson: That’s amazing. It really is amazing. Again, 20, 30 years ago, these just weren’t in the quiver, if you will, in terms of the kinds of treatments. What do you think has been the big technological enablers of that? Clearly the ability to analyze genes relatively cheaply has got to be one of them, but are there other things that have really made that possible?
Josh Bilenker: Yeah, so you named one of the two I was going to name. So, the genetic analysis of human disease with genomic testing in cancer, that’s looking at cancer cell, but it’s also relevant to other non-oncology diseases. So, knowing the molecular mechanism of disease is essential to building a rational drug against it. And when we really understand root cause is when we can really do exciting things therapeutically.
So, the diagnostic piece unlocking the underlying root cause is really, really huge. The second is, is that chemists and protein engineers have gotten a lot better at their jobs. So, they’re able to build these very specific tools that do one function and leave the rest of human anatomy alone. So, that creates what we call a very wide therapeutic index. In other words, the dose that treats the disease is way, way different than a dose that would cause toxicity. So, you’re able to really, really inhibit the biology without causing too much toxicity because of the engineering of the actual drug.
Rob Atkinson: You know, there’s a great quote by the science fiction writer, Arthur C. Clark, where he said, “Any advanced technology is indistinguishable from magic.” And that’s how I think about what you’re doing there. How do you develop a chemical that does that? I mean, that to me, that’s magic.
Jackie Whisman: Especially as a startup.
Rob Atkinson: It’s incredible.
Josh Bilenker: I agree. It’s amazing that the university even allows it. If you drew one of the molecules of our drugs on a chalkboard, you would see a ring structure with some carbons and some hydrogens and nitrogen’s at times. And if you walked by a college chemistry class and looked on the blackboard, you’re like, oh, they’re studying organic chemistry. But it’s amazing. Single atom changes in these small molecules that can have very radically different effects in the body, both good and bad. And we now have the ability to engineer these molecules to do what we want them to do, and hopefully avoid what we don’t. And this invokes new technologies like crystallography and computing power and imaging, and of course, the chemistry itself. It’s fascinating that it works.
Rob Atkinson: Wow.
Jackie Whisman: I do want to make sure we talk about Loxo Oncology as a startup, because I think it’s just such an interesting part of your story. And Loxo was based in Connecticut where there’s a concentration of capital, but maybe not a huge concentration of life sciences companies, at least that I know of. And I’m curious why Connecticut, and are there particular regions in the country that offer better ecosystems for these sorts of startups than others? I’d love to pick your brain about that a little.
Josh Bilenker: Sure. The simple answer about Connecticut was its where I lived when I was commuting into New York City for a different job. And Loxo was born from a single desk in a high rise in midtown Manhattan, when I was working for a Venture Capital firm there. And it was originally a semi virtual company and that we were able to do invention with many partners in many different geographies. We had a key partnership with a company in Boulder, Colorado, but we also worked with toxicology facilities in Asia. We worked with synthetic chemists in Asia, India, Europe, everywhere. And so, it was possible to do science at large, so to speak. And so, much of that has been enabled by the globalization of our economy, we did a lot of work locally as well.
But you raised the question of the ecosystem and biotech and what makes the ecosystem. And there is this contribution of capital. There’s usually some proximity to a set of research institutions, universities often, and there’s usually access to a labor pool. In Connecticut, we have a mix of that, but I wouldn’t call it a hotbed of biotech yet, certainly. Boston is what comes to people’s mind now.
And so, there are pros and cons of being in a second market. When you do get your talent, I think talent is the biggest challenge because we did have some homegrown talent in New Jersey from the large pharma universe, and we had some talent in the Yale New Haven axis. Companies like Pfizer and Bristol Myers Squibb were up there. And we had a couple of innovation companies in Westchester County, New York, like Regeneron. And so, we were able to draw from these different companies and training grounds, but when we got people, they stayed, there was not a revolving door of new job opportunities that were trying to lure them away every week. And I hear from colleagues in Boston, that’s a big problem.
Jackie Whisman: Interesting.
Rob Atkinson: So, one of the big challenges in biopharma policy, or how Washington looks at this question, is that it’s easy to focus on the big, short term challenge or the challenge of today, which is high drug prices. Front page of the Washington Post had a story today about that. But at the same time, it’s easy to overlook the longer-term promises from innovative drug development. And that was, I think, made easier, or made harder, I should say, because there was a slowdown in new drug approval by the FDA from say around the early 2000’s to the mid 2010’s.
But now when you look at new drug approval rates from the FDA, they’ve actually rebounded significantly. And in the last five, six, seven years, they’re doing quite well. And in part, I think, Josh, it’s because you talked about some of the new technologies you’re able to use, and those are lots of companies now can use those and other technologies to really speed up that process. So, we hear about new innovations like gene editing, genomics, you mentioned others, AI and drug development, nanotechnology, crystallography. It’s still really hard to do this, but do you think we’ve maybe turned a corner, and are you optimistic about the future of drug development over the next 10 or 20 years?
Josh Bilenker: I’m very optimistic. I mean, the last five, six years of innovation have outpaced the prior 20 years combined. It’s really been dramatic and unavoidable. This molecular understanding of disease. The medicines have gotten better. That is the reason I think for a lot of these new chemical entity approvals from the FDA. I also think policymakers have gotten much more consistent in their regulatory advice. And when you think about the investing landscape, it’s a long lead time behavior. People are risking capital on day one, not knowing whether that risk will be paid off seven to 10 years later. And so, if there’s regulatory uncertainty, the whole system shuts down.
And I think historically, there had been some difficult to interpret guidance in areas such as anti-infectives around the non-inferiority trial design, and I think there were some things that put a chill on certain sub-sectors of innovation and both investors, financial and internal at companies would look and say, “You know, I just can’t get my head around that risk return. I can’t handle the uncertainty.” And I think the regulatory science has advanced as well.
Rob Atkinson: This is a good segue into the next question I want to ask. ITIF has written extensively on biopharma policy, on the U.S. life sciences ecosystem, including a recent report, looking at the competitiveness of the U.S. in this sector. And it really is a success story. 30 years ago, the Europeans had more new drugs every year than we did, and now it’s just exactly the opposite. And you have a lot of European firms now moving to the U.S. establishing laboratories and production facilities because the U.S. environment, it’s frankly the best environment in the world right now. Obviously Lilly is a leader there, but you talked a little bit about regulatory improvements, maybe you can say more about that, but also, are there other key factors that have enabled the U.S. to turn this around, to become the global leader in drug development?
Josh Bilenker: Yeah, I think it’s a multifactorial success story. The NIH, there’s nothing like the NIH or the National Cancer Institute globally, and these entities fund and train a wellspring of talent and ideas. They put money into the university system, and I’d argue also a second point that our university system at its highest tiers is unmatched in the world. And so, there’s this confluence of government and university innovation at the basic science route level where we understand maybe not the most actionable insights initially, but the basic groundwork of what become translated into medicines later. So, we have that public private partnership that starts with the NIH and university system, then we have a robust financial system, Wall Street, the Venture Capital community, the mutual fund industry put to work billions and billions of dollars of capital every year in at-risk trial environments, at-risk drug discovery environments.
And what we do is very expensive with a high failure rates still, despite all our successes. So, that’s a third variable. We have this amazing capital market system here. And then fourth, the payer system that we have is very inclusive of innovation still, despite some of the deserved controversy it brings, despite the undue cost to patients out of pocket, which I believe is its own policy issue on top of the drug pricing issue. But the payer system that we have does reward those success stories in a way that no other geography in the world does. And again, investors need to see that payoff if they’re going to be asked to risk the billions of dollars upfront.
And then you throw onto that American spirit of innovation and risk-taking, and translational thinking across disciplines, and that’s why we do it. And if you go to a medical meeting, go to the largest cancer meetings in the world every year, they’re both here, American Academy of Cancer Research and ASCO. It’s an American story every year. And yes, there’s an international component. Yes, it’s getting more competitive, but it should make us all proud as Americans to just see just the return on that 50-year investment we’ve made in life sciences.
Jackie Whisman: We also released a report a few years ago, “Why Life Sciences Is Politically Purple and How Partisans Get It Wrong.” And we wrote then and believe strongly still that America’s success in discovering and developing drugs depends on the twin pillars of federal support for scientific research and a strong IP and reimbursement system that promotes private sector innovation. So, sort of what you were getting to as well. Do you think that’s the right take?
Josh Bilenker: Absolutely. I think it’s unfortunate that the drug pricing debate, which is one we need to have, and needs to be linked to the patient copay debate. It’s unfortunate that it’s become an either or, framed argument. It’s a false choice in my opinion. I think we can have rational drug pricing policy and still reward the innovation that recognizes the risk taken upfront. And we’re all in it together. There’s no other sector of American healthcare that can bend the cost curve.
Think about the dividend that the genericization of the statin class, Lipitor and their brethren have delivered to the American public. Almost for free now, we’re able to take these medicines and we don’t hear anymore, as much at least, about 40, 50, 60-year-old men and women dropping dead at work at their desk. That’s a dividend we get for free because of the innovation we supported in the form of statins. I believe there’s so many more examples like that, and there’s nothing else in the system that we spend money on that can do that.
Jackie Whisman: And some [inaudible 00:16:15], I mean, particularly on the left, believe that NIH and the universities it funds can actually do drug development themselves, and we can rely less on biopharma firms. I can probably guess your reaction to this, but I’d like to hear it anyway.
Josh Bilenker: I’d love to meet folks and invite them over. They can take a walk on the wild side of drug discovery and research. It’s an unbelievably complex business. There are at least 20 disciplines that your listeners would be bored to tears if I described them in detail, but each one of them is a critical link in the chain to success for a product. And almost none of them are represented in the public sphere. Because they’re applied science, they are not research science.
The NIH is primarily in the business of funding research science. The investigation of new things, new insight. Applied science is making a product. It’s an engineering exercise, and there are sub-disciplines in the drug discovery chain that are just simply not at all represented in the federal government. Having been a federal employee as an FDA reviewer and working across the aisle a little bit with some NCI brethren, I think every one of us to a T would agree on that, who have seen the complexity firsthand.
Jackie Whisman: You really have a secret sauce too. I would imagine not many CEOs of biopharma startups have your background, and I think it’s really cool.
Josh Bilenker: Thanks.
Jackie Whisman: Not to fan girl on you, but [crosstalk 00:17:49] I’ll do it anyway.
Josh Bilenker: It’s so rare that I’ll basket it. Thank you.
Jackie Whisman: It was a good investment, Eli Lilly. Good job.
Rob Atkinson: If you want to really become an attractive prospect, you should work for the FDA.
Jackie Whisman: Said no one ever until now.
Rob Atkinson: That’s the lesson. So, not to keep harping on all the reports we wrote, but we did write our recent report. My colleague Stephen Ezell leads our life sciences work. We wrote a report looking at the relationship between drug pricing and innovation. So, we reviewed pretty much every single scholarly study over the last 20 years. And I can tell you, there are lots and lots of academic studies. Peer reviewed studies that say what happens to innovation when you have the more strict price controls? And there was no ambiguity, there was no disagreements. It was 100% if you have stronger price controls, you have less innovation. And the question really for policy makers is okay, how do you want to balance those two things as they’re both legitimate things? But you can’t have your cake and eat it too. If you do strong price controls, we will get less innovation. Fewer new drugs.
And the world I live in, I have two kids, I want them to have a much better array of drug treatment possibilities when they’re my age than I have now. And to me, that would be a disaster if they have the same that I have. So, you had mentioned Josh, really two separate issues, affordability for individual patients, which is critical and overall prices. Can you say a little more on that? Are there ways to square that circle from a policy perspective?
Josh Bilenker: Right, so it’s not lost in most people with employer sponsored health insurance, that when you go to the pharmacy to pick up a drug, you’re asked to pay some out-of-pocket fee, a copay. And when the drugs get even more expensive, sometimes we’re asked to co-insure, we’re exposed to a percentage of the total price of the drug. And for Medicare beneficiaries, for example, that’s also the case, and there’s a legislated minimum that they’re exposed to at least 5% of the total price of a drug. And so, if a drug costs $10,000 a year and a Medicare beneficiary has to pay 5% of 10,000, that’s prohibitive for many, but it’s still going to be prohibitive for many, if it’s 5% of $5,000 a year. So, we could literally cut the cost of drugs in half, and the out-of-pocket burden is too high.
And that’s not what insurance is. People who are sick and have non-discretionary use of medicine, shouldn’t be asked to make economic choices anymore. The whole idea of a co-pay or co-insurance was to align incentives and encourage people to choose perhaps the generic version instead of the branded version, et cetera. But when somebody has cancer or severe lupus or a life-threatening disease, there’s no choice in the matter. There is no multiple drugs to choose among, they have to take the drug to stay alive. And I think it’s obscene to ask them to choose the financial security of their family versus taking and complying with their medical regimen.
And so, that needs to be fixed, and I just believe strongly that that’s really what a lot of the time we’re talking about when we talk about drug prices. And that transference of the false confluence of out-of-pocket exposure and absolute drug prices, I thinks a cynical, deliberate ploy among policymakers to make the public feel the pain and feel the outrage, but we have to fix that. We have to fix that regardless.
But we also have to better align, I think, the innovation quotient and the risk quotient and the actual impact factor of a drug to the actual price. And that’s a rational debate we also need to have to say there can’t be some undefined upper bound that we can’t cross. There needs to be an upper bound that we can’t cross, and let’s set that appropriately and let’s have that. And then let’s tackle the difficult problem or orphan disease once we tackle that problem. So, I don’t mean to say that these are light or easy issues, but I just want it... So, much is at stake, Rob. As you note, you want your kids to be, God forbid, that if they have a life-threatening illness, that there’s a medicine there, and those medicines are being invented or not invented today through discretionary spending.
Rob Atkinson: Yeah, absolutely. It’s easy to say, well, the drug companies are charging too much and there are individual drug companies, mostly the smaller ones occasionally that have abused that privilege, if you will. And I should know this because we’ve written about it, but I don’t. But as I recall, when looking at the research we’ve done, overall drug prices are not... If you ask the average American, how much of our budget is going to foreign aid, they’ll say like 40%. It’s like 3%. I think if you asked how much of the healthcare is drug prices, that people would say 40% or something. And I think it’s more around eight or 10, somewhere in that.
Josh Bilenker: It’s up a little bit now, I believe. I think it’s approaching 15.
Rob Atkinson: In the teens, but it’s not 40. But the other component of that, which people oftentimes forget is that you have to look at that in the context of, if you take a particular drug, you can avoid say other kinds of more expensive medical treatments or longer term chronic treatments that cost a lot of money. So, sometimes the drug treatment path is cheaper from a societal perspective than the alternative path would be.
Josh Bilenker: I think that’s true. It’s a difficult economic concept to capture and model, especially in the context of a somewhat fractured healthcare system that we have, where the person, I should say the insurer, who bears the cost today isn’t necessarily the direct entity that’s paid back five, 10 years from now because the person has changed jobs and the person’s under a different risk captive. So, we have a misaligned incentive set to short-termism, like a lot of other problems in American society, perhaps.
Rob Atkinson: Like pretty much everything in America now.
Josh Bilenker: Yeah.
Jackie Whisman: A couple of years ago, Rob and I were in Silicon Valley meeting with a bunch of the big tech giants, and we were also swinging by a couple life sciences firms, and I love this story because the scientists that we were meeting with at another cancer company actually knew that we had been to the big guys that you hear about when you’re going to Palo Alto and we sat down and he goes, “Well, now you’re at a real innovation company. Welcome.” And I loved that. But our last question is usually what innovations our guests are most excited about for the future. And in your case, I’m curious, what are the drug innovations that you’re most excited about for the future?
Josh Bilenker: So, the democratization of DNA sequencing technology and watching that enter the testing realm. So, it’s not even a drug, my answer is more about the test that identifies subsets of common diseases pointing to the vulnerability and saying here, drug me. That leads to more bespoke and tailored medicines for people with a better risk benefit ratio. It also leads to, I think, overall, better likelihood of success globally in the industry, but it points to the primacy of diagnostic testing across human disease.
And it’s sort of an unfunded mandate to a large degree still in our healthcare system and for historical reasons that are not with which to close on, but once we understand those molecular mechanisms, we can then build the medicines in the areas of unmet need that are most acute today. Things like neurodegeneration, Alzheimer’s. Why is that the case? I think it’s because we don’t really understand Alzheimer’s yet sufficiently, to intervene with a drug. We have some clues, we’re making progress, but if you compare that and contrast that to certain subsets of cancer where there’s a smoking gun, and it just is crying out for an inhibitor, say of that pathway. And I hope that more human disease fall into that category over time, but I see all paths going through the testing realm. That’s how we get better at this.
Jackie Whisman: Well, Josh, this was awesome. Thank you so much for being here. And that is it for this week. If you liked it, please be sure to rate us and subscribe. Feel free to email show ideas or questions to [email protected]. You can find the show notes and sign up for our weekly email newsletter on our website, itif.org and follow us on Twitter, Facebook and LinkedIn, @ITIFdc.
Rob Atkinson: And we have more episodes and great guests lined up. New episodes drop every other Monday, so we hope you will continue to tune in.