Arch’s Bob Nelsen on Big Biotech and Why Pharma Should Be Very Afraid

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gene editing converging into some new thing. Gen 2.0 cell therapy will be very interesting. I don’t think it’s just CAR-T cells, it’s other kinds of cell therapies and diseases other than cancer. And there will be some interesting things in machine learning and alternative approaches to drug discovery.

X: So do you see a platform like AI permeating into biotech?

RN: Absolutely. Machine learning will be a core of biotech within not very many years. The question has always been having enough data, and enough high-quality data, to be able to do machine learning. [But] using machine learning to make data on the therapeutic side is not interesting, unless you own the drug. So I think you need to be a drug company to use machine learning to reinvent drug discovery. And you’ll see companies like Grail using a lot of machine learning to be able to do early detection of disease. So I think there will be some fundamental change on the early detection side and fundamental change on the discovery side based on data.

X: Do you have any take on companies like Theranos [Editor’s note: the once high-flying blood test company has had a headline-grabbing crash, with founder Elizabeth Holmes charged with fraud and forced to give up control—here is a recent summary], and how that kind of super hype might affect your field?

RN: You know, Theranoses can happen at any time—if you have bad actors who aren’t science driven. We turned down Theranos in the early days, because there was nothing there. We used to bet people when it would crash. There were just like a million warning signs. There was nobody in the business that believed in that.

X: What about a company like Stemcentrx, maybe that’s a little different? [Editor’s note: AbbVie bought cancer stem cell drug company Stemcentrx for $5.8 billion in 2016, but its shares plummeted in late March when Stemcentrx’s lead drug candidate disappointed in trials, and the stock has only partially recovered.]

RN: That’s just also data driven. Somebody believed the data and they paid a lot of money for it, and they might have been wrong, I guess, based on the data, but that’s drug discovery.

I think the probability of AbbVie failing on their own program is very, very high. Possibly higher than Stemcentrx’s. I mean, most stuff in our industry does not work. There’s like an eight or nine percent success rate. So it shouldn’t be surprising. It’s surprising when people pay $5 billion for something, but that doesn’t mean it was a bad decision. Frankly, I think pharma should be doing more of that, not less.

X: That’s very interesting. Tell me more.

RN: They should fire the first CEO—and the board—of a pharma that buys another pharma. Fire ‘em all, that day. March them out of the office. Because the innovation is not in pharma, with a few exceptions, it is in biotechs and universities. There’s so much interesting innovation [in those places] now, and so much incremental shit in the pharma pipeline. It’s just unbelievable how much cool stuff we’re seeing. It’s going to totally change the business. If this early detection stuff, which we’re seeing in the data, works, and you’re an entire pharmaceutical and biotech industry that’s selling later-stage drugs, you should think about that one for a second. Because if there ain’t no later-stage disease, then how are you going to make any money? And if it’s early-stage disease, how are you going to treat it? What’s the business model look like? So pharmaceutical companies are going to have to become insurance companies. The insurance companies might become the pharmaceutical companies.

X: I’m going to have to think about that one.

RN: It’s not going to be the same industry as it is. People are going to intercept the patient with better and better data, earlier and earlier, even before they get to the existing healthcare system. Whether it’s CVS or Walgreens or Forward or some other thing. In China they have checkup centers that are treating 30 million or 40 million people a year. Consumers are going to be a lot more empowered with data on their own healthcare.

X: Do you think that finally either drives down the cost of healthcare or keeps it flat for a lot better performance?

RN: I don’t think the total cost of healthcare will go down. I think it will be reallocated. Preventive care will be more effective at saving lives and helping people live longer, and data-driven diagnostics will be probably the most important thing other than curative therapeutics.

So it’s interesting. Who loses in the new world is large hospital systems. Their bread and butter of ERs and late-stage cancer and other diseases are going away, so many will go bankrupt if they don’t radically change. The other folks who lose in that equation is anybody with incremental drugs or small molecules that aren’t targeted, which is 90 percent of the revenue of pharma. So if you’re pharma, you should be very afraid.

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