Summary Victor Roy: Capitalizing a #Cure: How Finance Controls the Price and Value of #medicines (Youtube) youtu.be
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Speaker 0 Can you hear me?
Speaker 1 Hi there. Is the sound working?
Speaker 0 Great. So as many of you already know, the theme for the Michael Davis lecture series this year is the financialization of health, which refers to the growth of the financial sector and its increasing entanglement within our health system. It's my privilege to introduce doctor Victor Roy as this week's speaker. Doctor Roy is currently a VA Scholar in the National Clinician Scholars Program at Yale. He completed his residency training in family medicine at Boston University and his medical degree from North Western University as well as his doctorate in sociology from the University of Cambridge.
Speaker 0 He also cofounded and served as executive director of GlobeMed, a network of students on university campuses and, partnered with communities around the world to tackle poverty and health inequality. His new book, Capitalizing A Cure, takes readers into the struggle over a medical breakthrough to investigate the power of finance and business, biomedicine, and public health. I think it's fair to say this book, does an exceptional job examining the different dimensions of financialization and how they relate to pharmaceutical strategies and practices as observed in the case of hepatitis c medication, leveraging a set of analytical tools from political economy, economic sociology, and science and technology studies. Doctor Roy has offered a critical account of the expanding role of the financial sector and what it means for patients, payers, and public health broadly. This book comes at a pivotal moment when the nation is already grappling with how to price drugs and how to curtail year years of skyrocketing drug prices.
Speaker 0 While pharmaceutical companies continue to see huge profit margins and have embedded themselves in governmental policy, health services research, and public health funding. As a sociologist and physician, Doctor. Roy is uniquely poised to examine financialization and its implications in our health system. And so with that, I will hand it over to doctor Roy, and I'm grateful for all of you coming here
Speaker 1 today. Well, thank you so much for that introduction, and it's really great to be here and be able to be part of this lecture series on the financialization of health. And so thank you to Joe Brush and Colleen Grogan and Keith Brown and everyone that kinda made this lecture series possible. As Joe mentioned, I'm a physician and a sociologist, and you might be wondering, like, how I came to this topic of studying finance and financialization. I'll just tell you a brief bit.
Speaker 1 When I was an undergrad at Northwestern and went to medical school, I was really interested in the HIV AIDS, access movement that really was able to fight for, and struggle over, access to medicines, during the 2000, both in the US but also internationally. As I was starting my doctoral work, I was struck by the fact that here we were after all these lessons around pricing, valuation, access to medicines with a new treatment, this time for hepatitis c, with some pretty profound struggles and debates happening around how to price value and access these medications. And so it took me far afield from where I thought the study was gonna go. I didn't expect to study finance and financialization, but I think that's 1 of the privileges of doing sociological work where you follow the question, it leads you to this analysis of or led me to this analysis of finance. And so I'm gonna start with a little bit of a historical illusion, because this was a name this is a name lecture series after Michael M.
Speaker 1 Davis, who was thinking about public finance and the structure and organization of care in the earlier part of 20th century. Well, at that time there was an economist, an Austrian economist, not named Hayek, Joseph Schumpeter, who was really interested in thinking about private finance and the way that private finance fueled, in his view, innovation and dynamic change in the economy. And he argued that banks or money markets were the headquarters of capitalism. And in his view, capitalism was a kind of form of, economy in which innovation was fueled through borrowed money. Banks would take deposits and make loans, and people could take those take those loans and pursue new products, services, and markets.
Speaker 1 Now fast forward to today, and I would argue, and I'm going to argue, that the financial sector and the way it's organized and its relationship to innovation is very different from the 1 Joseph Schumpeter was imagining in the 1st part of 20th century, and he would find what we have today a bit more unfamiliar. And I'm gonna make the argument, I think the task before myself that I have in front of you all, is to try and connect it to the liver, and that it it actually understanding this actually helps us understand whether people have healthy livers or or have have hepatitis c. So we're trying to make financialization a little bit more concrete at the level of the liver. So we'll see if I succeed, and you guys can give me feedback at the end. So I'm gonna set the scene for the book, then I'm gonna share 3 kind of analytical frames that I think are useful for dissecting financialization when it comes to the pharmaceutical sector and biomedical innovation.
Speaker 1 But I hope that as you think about your own areas of health and health policy, that you find some links, that that that the analytical frames might be useful even in other parts of what you're examining. And then we're gonna discuss some potential futures of how we might proceed in this time of financialization and what it might mean for, innovation, for public health, and what it might mean for all of us. Okay. So that's the plan. I'm gonna start the story.
Speaker 1 It's June of 2015. I'm doing some field work at this clinic in the safety net of in South LA. And at at this federally qualified health center, they have 70 patients that have hepatitis c, that they've diagnosed and would benefit from treatment. And there's a lot of hope in the air because just about 18 months or so before, there was approved at that time a new curative treatment for these patients. But in speaking with the health workers, there was also a lot of frustration and anger, because so far, to that point, they'd only been able to get 1 person on the treatment.
Speaker 1 And to explain, kind of, the controversy, I need to take you, into hepatitis c a little bit, give you a little bit of background, and then we'll be able to kind of describe what the the main controversy was. So what is hepatitis c? It's a deadly virus that injures the liver. It's transmitted primarily via the blood. Injecting drug use, currently is the leading way of transmitting it.
Speaker 1 And in the time before we did screening of blood, blood transfusions was another way. And so this really does impact structurally marginalized populations, so people that inject drugs, those that are incarcerated that are incarcerated, and this comes into play later on in the story. It injures the liver over time, potentially leading to cirrhosis, so a distortion of the liver tissue, end stage liver disease. It can lead to liver cancer and death. And it can be a very ugly death, right, where you don't know who you are, because of the way it alters your mental status.
Speaker 1 You can bleed, and, you know, have a really distended belly. It's a really kind of gruesome end for those that have end stage liver disease. And the older treatments for these patients were really toxic. You needed to take weekly injectable treatments using something called interferon, And you'd need to take this treatment for a year, and you weren't necessarily guaranteed that you'd get better. The cure rates were far lower than 50% in a lot of the patient populations in in studies.
Speaker 1 And it's a disease that affects a lot of people in the US, over 2,000,000, and globally, from 2016 data, about 70,000,000 according to the WHO. So along comes these sofossevir based medicines. That's the main compound, sofossevir. They're approved in December of 2013, the first series of them. They, the manufacturer, Gilead Sciences, then rolls out a series of improvements where this emetasifosbuvir based regimen can treat all the different varieties or genotypes of hepatitis c.
Speaker 1 And the treatments offer cure rates north of 90%, which is really unheard of, right, in contemporary medicine to have such a a big medical breakthrough. But the applause for science gets met with contention and consternation, because the prices are set north of $90,000. Right? This is a Bloomberg Businessweek front cover. It's a treatment that takes that you can that cures the disease after just taking the treatment daily for 3 months.
Speaker 1 It's another beautiful thing. You don't need to take this as a lifelong treatment. 3 months and you can eliminate the virus. So it becomes dubbed the $1,000 a day pill. And so this, of course, leads to a series of political fights.
Speaker 1 And state Medicaid agencies, where a lot of patients are covered with hepatitis c, face a struggle. Right? With the large patient populations with a high price, of course, they have to make decisions about how much they can, use in terms of their funding to cover this drug. And so the state Medicaid decisions, state Medicaid agencies decide to ration the treatment, or you have to have advanced liver disease in order to qualify. And even then, in order to qualify, you have to go through a series of lab tests meet sobriety requirements, kind of punitive requirements, to kind of basically control costs for the the the agencies.
Speaker 1 And so in the 1st year, state Medicaid programs, spend $1,000,000,000 to cover only 2.4% of the population that's on Medicaid. This also catches the eye of the US Senate Committee. Senators Wyden and Grassley, a bipartisan group, end up investigating Gilead Sciences because Medicare, 1 of the other major public funders of medicines, ends up spending a lot of money to cover patients on this treatment. Something like $13,000,000,000 goes towards this 1 treatment, in the year after launch. As this controversy is playing out, what's really grabs my attention is that there is an interesting, set of justifications for the pricing.
Speaker 1 Right? You might have heard, typically, drug companies make the argument that the prices of their drugs are linked to how much it costs to do research and development. And the idea that because research and development is really costly, you know, companies are able to have monopoly protections through patents to be able to charge high prices to recoup that for search and development investment. But there's a different argument that's being made with hepatitis c. And that argument is that because these are curative treatments, they have a huge value to society.
Speaker 1 They avert liver transplants. They avert hospitalizations. And there's such a big breakthrough compared to the previous treatments that we as a society should be willing to pay for it. So this is the kind of headline we start getting in places like Vox. Right?
Speaker 1 Sarah Kliff, who's done a lot of investigative journalism, now the New York Times, she talks to a bunch of health economists and comes up with the conclusion that, you know what? This is a good deal, based on, the fact that this is curative treatment. Now this was a kind of an interesting puzzle to me, because I think the implication here was that our best treatments our medical breakthroughs, should by definition be the most expensive. Right? Because we should be willing to pay more for better health.
Speaker 1 And I wanted to try and understand what where that logic was coming from and what it kind of meant for biomedical innovation and for public health. And what's interesting is that this kind of logic echoed what the pharmaceutical industry was saying, particularly Gilead Sciences, their executive. Says, you know, price is the wrong subject. Value should be the discussion. I kind of shift our attention to really focus on the fact that these are incredible, incredibly valuable treatments.
Speaker 1 So this is where the analysis of finance and financialization comes in. Because I realized the more and more I looked at this, that where some of these debates, how they would be constructed, without an analysis of finance and financialization, it was really hard to unpick what was happening. And, as you've probably already heard in this lecture series, broadly speaking, financialization is about the rising power of financial sector actors, motives, and logics in our economy and in our society. And for those that might be unacquainted, very briefly and in a broad way, this this does, come really out of economic history and sociological literatures. This is Greta Krippner's work in, the sociologist describing how in the latter part of the 20th century, really in the even starting in the post war era, how the financial sector starts becoming a bigger and bigger part of our economy, due to a set of policy decisions made by politicians to give financial markets more power.
Speaker 1 And as this as as we get later into the 20th century, the financial sector accounts for a larger share of overall profits in our economy when you compare it to manufacturing and service sectors. And this kind of growth of the financial sector ends up impacting businesses that aren't even involved directly in financial services. So companies that are typically oriented around, let's say, manufacturing or product development, are oriented more and more around financial markets, share prices, trying to gain short term growth and distributing that growth to shareholders. And this is Gerald Davis' work, kind of describing what the implications of this are for the American corporation. Now you might be wondering what all of this has to do with the drug pricing, and biomedical innovation.
Speaker 1 So that's part of the link I try and make in this book, Capitalizing a Cure, is how does financialization shape the way prices the drugs are made, priced, and valued? Kind of try and open up the black box and make these links. And the way I do this is by really doing a sociological case study of the Sofosseviro based medicines. And so I can talk more about the methods in the q and a. I'll just very briefly say that the general approach was a historical 1 where I traced the process behind the making and developing of these drugs and the policy struggle from the mid 19 nineties into, just a few years ago.
Speaker 1 The conceptual sources, like, Joe already mentioned, I drew on a set of literatures that are kind of adjacent to health policy, but I think are actually useful to lean on in this case to then kind of critically look at what was happening in some of the policy debates. So science and technology studies, political economy, and the economic and medical sociology evaluation. And the empirical and data sources I triangulated between a bunch of different sources. I'm just gonna name 2 that I think might be interesting. 1 are the earnings calls transcripts between firm executives and Wall Street.
Speaker 1 They're a gold mine because this is how companies are communicating what they believe about themselves currently and in the future directly to Wall Street. There's a lot of information there that I don't think social scientists and health policy researchers take advantage enough of, but that's 1 source of data. The other 1 was the US Senate investigation, which happened to come out in, like, the 3rd year of my PhD with 1500 pages of internal corporate documents, which is obviously very useful to understanding some of these dynamics and and to really see what was happening on the inside. So I'm gonna try and distill a lot of what I talk about in the book. It's about a 140 pages and it's available open access, so I encourage you guys to check it out.
Speaker 1 What I'm trying to distill Okay. Yeah. I you can buy it. It's a paperback. It's like $34, but, you you know, I wanted to make this, in the spirit of this project, make it openly available.
Speaker 1 Right? I didn't wanna monetize it. Just to be consistent. But, the analytical frames that I use here, 1 is really focusing on this idea of assets and how knowledge becomes turned into financial assets, tracing that process, thinking about value. Right?
Speaker 1 And this is a frame value or word that is that comes up all the time in health policy, but understanding how it gets configured around maximizing shareholder value, and what the implications there are. And then as a sociologist, we're interested in power. And here I'm interested not just in, like, the overt political power of lobbying and money in politics, but the way in which power operates through hegemony. And I'll explain what I mean by the creation of kind of a common sense view, that helps this entire financialized process kind of keep going. K.
Speaker 1 So we're now gonna go through each 1 over the next, like, 20 20 or so minutes. Okay? So we're let's start with knowledge and financial assets. So to think a little bit about the concept of assets, first I'm just gonna tell you very briefly what the story is behind how these drugs were made, at least in the early phases. And it's a common story.
Speaker 1 It's a story that you'll find to be very familiar. Pharmacet is a company that started by Ray Shonazi. He's a publicly funded scientist at the VA and at Emory down in Atlanta. He's gotten decades of publicly funded research on nucleoside science, and so he's got an idea to start a company that is gonna focus on antiviral development based off of this publicly funded science. Pharmaset itself gets 16 grants from the National Institutes of Health in its early goings to kind of help develop their operations and strategy, but they also raise venture capital, as they spin out from Emory and the VA, and ultimately become listed on NASDAQ.
Speaker 1 They raise use some of that money to ultimately develop, this compound called sofossevir, and enter it into by the end of this period in 2,008 into clinical studies. So I'm gonna fast forward, it's 2011. Pharmaset has spent $271,000,000 on research and development on these drugs. They don't have any products. They don't have any revenues.
Speaker 1 But they're valued at $8,000,000,000 Right? Now, it's an interesting opportunity to understand if you wanna understand financialization, it's helpful to understand where does that $8,000,000,000 valuation come from for a company that has no products or revenues and has spent $270,000,000 on r and d? This is where our concept of assets comes into play, and this process of assetization. Right? And this is actually drawing on science and technology studies, drawing on an economist named Thorsten Veblen, who was writing in the early 20th century analyzing industrial power.
Speaker 1 And his view was that capital is ultimately the ownership and control over assets in a community. So whoever is able to own and control assets in a community is able to have basically capital and be able to exert power in that economy. And in the case of, pharmaceuticals and biomedical innovation, you know, assets don't have to be something that's concrete like a pill. They can be things that are intangible like knowledge. It could be tangible.
Speaker 1 Right? You could have tangible assets like housing, but you can have intangible assets like knowledge. And the key is how do you turn the ownership and control over something intangible like knowledge that hasn't been actually used to develop the product yet into a future earnings stream. Right? And that's, like, really critical to this entire process.
Speaker 1 And that relies on a whole set of political, legal, and economic processes that turn, in this case, socially produced, publicly funded science, hybrid with private sector involvement, into patents. Right? Patents that that companies like Pharmacek can monetize, that Wall Street can value. And this really accelerates in the 19 eighties for rules and legal changes that I describe in the book, where publicly funded science is able to be mobilized into these kinds of asset formations with biotech startups that then also have venture capital backing. Now just to put a finer point on this idea of assets, assets have different, logics actually than what we normally think of in terms of commodities.
Speaker 1 Right? You often hear about the commodification of health care. I'd actually argue that we also have the assetization of healthcare, and there's a little bit of a distinction here. Commodities, they get their value from exchange. Right?
Speaker 1 You you buy an iTunes track, you pay a little bit of money, you gain access to that commodity. Whereas an asset, the value comes from the ownership over that future earning stream. So that's, like, the musician's intellectual property over that music that is in that 1 track. Right? And this leads to interesting kind of demand logics and pricing logics, because what happens with commodities is when you have a lot of demand for a commodity, usually that'll draw in additional producers and the prices can go down over time.
Speaker 1 But with assets, when there's a lot of demand for an asset, because of the ownership and control dynamics, it's made to be artificially scarce. Right? And so the demand leads to an increase in the price. Think about housing. Right?
Speaker 1 The more people that want a piece of property, you can actually drive up the price of the house. And so we see assets increasing in their valuation in the context of biotech, and I'm gonna explain this in the context of Pharmacept, when there's an idea that this treatment area could be really lucrative. So where does that $8,000,000,000 valuation come from? So I'm gonna go back to that here with Pharmacyt. Now part of it does come from the fact that there's mature techno maturing technology that Pharmacyt has.
Speaker 1 So like I described before, there's important public funding behind the Sofosbuvir based medicines. This is a study that detailed the public funding that went behind these treatments. And this is actually really attracted to venture capitalists. Right? So this is 1 of the venture capitalists that backs Pharmacet.
Speaker 1 He says, due to NIH funding now also going towards programs that demonstrate commercial potential, our startups are much further along by the time we invest, even though they might be still straight out of academia. And so it's important to know that part of the value creation process does actually start with, in many instances, government money. This is work by Mariana Matsukado in a book that's become popular since 2013 or 14 in The Entrepreneurial State, in which he describes the ways in which the public sector can oftentimes take on the most uncertain, riskiest stages of an innovation process, and actually help draw in private capital subsequent to that initial investment period. Of course, there's another side to where that $8,000,000,000 valuation comes from, and that's that the hepatitis c treatments that are already on the market, even though they don't necessarily lead to great treatment outcomes, are already priced north of $50,000. Right?
Speaker 1 So, investors know that if another treatment comes out with even better outcomes, society might be able to or health systems might be willing to pay even more for it. And so this is just a plot from looking at, the Swiss market, but actually could very well be the US market. The x axis looking at cure rates from 0 to a 100%, and each bar representing a new generation of treatment since the late 10 19 nineties. And what we see here is that for each generation of improvement in therapy, the prices go up. So the launch price for each generation sets the floor for the next set of treatments.
Speaker 1 And this equates to basically for every 1% increase in the cure rate, we get about $1,000 more in terms of the launch price. And so this kind of anticipation of downstream markets that could be really lucrative helps draw in, it is true, a series of financial actors. It actually does mobilize a serie a group of economic actors, but they have have a lot of variety in terms of how involved they are actually in the investment mechanism, versus financial actors that might be more involved in trading on the share price of something. So So you've got venture capitalists that are taking on a period of investment, in return for hopefully an exit that they're able to make a good return on. And then you've got actors like hedge funds who later on in the process are trading on the share price, trying to buy low and sell high.
Speaker 1 1 of the examples of a hedge fund involved in hepatitis c, is run by this guy that you might now be familiar with, Vivek Ramaswami. He makes most of his initial wealth actually in hepatitis c, taking out stakes in companies like Pharmaset. So he's 1 of the major, shareholders in Pharmaset, and is able to make, 100 of 1,000,000 of dollars through his stakes in a series of hepatitis c compounds. And so the main takeaway with this whole idea around assets is that, you know, for financial actors, the focus is really on the exit. None of these actors are involved for the period of time it takes to actually develop a treatment.
Speaker 1 Right? They're involved, to the point where they can mitigate their risk and and get out for an exit. And Pharmacet, the company's founder, Ray Shonazi, has this idea in his mind as well. He says, I coined the name. It's actually pharmaceutical assets.
Speaker 1 Right? It's right in the name, pharmacets. A pharmacist. And the idea was to create assets that could be sold to companies. That was the initial business plan.
Speaker 1 So now I'm gonna turn to the suitors. Right? Who are the companies that are gonna buy these assets? And and look at the structural dynamics around the big pharmaceutical companies. And this is where we need to understand value, and how it's configured around maximizing shareholder value.
Speaker 1 So let's look at Gilead. It's a really financially successful business by 2011. It's making a lot of money. $8,000,000,000 in revenue. It's the main, its main treatment area is HIV, and they've got $10,000,000,000 in cash on hand.
Speaker 1 Their profit margins are handsome, over 30%. Wall Street is kind of worried because their share price is doing this. It's kind of horizontal. There isn't much growth. This is a Bloomberg Business commentary looking at Gilead.
Speaker 1 As its earlier galloping growth begins to to slow, investors are starting to wonder what Gilead plans to do for a second act. So Gilead's feeling the heat. How is it gonna grow? And and to kind of try and understand what position Gilead's in, I'm gonna just walk you through how capital kind of flows through these publicly traded companies in a very, like, simplified model, but just to kind of help understand some of the dynamics at play here. So you've got a company like Gilead.
Speaker 1 They make, in this case, technologies, In this case, HIV as already. They capture a share of the value they create through payments from governments and from households through the insurance premiums we pay. They can reinvest some of that money in research and development, manufacturing, or workers, or they can distribute that capital to shareholders who are the executives of the company, asset managers, pension funds. I want to key in on this part right here because there's this idea that has been advanced since the 19 seventies, 19 eighties, that really the purpose of the corporation is to maximize the flow of capital to shareholders. And this idea is that corporate shareholders, more than corporate managers, can efficiently allocate that money and capital across the economy, whereas corporate executives might spend it more wastefully.
Speaker 1 And so the focus of corporations should really be to distribute capital to shareholders and focus on their share price, because this is the way that shareholders can know which are the companies that have the most potential to grow in the future. Because that's what a share price ultimately is, Which companies have the greatest potential for future growth? So it's not just that profits matter. Right? It's which companies are gonna grow their profits the most.
Speaker 1 This is a distinction I like to make. It's not just about profits, it's about growth and profits, and that actually matters a lot when we're talking about research and development. I'm gonna get to that. Now how companies distribute this capital to shareholders? There's 1 of 2 major ways.
Speaker 1 You've got dividends, which probably you're all familiar with, where company where shareholders get some part some capital for the shares that they own. And then since 1982, when the SEC changed its rules and made this maneuver legal, this thing called a share buyback, where companies can buy their own shares off the stock market. And why do they do this? Well, it it reduces the denominator and the earnings per share ratio. Ratio.
Speaker 1 Right? And that increases that ratio. It makes their stock look more valuable, and it's a way of increasing their share price. And so this is a maneuver these sets of maneuvers are are very much a big part of the pharmaceutical industry strategy. 1 study looked at the pharmaceutical companies on the S and P 500 in this 2012 to 2021 period and found that those companies spent $87,000,000,000 more on buybacks and dividends than they spent on research and development.
Speaker 1 So, this is part of why there's an idea by a group of economists that have, posited that actually maximizing shareholder value is actually a strategy of value extraction, because it drives executives to pursue short term profits rather than long term investments, partly because executive compensation is so did so much of a big part of executive compensation is share ownership that actually drives part of that short term kind of profit motive is about trying to charge high prices that corporations can charge the public through their control in concentrated markets, and that it fundamentally rewards financial actors that don't actually even invest in a company's value creating capabilities. Right? A company like Gilead isn't going to Wall Street and saying, hey, we need your capital to build this factory, because they already have retained capital from the sales that they've had on on drugs. And so there's, particularly with share buybacks, actually even some bipartisan concern. These are 3 men that don't agree on much, who are, who have expressed their concerns over share buybacks.
Speaker 1 And this kind of rose particularly during the pandemic because there was so much government aid flowing to private entities, and there was concern that public money was basically being turned around and being used on share buybacks. So let's come back to the pharmaceutical sector and biomedical innovation. You know, is shareholder growth compatible with research and development? We know, and the drug companies will tell us, it takes a long time to develop a new treatment. But they also have this imperative to deliver growth in short time horizons.
Speaker 1 And this is work from, Kaushik Sunder Rajan, who's actually at U of Chicago, is an anthropologist, wrote this terrific book called Pharmocracy, where he analyzes the pharmaceutical sector and looks at kind of the structural positioning of this the large publicly traded companies. And he finds that, because of this imperative to grow and deliver growth to shareholders at at a clip of about 10% every year, Against this backdrop of having to take long term risks in research and development, it's actually disincentivized to actually do that. Right? So actually the best way to deliver growth is for big companies to become acquisition specialists. Right?
Speaker 1 And so this is this is 1 of the main ways that they can deliver growth to shareholders. And if you look at Gilead Sciences, the way they talk about themselves to Wall Street, and I can walk you through their corporate transactions, this is the way they see themselves. Gilead CEO is saying, we typically like things where we can have an impact on phase 3 and where we can accelerate those products either into the approval process or into greater indications after the approval process. So I'm gonna remind you, 2011, Gilead's kinda stagnating in terms of growth. Even though their profitability is over 30% in terms of profit rates, margins, and they have about, $8,000,000,000 in revenue.
Speaker 1 But the company goes out and buys Pharmaset for $11,000,000,000 Now that valuation, $11,000,000,000 has nothing to do with how much money Pharmaset has spent on research and development. Right? $271,000,000 This has everything to do with what Gilead thinks the hepatitis c market will be in the future. And so I'm gonna fast forward. I'm gonna get back to the pricing in the 3rd part of the talk, but I'm gonna talk a little bit about, you know, this company that ends up making $46,400,000,000 in 3 years off of this 1 treatment area.
Speaker 1 And where does this money go? Now I can go through this plot a little bit here where the revenues definitely jump, the blue line. A lot of that money goes to cash stockpiles for the future acquisitions. That's the orange line. And the gray line is share buybacks and dividends.
Speaker 1 Whereas that or yellow line at the bottom, that's your r and d. So if you just the key takeaway is that the company, after making acquiring this hepatitis c drug, they spent $33,000,000,000 in terms of shareholder payouts, most of that through buybacks, 26,000,000,000. And they spent, $11,000,000,000 in r and d. So 3 times as much on shareholder payouts as on r and d. And part of that might be explained by the fact that the corporate managers, the c suite, are major shareholders in the corporation.
Speaker 1 Right? And so the 5 c 5, executives in Gilead in those 5 years or in those 3 years after the launch period, make over $1,000,000,000 just these 5 individuals, the CEO, the COO, the EVP, the head of r and d, and the CFO. Right? And let's just look at how the head of r and d for Gilead talks about the strategy. Right?
Speaker 1 This is the head of r and d we're talking about. And as he's talking to Wall Street, he says, if you look at the last 6 years, it has been remarkable. We have done many, many deals. He names all the acquisitions, And yet, we were able to return 70% of our free cash flow to shareholders. So I think this is a good way to think about the future.
Speaker 1 Now I'm just gonna contrast this. It's a very different conception of the role of a pharmaceutical entity than, let's say, a post war era version of Merck. This is a Time cover from 1952. This is George Merck with the subtitle there being medicine is for the people is for people, not for profits. But Merck is at that time a much more integrated company doing the whole kind of research and development up into manufacturing.
Speaker 1 Right? Whereas I've just contrasted with the kind of conception that Gilead has of itself and the function it plays in the innovation process. And so, you know, I'm gonna make the provocative claim here drawing on Mariana Mazukata's work here again, that we have made it easier to some for some to call themselves value creators and the process and in the process extract value. Now how does this happen? I'm gonna make the claim here in this third part that we have to look at power.
Speaker 1 And power, again, not in the kind of overt political lobbying sense, though that's a really important part of the story, but power in the form of hegemony. And this I'm gonna draw on Kaushik Sunder Rajan's work in For Democracy again, where he draws on this idea from the social theorist Antonio Gramsci, hegemony being kind of the establishment of a new common sense. And what is this common sense? So let's use the pricing debates as part of the story as the story here. How does Gilead set their price?
Speaker 1 So this is just directly from their internal corporate documents. They say that they basically build directly on the current hepatitis c prices and they put a little value premium. Right? The treatments are better. They can charge a premium to the public for that.
Speaker 1 They do know that because there's large numbers of people that could benefit times multiplied by these high price points, they might face opposition, so they do a heat map. They actually map out the stakeholders, payers to the public in general, and they map out how far up they can go in terms of the upward balance of prices that they can charge the public. And they basically say they basically model out where they might face resistance. They even model out the likelihood of a letter from Congress, a likelihood of a congressional hearing, over their pricing of sofossevir. Now they have an interesting, I I would argue, set of unwitting, potentially, allies in this.
Speaker 1 And that is actually the in in some parts of the health policy community, In that the argument is also being made in the literature, right, that these are really cost effective treatments. And they are, because of how much of a benefit they're providing society. That even at a high price point, they are deemed in study after study after study to be cost effective. And so this is kind of the conclusion, right, that that the health policy community in in many corners are making. I wanna paint a monolithic picture, but this is a predominant and prevailing view.
Speaker 1 The most important thing to remember about cost effectiveness is that something that is really expensive can still be cost effective if it is really, really effective. And these drugs are very, very effective. And this is a position by Mark an expression by Mark Roberts, who's a professor at Pittsburgh. And so I wanted to kind of trace where does this come from. Right?
Speaker 1 And how do we understand this economic valuation? And so, a book that if you're interested in these topics, I'd recommend you take, take a look at by another sociologist anthropologist, Drugs for Life, by Joseph Doumet, How Pharmacy Companies Define Our Health, in which he looks at the post war era and the emergence of all these kind of epistemic practices that are foundational bedrock to contemporary biomedicine. Right? Long term clinical studies of natural history, clinical trials, clinical epidemiology, pharmacoeconomic studies, that are really important ways of basically measuring the impact that new therapies can have on not just individuals, but on populations. And he says that this is able to help kinda construct a transformation in the way we think of disease as and treatment, not just treating felt illness.
Speaker 1 Right? I'm feeling sick, I'm gonna go and get a drug. But the health systems are gonna be able to use treatment to treat a statistical illness. Right? And by being able to treat a population, they can, be able to garner some kind of economic value of this kind of future health.
Speaker 1 Right? In hepatitis c, it's this idea of averted health care costs in the future, averted liver transplants, things like that. And these are actually really important practices about how we allocate capital. There's a deep rationality embedded in this that I argue is a really important part of what we do in thinking about how we allocate resources in society. What I think is actually really interesting is ways in which this gets appropriated by the pharmaceutical sector, in particular Gilead, in this argument, and struggle over hep c.
Speaker 1 So kind of walk through this kind of Wall Street corporate academia nexus and the construction of this common sense view. So as the company's facing a lot of resistance, Gilead's executives communicate to Wall Street. We've got all these publications out there, not by Gilead, but by respected people in the field who can start these conversations in a more of an academic, collegial way. And their executive, their r and d executive says, we're putting all of this together into a bigger pharmacoeconomic argument. And so just a few months later in the Harvard Business Review, you have prominent health economists from USC, from Harvard, citing their industry conflicts of interest, making the argument that actually this whole focus on price is just theater and that society should should kind of ignore all this kind of political consternation over pricing and pay up because this is value for money.
Speaker 1 And ProPublica later actually does an analysis of how the pharmaceutical industry ends up enlisting a whole group of professors to justify these prices. And so I think it's an interesting, kind of case study in the ways in which academia and health policy and the intersections with kind of how financial logics kind of come into health policy debates and then affect public health policy. Right? So this is the National Academy of Medicine. We have a group convened to look at the elimination of hepatitis c, And they conclude from a medical perspective we could eliminate it as a country, but from a economic perspective the group concludes it would it would require near universal access to treatment something that appears unfeasible given the current pricing and policy environment.
Speaker 1 Right? This is 2016. 7 years later in 2013, June of 2013, just a few months ago, the CDC puts out this headline. This is still where we're at as a country. Even though the prices have actually come down, and we can talk about that, the breakthrough of cures for hepatitis c still fails, fail to reach the vast majority of Americans who need them.
Speaker 1 Between 2018 and 2020, 15,000 people died of hepatitis c each year, right, from an avoidable cause because we have the curative treatment. Now I can't say the pricing is, the only driver here. There's a couple of other pieces to this puzzle, but it's 1 of them, particularly for Medicaid and patients that are in state prison systems that can't afford even the lower price of the drug. So what I argue in the book is that value in this case actually becomes untethered from ideas around maximizing access and public health, and it's completely fastened to financial markets and strategies of growth, speculation, and extraction. I'm just gonna put a finer point on it, because Gilead actually gets swallowed up in all of this too.
Speaker 1 Right? Because what happens with a curative asset? It's not a lifelong treatment. It can't generate the growth you need. So the company initially, stock price goes up.
Speaker 1 But as people as the Wall Street gets a handle on the fact that this won't generate long term growth because it's not a lifelong treatment, their stock price actually halves. Right? Even though they're making profits, profit margins well over 40% and have revenues well over $30,000,000,000 And Goldman Sachs says the quiet part out loud. Right? Is curing patients a sustainable business model?
Speaker 1 Citing citing Gilead as their case study. Right? And this is I would argue, if you wanna understand this headline, you have to understand what I've described up until this point in terms of financialized business model. So this kind of concludes the empirical part of the talk. Just to summarize the 3 analytical frames, you know, and I think that they're applicable to areas not just in biomedical innovation.
Speaker 1 Right? You could I'd put in knowledge as financial assets. What about health care delivery entities as financial assets? Right? And ways in which ownership and control operates and the implications of this.
Speaker 1 Value. Value is is talked about in so many parts of health policy. But how is it being actually configured in ways that actually are oriented around maximizing shareholder value, even if that's not made explicit? And then 3rd, this idea of power as kind of hegemony. The ways in which these views become the common sense view in health policy and public health circles in ways that actually makes it really hard to kind of think about creating change.
Speaker 1 So in this last part of this talk, I'm just gonna talk I I'm gonna describe a couple potential futures in this time of financialization. We know that launch prices for new treatments have gone up each each year since 2008. This was a study from the Portal Group at Harvard looking at the trends from 2,008 to 2021. You can see the numbers right there. This is just a headline from Sunday in Bloomberg Business.
Speaker 1 How is the country gonna pay for $1,000,000 cures for gene therapies for sickle cell, for example? And the headline here is, will it test whether the US healthcare system can afford to deliver miracles for the many and not just the few? And all these dynamics I've just described with hepatitis c, I, fear will be replicated with the sickle cell treatments. And there are some that actually argue, to respond to this, we should double down on financialization. So this is a paper in Science in 2016 from a group at MIT that argues 1 way of doing this is actually creating new financial products, mortgages, to pay for curative treatments.
Speaker 1 In this case, insurance companies would pay a down payment, and then individual patients would have annual payments with an interest rate of about 9%, to add to the list of debts that American households already have. The article does argue, however, to their credit, that a law mandating full coverage for curative therapies allowing for price negotiation would likely be more economically efficient, sustainable, and socially more acceptable than a pure private sector solution. And we actually have a great example of this straight from hepatitis c. It's called the VA. The VA system, after initial period where they struggle in terms of figuring out access, once they figure it out in about 2014, the red line for the is the curve looking at the number of patients, veterans awaiting treatment, plummets because they're able to diagnose and treat people because they have negotiated prices, universal access, and the VA health system is on a path to eliminate hep c amongst veterans.
Speaker 1 And in an equitable way, all the subgroups across veterans, have a greater than 80% rate of being treated. Right? So this is, like, health equity in action here in in the case of hepatitis c through the VA system. And there's other bright spots. Louisiana, they try something called a Netflix arrangement, where basically the state, agrees, to give a lump sum payment to the pharmaceutical sector, in return for unlimited access to these treatments for a period of defined period of time.
Speaker 1 And this is a win win because the companies get some guaranteed revenue, and it incentivizes the health system to go out and treat, diagnose, and treat as many people as possible. And this idea is being talked about, being scaled up at a national level. So Francis Collins has proposed this. This is a piece in JAMA to create a federal Netflix program that would basically procure these drugs for all the state Medicaid programs, state prison systems, Indian Health Services, all the systems that don't have the money to pay for these drugs at their current prices. So we'll see where this goes.
Speaker 1 And there are bigger ideas outside of hepatitis c, but just how we think about the public sector innovation process altogether. And whether we should be thinking about more public options, right, around research and development and even manufacturing. So this is a paper this is a white paper by the Democracy Collaborative, that analyzes the option public options that the pharmaceutical that the public sector can take in r and d. And so this you know, there's discussion around this new agency in the federal government that Biden has started called ARPA H, Advanced Research Projects Agencies For Health, whether this could be an agency that is involved in the late stages of innovation. And when they are, actually set fair pricing and access provisions if they when they work with the public sector.
Speaker 1 Operation Warp Speed is an example of the government actually being really involved in the late stages of research and development and helping develop the COVID vaccines. And then in California, Governor Newsom has put $150,000,000 behind creating a public manufacturing strategy around insulin partnering with a non profit group, Civica RX, to try and see if the state can bring down the price and cost the overall health system as as well as individuals in the case of insulin. So I'm just gonna come back to where I started, and hepatitis c. These ideas that I just talked about, they're important so that we don't always we don't keep on repeating what happened with hep C, right, where there's a curative treatment, patients are waiting, and in the clinic, this is just what the health workers had to create, there were all these Post Its right up on the clinic walls trying to figure out how to work through all the paperwork to try and get even those patients with advanced stages of hep c access to the medicines. And I think part of this work is just to argue that we shouldn't take this as the status quo, as just the taken for granted natural way that we do biomedical innovation and access to medicines.
Speaker 1 That part of the work has to be to denaturalize this, to defamiliarize ourselves of this kind of phenomenon, and to have a kind of imagination about how things could work otherwise. So I'll just end with a little bit of an inspiring quote from an author, Ursula Gwynn. The exercise of imagination is dangerous to those who profit from the way things are because it has the power to show the way things are is not permanent, not universal, and not necessary. Thank you so much. So I'm happy to have hopefully that provoked a lot of thoughts, and I'm happy to kinda have just to have a conversation and, back and forth.
Speaker 0 Yeah. So in a second, I'll, open this up to questions, but I I just wanna commend Victor on a really stunning analysis on an area of of of scholarly research that has really not, garnered the critical attention it deserves. So I'm super grateful for this work and, yeah, I'd be eager to hear what people think and the questions they have.
Speaker 1 Maybe some yeah. This is
Speaker 2 a question question, although it may sound like a rhetorical question. I honestly don't understand why people are bothered by the stock buy buyout thing. I understand if the insiders are buying the stock, there's a question of whether they may be getting other shareholders to overpay if they have inside information or whatever. Why why are people so concerned about stock stock buybacks? It just seems to me like we have a capital market and we have shareholders who wanna who wanna sell shares, and we have people other people who think the shares are worth a lot.
Speaker 2 I I don't quite understand why there's such a public out cry over that particular mechanism
Speaker 1 Yeah.
Speaker 2 And and what it demonstrates.
Speaker 1 I think it's a good question. So I think that there's kinda 2 ways looking at kind of share buybacks. I think, 1, there's actually just a fundamental framing question, right, that if corporations on the 1 hand are actually telling the public that we need to charge high prices because it costs a lot of money to do business, but on the other hand, doctor Singh, we don't have use uses of this capital, and we're gonna just drive this into share buybacks. There's actually fundamental, I think, tension and contradiction between those 2 arguments. And so it's not so much the argument is here, let's stop share buybacks.
Speaker 1 It's the fact that these companies have this amount of capital, right, to work with, you know, indicates that maybe actually more systems in which we have more competition, price regulations, regulating some of these companies as public utilities wouldn't be actually a bad thing, and that all this money is being driven into share buybacks is is less about kind of analyzing the share buybacks itself and tells us a little bit more about, like, where the the the the market dynamics are, and and how companies are able to derive that amount of capital in the first place. There is a second point in that this does drive the incentives of the key actors in the firm. Right? The executives. And so if your major part of your compensation package packages are in stock compensation, then you're gonna pursue strategies that can maximize the amount of capital you have to engage in share buybacks.
Speaker 1 So I think it's less about kind of trying to regulate share buybacks, but more what it tells us about the overall ecosystem and the arguments that are being made.
Speaker 3 Yeah.
Speaker 2 Who can do things to manipulate the stock price. But But that's not really about pharmaceutical companies. That's really just about how do we properly regulate the capital market so that inside so that people with inside corporate power can't in some way, leverage those properly. I'm I'm just puzzled by it.
Speaker 4 Victor, fantastic talk. Can you explain a little bit about how, the maximizing shareholder value causes these executives to behave and price differently than just monopoly pricing? You know, they have a patent. They get monopoly price. How how are they pricing behaving differently because of the financialization than just like the classic monopoly pricing of a firm?
Speaker 1 So I think part of the I think that's a great question. So I think the the thing is that they're intertwined, And so, and part of part of the the part of what's happening here is that over time, the strategies of the the big publicly traded companies, in this scenario of maximizing shareholder value, And the key insight there is, like, the way that they become more oriented around acquisitions. Right? And so the way how do you how do you engage in acquisitions? Most like, that's driven primarily by driving huge cash stockpiles, right, that they can accumulate over time.
Speaker 1 So part of the idea here is that you use monopoly pricing to then generate major cash reserves that can be used to kind of drive a cycle of acquisitions and buybacks. Right? Those are, like, the 2 major allocations of capital that these firm executives are kind of driven towards. And how this implicates price, like, how does that influence, like, the actual prices? I think that's where you have to bring in the analysis of really, it is about how the prices increase over time.
Speaker 1 Right? And and so these companies, it it stacks it, right, over time. And so that's where you have companies that if you look at their cash reserves, you know, 20 years ago and this is an empirical question, but I'm gonna hypothesize that the cash reserves were actually much smaller than they are now, where you have companies like Gilead at that time, I think, had over $30,000,000,000 in just cash. Right? And that's primarily driven by the fact that, like, Wall Street expected them.
Speaker 1 They they couldn't, even if they wanted to, price it at $30,000 because Wall Street was already anticipating that the price of the existing treatments are $70,000, $80,000. And so you have to you know, the idea is, like, the whole chain of speculative capital as well. You're gonna be able to make a little bit more if you come up with a better treatment. So you're saying that, like, for
Speaker 4 Pepsi drugs, they deviated from profit maximizing monopoly pricing because of this history of stacking. Like, they could they might have made more money in the short term had they charged a lower price because of just the standard relationships between what Medicaid could could afford to pay and the number of people that it could cover. Right? Or do you think they extracted, like, maximum monopoly profits from the Pepsi drugs? Or
Speaker 1 I I think that so it's it's a complicated story that is kind of hard to unpick because the company anticipated that they only had about, like, 1 or 2 years before other actors would kind of enter the market. So they knew that in those 2 years, they kind of had or in that period of time, they had kind of maximal control over the hep c market. So in those in that time was the time where they could go as high as they could, and they tried to model out kind of what the upward limits are. Right? That's part of the heat map I showed.
Speaker 1 And they they they assume that if they went any further, they'd even face even more consternation. So it's it's a little you know, and then yeah. So it's a bit of a complicated story, but that's kind of what the calculation was in that time period. That's a good question.
Speaker 5 Going back to the first question, I guess maybe another way of framing it is if you feel that there's a different rule book for health care pharmaceutical than there are in other capitalist industries. So I think, you know, just, I mean, as a as a physician, like, this the idea and we talked about this a little bit like that. Capitalism being applied to health care, which is supposed to be about altruistic, saving patients' lives, it's a different sort of field. At least we view it that way within medicine, but it's certainly profitable for companies.
Speaker 1 So I guess, like, how do you is
Speaker 5 that maybe is it maybe more about, like, rule book and how we look at what should be governing their practices?
Speaker 1 Yeah. So I think 1 way in this kind of let me try and, like, go back to to Harold Pollock's question about the share buybacks, and your question about the value. I think part of this, is really a debate about who creates value and how and where that value goes. Right? And and also who takes risks, and, you know, how we, allocate the rewards.
Speaker 1 And in health care and in health, a lot of the risk is borne by the public. If you look at research and development in biomedical research, if you look in the healthcare delivery, right, who covers low income patients? Who covers elderly people that are more sick and are gonna be harder to cover otherwise on insurance? Right? It's public programs.
Speaker 1 And so I think to your point, part of these things exist because we view health to be in at least some places, a common good or a public good. And so then, I think that in this kind of environment, when the public is so involved, in trying to deliver that good, then it should invite certain kinds of questions about, do we have the relationship between the public and the private, set up in the right way? You know, do we have risks and rewards shared, and and distributed in the right way? And I think that's what this book is trying to get at is, like, you know, I think it's it's out of balance because if we think it's in balance, then, like, what we've just described, it should be just like how we do it. Right?
Speaker 1 Like, this is the best way to this is the best we can do. And, you know, breakthrough treatments. We have breakthroughs, but really follow through. Follow through, you know, can take 10 or 15 years, you know, and and people that are low income on on on publicly funded programs, they they'll get the treatment when they can get it. Right?
Speaker 1 And, like, that's kind of the the kind of deeper question here is, like, in a public in a public private system that we have in the US, is the partnership between the public and the private parasitic, or is it symbiotic? And so I think, you know, we can have that debate, but I think those are the kinds of questions we need to be asking. Yeah.
Speaker 0 So I think you made kind of a provocative analysis where you talk about power and hegemony, and you've you've kind of shined the spotlight back on us and the scholarly community, and particularly the health policy community, and the way that certain individuals or areas within health policy, the the epistemic authority that they've gained has kind of informed the logic of what is value and and how we should price our drugs. And I'm guess I'm wondering from you, like, for those of us who are concerned about that logic within
Speaker 1 the health policy community,
Speaker 0 how do we start to untether that logic? How do within the health policy community, how do we start to untether that logic? How do we start to, like, question the underlying logics? And, like, what do we do to start, complicating the our our certainly, our complicity our our complicit nature within within this issue, but but also how do we get to the futures you're talking about?
Speaker 1 Yeah. It's a great question. I'd say there's, you know, there's a bunch of different strategies. 1 is I do think that there are kind of solutions that are on the margins or might be on the margins of academia, some of the ones I just described. But actually, I think it's important to study those, and and try and figure out what empirical methods we can use to study some of the alternative mechanisms that are proposed, alternative models.
Speaker 1 I think that brings in fresh debates into the into the sphere. I think in terms of trying to diagnose and analyze the problem, you know, I'd love to think about, like, how we you know, what kind of different research methods could be used. You know, I use very nontraditional methods where I coded, like, earnings calls transcripts. Right? Like, they were much more informative to me than the interviews that I did with some of the insiders because they're just saying all the things out loud, and it helps you understand actually what logic is is at play here rather than, like, kind of, some answer you might get from an interview.
Speaker 1 And, you know, I think that so we need to think about what are different research methodologies that can kind of get at some of these questions of political economy, the institutional dynamics, the historical dynamics, so that we don't start the conversation taking all the kind of existing dynamics of health policy as just a given. I think that's where, we end up with a narrow discussion because we assume all these kind of variables as taken for granted and as givens. And I think we can we can use some creative methods to empirically look at ways in which, you know, some of those assumptions could be unsettled. And, you know, I think you know, I'm not sure if the NIH will fund that, but there are other funders and I think other groups that are interested, particularly because people are trying to have some kind of, like, new economic thinking around some of these issues to kind of come up with some different ways at these questions and problems. I don't know if that answers your question, but yeah.
Speaker 6 Hi. Thank you for a great talk. So I'm curious in terms of thinking about policy and solutions, how the Inflation Reduction Act and, like, the Medicare drug price negotiations could possibly, be part of a solution. And also with Medicaid being also, you know, a mix of federal and state funding, how, you know, thinking about policy where people who on Medicare maybe have access to a medication, but people on Medicaid are being denied the same medication. And just thinking about, you know, policy in that regard and how that interacts with this conversation.
Speaker 1 Yeah. I think the what I'd say is that, obviously, what I've just brought up, there isn't, like, 1 magic bullet solution. There's, like, a whole set of policy options that are are gonna be applied and used for different treatment areas, therapies, because it depends on, know, is this a rare disease? Are we talking about large patient populations? There'll be different policy options for each of those things.
Speaker 1 I think the inflation reduction act and what you're referring to with the, you know, introduction of drug pricing negotiation, after a long period of struggle in US health policy circles to actually finally have that, even in a limited way, will be a really interesting kind of experiment to see how that actually goes. And, you know, it'll be with a limited set of treatments initially. I think the challenge is how do you how do you actually move it? Right now, those negotiations can only start many years into after the drug has been launched. And I think part of the question is, you know, can, you know, is is can we learn enough from that experiment to then at some point be able to argue, especially for the treatments that have huge public health importance, to bring that up right into the negotiation process when they launch, right, rather than just assume that it's gonna be 7 years or 8 years until the public will be able to afford this treatment.
Speaker 1 I think those are, you know, bigger policy questions that are, you know, gonna take years decades maybe. Well, hopefully not decades, but, you know, are gonna be part of the political struggle. I think Medicaid is is also obviously, you know, a different beast in terms of how to how to think about that because we've got, you know, 50 states with 50 Medicaid programs and with very fragmented negotiating power. And so that's why I think this Netflix model is interesting with the hep c. Like, can they actually do this where they they kind of basically aggregate the negotiating power of all states and their Medicaid programs to say, we will buy we as the federal government can do something that you as an individual state can't do.
Speaker 1 I think that's why I think I'm watching this hep c closely. Unfortunately, because of the political gridlock, you know, we don't see movement on this. But at least as an idea that it's on the agenda, I think is promising because maybe that could be 1 approach with some of these more breakthrough treatments.
Speaker 7 Hey, Victor. Good to see you. Yeah. I have 2 questions for you. 1 related to your last answer and sort of the end of the talk, and a second 1 related to the heat map.
Speaker 7 My first question is about, like, the futures in the gene therapies in the sickle cell disease that you mentioned. And my sense is that that's gonna be far more expensive than Yep. Savosapir was, which was, like, what, 84,000, and this will be probably add 2 zeros at the end of that. Yep. And my sense is, like, what lessons do you think we can learn from that can be applied to the far more expensive cases?
Speaker 7 Do you think that there are pair models that are, like, in place or could be put in place like Netflix or other things that could be done? And then also sort of on the the business side, like, do you think that the scale is gonna change some of those conversations? Do you think you'll see those types of headlines that the Goldman Sachs people had? And then I guess my second question is on the heat map side. Like, you had mentioned that they had, like, mapped out the possibility that, like, congress would be called in, And then, like, notoriously, Congress was called in from Sevasivir, and they wrote an 80 plus page report about Sevasivir and how bad it was and how was the case study.
Speaker 7 Yep. And, like, do you think that the companies have the sense of the public relations piece of it if even anticipatorily they, like, thought that congress might be called in and they were completely wrong? So I guess just to summarize, 1 about sort of the gene therapies and cost, and second about sort of the public relations aspect of things.
Speaker 1 Yeah. So the gene therapies, I think, are yeah. As you say, you know, are gonna make hep C quaint look quaint. Right? Like, that was $90,000.
Speaker 1 We're talking about 2 point whatever $1,000,000 with what we're gonna see with, like, the sickle cell treatments. It is a smaller group of patients, but still a much higher number per treatment. And so I've got like, these are extra slides that I've got up, but I think the lessons, unfortunately, are I think what we're gonna see is, like, a way in which how unfortunately with the sickle cell treatments, I think we're gonna see race play, you know, a really problematic role in that. The pharmaceutical sector is already trying to figure out how they can actually use an anti racist frame to argue that actually, if we value black health and black life, then we should pay this much money for those treatments. And they've kind of you know, these are just some, like, examples where Vertex has given money to Ibram Kendi, and kind of, like, the framing around this, which is, you know, gonna be really an interesting interesting argument.
Speaker 1 And actually there are parallels with what happened in hep c, which is that a lot of the folks were, like, if you don't, you know, pay for this, then you're stigmatizing the structurally marginalized patient population, which is a really interesting kind of framework to kind of crack. And I think in terms of, you know, the headlines, I think we're gonna see headlines around sickle cell. We already are, and once they come out, particularly with Medicaid programs. And I think there's been discussion around, like, outcome based agreements, right, where, you know, companies, you know, basically there'll be kind of like a bit of a pay for performance kind of agreements, but we know that those are really actually hard to enact in practice, and clawing back money, for example, if the treatments don't work. But, you know, I'm not an expert on those kinds of agreements.
Speaker 1 I think the Netflix agreement would seem to be something, like, that would also be really interesting to try out, but, we'll kind of see where the policy discussion goes on that. I think we at least do have the hep c example to, like, quick you know, if you wanna get a case study, you know, I would encourage people to read the book because basically a lot of those things I think you can probably replace the price and the treatment and a lot of the dynamics will probably be pretty similar. So hopefully, you know, we can advance the policy conversation pretty quickly. And then in terms of the public relations piece, you know, hep C is an interesting example because I think the companies anticipated the did anticipate some blowback, and particularly Gilead. Part of the challenge was that there were so many patients that they didn't anticipate would actually want the treatment right away because they were kind of warehoused as it was being called, right?
Speaker 1 Because these were patients waiting for these treatments. And so as soon as these patients this treatment came out, there was a large number of patients that could benefit and so the costs were so high that it did kind of create the sticker shock. And I think this is something that they underestimated. But But at this point, I think this is part of where it's gonna be interesting to see in the ways in which I think, you know, arguments around value. I think the reason that companies now don't wanna talk about r and d costs because there's no relationship.
Speaker 1 Right? Like, Gilead, spent you know, they made $46,000,000,000 I guess they would argue that they spent $11,000,000,000 to buy the drug, but that's not an r and d cost. Right? That's the cost of circulating finance capital through the process. And so that's why this value argument is gonna be really powerful, I think, and what they're gonna lean on to really kind of drive in these PR battles.
Speaker 1 And I think part of it is gonna be about bringing in the key kind of academic, voices to help make help them make those arguments.
Speaker 0 Yeah. Let let me just bring in a couple of questions from, from people on Zoom. So 1 question was about whether the Netflix approach, whether it applies to only states' Medicaid programs, or should we be viewing this as, like, all, for all payers? And then the other question, how's how do you think about incentives for firms to develop curative treatments? Is there a relationship to financialization and and the development of more curative treatments?
Speaker 1 Yeah. Those are both really good questions. So the all pair Netflix model, you know, the idea for the Netflix model comes from a country that actually did it exactly that way. Right? Like in Australia, they did a federal program where they basically are, like, we're not gonna let you guys enter our markets unless we strike a deal.
Speaker 1 So Australia is where we see this first kind of really take place, where they had about I don't remember exactly the dollar figure, but a small amount of small meaning like $1,000,000,000 or something like this for hepatitis c. And they went to the companies and struck a deal, for a Netflix model, and it actually put the country on path to elimination. And so, you know, I think that's just, like, much harder in the US system because we have so many fragmented actors and vested interests. And so, you know, to try and get all pairs on that train, it's gonna be a huge challenge. But I think, you know, that should be part of the policy conversation, because that would be even more powerful for the kind of our our breakthrough treatments.
Speaker 1 Now now the question of incentives, I think around curative treatments, it is really hard. I think the reason that these treatments were developed in part was because it was such a huge patient population, right, that, like, they did make a lot of money. So there was, like, a huge financial incentive in that way. But, again, like, the argument that then Gilead actually used that money to kind of drive towards cures for, let's say, HIV. If anything, it actually taught Gilead, and you can actually read the earnings calls transcripts, to tell Wall Street, like, look, we've got these HIV treatments.
Speaker 1 Guess what? They're lifelong treatments. And it's, like, where we're gonna base our growth off of. Right? Look at PrEP.
Speaker 1 We're trying to try and get people on PrEP. All these treatments, these are lifelong treatments. This is where we're gonna get growth from. And so it didn't actually necessarily incentivize, you know, so to that question, I think it's a really challenging 1, and I think it depends on the treatment we're looking at. I think I didn't answer maybe well, I think this goes to, Fraser, your question also around curative treatments.
Speaker 1 Like, I think, it depends on the patient you know, the size of the patient population that could benefit, the length of treatment that would be entailed in that given area. You know, I think the idea that people have talked about for a long time is this delinkage model, right, where the public offers prizes. And this has been in the policy conversation for a long time where the government basically delinks the R and D market from the pricing and delivery market, where they go to a company and say, We'll give you $10,000,000,000 if you develop drug, and then we're gonna license it to, like, a, you know, in a to a generic manufacturer, for example, or or to a manufacturer that will manufacture this at the cost near the cost of production. That would be, like, kind of the easiest way, theoretically to incentivize cures where the public says there's a big public interest, we will allocate amount of money, we'll give you a prize, and mentioned this, like, in this case in hep c, the drugs only cost $100 to manufacture. Right?
Speaker 1 They're priced at $90,000, but it costs about $100 in the factory to make.
Speaker 8 Yeah. Thank thank you so much for this, insightful talk, doctor Roy. I guess I'll just come out and say my question's about single payer.
Speaker 5 Mhmm. And
Speaker 8 I'm just wondering, you know, like, I think we've talked about some of these other possible options and ways that people are approaching this, like the Netflix model and things like that. But they're very, like, you know, fragmentary approaches. They might work in some places, not others. They benefit some people and not others. And so just thinking, like, you know, from a medical perspective, if our goal is to get people the treatments that are indicated, you know, when they need them rather than delaying until they have end stage liver disease, etcetera, how how do you think, like, you know, a single payer model where you have this much stronger negotiating power on the side of, you know, the payer, Given that you said, you know, like, Medicaid is fragmented and, like, you know, thus, less people are covered, like, how would, coverage and treatment of things like go looking into the future, like these sickle cell treatments and then hep c patients now, how might that look in a single payer model, and what are other possible, like, I don't know, side effects or unintended consequences that you might foresee?
Speaker 1 Yeah. So I think from the hep c example, we saw what happened with single payer across Europe. Right? So what happened there just kind of and I'm not putting up the empirical evidence. It's in the book because I do cover some of what happens internationally in chapter 3.
Speaker 1 But what happens in those systems is that there are delays in terms of access of months to sometimes a small number of years, because that period of time the single pair systems are negotiating with the industry, like, that's what that time goes to. Unlike in the US where, like, the treatments were available, but only to a fraction of the population, in the single pair systems, you know, the access opened up a little bit later, but to a much larger like, you know, to to most of the patient population pretty quickly. And so I think that's kind of 1 we just have case studies of what happened during hep c, and then, you know, same thing with the Australia example. Right? They were able to use their negotiating, like, what we know of monopsony.
Speaker 1 Right? The power of a single purchaser, not just a single producer. Monopsony power of the government to be able to then negotiate prices in a way that, you know, is more favorable in terms of access. I think, of course, there are huge political, you know, fights around that because there will be the argument that we can talk about around, you know, how does this change the incentives for doing R and D?
Speaker 3 Yeah. So thank you for this talk. I had a question on the research and development for drugs with or diseases with very low patient population. So is the actual money that's spent towards the research and development proportional to, like, the graph that you showed us earlier where, like, a lot of it, 3 times the money was spent on, shareholder value and, like, only a small portion was spent on research and development. So, like, for gene therapies, when they say that research and development costs are much higher, is more of that going towards shareholder value or is, like, is it proportional to, like, how many people You know,
Speaker 1 it's an interesting question in terms of I'd have to actually, like, empirically look at that in a way that it was systematic that I didn't in this study. You know, I think that because of the smaller patient numbers, there's the idea, the premise that you can charge higher prices because that's the only way to kind of circulate the capital in a way that people will want to invest. And so I think that, that's definitely a piece of this. And when there are smaller numbers, you know, I think pairs can deal with that a little bit easier, though I'm sure other people would maybe have counterpoints to that claim that I just made. I think, it becomes much harder when there are multiple rare disease treatments, like, might exist in 10 years that are all, like, 3, 4, 5, $6,000,000 and then the the population of rare diseases ends up being actually, like, not so rare because of in aggregate, it's actually quite a bit of money.
Speaker 1 So, you know, I think that in this case, that is all about, like, how do we circulate those prices the premise behind the prices, like, what I've described is, like, how do you circulate enough capital to kind of, like, finance especially rare disease areas, whether, like, companies that are doing this disproportionately spend their money on shareholder payouts versus R and D. I venture a guess that the patterns are pretty similar, but that's an empirical question that I would need to take a closer look at.
Speaker 0 So we're about out of time, but I, again, wanna thank you so much for this really exciting and and fascinating talk. And, this will be 1 of many, talks on the financialization of health for this year. So I invite you to come and I appreciate, everyone who came here today.