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Joe Panetta
President and CEO
Biocom California

22 November 2022

You have been in the industry for more than 30 years, and in Biocom California for more than 20; what are the main ways in which the industry has changed?

The industry is exciting and always leaping ahead with new discoveries.  In 30 years, I have seen this industry work tirelessly on a quest to improve the human condition and find treatments for patients with unmet medical needs around the globe.  It is incredible to look back and see how far we have come.

Three decades ago we were an industry with little experience in using biological processes to develop drugs.  We lacked mechanisms to transform promising technologies at research institutes into companies. Furthermore, our model for raising capital to fund new companies was somewhat primitive, and disorientation prevailed in relation to how a new enterprise would get to the finish line and how much it would cost to get there. Back then, the industry was an experiment with few successes. 

Two decades ago, we better understood the capital model and the complex stages of growth that biotech companies undergo to get to the finish line. In addition, 20 years ago large pharma developed interest in the market and executives in biotech were considerably more experienced. 

Another real paradigm shift at this time was the change from manual methods of developing products to using sequencing and automated research technologies. These new methodologies reduce the price and increase the efficiency of the development process. Today, not only have we advanced further in these fields, but we are also experiencing the rise of sustainable technologies from which the life sciences industry can largely benefit. 

What does California have to offer as a place for life sciences research, but also technology and investment?

Prior to the rise of the life sciences industry, California made major investments in its research institutions and universities, including UC San Diego, UC Berkeley, Stanford, the Salk Research Institute and many others. A key milestone occurred in the 1970s - legislation was passed in the U.S. Congress providing a new opportunity for institutions to transfer the technologies they developed to the private sector, and to receive compensation for their value.  This was an important catalyst to the birth of the biotech industry. 

Investment-wise, the venture capital industry in California, at least on the biotech side, was virtually nonexistent prior to the ‘80s. It was early investors, such as the Kleiner Perkins venture capital firm, that shifted their focus from Silicon Valley to investing in biotech, giving birth to companies like Genentech and Hybritech. The risk these firms took paid off - and risk-taking is a feature that has been part of California’s DNA since the Gold Rush.  Suddenly there was capital flowing into this new industry. 

Many in the industry claim that the Inflation Reduction Act (IRA) will render that risk you talk about opaque to profit, and consequently kill it, alongside innovation. Can you walk me through why the IRA would have such a pernicious effect on the industry?

The U.S. has a very different economic model in relation to healthcare than the rest of the world - the major difference being that in places like Europe you find healthcare systems that are run by the government, whereas here we have an incentive-based, open market system for healthcare and for the development of drugs. This has historically served as an advantage for the industry, fueling the development and commercialization of the most cutting-edge medical technologies and therapies the world has ever seen, alongside a free market providing open access. For the most part, our insurance system has been able to handle the costs associated with these products. 

The IRA will place a US$ 2.000 cap on out-of-pocket drug costs for people over 65, which we think is a great thing. Everyone needs to be able to afford their medicines, and there is no reason for us to be in this business unless people have access to the drugs we produce.  The negative side of it is that this legislation was moved through Congress under the premise that there would be negotiation between industry and government over the price of drugs under Medicare. It was thought that this would implement a formula of supposed negotiated price control which would then set up a cap at, for example, 75% of an index cap, and then would impose a penalty if the negotiation was unsuccessful. We commissioned a study using the law’s model, which concluded that it would dissuade investors from injecting capital into the industry.  

 

This is where the IRA misses the mark - forgetting that the U.S. industry is successful for a reason, and the reason is we have a free and open market for the development and commercialization of drugs

 

We cannot get investment money to develop drugs that make people’s lives better unless those who invest in our technologies, and assume very high levels of risk, are compensated appropriately.  Otherwise, they will end up investing elsewhere. 

What is the outlook for California life sciences companies to remain competitive in this case, and your priorities at Biocom California in supporting them?

The world is open for business, and pharma and biopharma industries across the globe are transforming at a phenomenal pace.  We believe opportunity exists for collaboration between California-based companies and other markets. Biocom California has an office in Tokyo, and we plan to support our members who wish to expand to Asia and to Europe. California is the world’s fifth-largest economy and boasts a US$ 450 billion life sciences industry. We will continue growing, attracting entrepreneurs and fostering life science success from idea-incubation to commercialization in the U.S., and globally.

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