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The Readout Damian Garde

How many new drugs do we need, exactly?

Here are two fairly uncontroversial theories: If drugs were cheaper, more people would have access to them; and if drug companies made less money, they’d invent fewer drugs. The controversy comes in when you start involving actual numbers, and, conveniently, the Congressional Budget Office has done just that.

In a preliminary analysis of Rep. Nancy Pelosi’s drug pricing bill, the CBO concluded that, over 10 years, the drug industry would lose out on between $500 billion and $1 trillion in revenue. And as a result, the world would lose out on eight to 15 new drugs over a decade, according to the CBO.

How you feel about that prospect depends entirely on which eight to 15 drugs you’re imagining. Each year, the FDA approves an average of 30 new products. Some of them are never-before-seen treatments that change the course of medicine; some of them are a 19th drug for arthritic pain. 

Society would by and large prefer more of the former rather than more of the latter, but just which drugs pharma would prioritize is a matter of debate. What do you think? If the CBO’s estimated future came true, pharma would _____________.

invest less in things like CAR-T and gene therapy because they’re too risky
stop developing me-too drugs because there’s too much competition

That drug pricing bill is dividing Democrats

Speaking of that Pelosi bill, called the Lower Drug Costs Now Act, it hasn’t exactly unified progressive politicians.

As STAT’s Lev Facher and Nicholas Florko report, left-leaning Democrats are plotting a complete overhaul of their party’s signature drug pricing legislation, seeking to expand the scope of Medicare negotiation, tinker with a proposed international pricing index, and toughen regulations on price increases.

The effort highlights just how much work lays ahead for Democrats. Pelosi has said she hopes the bill will pass the House by the end of the month, a timeline that will depend on her ability to appease the party’s progressive wing.

Read more.

Ancestry launches consumer genetics tests for health

The consumer genetics company Ancestry is no longer just about, well, ancestry.

The company today is rolling genetic health tests for the first time, putting it in direct competition with 23andMe. But Ancestry has chosen a very different strategy than its rival — deciding that the tests will be ordered by a physician. That means that it will be regulated not by the FDA but by the Centers for Medicare and Medicaid Services under the rules for physician-ordered diagnostic tests.

“Ancestry has largely escaped much of the controversy that has dogged consumer genomics,” Dr. Robert Green of Brigham and Women’s Hospital told STAT's Matthew Herper. “Now by specifically by taking their brand into health care, they are inviting the controversy about completeness, about accuracy, about communication, about potential medical miscommunication, about false reassurance."

Read more.

One more alarming IPO statistic

By now you’ve heard, from this newsletter and elsewhere, that people are worried about the future health of biotech IPOs. The whole thing could come unglued if generalist investors lose interest, if pharma stops buying, or if a few recent entrants disappoint when it comes to actual data. But what if the crossover money dries up?

So-called crossover investors are the funds that buy into a company right before it goes public, giving startups a timely infusion of cash with the expectation of immediate returns once the IPO goes through. Crossover funds assume less risk — and get a smaller reward — then the venture firms that get involved on day one, but they’ve come to play a key role in the ecosystem that has helped hundreds of biotech companies go public since 2013.

But that dynamic could change if recent trends persist. According to the analysts at Jefferies, crossover returns are trending downward in 2019. For the past three years, the average biotech IPO valuation has been 40% above its crossover round. This year, that number has fallen, according to Jefferies, with a cluster of companies going public at a nearly flat valuation and three debuting at a discount.

Actually megadeals are bad

For all the short-term pressure put on drug companies to make splashy acquisitions, history suggests the biggest of mergers are almost always punished by the market.

SVB Leerink took a look at 10 years of biopharma acquisitions, more than 160 deals in total, and concluded that outsized checks perform the worst. If a company spent more than $50 billion on another firm, its stock price fell by 17% on average after three months. By contrast, companies that spent less appreciated by about 5% over the same time period.

There are loads of potential caveats — major buyouts often come with major debt, and companies that engineer such mergers are often dealing from a position of weakness — but the data do provide a counterweight to Wall Street conventional wisdom. Investors often clamor for so-called transformational M&A and scoff at small deals, but they’re apparently loath to reward companies that actually take their advice.

More reads

  • Using CRISPR to edit eggs, sperm, or embryos does not save lives. (STAT)
  • Medical device stocks are in rude health. (Wall Street Journal
  • Revance CEO Dan Browne steps down due to 'misjudgment in handling employee matter.' (MarketWatch)
  • Elizabeth Holmes is a visionary, and we need more like her. (RealClear Markets)

Thanks for reading! Until tomorrow,

Tuesday, October 15, 2019


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