The United States pays more
for drugs than any other country. They're profiting
from what is fundamentally a broken system. Every calculation that I
made clearly demonstrated this is not any more a
regional outbreak, but the virus has already spread
worldwide. Johnson and Johnson
announcing that it's going to be splitting into two
publicly traded companies. I am living, have lived and
want to continue to live as best I can. Revenue from U.S. retail pharmacies reached a
record $465 billion in 2020.
The United States pays more
for drugs than any other country. Drug prices are
totally irrational, something that should cost
$2 off and cost $300. Because of the complicated
relationship between insurance companies and
pharmacies and coverage. Millions of people get their
prescription drugs from pharmacies like CVS,
Walgreens and Rite Aid. I like to describe it as the
pharmacist really being the most successful health care
professional. It's the last provider that
most patients see before going home. Those in the industry say
maintaining a dynamic pharmaceutical delivery
system helps the consumer save money. Patients have a wide array
of choices on which pharmacy they'd like to go to.
They're likely going to go to the pharmacy that gives
them the best experience and the lowest cost for their
medications.
But nearly one in four
Americans say it's difficult to afford their
medications, according to a March 2019 poll by the
Kaiser Family Foundation. I'll do whatever it takes to
help a consumer find a fair price. They're profiting
from what is fundamentally a broken system. It is
fundamentally the problem we have. So how did the system of
delivering prescription drugs become so
complicated? Why do pharmacies exist and how
can consumers best save money? The business of
pharmacy throughout the 1800s was primarily selling
medications, compounding drugs on site for their
patients.
But new technology and mass
manufacturing forced them to pivot, pushing them closer
to the drugstore model we know today. Pharmacists
moved their laboratories and equipment to the back of
the shop, leaving space to sell other items such as
candy and tobacco products. This ushered in what is
called the soda fountain era of pharmacies. If you see a lot of pictures
of pharmacies from the late 1800s, early 1900s, these
are beautiful pharmacies. They have elaborate soda
fountains. They've got marble
counters. Once you get into about the 1920s, 1930s,
this whole front end of the pharmacy stuff that
happened in the pharmacy, which was not related to
compounding and not related to dispensing, really took
off and became what pharmacies did for not only
the majority of their revenue in sales, but the
vast majority. When Prohibition went into
effect in 1919, sale and consumption of alcohol for
quote, medicinal purposes was allowed, creating a
legal loophole that many physicians and pharmacists
exploited.
Front of the store
activities were the main business for pharmacies in
this era, with less than 1% of pharmacies in the 1930s
making more than half of their sales in dispensing
soda fountains also replaced the local bar as a place to
socialize. Pharmacists use some of
their chemistry knowledge to create fun flavorings for
new soft drinks, such as root beer, Dr. Pepper and Coca-Cola. While they could still
technically prescribe medication during this
time, it was considered unethical to give out drugs
without a physician's recommendation, often
referred to as the lick, stick and poor era. The 1950s saw another shift
in pharmacy practices. A clear legal distinction
was drawn between pharmacists and physicians
role in dispensing medication with the passage
of the Durham Humphrey amendments in 1951. That is the first federal
law.
That said, this is a
prescription and this is an OTC product. There was some
distinction for controlled substances before that, but
really before Durham, Humphrey, there was nothing
legally in most cases that would stop a pharmacist
from giving a patient something without a
prescription. Physicians, however,
continued to dispense medication through the
1980s. Around that time, there was a spike in the
use of third party insurance plans for prescriptions. Physicians, by and large,
got out of dispensing the types of medications that
you would get through the pharmacy, partially because
the process of setting up the systems that you need
to dispense and maintaining those and all the
regulations and then go along with it are just so
onerous that it no longer makes sense for your
average position to dispense.
This retail model for
pharmacies is a lucrative business. Major drugstores
such as CVS and Walgreens make the majority of their
money from their pharmacy. For retailers, the
pharmacies are really a traffic driver. So if you
think about CVS and Walgreens in particular,
you walk through their whole store to get to the
pharmacy in most cases. And that may mean that you
pick up things like toothpaste or shampoo when
you're going to or from the pharmacy counter. So it's
not only a way to drive traffic, it's really a way
to drive sales.
Cvs recently reported its
second quarter earnings, and if you even look at its
quarterly sales or its annual sales, you'll see
that the pharmacy drives the most revenue of its three
different categories. Cvs, which held the largest
share of the prescription drug market in 2020,
generated more than $72 billion in total revenue in
the second quarter of 2021, with 24.7 billion of that
from its retail pharmacy and long term care businesses,
and 38.3 billion from its pharmacy benefit management
services, which we'll get to in a minute. Walgreens has
the second largest share of the market. It generated
$28.7 billion in US sales during its fiscal third
quarter of 2021. 21.7 billion of it was from
US dispensing services. In principle, the way
pharmacies make money should be simple buy a product in
bulk at a low price and then sell it at a higher price.
That's still a competitive
rate, however, insurance negotiations make it more
complex. Reason why pharmacies
overcharge is as they want to charge a price that they
will make money on for any given third party payer
that's going to contract with them. Retail pharmacy
set the list price of a prescription above the
amount they expect to get from any insurance company. That's because an insurance
company will never reimburse a pharmacy more than they
will charge a cash paying customer. So if the
prescription price at the pharmacy is $20 and the
insurance company pays $10, the uninsured patient would
be forced to pay $20 if the pharmacy lowered their
price to, let's say, $5, the insurance company would
only pay them the $5 because that's what's often called
the usual and customary price. So pharmacies always
set a list price that is far above what they expect to
get from an insurance company. People who are
uninsured don't have the benefit of insurance, end
up paying the highest list on discounted price for
their prescriptions.
There are also organizations
called pharmacy benefit managers or PBMs that
influence pricing. Pbms are hired by health
insurance companies to serve as an intermediary between
the insurers and other parts of the system. An insurance company
basically says, we'll bring in an intermediary whose
specialty is to be able to negotiate what type of
prescription plans or drug costs or coverage would be
best for the insurer. That middle person access
the go between.
But PBMs are controversial
within the industry. They play multiple roles in
the system. So they're also, in many
cases, operating pharmacies. And many of the pharmacists
feel aggrieved because they are now competing with the
entity that they're also negotiating with for
payment, and they perceive that to be negative. There should be
negotiations between the PBMs and the pharmacies,
and the pharmacies should be able to say, look, we'll
only accept this price. And the PBMs say yes or no,
but it's take it or leave it. The top three PBMs, CVS
Health Care, Mark Cigna's Express Scripts and
UnitedHealth Group's Optumrx X processed about 77% of
all prescription claims in 2020, according to Drug
Channels Institute. All of these businesses
also have a pharmacy division.
So CVS, through their
Caremark branch, decides what Joe's pharmacy or
Suzie's pharmacy or Walgreens we'll get paid. So, yeah, it's a conflict
of interest. Express Scripts, their mail
order group, they are one of the largest pharmacies. They also decide what
retail pharmacies get paid. And isn't it interesting
that a lot of times they'll try to steer patients from
a retail pharmacy into their mail order pharmacy? That's not a coincidence. When asked for comment, CVS
Health told CNBC its model simplifies health care for
customers and its PBM health clients prescription drug
cost increases to just 3% in 2020. Express Scripts PBM
said its broad networks give patients a range of choices
for where and how to fill their medications, saving
nearly $45 billion in 2020. Optumrx X declined to
comment. My name is Greg Lopez. I work with the
Pharmaceutical Care Management Association. That is the trade
association representing America's pharmacy benefit
managers. We don't think that is a
conflict of interest, and we think that there is choice
for patients to go to any pharmacy of their choosing.
They're likely going to go
to the pharmacy that gives them the best experience
and the lowest cost for their medications. You need some kind of
entity to manage to be an intermediary in this
system. I think the question is,
are the PBMs incentives? Aligned with their clients
and are they aligned with driving the lowest cost for
the system and the lowest cost of the patients? Pharmacies themselves are
not heavily regulated when it comes to setting generic
drug prices. Federal regulation on actual
drug prices, as long as there is no antitrust
issue, have been very weak.
Pharmacies have been
generally left to set prices at whatever they want. Once third party payers,
such as PBMs came into the picture in the 1960s,
pharmacies lost some control over pricing. It's at that point where
pharmacists, instead of setting a price and having
a person walk in and agree to pay the price or not,
all of a sudden you have this negotiation with the
pharmacy benefit manager and it's totally different than
what the pharmacist is used to and their margins on
products starts to fall fairly steeply.
A lot of people don't know
there is a prescription drug supply and payment chain,
and within that chain there are five or six actors. If you look at it really
closely, PBMs are the only ones driving the cost of
drugs down. State legislators have been
focusing on regulating pharmacy benefit managers
rather than pharmacies themselves. 42 states have
introduced at least one law aimed at regulating PBMs. The Supreme Court issued a
unanimous decision in December 2020 regarding
states rights when it comes to regulating PBMs. The ruling said that the
states had a right to require PBMs to reimburse
pharmacies for drugs at a rate that is higher or
equal to the wholesale costs the pharmacies paid for
them. There's also been regulations considered at
the federal level. The U.S. Senate Finance
Committee convened a hearing in February 2019 to
question representatives of the major PBMs about rising
drug costs. In September 2019,
Democratic Congressman Frank Pallone introduced the
Elijah Cummings Lower Drug Costs Now Act. The House passed the bill
in December of that year, but it died in the Senate
in July 2020.
Former President Donald
Trump signed four executive orders that aimed to lower
the high cost of prescription drugs. The Biden administration
agreed to push the effective date of one of the more
high profile orders to January 1st, 2023, rather
than have it go into effect in 2022. Congress tends to be
sympathetic, but they have not taken much action. And as a result, drug
prices keep going up. There are ways for consumers
to still save money on generic drugs, but it
requires some work. A Consumer Reports secret
shopper survey from 2018 found that there was a huge
difference between the cost of five commonly prescribed
generic drugs at different retailers. They found that
prices at the independent retailers and big box
stores were much lower than those at large chain
pharmacies. One of the lessons for that
is to call around, go online and find a better pricing.
But the independents often
will have more competitive pricing, especially for
generic drugs. There are also various store
coupons and other vouchers that can bring down costs. One way is with something
called a discount card. Discount cards are backed
by PBMs and provide patients with a discount on the
pharmacy's retail price. There are three primary
types of discount cards cards created by a PBM
itself, cards through a retailer such as Sam's Club
or Amazon and independent brands such as GoodRx X.
Here's how they work. A PBM creates a network of
participating pharmacies that will accept the card
and then negotiate with each pharmacy to offer a
discount to customers. The pharmacies agree to pay
an administrative fee to the PBM when the card is used. The discount card vendors
such as GoodRx X form agreements with the PBMs to
receive a portion of that fee. We work actually with every
major PBM and we work with pretty much every major
pharmacy as well to kind of play that role of an
intermediary and ultimately give the consumer the best
option for them, which again may often not be their
insurance.
Goodrx X collected more than
$488 million in fees from its discount card programs
in 2020. Guru X has just taken the
discount card model and found a way to scale it in
a way that no one else has scaled, both in terms of
marketing to consumers and in terms of accessing the
network rates of multiple PBMs at the same time, one
of the reasons good R X has grown so quickly is that it
gives the uninsured people or people who have maybe
insurance that isn't as good for them an opportunity to
get access to some network or discounted rates
operated by pharmacy benefit managers and insurance
companies. Because GoodRx X is a
marketplace and we get billions of prices into our
system, we can often find better prices by not using
necessarily the insurance that you have, but by
finding a better price, by simply looking at all these
other different ways that consumers can save. Most of the people using
discount cards actually have some kind of health
insurance plan.
But when a discount card is
used, the customer is bypassing their health
insurance to use a PBMs insurance network instead. The fact that we have so
many people bypassing their insurance and using another
insurance plan shows there's a problem in how generic
drugs are priced to the consumers who have
insurance, even Medicare or commercial insurance. If pharmacies receive less
money from the customer for a medication and also have
to pay a fee to the PBMs, how do they benefit from
discount cards? What the discount card
vendors will tell you or tell the pharmacies? Is,
Well, if it wasn't for this card, there would be $0 of
revenue. The patient wouldn't fill
the prescription because the price is too high. By using the discount card,
the patient could fill that prescription. I'll do
whatever it takes to help a consumer find a fair price,
not just for prescriptions, but for care as well.
Seeing a doctor, etc., it's
broken. And so we can try and point
fingers at manufacturers or PBMs or anyone. The reality is, is they're
doing what our system designed, and if we don't
like it, we should come up with a better way. But until then, good or X
is going to be focused on helping consumers navigate
this crazy system, navigate all these complicated terms
that people don't understand, just to simply
use those same market forces that they use in every
other way that they purchase something in health care. I have mixed feelings about
GoodRx X. I applaud them once they've
done, I applaud the value they bring to consumers.
On the other hand, they're
profiting from what is fundamentally a broken
system. They can't change the
system. So I understand that. But it is
fundamentally a deep problem we have. Pharmacy serve a vital role
in the health care system. A study from July 2020
found that people on Medicare visit their
pharmacist more than their physician. What I like to describe it
as is the pharmacist really being the point of contact
in the medical home. It's the most accessible
healthcare professional. It's the last provider that
most patients see before going home. So demand and expectations
tend to be high when it comes to the delivery of
pharmacy services. A physician is trained to
diagnose, to take care of the patient in that way. A pharmacist is indeed the
drug professional. We know the ins and outs of
drugs in various specialties, and it's very
difficult sometimes for a single person to understand
all of the disease states, all of the medications, all
of the nuances, all of the insurance information, all
of the PBM information regarding managing that
patient.
The two can't really exist
without each other. It was January 24th, 2020,
when Biontech CEO Ugur Shahi knew that COVID 19 was
likely to become a global pandemic. Did some calculations and
calculated how many people were infected? How many
weeks? How many people could have
traveled? How many people could be
asymptomatic? And every calculation that
I made clearly demonstrated this is not any more
original outbreak.
But the virus has already
spread worldwide. Though it was over a month
and a half before the World Health Organization
officially declared a pandemic. Shahi met with
his wife, Biontech, co-founder and chief
medical officer Özlem Tureci, and together they
agreed to redirect most of the company's resources to
developing a vaccine. It was immediately clear to
both of us that the technology we had, which we
had already clinically developed, could help to
ensure a rapid response. Up until that point,
Biontech was primarily focused on developing novel
cancer treatments. The company was little
known internationally and had never brought a product
to market. They were still a small,
relatively unknown biotech company, really working on
this cutting edge science. The founders were confident
in the potential of their mRNA technology, which they
knew could trigger a powerful immune response. That confidence wasn't
necessarily shared by the broader medical community. No mRNA vaccine or
treatment had ever been approved before, but the
couple's timely breakthrough was actually decades in the
making.
We understood that we would
need to invest some time and it would need innovations
on different levels in order to make it really work for
vaccines and beyond. But the potential was
already clear there. Shahi and Qureshi, whose
families both immigrated to Germany from Turkey, met in
the early 1990s when they were working in the cancer
ward at a hospital in southwest Germany. Neither envisioned a career
in business. During my time at the
medical faculty studying medicine, I also started to
do my PhD, which meant work in a laboratory and that
actually caused a clash. In my perception. Tucci and Shahi both
realized that while there was little they could offer
terminal cancer patients in the ward in the lab, they
saw lots of potential for new treatments. I was doing my lab work and
understood that the immune system could be a powerful
weapon to fight cancer. And at a certain time
point, I realized that it's not only laboratory work,
but you have really to develop the therapies and
you need funding for that. Out of desperation, I become
became an entrepreneur and founded companies because I
understood that if you want to use innovative research
to develop medicines, you have to do it yourself.
The couple had been studying
messenger RNA or RNA since the late 1990s. The function of mRNA is
essentially to teach our cells how to make specific
proteins. But because mRNA is very
unstable and quickly degrades in the body, they
knew there was still a long way to go before it was
ready for use in a vaccine. At that time point and on it
was used by a very small community. So it was like a
talent. You see a young talent. You know all the weaknesses
and you know that you have to invest a lot of years to
make the technology mature. So in the meantime, they
co-founded their first company, Ganymede
Pharmaceuticals, in 2001.
Ganymede used a more
established technology monoclonal antibodies to
treat stomach cancer, and the couple sold the company
for 1.4 billion. In 2016. It was Germany's biggest
biotech deal ever. By that point, Shahi and
Qureshi were already eight years into their second
venture, Biontech, when they founded the company in
2008. The couple felt that they had improved the
stability of mRNA enough to focus on developing
individualized cancer vaccines. Because challenge in cancer
treatment is that every cancer is different. The
personalized or individualized cancer
vaccines are based on getting the tumor of the
patient and analyzing that tumor, then making a
vaccine which is tailored to the profile, to the genetic
profile of the of the patient's tumor. Unlike traditional vaccines,
mRNA vaccines don't introduce a weakened
version of the virus into your body. Instead, the
mRNA instructs the body to make a specific virus
protein that will trigger an immune response and produce
antibodies which can be used to fight off a cancer
that's already growing or to protect against future
COVID 19 infections.
And while traditional
vaccines require scientists to collect and grow large
quantities of a virus, a process that can take
months. Mrna vaccines are much faster to produce. That's because they're made
from a DNA template in the lab, the sequence for which
can be shared electronically in an instant. It's the most ancient
information technology, which means that the
organism is prepared and has all the tools to understand
what you want to convey in terms of messages with
Miranda. The vision and the
scientific know how. We're in place. But by the
beginning of 2020, Biontech had still not gotten any of
its mRNA cancer vaccines approved for use in humans. The company had never
turned a profit, and when it IPO'd in 2019, it raised
about 100 million less than it had hoped for. They were still a small,
relatively unknown biotech company, really working on
this cutting edge science. But the world was on the
verge of changing. On the day when Shahi
realized that COVID 19 had already spread around the
world, few others were concerned.
Europe had just
reported its first few coronavirus cases, and
Germany had not reported any yet. But after Shahi and
Teresi talked that morning in late January, they
immediately jumped into action. On the weekend, we started
to design the vaccine sequences and on Monday we
met our teams, explained them. This could become a
global outbreak and that we have the obligation to do
the best what we can do to come up with vaccine
candidates. And already on Tuesday, we
had the full commitment of the whole team to start the
development of a new vaccine. We are like in a military
operation. The teams were redirected.
We never put our cancer
programs at all. So they went on, Why are
those parts of company who could really help with the
COVID 19 project started step by step to pick up
pace and work on a project. Lightspeed Biontech. Knew that to successfully
produce tests and manufacture a COVID vaccine
on a global scale, it would need a bigger partner. The company had already
partnered with Pfizer, having worked with them
since 2018 to develop an mRNA based flu vaccine,
which is currently in clinical trials.
And so naturally, Biontech
turned to them. We approach Pfizer in early
February, which was very early, because no one
really believed that there was a pandemic. And as everyone else, our
Pfizer colleagues did not really believe that a
pandemic vaccine would be needed. And the response at
that point from Pfizer was no. And I talked with
Pfizer CEO about this, and he was saying essentially
at that point early on, he was really focused on
Pfizer's operations in China, at Pfizer's people
in China, and he wasn't yet thinking about developing a
vaccine. Undeterred, Biontech
initially went at it alone, developing not just one but
four vaccine candidates. The company started
preparing for phase one clinical trials in Germany,
which would test the vaccine in humans. By this time,
others were starting to catch on. Covid 19 can be
characterized as a pandemic. Dow is now down more than
100 points. As moments ago, the W.H.O.
Has formally declared the
coronavirus a global pandemic and now the
extreme new measures in the US. Large events banned in
Washington State and San Francisco. As US cases rise
over 1000. Less than a week after the
pandemic was declared, Pfizer agreed to work with
Biontech to help them scale up their clinical trials,
production and distribution. We had our first patient in
on on April 21st.
It was the first volunteer. And in July we started
phase three clinical trial. This was already in
partnership with Pfizer, which allowed us to move
fast from the early stage of clinical development to the
to the later stage of development. So as they were starting
phase one, they were designing and figuring out
phase two. As they were getting into
phase two, they were figuring out these massive
phase three clinical trials that they managed to start
in the summer. And the FDA and regulators
globally were working on being incredibly flexible. Over 43,000 participants
were enrolled in the company's Phase three
trials, which measured how many vaccinated
participants contracted COVID compared to the
unvaccinated placebo group. Shahi and Qureshi were by
no means certain that the vaccine would work at all. We knew that the vaccine is
able to activate the immune system, but we didn't know
whether the immune system is able to control the virus.
So as a scientist, my
expectation was it would be great if we have 70%
efficacy. But I was also aware that
if the immune system is not able to control, we might
have just a negative result. And getting getting the
call on Sunday evening and hearing that we have 95%
efficacy. This was extraordinary, of
course. Hi, my child. And then we
had expected. And it brought this just
amazing hope that we would be able to start fighting
back against this virus. And I think everybody who
got that news felt like their lives changed. Over 1.75 billion doses of
the Pfizer Biontech vaccine have been delivered
worldwide. And perhaps, obviously, Biontech is
finally making money with a market cap of nearly 60
billion. The company made over $4.5
billion in profit in the first two quarters of 2021. As the United States and
European Commission governments have entered
into massive contracts to buy hundreds of millions of
doses.
And Biontech stock has seen
a rise of over 500% since January of 2020. In the second quarter alone,
they brought in more than €5 billion in revenue. That compares to just about
40 million that they took in in the second quarter of
last year. So this has been a
transformative year for Biontech. In August, the Pfizer
Biontech vaccine became the first to gain full FDA
approval, helping pave the way for a return to normal
life. But there's still a long
way to go. Over half of the world
remains unvaccinated, and the virus is mutating into
new, more infectious variants like the Delta
strain, which is ripping through communities
worldwide. Our work on COVID is still a
large part of our activities in the company, obviously,
because there is still a long path to go until we
have manufactured sufficient supply to ensure that all
those who want to be vaccinated and need to be
vaccinated get the vaccine. In September, Pfizer
submitted data to the FDA demonstrating that a
booster given six months after the second shot
restores immunity to 95%.
Currently, the FDA has
authorized boosters of the Pfizer Biontech vaccine for
certain vulnerable populations, such as those
over 65. My personal opinion is that
we can't control the pandemic and we can't
control this virus. If we if we don't enable
that, that the vast majority of the population stays
immune. And then there's the issue
of kids. Currently, the Pfizer
Biontech vaccine is the only one authorized by the FDA
for use in children 12 and over. Though, the two
companies have requested emergency authorization for
ages five through 11 after clinical trials showed
positive results when kids were given one third of the
normal dosage. But amidst their ongoing
COVID efforts, Biontech has still found the time to
advance its oncology work. Even during the pandemic, we
have been able to initiate multiple Phase one clinical
trials, which meant bringing new concepts not only mRNA
vaccines, but also other immune therapies for the
first time in human testing in cancer patients.
And we have also initiated
advanced trials with our cancer vaccines where we
compare against standard of care treatments. We are, of course, excited
to, to, to get the data, and it could be as exciting as
COVID 19 efficacy data. Shahi and Qureshi emphasized
that developing therapeutic cancer vaccines, which are
administered after a patient has already been diagnosed,
are bound to be a much lengthier process than
developing the COVID vaccine. That's because of
the time it takes to recruit cancer patients for
clinical trials and monitor their condition over a
number of years.
Still, though, they say
there's much to be learned from the rapid response to
the coronavirus pandemic. Namely that it's important
also on the regulator's side, to have sufficient
resources in order to enable very efficient work on
dossiers for clinical trial approvals or for drug
approvals. There are processes which
could be much leaner and much faster. The question is, can we can
we use that model also for other severe diseases? And I believe we have to
consider how to use it, because if you take, for
example, cancer in the in the time between 2020,
beginning 2020 and now more patients die with cancer
than patients die by COVID 19. So it is not a
pandemic, but it's an. Endemic. Chahiye and tureci are
modest about their success. They ride their bikes to
work and don't own a car or TV.
And while their company
has grown from about 1300 employees at the beginning
of 2020 to around 2500 today, it's still minuscule
compared to the likes of Pfizer, which employs about
78,000 people worldwide. But what the influx of
money and attention will change is the level to
which Biontech can invest in and accelerate its other
endeavors. We have now the chance to
invest to accelerate our cancer immunotherapies. We have the chance to make
it bolder. We have the chance to go in
other fields. It's also very valuable to
acquire technologies or assets which we otherwise
would need to develop ourselves, which means
saving time. I'm and being faster to
bring medicines to patients. In July, Biontech acquired
Kite Pharma Cell Therapy platform, as well as its
Maryland based manufacturing facility. Kite is also
focused on developing cancer immunotherapy products, and
Shahi said in a statement that the acquisition will
accelerate biontech development of novel cell
therapies in the US and the company is expanding beyond
the oncology space to. In the next few years we
will certainly see that we will enter into clinical
development for infectious disease vaccines like
malaria, tuberculosis, HIV.
Continue to work in the
cancer field. Start projects in the
autoimmune field. Start projects for
treatment of inflammatory diseases, and have also
projects in the field of regenerative medicine. Since the pandemic began,
companies developing mRNA technologies have raised
billions of dollars combined. And according to
Root's analysis, an India based biopharma research
firm, there are over 150 mRNA based vaccines and
therapies in development. The COVID 19 pandemic
provided this incredible proof of concept for
messenger RNA. It showed it really works
as a vaccine against this coronavirus. Now, the
question is, will this really work as a vaccine
against flu? Will this really work as a
drug for cancer? Those questions are not yet
answered.
For their part, Shahi and
Tureci say the COVID vaccine is just the beginning. I believe that RNA as a
technology will be transformative for the
biopharma space, and RNA can be used not only for
vaccines for all sorts of pharmaceuticals, and yet
biontech, we are actually already doing it. I expect that in about 15
years about 30% of new products developed will be
based on mini therapies, and that will not only include
products which are copying existing products or
replacing them, but really completely new type of
medicines which are made possible only because this
technology is not available. And this is of course,
exciting to become part of this future and to drive
the development of new medicines with this type of
technology. Johnson and Johnson is the
biggest pharmaceutical company in the US based on
its market cap. It was named number 36 on
the 2021 Fortune 500 list of the largest United States
corporations by total revenue. Johnson and
Johnson has experienced dividend growth for nearly
60 years and has consistently outperformed
the S&P 500 over the past 25 years. The analyst community has
been talking about splitting up J and J for years, as
long as I've known the companies.
Johnson and Johnson
announcing that it's going to be splitting into two
publicly traded companies. The pharma and a medical
device company, which will be called Johnson and
Johnson. And then the Tylenol, Listerine,
Band-Aid company. They're now separating the
consumer business away from pharmaceutical and the
medical device division, and I think that's going to
create significant shareholder value. But some investors question
why J&J would choose to break up now. The company
is embroiled in a series of lawsuits regarding its
talcum powder, as well as its role in the opioid
crisis. J&j also took a hit when
the CDC recommended Americans receive one of
the mRNA COVID vaccines from either Pfizer or Moderna,
rather than and due to quote, the risk of serious
adverse events. The timing situation is
critical just because people have been very intrigued as
to why. Now, Johnson and Johnson is
one of the most influential companies in the
pharmaceutical industry, is really seen as a bellwether
for the space.
Why is the largest
pharmaceutical company in the U.S. breaking itself
up? And what does it mean for
investors? Johnson. And Johnson is
made up of three unique business segments Consumer
Medical Devices, which is also called MedTech and
Pharmaceuticals. The consumer business sells
everything from Tylenol to Neutrogena. The
pharmaceutical and medical device side of the company
develops vaccines like its single dose COVID vaccine,
cancer treatments, joint replacement materials and
other biomedical technology.
Separation right now makes a
lot of sense. You're going to have two
companies with good financial strength and cash
flows in order to pursue the objectives that they need
to to have durable growth for the foreseeable future. Analysts say the split
allows J&J to bring in a management team to
specifically focus on the consumer division while
also giving that segment. New branding and marketing. Strategy of running these
consumer businesses is very, very dissimilar to a
medical device or a pharmaceutical business. There's a lot more direct
to consumer. Obviously, the sales and
marketing effort, the social media effort is very
pronounced in consumer. It's much less so for the
other businesses. So allowing a management
team just to focus on what has to be done in order to
resume growth or drive better revenue growth over
the next couple of years, I think is very smart on
their part. Pharma and our medical
device business tends to be much more of a business to
business relationship in the way that we work through
other intermediaries compared to the consumer
business and most importantly, where we see
things going into the future, we feel that now is
the right time to make this kind of a move.
And again, ultimately it's
going to allow us to reach more patients, more
consumers have more innovation and execute in a
much more focused way. It's a somewhat common
practice for companies with diverse segments to break
apart. Pfizer, Eli Lilly and Merck
all reorganized their business structures within
the last five years by spinning off segments into
separate companies. What the market is saying is
that companies should focus on their core competencies
and let us diversify.
We've already seen several
examples of large pharma separating out non-core
assets. I think they finally came to
terms with the fact that they weren't really seeing
value in the share price from having that consumer
business. When you're a conglomerate,
you never get credit for the various different pieces,
and quite frankly, you probably shouldn't because
some of the parts of the company are not in. They're not investing the
way they should. They're not focused the way
they should. And so when you separate
out various different businesses, we now, as
analysts and portfolio managers, can appreciate
what the each of the businesses are and they do
over time. There have been studies
that have been done.
Both remain CO and NewCo
can outperform because they are on their own. So far, investors reaction
to the divide has been mild, with the stock only moving
modestly higher on the news. The stock went on to
underperform the week following the announcement. Market hasn't really reacted
to the news. There are some risks to
this execution from separating out the consumer
business, and I think investors aren't fully
convinced yet of the standalone earnings
potential of both companies.
So from a consumer
perspective, I think people wonder how the consumer
business can compete with companies such as Procter
and Gamble and some of these larger, more established
players in the. Space JNJ business move may
also help attract a different type of investor. You're going to get people
that are consumer staples and consumer oriented. You'll get them focused on
the consumer piece. And of course, you're now
more of a pure play health care. And so you'll get
more health care analysts. That you finally get a
situation at J&J where the balance of the business is
not impacted by what's going on, good or bad, with the
consumer business. But unfortunately, there's
been more bad than good for J&J over the past. Call it 5 to 10 years,
probably. Johnson and Johnson coming
out with a statement saying that due to a product
review resulting from the COVID 19 pandemic, they
have decided to cut about 100 different products from
their assessment, including all of their talc based
Johnson's baby products.
Let's not forget that the
talc litigation is with consumer product, right? And the talc litigation has
been horrendous. Johnson and Johnson has
experienced a number of legal battles and liability
issues regarding all three segments of its business. In July 2021, Johnson and
Johnson reached a settlement that requires the company
to pay $5 billion over the next nine years due to its
involvement in the opioid crisis. But it's the legal
challenges on the consumer side of the company that
has grabbed the most media attention. More than 20,000
lawsuits have been filed alleging Johnson and
Johnson's baby powder resulted in mesothelioma
and ovarian cancer. These legal challenges have
been ongoing for years, with a slew of headlines coming
out about juries awarding plaintiffs millions of
dollars. Johnson and Johnson
discontinued selling its talc based baby powder in
the US and Canada in May 2020, as demand for the
product fell in June 2020, the courts ordered J&J to
pay a $2.1 billion fine in the baby powder cancer
case.
There may be more
settlements and fines to come as the lawsuits make
their way through the courts state by state. I think one of the main
reasons that this stock trades where it does, which
is a discount to the market overall, the unknown once
we get the the resolution. I honestly. It's going to
be kind of almost liberating. We got it. We figured it out. Whatever the dollar amount
is now we can move it along and focus again on the
pharma business and the medtech business. These may seem like big
numbers, but to put it in perspective, J&J reported a
profit of more than $15 billion in 2019 and $14.7
Billion in 2020. The company reported $19.9
billion in free cash flow in 2019 and that number went
up to 20.2 billion in 2020.
I don't think the legal
issues will be an impediment to the company's growth
going forward. I do think there are some
headline risks to it. We often get questions as
to if that's the reason J&J is separate consumer
business, and I don't think that's the case. I think
they separate out the consumer business because
the business model has changed and the synergies
that they used to have with pharma med device are now
different.
Johnson and Johnson declined
CNBC's request for comment on its decision to
separate, as well as the ongoing litigation. The company told the Wall
Street Journal in November 2021 that the lawsuits
alleging the use of Johnson's baby powder
caused cancer didn't play a role in the decision to
break up the company. In October 2021, J&J put
the talc claims into a separate company which
filed for bankruptcy protection. That means it's
going to be considered a separate entity from the
consumer business. What they're trying to do is
increase the attention on what's actually happening
with the business. At the remaining J&J,
having the liability shell absorb the pain related to
talc and the painkiller situation and then the
consumer business hang onto the rest. So it is something that we
have seen other companies do before. I think that J&J
will be able to prevail and basically having an
efficient way to deal with all these liabilities and
then remove it, I think from the headline.
Risk, if they can create
these liability shells in order to not protect the
company so much, but just to limit the effect it's
having, I don't think investors care as long as
they're the company responsible for paying out
any claims. Johnson and Johnson's
different segments tend to offset one another. The risk to J and J. A longer term is that there
are issues that are more pervasive within either
pharma or medtech, and the consumer business no longer
provides an offset in the event that if the
fundamentals around that unit improve. When you think about the
future of consumer, if that business model is evolving
in the synergies that were historically, there are not
there anymore and you require greater investment
in order to grow that business. Then I think the
offset to cash flow, if there is any hiccup and
pharma med device won't be there the way that it used
to be.
They're going to obviously
have to do a very good job of making sure the growth
rates with the balance of the business continue to be
robust or improve from here. Wall Street has also
expressed concerns about how smoothly the process of
spinning off will go. Some of the things that
people have asked about that the company hasn't given a
ton of color on is the stand up cost associated with
separating out this consumer business, any potential dis
synergies and the tax implications and exactly
how they're going to affect this? There are a few other
potential risks, such as the possibility of health care
reform or patent expiration. That's why they're so
excited about their pipeline, because while a
few of their drugs are going to go off patent in a few
years, and that's your near-term risk. Your longer
term story is, well, wait, we've got a big pipeline,
and now we're kind of more of a streamlined company
where we can take our cash flows and reinvest and do
even more and do even better and grow even stronger.
Some analysts were
questioning why Johnson and Johnson didn't split into
three companies by separating its
pharmaceutical and medical device units. It's a topic of debate, and
it's not clear that over the longer term, if that might
not be something they could pursue. But I think today
the board and the company feel that pharma and med
device still has a lot of synergies. They talk about
a lot of opportunities that are shared from a market
perspective between the two businesses and the way that
products are developed and commercialized are still
similar enough where they can actually work together
to get it done. But I would say that over
the longer term, that would potentially make sense. And
I think one of the things when I talk to investors
about J&J, what's really tough is it's hard to find
an investor that has the broad enough perspective to
really get their arms around. All three
businesses being pharma, med device and consumer people
are usually focused on one of those three segments.
I would say that when you
have a business that where most of the analysts
community doesn't really pay attention to and you siphon
that off, it's probably going to be a positive. I think I'm going to
continue to add to this position trying to create
shareholder value any way that they can. This is one
you kind of put away. And I think just going to
let it ride and let them figure out how the whole
thing evolves. I think it's very exciting,
though. There are roughly 6 million
people living with Alzheimer's in the U.S., a
figure that is expected to more than double by 2050.
The memory robbing disease
kills more than 120,000 Americans a year, making it
the sixth leading cause of death. Alzheimer's disease is a
devastating disease of progressive dementia, where
people can lose various aspects of their cognitive
functioning, their ability to remember key things. And people. Is not aware of the fact
that she can ask me the same question. Ten times in 10
minutes, I mean. Well, maybe nine and a half
times. The US has spent billions on
research but still hasn't been able to develop a drug
that targets the cause of the disease. We know that it's a costly
disease and the burden of that cost continues to grow
exponentially. A drug for any company that
could treat Alzheimer's successfully would be seen
as just a gold mine for Wall Street and a huge gift to
society. Now, one biotech company
thinks its cracked Alzheimer's tricky code in
a drug known as Aducanumab, now sold as AGM. This is an approval for
Biogen. This is a huge stock event.
It's a 50% pop on this FDA
approval. But Biogen has reported only
a fraction of estimated sales. The company's share
price has nearly halved. Major insurers haven't
decided whether to cover the treatment, which Biogen
originally priced at roughly $56,000 per year. But now the company is
bringing that down by about 50% to hopefully boost
sales. And all of this comes as
the FDA itself faces investigations into its
decision, which went against the advice of its own
advisers. There's been a real mixed
reception among doctors because of the lack of
completely convincing data supporting whether the drug
works. So the question is who will
be prescribing this? Who will be monitoring it,
who will have access to it, and who's going to pay for
it? The US spends roughly $3
billion on Alzheimer's and dementia research every
year. That's up 360% over the
past five years. Spending on people with
Alzheimer's is set to cost Medicare $599 Billion by
2050. The fact is, is that
Alzheimer's is not just a disease of the individual
who has it.
It is a burden on also
individuals who are caregivers as well. In 2020, there are over 11
million Americans who are providing unpaid care for
individuals with Alzheimer's. That unpaid
care is costly to them and to their family. I'm Eugenia Zuckerman, and I
have Alzheimer's. I'm Dick Novak, retired
from the broadcasting business. To be able. To take care. Of my wife once I heard she
was diagnosed with Alzheimer's. Eugenia was
diagnosed three years ago. Every senior walks around
the house with their glasses on their forehead, saying,
Where are my glasses? But but this got beyond
that. That's got to, you know,
constantly asking the same question. A certain amount
of disorientation. My daughters were saying to
me, Mom, something is wrong with you. You're not
sounding okay. You we have to take you to
the hospital and get you tested. I said, no way. But of course, I ended up
being taken to the hospital and being looked at very
carefully. One of the biggest shocks
to us was. If you go to. Any other specialist
gastroenterologists and they give you a medicine for
your stomach ache. With Alzheimer's, there has
been really no commonly prescribed medication.
Alzheimer's is a notoriously
difficult disease to treat. There are a couple of drugs
available there at this point, many decades old,
and they can help with some of the symptoms associated
with Alzheimer's disease. But in general, they don't
work very well. So there hadn't been a new
Alzheimer's drug approved in almost two decades when
Aduhelm came along and nothing out there to try to
actually affect the underlying drivers of the
disease. That's where Biogen comes
in. In recent years, its
portfolio of other drugs has faced growing generic
competition. In 2020, the company posted $13.4
billion in revenue, a near six and a half percent drop
year over year. Researchers designed
Aduhelm to target one of the disease's defining
characteristics. What happens with an
Alzheimer's disease is that there's a faulty cleavage
of amyloid in the sense that it results in the
production of these insoluble and sticky
amyloid beta, we call them. And when this forms, what
happens is that they accumulate in the brain and
around it. Surrounding it are signs of
inflammation, oxidation and brain cell death. So Lilly has a very similar
drug to Biogen's called Donanemab, which it has
been developing and had some really promising earlier
stage results that showed not just that it clears the
amyloid plaques from the brain, but also that there
is an effect on cognition.
But the path to an FDA
approved Alzheimer's drug has been riddled with
failures. Over 200 potential medicines failed their
trials over the past decade, and in early 2019, AGM
almost became one of them. In early 2019, Biogen said
it was giving up on AGM after it didn't appear to
work in two large trials and researchers began to doubt
that reducing amyloid would benefit Alzheimer's
patients. Nobody has has shown that
this is the cause of Alzheimer's disease, and
certainly it hasn't been shown to be the only cause
of Alzheimer's disease, because there are also
other abnormal proteins that accumulate in the
Alzheimer's brain.
There have been a lot of
drugs that have been developed for Alzheimer's
disease, and dozens of drugs like Aducanumab have
targeted amyloid plaques. So none of those drugs have
shown any real benefit. But eight months later,
Biogen made a surprising reversal. The company
claimed a new analysis of one of those trials showed
AJAM actually improved cognitive function for
patients on a high dose, even though the other trial
didn't find any benefit. Biogen forged ahead with an
FDA application. The Alzheimer's Association
is very supportive of approval at this point,
based on the available science that we saw leading
up to the approval process.
And that has continued to
be published not just in this drug, but in the total
class of drugs that we are seeing. I didn't think there was
very convincing evidence that there was that the
drug worked. In addition to that, you
have to take into account the fact that the the
effect size that was observed, even in that one
arm of the one trial, was an extremely small effect
size. Harvard University's Dr. Aaron Kesselheim sat on an
FDA advisory committee that overwhelmingly voted
against approving Agile. And then when you take into
account also the fact that the drug was associated
with brain swelling and bleeding in about a third
of patients, even though in many of those patients it
was well managed, to me, it didn't seem like the very
inconclusive, conflicting evidence of
benefits outweighed the substantial risks. But instead of following the
committee's advice, the FDA used a special method known
as an accelerated approval for AGM. The FDA approved
the drug on his track record of removing amyloid from
the brain rather than slowing dementia. Often we see drugs get
approved in this accelerated approval pathway for
diseases like cancer.
Usually it's on pretty well
understood mechanisms. So if you can shrink a
tumor that's expected that over time, that will result
in improvements in overall survival. So it was
controversial and it was kind of like the FDA saying
we believe in the amyloid hypothesis, even though the
neuroscience community is still in disagreement about
it. During the advisory
committee meeting, the FDA had explicitly said that
they weren't considering the, you know, approving
this drug merely on the basis of its effect on
amyloid plaque alone. And so then when the FDA
approved the drug in June and it approved the drug on
the basis of the effect of amyloid plaque alone, it
was sort of going back on what it had said six months
before. Well, accelerated approval
is a well established pathway by the US FDA.
So there is nothing new or
revolutionary here. We are able to gradually
decrease this black burden that is affecting the
neurons and causing Alzheimer's disease. I think this is
significant. Kesselheim and two other
members resigned from the FDA's committee shortly
after. I stand ready to try to help
the FDA understand the decision making process in
this case and what went wrong with it.
But, you know, I do think
that it does require some additional investigation to
try to figure out what went on here. Now that we have seen the
path that we have one approved treatment and
potentially others on the horizon, we need to make
sure that those who could benefit from it have access
to it. The FDA's approval sent
shares of the company up over 60% from the first day
of trading in 2021. Wall Street expected
Biogen's new drug to rake in billions of dollars every
year.
Of the estimated 6 million
patients in the U.S., up to 2 million of them would be
early enough in the disease to take Aduhelm. Except just 120 clinics are
now administering Origem, far from the 900 Biogen
hoped to have up and running. So when this drug was
approved, there was an expectation that thousands
of Alzheimer's patients would be lining up to get
it. And as we've seen Biogen
report its initial results, it's really turned out to
be a lot fewer than that. Aduhelm only made 300,000
during Biogen's third quarter.
That was far from
the roughly $10 Million Wall Street was expecting. So after the approval, a lot
of eyebrows were raised both by the process itself and
by the price. And at least one
congressional investigation has been opened by
Representatives Carolyn Maloney and Frank Pallone
essentially into both of those issues. According to a report from
Stat News, Biogen executives held a close relationship
with FDA officials to help revive aging home after it
failed its late stage trial. When asked for comment,
Biogen said the FDA asked the company to participate
in an exceptionally thorough, collaborative,
workstream process to understand its trial data. A lot of that focused on a
meeting that a senior Biogen executive had with the head
of the Neurology Drug Division at the FDA. They met at a scientific
conference and really just sort of talked potentially
about whether this drug had a future.
You know, meetings between
the FDA and companies are, you know, is normal and is
very important for, you know, to be able to
exchange ideas and thoughts about the process of drug
development to try to make it more efficient. But, you know, I think it's
also very important that when those meetings happen,
that there is transparency around them and that there
is full disclosure about the existence of those
meetings. You know, the fact is, is
this is a historic moment and we seem to be getting
lost in some of the details around the approval
process. Shortly after the report,
interim FDA commissioner Dr. Janet Woodcock requested an
independent investigation into her own agency. The FDA told CNBC they were
not in a position to comment, given the
investigation.
However, the Office of the Inspector
General reiterated they are committed to overseeing the
integrity of FDA's drug approval process. Biogen's initial decision
to price a year's worth of agent infusions at about
$56,000 per year sparked criticism. That was, by some estimates,
ten times higher than what a lot of folks expected. And on top of that will be
infusion costs because it is a monthly infusion as well
as monitoring costs, such as the serial MRIs that need
to be done. However, with sales lagging,
Biogen said it would slash Agent Helmsley's price by
roughly 50% at the start of 2022. If we knew this was going to
work, I take a second mortgage on the house. I
mean, to stop the the the loss of of memory would be
worth whatever. Meanwhile, major insurers
like Medicare are still debating whether to
reimburse seniors for amyloid targeting
antibodies like AGM. Under the drug's previous
price. The agency running Medicare
warned that Part B premiums were set to rise in 2022 by
about 15% because the Alzheimer's treatment. Medicare, of course, is the
government payer that covers the elderly.
And so a lot
of Alzheimer's patients will be influenced by this
coverage decision that is expected early next year
and could be extremely influential. And of course, with that
comes a question of not just coverage for the
medication, but coverage for the infusion, coverage for
the required monitoring. As part of your home's
approval. Biogen has to show through an additional study
that removing amyloid actually slows patients
dementia. Initially, when they got the
approval. Biogen CEO Michele Thanasis
joined us on CNBC and he said they had up to nine
years to show that confirmatory result. We will be in a position to
generate real world evidence data that hopefully will
substantiate the mechanism of action. After that, it was reported
the FDA was not happy with how long they said that
they could potentially take on it. We agree that nine
years is too long to wait for answers related to this
confirmatory trial. Biogen has since cut its
timeline for the trial, which is set to enroll 1300
people from nine years to four.
Once it kicks off in
early 2022 executives remain confident in Adam's long
term potential. Biogen is trying to rapidly
onboard more infusion centers and improve amyloid
testing by covering the costs for patients. The company believes it can
recruit 50,000 new patients with Helm's newly lowered
price. But the drug's delayed
uptake has been damaging to Biogen, which is now
expecting to cut costs by about $500 million in 2022. The company has another
promising Alzheimer's treatment known as Larkana
MAB currently in late stage testing, but its clock is
ticking. Competitor Eli Lilly filed
its amyloid targeting treatment donanemab with
the FDA in October and hopes for an approval as early as
2022. It is exciting to
potentially have not just the first treatment, but
the second and the third and the fourth in the pipeline. The vast majority of the
patients who have asked me about Aducanumab or Aduhelm
have listened very thoughtfully to the answers
I provide them. So a lot of them are
hopeful that this will be the start of the new era in
therapy of Alzheimer's disease.
And in the near
future we will actually have effective and safe and
affordable and accessible medications. In terms of this new drug,
we are keeping an open mind. If if only there are a way
of of being more certain in our minds that it works. But I don't want to jump
into it. I don't want to make a
mistake. We're all going to die. But for someone who knows
that they are going to die sooner than they'd like to,
it makes everything just very different. I can remember moments of
thinking That was so wonderful. I hope I get a
lot more of those wonderful moments. I feel as if I am
living, have lived and want to continue to live. Best I can..
