JPM at 15

January 4, 2018
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To “skip a stone” takes more than just practice.  It requires discriminating selection, as only a tiny subset of stones will do.  The perfect stones for this are those that have been polished by time – rounded of rough edges and protected from too much mid-body girth.  Slowly acquired features derived from countless collisions along the water’s edge and its constant energy and commotion.  Skipping requires momentum, but not just speed.  It requires a discrete angular velocity that will enable the first encounter to be rebounded into a series of repeating patterns that allow the stone to touch, taste, re-lift and return across the awaiting surface – again and again.  A useful metaphor for many things, but particularly apropos as we gather our things, board our planes, trains or (likely time-shared) automobiles to rejoin as a community at the J.P. Morgan 2018 Healthcare Conference and, our 36th “skip” as an industry.  Again, we are all returned to San Francisco to reflect on the trajectory of the biotechnology industry and now healthcare in general.  To see how we, as a community, can bring forward new medical advances that are needed all across the world.

Now over the last several years, I’ve taken some of the holiday break to remind myself of the key milestones that we have witnessed together as an industry, skipping in each instance in 5 year increments from the auspicious 1982 start of the J.P. Morgan Healthcare Conference (or as it was still called then H&Q).

JPM at the beginning

JPM at 5

JPM at 10

This year we take our historical “skip” back to 1996, when the conference would reconvene for its 15th consecutive year.  1996 was to be a year that would set many long-standing records and one that foretold many of the swiftly moving trends that still surround us today.  On a cold February morning, seated in a chair at center stage in Philadelphia’s Convention Center, the reigning chess world champion (at that point for 11 consecutive years) Gary Kasparov took on a machine known as “Deep Blue” in a six-game match held over six consecutive days. After losing his opening game, a startled Kasparov regrouped across the week to eventually prevail (4-2).  Just one year later in a heavily-promoted rematch, this time in New York City, against a 2X upgraded Deep Blue that was now capable of considering 200 million chess moves per second,  Kasparov was beaten, handing Deep Blue the “Man vs. Machine” title that has held ever since.

Today, these events almost seem quaint, as we have steadily moved from the brute force computation used by Deep Blue into neural networks and the reinforcement learning techniques most of today’s “thinking machines” leverage.  Learning algorithms poised to take on far more challenging objectives than beating a lowly human at chess; or even Go, a game vastly more complex.  With our bruised egos well behind us, we have moved forward in our relationship with these digital creations of ours; now almost complacent (or worse ignorant) of how integrally involved they are in so many of the daily facets on which our contemporary lives depend.

Sparked by the AIDS epidemic, in the early 90’s pressure was building to more efficiently get drugs reviewed and, if appropriate, approved by the FDA.  In response to the public, the FDA themselves, and the industry’s outcry, the “Prescription Drug User Fee Act” (PDUFA I) was passed by Congress and signed into law by President H.W. Bush in 1992, with a schedule of recurring 5-year re-appropriations that remain in place today.  FDA leaders had petitioned Congress for years, without success, to get additional funding to support the increased staff required to efficiently handle the review of the growing number of new drug approval applications.   Under PDUFA, the FDA and industry agreed on target completion times for reviews and new user fees from the industry that would significantly supplement federal appropriations.  The fees were used to hire 600 new drug reviewers and new support staff.  This enabled the FDA to work through the backlog of applications. By 1996, the full effect of PDUFA was kicking in and helping the FDA set a record for new drug approvals (53); an annual approval record that still holds to this day. Also helping to set the stage for a robust 1997 Congressional reauthorization of PDUFA, a shared commitment that has also held into the present.

Amongst the new medicines of 1996 are some of the most impactful products in our industry’s history – from lifesaving cardiovascular statins, to major new oncology drug advancements that remain in frontline regimens today.  But few diseases defined these times more than the highly-feared, and then still essentially lethal, HIV virus.  But 1996 was a key year that began a new trajectory for people infected with HIV, with several new treatments being approved.  A year that was dominated by small molecules but two of the “biotech” drugs were also part of the class of ‘96 as well.  As we fast forward to the present, several of the HIV drugs first made available in 1996 are now cornerstones within life-saving, next-generation multi-drug combinations that have essentially converted HIV into a chronic condition, at least for those fortunate enough to have access.  Meanwhile, a promising new HIV prophylactic vaccine, currently in randomized field trials, holds potential to help us put the visceral threat of HIV even further behind us.  Two decades after bringing a vastly improved insulin (and outcomes) to many of those that suffer from diabetes, a biosimilar has just crossed the doorstep of FDA approval in 2017 as well – a text-book example of how innovation (and time limited IP protection) can fuel renewed investment.

Drug approvals are the life blood of biotech and the resulting string of positive news that filled the airwaves of 1996 had a profound effect on the financing climate.  Since inception, the industry had never had a year that “bent the needle” with IPOs, but 1996 was to be that year.  Prior to 1996, the largest annual biotech IPO class had been 33 (in 1991), but 1996 saw 49 new biotech company public listings, re-setting the peg to a new normal – the annual IPO class size that is similar to what we still tend to see today outside of swings – aka, the post sub-prime lending market freeze (in 2008-2012 with ~6-19) or moments of irrational jubilation (in 2014 with 90!).  IPO investor enthusiasm of 1996 wasn’t confined to biotech – five years into the launch of “the internet” all things were heating up as well – and “going public” was a sign of the times for many.

As we head into the 36th annual J.P. Morgan Healthcare Conference, it is timely to reflect on the year that we’ve just completed. The NASDAQ Biotechnology Index (NBI) ended with a gain of 21% over the year.  iShares Nasdaq Biotechnology ETF (IBB), which are benchmarked to the NBI, likewise gained 21%.  The BioCentury 100 ended 2017 up 32%.  The NYSE Arca Biotechnology Index (BTK) finished the year up 37% topping the others, although it is less diversified.  These numbers stand in the context to the broader markets where the Dow Jones Industrial Average (DJIA) gained 25%, the Standard & Poor’s 500 index (S&P 500) climbed 19% and the NASDAQ Composite ended up 28% for 2017.  As we close the books, the year had also included 40 US biotech IPOs; 12 more than was achieved in 2016 and doubling the total raised (from ~$2.0B in 2016 to ~$4.0B in 2017). That said, many have struggled and the IPO markets are clearly more and more discriminating.  2018 will be a true test for those that seek a public listing.

2017 saw 46 medicines approved by the FDA, more than double the worrisome 22 in 2016 and back on pace with the 45 and 41 in 2015 and 2014, respectively.  Our class of 2017 approvals address key areas of unmet medical need and represent a mix of small molecules and biologics, a quarter of which are targeting cancers.  An impressive collection of novel treatments and a year to be deeply proud of.

When we first gathered as a community, the industry’s 1982 aspirations were metaphorically reflected in the boldness of Lawnchair Larry’s flight that year “to rise above it all” because “he could.”  By 1996, just 15 years later, our determination had transformed from boldness and impatience with the status quo into whole new categories of medical solutions and a new level of aspiration and earned confidence about what could be achieved.  Into a growing global community that was testing entirely new collaborative approaches – with regulators, payers, patients (our true customers), and increasingly between ourselves.  The pace of our expectations and output had been moved to new settings; because lives all across the world depended on it.

As we navigate the “climate of our times,” the world of 2018 seeks new sources of direction and leadership.  Ours is a world looking for evidence that “we’ve got this.” That we can truly bring forward solutions that will address both “the ailment” and the “affordable access” equation on which all sustainably-viable covenants with society depend.

With 2018 in-hand, we must again decide to lead by example – charting a nuanced course on which the world, and we, will be durably proud – turning “the possible” into “the remarkable”; then skipping yet again.  Taking our aim on all medical suffering which could be avoidable, preventable, treatable or curable and striving to ensure all that we do is accessible and responsibly priced.

See you there!