(A version of this Health Alert was published by Forbes on July 29, 2015.)
When was the last time a billionaire entrepreneur en route to New York to raise a couple of hundred million dollars for biotech company stopped in Washington, DC to spend the afternoon in a panel discussion advocating the need for fundamental reform of the Food and Drug Administration?
Patrick Soon-Shiong, MD, founder of the NantWorks group pf companies, did just that on Monday afternoon. At the event, the Bipartisan Policy Center launched a report on advancing medical innovation in America. Written by a team led by former U.S. Senate Majority Leader Bill Frist, MD, and former Representative Bart Gordon, the report seeks support for a number of steps to reform regulatory processes and reduce the cost of medical innovation.
I would characterize the event as a push for the U.S. Senate to act quickly on legislation similar to the 21st Century Cures Act recently passed by the House. The 21st Century Cures Act comprises the first fundamental restructuring of the FDA in over half a century. More importantly, it recognizes – for the first time in FDA history – that more regulatory burdens are not always good, and that medical innovation requires balancing risk and benefit.
The productivity of pharmaceutical research and development has collapsed over the years, and the report tells a sobering story: Every billion dollars (inflation adjusted) of research and development spending resulted in about 50 drugs in 1950, only about 10 in 1962 (the date of the last major FDA reform), and just one or so every year for the last two decades.
Dr. Soon-Shiong was on his way to New York for the IPO of NantKwest (NASDAQ: NK), a biotech company researching what Dr. Soon-Shiong calls “Natural Killer” cells to fight cancer. Yesterday, NantKwest blew the doors off. Priced at $25 a share to raise $207 million, the stock opened at $37 and traded in the mid-30s for the rest of the day. The company also privately raised $17 million from Celgene (NASAQ: CELG), a drug-maker which has a longstanding business relationship with Dr. Soon-Shiong.
As recently as last October, I was able to write about the drought of funding for new biotech ventures. No more: “It’s one of the best periods for biotech funding in the history of the industry, offering an opportunity for emerging companies to scale and develop their pipelines more significantly than ever before,” according to venture capitalist and Forbes contributor Bruce Booth.
NantKwest has a long and windy road ahead: So far, its Natural Killer cells have been evaluated for safety only (not efficacy) in trials on a very small number of patients (“over 40,” according to the prospectus). Perhaps more important for the bigger picture, NantKwest’s successful IPO bodes well for the next likely offering from Dr. Soon-Shiong’s portfolio, NantHealth. NantKWest is a biotech company. NantHealth is much more. According to the company:
NantHealth solutions are advancing diagnostics to better identify and target specific disease characteristics; transforming clinical and operational delivery with real time actionable clinical data, and promoting wellness for a healthier, happier world. We are building an integrated, evidence-based, omically-informed, personalized approach to the delivery of care and the development of next generation healthcare solutions.
Some experts find this hard to grasp. It’s not so much that the individual components are hard to value, but the whole enterprise likely runs up against managerial diseconomies of scope and scale. Other entrepreneurs take on much smaller pieces of this challenge. On the other hand, health information technology giant AllScripts recently made an equity investment in NantHealth valuing the company at $2 billion, indicating its business plan is credible.
The boundaries between R&D, diagnosis, treatment, patient monitoring, and population health are blurring very quickly and we do not have a regulatory apparatus that can handle that. President Obama calls this “precision medicine” and he is right to emphasize it as a priority. Indeed, the requirements for regulatory reform go beyond the FDA, as described in another important report focusing on regulatory barriers to genomic research that are not controlled by the FDA alone.
Congress is on the verge of passing regulatory reforms unimaginable just one year ago. This is surely a factor motivating investors’ confidence in the recent wave of health innovation. We need all hands on deck to ensure the politicians do not lose momentum.