In July, venture capitalist Vinod Khosla interviewed Google co-founders Larry Page and Sergey Brin about the company's efforts in healthcare. There are, of course, health-tracking possibilities inherent in Google's Android phones. Not to mention the glucose-measuring contact lens that the company is developing with Novartis. And Google is funding, within its walls, a biotech startup called Calico headed by Art Levinson, the legendary former Genentech CEO, to look for drugs to slow aging.
But when Khosla asked if Google could become a healthcare company, Brin had a pretty definitive answer. Healthcare was a place to dabble, not a place to live. He said:
Generally, health is just so heavily regulated. It's just a painful business to be in. It's just not necessarily how I want to spend my time. Even though we do have some health projects, and we'll be doing that to a certain extent. But I think the regulatory burden in the U.S. is so high that think it would dissuade a lot of entrepreneurs.
If you had any trouble understanding Brin's reticence, look at today's headlines.
First, Gilead, which developed a single, effective pill that can cure 95% of hepatitis C patients in 8 weeks (compare that to a year, previously, with lots of side effects and far lower efficacy) found out that it's competitor, AbbVie, had cut a deal with pharmaceutical benefit manage Express Scripts to sell its more cumbersome hepatitis C regimen, the Viekera Pak, far cheaper, locking Gilead out of Express Scripts' formulary of 25 million patients. Adam Feuerstein at The Street is literally calling it the end times for biotech:
The exclusive hepatitis C pharmacy deal struck between Express Scripts(ESRX) and AbbVie(ABBV) is a serious, perhaps permanent, blow to the multi-year biotech stock bull market.
The power to control drug prices in the U.S. now has shifted firmly to cost-cutting insurance carriers and pharmacy benefit managers. This means biotech companies, especially those facing competition, can't guarantee the outsized profits investors have come to expect and crave.
After today, investors are no longer going to ask biotech executives, "What will you charge for your new drug?" Instead, the new question becomes: "What will Express Scripts -- or any other pharmacy benefit manager --- allow you to charge for your new drug?"
Ouch, Adam. I'm a little less worried for biotechs -- I think it will be hard to replicate this kind of move for cancer. And we need some mechanism for keeping drug prices from moving into the stratosphere. But still, ow.
But for sheer "oh no, I'm not going to be an entrepreneur in health care" agita, look at what's happening to Exact Sciences, which is launching a new type of stool test to screen for colon cancer as an alternative to colonoscopy. Exact Sciences won a major victory when it got Medicare to agree to price the test at $502. Yet when Medicare's Clinical Lab Fee Schedule was released, it listed a price of $364.61. Exact and stock analysts who cover it are calling "clerical error."
Cannacord Genuity analyst Mark Massaro wrote in a note to investors:
We spoke with management who believes a member of CMS made a clerical error and has already reached out to CMS in an attempt to resolve the issue. Separately, we spoke with a leading national diagnostics reimbursement expert who also believes the update is likely a clerical error. We share the same opinion here; however, we expect it may take into January to resolve given the unfortunate reality of the holiday season.
A clerical error added to the unfortunate reality of the holiday season. It's the definition of pain.
