Founder Stories: Richard Pops, CEO of Alkermes

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Hello, I'm Steve Usdin, Washington editor of BioCentury. Today I'll be speaking with Richard Pops, chairman and CEO of Alkermes, about the intersection of public policy and biomedical progress. Richard joined Alkermes in 1991 as CEO. At the time, it was a private company with 25 employees. Now it's a public company that has more than 2,000 employees and has developed products focused on alcohol and opioid dependence, schizophrenia, and bipolar disorder, and has a pipeline that includes medicines for neurological disorders and cancer. Throughout his career, Richard Pops has had a strong interest in public policy that's led him to serve as chair of BIO, to longstanding memberships of the boards of both BIO and PHARMA, and to playing a key role in negotiating user fee agreements with FDA. Richard, I want to start with the fact that there's been so much biomedical progress over the last 3 decades. Cures for some forms of cancer, for hepatitis C, the development of mRNA vaccines for COVID, drugs that are helping reduce obesity, and a lot more. So much that I think people take it for granted. They think that rapid biomedical progress is inevitable. Is it, or is it the result of public policy's intentional or accidental and things that we have to pay attention to to make sure that, that they continue.

Well, first of all, I want to say hello, Steve. And throughout this journey, I feel like we've been— we've had an ongoing dialogue for over a decade now on these topics. And I just want to acknowledge how important I think your reporting is and your— the role you play in exposing a lot of these issues at the intersection of public policy and biomedical research and development. Thank you for that. The, the science is obviously the motive force of a lot of this innovation and just the explosion of biological and chemical understanding that we have, genetic engineering and genetic understanding, but it requires this incredibly supportive and consistent regulatory and public policy environment for it to flourish. I think that's what you're referring to in the question. The science piece of it is, it's on rails. That's going to— that knowledge is going to continue to be developed. But I think it's a very special and fragile ecosystem that supports the amount of innovation that we've seen to date. And I think it's not something that's inevitable. I think it could easily be destroyed by poorly intentioned public policy or even inadvertent decision-making in the context of public policy decision-making.

And I think one of the things that's interesting, and we've talked about it over the years also, is it's not just whether the speed of scientific discovery of translating that into medicines. It's the direction, right? There are certain public policies that make it possible to develop certain kinds of drugs, and there are public policies that make it difficult or impossible to develop.

There are historic examples you're well aware of, like in the vaccine world where we demolished the vaccine industry, then we brought the vaccine industry back. We're living in real time now in the post-IRA world where we're going to see a shift in the allocation of resources within biomedical research toward biologics for rare diseases that are not going to be subject to negotiation or IRA. That's a direct consequence of legislative decisions that were made that will have a long tail, a tail that will be measured probably more on the order of a decade than on the order of a year.

Richard, that's a good segue to what I wanted to talk about, which is Inflation Reduction Act, the IRA. It seems to me there's one thing if you want to look for public policies that are going to reduce costs to the federal government, but it's another to think about how you're doing it. And it seems to me that if you were thinking about it and step back, you want a policy that's going to incentivize small companies to create small molecule drugs to treat chronic conditions and big public health challenges. Like addiction, psychiatric disorders, cardiovascular disease. And that's not what the IRA is going to do, right? Let's talk about that a little bit. What do you think are going to be the consequences, not just from reducing the revenues for pharma companies, but for the specific ways that it's being done in the IRA?

Within the context of managing a company, you're making capital allocation decisions on an ongoing basis about how you're going to put research and development dollars to work, recognizing that it's inherently risky enterprise. And so it's almost not a question of taste or preference, it's a question of mathematics. If you have 13 years of potential exclusivity with a square wave decline in those revenues at the end of 13 years versus 9 years, with a square wave decline in those revenues. If you were to plot the average ramp of revenues of a pharmaceutical over its life and you draw a vertical line either at 13 years or at 9 years, you'll find that the difference between 9 and 13 is more than 4 years. It's probably half of the revenue. So if you're going to take the risk, if you're going to deploy the capital, you take the regulatory scientific risks to do this,— it stands to reason that you're going to do it where you have twice the economic return. That's just, it's just that easy. So I've already seen in companies that I know or affiliated with a shift in their research and development priorities toward biologics or non-NDA products. So is that a good thing or a bad thing? Well, that depends on one's opinion about it, but there's no question that the incentives in the marketplace now are to make large molecule drugs for very small non-Part D patient populations. And to the extent that they're orphan drugs for a single orphan indication rather than multiple orphan indications. So that means that there'll never be another Keytruda. To the extent that people are making small molecule oncology drugs, they'll probably be relegated to use later in the evolution of the disease rather than doing all the work to move it to the first-line therapies. And that's just a natural consequence of a policy decision that was made in Washington.

Yeah, well, I would argue, you said it depends on what you think about that. I would argue it's unambiguously bad policy to prefer small, I mean, large molecules, biologics over small molecules because they're gonna be more expensive, they're more difficult for people to take, they're not as amenable to going generic or biosimilar. And for some of the diseases where you need to get across the blood-brain barrier, they just, it might not even work at all or much more difficult to work, right? The other thing I wonder is whether what it does to smaller companies, you know, does it disadvantage smaller companies versus big pharma?

Absolutely. I think it's a huge opportunity for big pharma to create valuation arbitrages in the marketplace that didn't exist before. What I mean by that is that let's say you have a small publicly traded company whose analysts are modeling the potential of a particular product based on what that company can spend on R&D to develop it. So it might have the resources to do 1 indication or 2 indications, but there could be 7 indications for this drug. That the marketplace will value that company based on a discounted cash flow analysis of those two indications. Whereas a giant company can say, if I deploy more capital earlier in the development program, I can have more indications. The drug is literally worth more to me than it is to the owner of the company. So I'm going to be buying those companies every time I have a chance. So when I see a drug, if I'm running a large pharmaceutical company, I see a drug with multiple indication potential, passed some type of important milestone in terms of proof of concept in the clinic, I'm going to acquire that company.

And another thing, and you alluded to this, I think, is that the IRA is going to steer R&D investment into particular kinds of indications, right? And they're not going to be chronic diseases of the elderly, right?

No, why would you? Now, again, I think I said this last time you and I spoke about this, which was Look, the science drives everything. If we can, if we find a biological pathway that we can interrogate with a small molecule, we can have some surpassing medical value for elderly population, we're going to develop it. But we have to be really smart about the way we price it and the way we think about the life cycle of that drug and how we invest in it.

So switching gears, there's a, the IRA isn't the only pressure, right, on the pharmaceutical market and on R&D innovation right now, right? One of the other things that the pharmaceutical industry anyway has been talking a lot about recently are PBMs. These are the middlemen, the pharmacy benefit managers that theoretically are supposed to make the markets work more efficiently. I mean, if you think about it, it's not efficient for however many payers there are in the United States to negotiate separately with every drug company for every drug. And that's the theory behind the PBMs. How's it working in practice? How does it feel like from your position as a CEO and from the other CEOs that you're talking with?

I'd say this is probably the biggest change that I've experienced in my time in this position over the last several years. And the data are quite clear. If you were to plot the number of drugs, for example, on formulary exclusion lists, it starts effectively at zero a decade ago. And now there's this geometric expansion. I think there's something over like 600 of these drugs now that are blocked from formularies by payers. The absolute level of rebating that goes to get our drugs on formulary has gone from minuscule levels to where you see gross-to-net differences now of 40, 50, 60%. Sometimes. And essentially what you're doing is you, you have to pay to get onto the formulary for your medicine to be able to be available to patients. And what a lot of people don't realize is there are 3 major players that control 80-plus percent of the market. It's not really a level playing field. So that problem is only going to get exacerbated as the Part D redesign comes into play later this year, where the, the payers now are taking on more liability in the catastrophic phase of Part D. They're going to try to shift that onto pharmaceutical companies as well. So it's a really difficult time for those of us who have commercial products in the industry. You spend a lot of years building these companies, hoping to get your first FDA approval and to create your first products. Well, then you enter a whole new set of constraints where in the commercial marketplace, there are many, many forces that are conspiring against driving the revenue that will fund subsequent R&D. Not the least of which, Stephen, you know this better than anybody, it's sentiment about the pharmaceutical industry that's driving, that's enabling a lot of this bad behavior, because there's not a lot of people lined up to support the pharmaceutical industry right now out of this belief that the pharmaceutical pricing is too high and the profits are too high.

A lot of it is driven by sentiment. I wonder how much of it, in a sense, is the industry's own fault, right? There's a lot of— been a lot over the years of what President Biden would call malarkey or shenanigans in the system, right? There's a lot of money that's been spent on buybacks. There's been gimmicks like companies trying to transfer their patents to an Indian tribe to extend monopolies. There's been the Martin Shkreli's there, at least in the past, have been a lot of unjustified price increases. So how much of this do you think can really— how much of the antipathy that politicians and the public have really can be blamed on these practices of the pharmaceutical industry over the last 2 or 3 decades?

I think it takes a couple of decades to undermine a reputation of an industry that is viewed as at the highest level of integrity a number of years ago. So it's not just one action, it's a series of actions. But not the least, and we can cite all the various things that you just did. To me, it's a little bit more fundamental in that I don't think that we've done a good enough job of describing and defending price, whatever the price may be. There are certain medicines that might be worth $3.5 million a year or $800,000 a year or $350,000 a year or $30,000. But if you decide to price your medicine there, and there's a reason why that's a benefit to patients and to society, And I think you need to be very vocal about it because this whole industry exists in this beautiful social contract about permitting a monopoly, if you will, under a patent at a high price in order to fund another generation of R&D. Drugs come off patent, price approaches zero, innovation continues, the increment of the world health increments up a notch as these drugs become available. It's a really brilliant system. It's the greatest system ever created. But when you decide as a manufacturer or an innovator to price a product at a price, I think it's incumbent upon you to explain why you priced it there. And that doesn't mean that every drug has to be priced at some low price, like some politicians would argue. But I do think it's worth spending more time than we do justifying why we price the way we price.

I agree with you. I think that there's very few companies that go out and publicly describe why it is that they've priced a drug where they've priced it and what would've been the consequences, for example, if they were to price it much, much lower than that. And so that does kind of erode public confidence. I think the way that the public views it is basically that companies are going out there and saying, well, what's the highest price we can possibly get? Well, what will the market bear for something that people need to survive or to thrive?

Right. And some of the explanations that are required to understand how that pricing actually flows through to the bottom line to the company are sufficiently nuanced and take paragraphs of explanation that you lose most people who are interested in just a simple answer as to why is this drug that expensive.

Well, great. Well, thanks, Richard. This isn't complicated enough. We're going to take a break now. When we come back, I want to talk about the regulatory environment, particularly about FDA.

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I'm back with Richard Pops, Chairman and CEO of Alkermes. Richard, you know, over the years you've led several rounds of negotiations with FDA for user fees for the Prescription User Fee Act Reauthorization, and you've really kind of helped to redefine what that's all about. You know, it started out as something really just to supplement the money to FDA, and that's still part of it, but it's become more than that. Can you talk about that? What— well, first, what's it like to be in the room first with your colleagues and figuring out what you want to have in a User Fee Act? And then second, in talking to FDA about it, how does that all happen? And kind of what has it turned into?

Well, it's changed a lot over the years, as you mentioned. I was actually around for PDUFA I. These are 5-year cycles that occur. In the early days, PDUFA was just a topping off of the budget. Now it represents greater than, I think, 85% of the new drug review budget. So it's no longer an optional negotiation. So by calling it a negotiation is almost overstating the relative strength of the two parties. FDA knows that we're going to come to an agreement on this. And so it becomes more of a— in the more recent cycles, tuning the system, identifying the areas where capital needs to be applied, and then trying to understand the constraints that FDA is working under in order to do their jobs to help us get drugs approved and for the benefit of public health. The 5-year cycle seems like you could take a fairly long break in between each one. It's actually not true. We begin soliciting from industry 2 or 3 years before the negotiation, quote unquote, begins, the new series of ideas, the new initiatives that we want to see built into the program. Ultimately becomes a negotiation about money and headcount. And a critical aspect of this over the last several years has not just been identifying the headcount that's necessary for them to advance the programs, it's, it's making sure that they have the tools, the resources, and the HR capacity to actually attract and retain a workforce to do the work that needs to be done. Unlike many regulatory interactions with various industries, This is an industry that is actually in favor of a very strong regulator with great scientific capabilities because we're coming to them with new cutting-edge technologies at all times, and you need to have a counterparty on the regulatory side who can deal with that. Otherwise, the bureaucratic response is to get defensive and careful. So it's in our best interest to drive more funding and more expertise at FDA, and I think over the years it's become a much more collaborative type of interaction to try to achieve that end.

And you've also, you know, going back in time, you used the user fee negotiations to kind of engineer more interactions with FDA and more kind of accountability, for example, around the meetings and things like that.

That's right. So the first PDUFA V was the first time I was asked by both sides BioPharma to take a leadership position. And the first observation I had was that between PDUFA 4 and PDUFA 5, there was really no interaction between FDA and industry. So we went into that negotiation without any data, without any continuity, without knowing really where the— and data is critical. You need to know review times. You need to know by division what's happening. You need to know where the bottlenecks are. So beginning as we started in PDUFA 5, which instituted a new review program, which had different elements that turned out to be very, very important. We also began this idea of what we call continuous engagement, where we would meet as industry with FDA leadership multiple times per year to track the progress of a program which is now a multibillion-dollar product. And just as effective stewards of this, we felt it was important to not just show up every 5 years, but have a routine interaction that allowed us to monitor the progress and hopefully continue to optimize.

So you moderated discussion at BIO. I know you've done it for the last couple of years, maybe even going back before that at BIO's annual meeting with the heads of the Centers for Drugs and Biologics. This year when you did it, one of the topics that you talked about was advisory committees. What's your view in general about the adcom process? And what were your impressions of what Patricia Cavazzoni, the head of the Center for Drugs, and Peter Marks, the director of the Center for Biologics, said at that meeting about advisory committees?

Yeah, it's a fascinating topic. Advisory committees play a really important role, I think, optically for the public to see some transparency into how drugs get considered by a regulatory body. I think but to a very different degree within FDA, depending on the division and depending on the people involved. Sometimes the advisory committee is used as a killing field to axe a drug that they don't want to approve, but don't really want to do it in any other fashion. And other times it's used the exact opposite, as a way of getting input in order to bolster what might be a controversial decision more in favor of patients and sentiment for putting something new into the marketplace, even though the data might not fully support it. So there's a tremendous inconsistency in when an advisory committee is invoked, who sits on that advisory committee, the structure of the meeting, the questions that are asked, and the way that FDA deals with the information that derives from it. It's absolutely a fertile ground for improvement. And I think that both FDA and industry are well aware of that. We, through the auspices of BIO, have proposed a number of really directly simple administrative type changes that could improve the functioning of adcoms. I know FDA has its own internal review that's going on, and it's not quite clear what the timeline is for that or what the urgency is for it, even what the consensus is within FDA. But I really firmly believe that A, they can serve constructive purpose, and B, they're not doing so right now.

And so part of the problem that FDA has talked about, I think they talked— Patricia Cavazzoni and Peter Marks acknowledged this at the recent viral meeting— was that the conflict of interest rules are interpreted in ways that make it very difficult for them to get the best people onto the committees. Patricia Cavazzoni actually made a kind of startling comment. She said, you know, that Sometimes they can't get the right people onto the committees because patient groups have enlisted them to sign on to letters advocating for approval of a drug. And everybody who's relevant, who has relevant expertise, has already kind of indicated their preference for getting a drug approved. So they're not really considered objective anymore. And Peter Marks said, you know, sometimes it comes down to an exercise really of just finding out who's qualified, who hasn't. Been disqualified because of conflict of interest. You know, are there things that you can think of that would help them, one, getting the right people onto the committees, and two, you know, you talk about this kind of need for standardizing things. Part of the debate about that is standardizing when you take a vote and what you take a vote on. You know, what are your thoughts about those things?

Yeah, I have a lot of thoughts about this because I think that, I think this issue of conflict of interest is a real problem.— and you'll hear from the commissioner on down, it's very difficult to populate an adcom with true experts because most of the true experts are somehow involved in the drug development process. This is particularly exacerbated in the case of rare diseases where literally everybody involved with that rare disease could be involved in some way in the development of medicines. So I don't think that the existence of a potential conflict should be disqualified. People should be able to state their conflicts, be very clear about that. But it also relates to the type of questions. If you're asking an inherently conflicted panel, should a drug be approved, yes or no? That's a very important question with a lot of economic and other consequences. If you're asking their opinion, their medical opinion about, if we see the creatinine kinase go up by this amount in the context of this, is that a risk that the patient should— a medical or scientific or engineering question, That FDA then, as the regulator, can come take back in and weigh it against all the other factors in making an approval decision. That's a very different question. I think the conflicts are much more highly elaborated if you're asking a person with a potential conflict, should the drug be approved? Yes, no. So I think there are ways— and NIH has advisory panels where they don't ask people's advice, but they don't necessarily require some type of digital vote in the outcome. The other point I said, you know, we'll routinely submit new drug applications that are hundreds of thousands, if not millions of pages long. And you're asking an adcom, sometimes it might be an academic scientist from the middle of the country who has some clinical expertise, should a drug be approved? But they don't have access to the entire file. They don't know all the safety issues, all the benefit, all the epidemiology, all of the underlying aspects that go into a drug approval. That's FDA's job. That's why we pay millions and billions of dollars of user fees. That's why there's so many people who are professionals within FDA to make that determination. So I'm a big fan of the idea of convening medical experts, scientific experts, to pass judgment and ask— answer questions about the clinical context of the new medicine. But I think it's up to FDA to approve drugs or not.

So one of the other hot-button issues that I think that the CDER and CBER directors talked about, and certainly Rob Califf talked about at a separate session at BIO, is accelerated approval. And it's something that's been in the news a lot lately. There's conflicting views about the value of accelerated approval. There was a lot of controversy, obviously, about the Alzheimer's drugs and accelerated approval. What's your thought about, one, about the purpose of accelerated approval, the value of it? And what do you think about the things that are being done and the things that are being proposed to change the pathway?

So I'm the co-chair of the Regulatory Environment Committee within BIO, and this is— hearing the feedback from my colleagues in the industry, this is a huge topic because it really came to the fore, as you indicated, in the context of Aduhelm. Aducanumab exposed to the world this idea that there's accelerated approval pathway. It could be based on surrogate markers.. And in that particular context, you saw a conflict between advisory committee and the FDA, and then ultimately CMS. So it was, it was a perfect storm of revealing some of the flaws in an otherwise highly functioning system. I mean, accelerated approval has been the critical element that has led not just to the accelerated approval of certain medicines, but the approval of them and the creation of them in the first instance. Were that pathway not to exist, sponsors would not have even tried to make these medicines. So it has not been a boon to the pharmaceutical or biopharmaceutical industry. It's been a boon to patients and the public health in general. It's a critical pathway. There's a— the misinformation that exists is remarkable. Like the idea that sponsors are not completing follow-on studies, and that's just not true. There are exceptions to the rule, but as a general rule, Sponsors who benefit from the accelerated approval pathway then go on to run confirmatory studies. If they confirm the data, they carry on. If they don't confirm the data, then they're readjudicated. And that's a process that is very, very healthy. But I think that within the industry right now, focusing on maintaining and defending the accelerated approval pathway is a high priority item.

And so one of the kind of controversies I think that's come up is, oh, two things. One is a notion that companies should have to have designed and have patients already enrolled in a confirmatory trial before they get accelerated approval to make that accelerated approval contingent on that. And another is the speed with which FDA is able to act to take things off of the market when clinical benefit hasn't been demonstrated.

And there's a third one that's even probably more important, Steve, which is this idea that it's some degraded approval standard that should lead to differential reimbursement by CMS. Exactly. In that period of time. These are three really important issues that are somewhat intertwined. I think on the first point, it's facts and circumstances driven. It depends on the, on the, on, on the indication. I think for many small companies, having to have a large confirmatory study up and enrolling, it might just be cost prohibitive before they, they get their first approval and start generating some revenues. I don't think it's a bad idea just to have it going, but I don't think that that should be a firm stipulation. I think that's something that smart people could sit around the table and decide whether it makes sense to do that or not. But I really do worry about this idea that people view it as a degraded efficacy standard because it's not a degraded efficacy standard, it's a different efficacy standard. And it was, it was, it was done that way in order to elevate the use of surrogate endpoints prior to the classic confirmation through the more established endpoints. And it's, it's, it's not for the benefit of only the companies, for the benefit of patients so they can get access to these medicines. While they're showing some important changes that are likely indicative of long-term benefit.

So what do you think about the idea that the pricing on drugs that have received accelerated approval should reflect the lower level of certainty about their clinical benefit until the time that they've companies have completed clinical trials. In other words, having a way to kind of titrate the pricing to the degree of certainty about clinical benefit.

I guess I'm not in favor of it, with the caveat being our earlier conversation about pricing in general. I think companies need to be really, really clear about the value of their medicines. But if you receive an approval from the FDA for a drug based on clinical information you did developed, sufficient for approval, accelerated or otherwise. I don't think there should be— otherwise we're basically handing over to CMS the idea and the determination about the value of the medicine.

Great. We've kind of run out of time. There's a lot more that we could talk about. Any other kind of big picture things that you want to talk about before we wrap it up for today?

I think we've covered some of the big topics. I'll go back to what I said at the outset, though, is that is that these, the motive force, what's driving this industry from the very beginning has been the advancing knowledge. And I'm sitting in our company here, labs on the floor below us, there's stuff going on in those labs that is so interesting and so cool, that will likely be medicines in a number of years' time. Some of them will fail, but some of them won't. And we're gonna make those medicines. And what we don't know is what the economic value of them is going to be. We only play a small part in, in that ultimate determination. A lot of other players out in the policymakers, payers, patients, patient help decide. But what gets us going, and I think the reason that what attracted us all to this industry, was the idea of actually making those medicines, creating that new knowledge, and seeing whether we can do things professionally that lead to improving the health of people around the world. That's still a really inspiring mission.

Well, thanks, and thanks to all of you for listening.

Thanks for a great conversation.

Thanks, Steve. The BioCentury Show is brought to you by the 2nd BioCentury Bay Helix East-West Biopharma Summit. Join us October 2nd to 4th in Kendall Square to debate how to globalize biopharma innovation to benefit patients and achieve an ROI for investors.