Below is a transcript from the panel discussion at the April 28, 2017, Life Sciences Power Breakfast.
JOHN RUSSELL (moderator and IBJ life sciences reporter): Now let's begin our discussion, and to kick things off I'd like to invite all the panelists to help us try to make sense of what's going on the last few weeks in Washington as it affects Indiana life sciences. Headline in the "New York Times" this morning "Health Bill Vote Scrapped for Now as GOP Support Wanes." This is the kind of thing that affects not only hospitals and clinics and providers but also folks who are trying to come up with new molecules, compounds, treatments, therapies, that can be a valuable proposition for the providers and so it affects all of us in the room, but it's nearly an exercise in futility to predict from one week to the next what will happen with federal policy in this area as proposals are rolled out and changed by the hour, it seems, sometimes. So will the Republicans be successful in changing or replacing the Affordable Care Act in some significant fashion this year or make some other changes to drug and device rules or policies? What do you expect and what implications will it have on the life science sector in Indiana? Ms. Ruff, you're an attorney who keeps an eye on these things.
ANNE RUFF (Hall Render Killian Heath & Lyman attorney): Lawyers first and ladies first, how great for me! So I think, as everybody in this room laughed out loud, it's hard to know I think what we think will happen. If I could predict it, I think my practice would be quite a bit busier. I do think that a repeal will have significant implications for a lot of us in this room. I think we think about not only the number of insured depending on how insurance plays out. If you are insured, as many of you know -- So I work in clinical trials. So many clinical trials these days are both, you know, studying something, interventional, but also standard of care, and if you don't have insurance you're not going to participate in a trial that requires you to pay for the standard of care, so I think we could see the number of eligible patients for populations for certain studies go down and I think in that case that affects our sponsors significantly and slow accrual means longer trials means more money, so I think that's a concern. I think one of the things we should think about also as consumers is with the ACA we have the Sunshine Act and if the Sunshine Act is repealed, you know, there may be some benefits for sponsors in not having those reporting obligations, which I think take time and money, but we as consumers are going to lose a significant amount of that transparency, which I think is a potential concern.
RUSSELL: Anyone else want to chime in on this topic?
BILL KNERR (Ernst & Young partner—Indiana life sciences): I was just going to mention maybe something that probably won't change regardless of what happens is just the significant increase in activity from a payer perspective and really trying to drive down the cost of pharmaceutical products as well as biotechnology products and medical devices as well, and so even though there may be changes that come from the Affordable Care Act and whether it's a full repeal, partial repeal, partial replacement, I don't think that at least we expect to see a significant change from that from a payer perspective, I think we continue to see them being more active in trying to drive down costs and that probably is only going to be exacerbated if the government tries to get into price negotiations as well further than they already are.
TONY ARMSTRONG (Indiana University Research & Technology Corp. president and CEO): And I just want to add one thing. I know one thing that we're trying to keep track of with the budgets and different things is research funding for universities and so I think a lot of the work that many of us do, and with Derek's help and Joe's help and some of the technologies that we're developing, are the result of NIH funding that comes in, SBIR, STTR research funding or one grants and those kinds of things and the indirect costs that come with those to help support that kind of activity and so anything around NIH, NSF, these kinds of things, those types of funding make a big impact in I guess the early stage work that's done that hopefully leads to some of the companies and some of the products that we're able to use, devices and therapeutics and different things, so I know a number of Big Ten Presidents, including President McRobbie, were in D.C. over the past couple of days, I think they met with Speaker of the House Ryan yesterday just to share those thoughts and to hopefully keep those funding levels at where they are now.
RUSSELL: Okay, let's try and take it a little bit closer to home now and talk for a moment about the Indiana Biosciences Research Institute which Jack Phillips referred to. Dr. Lundberg, I'd be interested in hearing your views on this. Eli Lilly through its foundation recently pledged 20 million to help hire scientists and to become a center of collaboration and life science research. Why does Lilly, with thousands of scientists under its roof, need to partner with outsiders to develop new products? From your perspective what's the value of the Institute to Indianapolis?
JAN LUNDBERG (Eli Lilly and Co. executive vice president of science and technology): First, Lilly's been very dependent not only on our internal scientists, which is now thousands in diabetes, clearly, and we are really encouraging to improve the local innovation ecosystem where we have our big activities and Indianapolis is still our largest R&D site and, clearly, we have ambitions to build on the competence we have here, so we really want also to be part of -- We are improving the innovation ecosystem, and I think one of the big areas we have in Lilly is diabetes and its complications, including cardiovascular disease, and this also links very much to the ongoing obesity epidemic in the western world, including the United States, so what we really need in this space is to join efforts with academics, leading hospitals and other providers, potentially diagnostics and so on, to try to come to better solutions I think for these hundreds or millions of patients even in the U.S. that have ongoing pre-diabetes or Type 2 diabetes, so for us I think we see these as a great opportunity to exactly build on our local presence but also expand locally into the expertise, so we have been active in starting this activity, as you know, with John Lechleiter being one of the key stakeholders, and I've been seeing in the BioCrossroads board also David Broecker and others giving continuous updates, we have been part of recruiting and helping to recruit people to the IBRI, so we see these as a long-term investment also for Lilly then in a key area for us, namely diabetes. It makes a lot of sense I think for everyone involved.
RUSSELL: Mr. Small, from your perspective as a CEO of a biotech does it make sense for a company like yours to support or promote this type of institute? What would start-ups and mid-size companies get out of an institute that, you know, they're all competing during the day, why do they need to collaborate as well?
DEREK SMALL (Assembly Biosciences president and CEO): Oh, I thought that Jan's answer was perfect, actually. We aren't a large revenue, you know, profit-generating company yet, so making investments like Lilly does in something like that isn't really how I would collaborate with them or how we would collaborate with them but certainly finding specific projects and just like we do with a number of universities sponsor research activities, find ways to collaborate and develop innovation together, absolutely, and I'm very impressed, actually, with everything that they've done, and just like Jan said, the ecosystem is really important, and a long time ago I was talking with David Johnson about this, too, you know, having been in life sciences now for, I don't know, 15, 20 years here in Indiana, me based in Indiana but all of my companies kind of elsewhere, Indiana's just been basically making a lot of progress and a lot of people wanting to make a lot of progress fast or be in that type of ecosystem instantly, but ecosystems don't just happen, it's a long period of time and they've been preparing the soil and I think this is just one of those first, in my opinion, one of the first real sprouts or plants now in this ecosystem that could be a significant center of gravity, really, for us to advance things long term, so I think it's fantastic.
RUSSELL: Mr. Armstrong, along those same lines, you're going to be uprooting and replanting your operation to that area pretty soon. Last fall you moved your operations from the northern end of the canal to the IUPUI campus to be closer to the faculty and industry and eventually you plan to move to 16 Tech, the Innovation District planned between 10th and 16th Street where IBRI will be the anchor. So why does it matter where you put your offices and what's your hope for 16 Tech?
ARMSTRONG: I think partly our move, too, is driven by the renovation of the space up there I think with Dr. Don Brown's 30 million dollar gift to the med school for immunotherapy. His company LifeOmic is actually moving in and probably in the next week or two they'll be in our space there, they're renovating that space and there'll be other uses at the medical school out there. So our temporary move down to 518 North Indiana gets us closer to campus, a space the university had for a while, so it gets our group together, but I think ultimately the plan is for us to be at 16 Tech, closer to IBRI, but closer to all of that activity that's already happening but I think will accelerate as that gets going. I've had a chance to work with David Johnson and some of the folks to visit with Wexford, who's the group that's actually helping to lead that development, and visit some of their other tech parks and their research parks around the country and it's amazing the synergy that comes with all that activity in one place, as they describe it live, work, play, learn, so we've got the campus surrounding that, the hospitals, the number of students that are living around that space and the ability to locate research and activity, manufacturing, some of the supporting groups, makerspace that'll go there, and I think it'll draw in not only our students but I think when you think of Butler and IUPUI and U-Indy and the program they're doing, I think that becomes a center of activity for folks that are visiting then and the ability for our group then to tap into that and be able to draw on the expertise that will be there, and as Derek mentioned about this ecosystem that IBRI is starting to create, that Cook will be a part of there and the work that they're doing, I think it will be fantastic for the whole community but for us in particular to be able to help our faculty and staff and students get connected to that work and be a part of that and be able to write grants with people, to collaborate with people, to work with more entrepreneurs there, it's going to be a huge opportunity and so we're anxious to have it happen.
RUSSELL: It's still a little difficult for some people to visualize what 16 Tech will look like. The heavy equipment isn't in, the development isn't being done yet. I'm wondering what the district in your minds, for all of you, might look like. What do you visualize, how do you see it developing and over
what time period? Mr. Trebley, do you have any thoughts on that?
JOE TREBLEY (Monon Bioventures LLC CEO): Yeah. One of the things that I'm excited about and appreciate the leadership of the corporate institutions in our community and also the research institutions collaborating with the IBRI is that they're not just building an institute, that they are taking a leadership position in developing this 16 Tech, and the way that I see it, I think if you look at some other groups within our own community, you look at TechPoint and you look at the tech community, the work that John Wechsler's done with the co-working space up in Fishers, Indiana and now in Indianapolis, that works great for tech but for life sciences we need more than WIFI and printers, right, for a lot of engineering companies we need more than that, we need makerspace. We need some very sophisticated equipment that a start-up may need once, right, but that equipment costs $100,000. So you can get a couple grand to rent time on a piece of equipment, but you're not going to go out and raise $100,000 to buy that piece of equipment. So what I see the IBRI and 16 Tech and that development is a space where it may feel like a co- working space within the tech community but it's got a lot more capital and equipment around it that's leverageable, if that's a word, I don't know, by the community, but then you feed in IUPUI, the School of Medicine, engineers from Purdue, all sort of having a place to come together, not just with the people resources but with additional resources as well, and so once all of those really bright minds and people start to come together I think the economic development and the property values and all the things around there are going to go up and I think that's what our community is lacking. One of the things that is a bottleneck currently, a lot of people talk about management and capital, well, space, space in an a la carte kind of fashion like if you would go out to San Francisco at QB3 where you can just rent a couple hundred square feet in a lab, plus then you have a la carte access to all the life science equipment you need, we don't have anything like that. We do now. I think one of the really interesting experiments through the Clinical and Translational Sciences Institute with Purdue, IU and Notre Dame, the leadership in recreating the Methodist Research Institute into a small incubator, and it's packed, like it's been an activity less than a year and it's bursting at the seams, so I think there's a real bottleneck and I see 16 Tech and the IBRI group as filling that.
RUSSELL: Does anyone else have a picture in their mind of what the district will look like in five years or if that's a realistic timeline?
LUNDBERG: I think from the Lilly side, understanding of disease is still fragmented in the Type 2 diabetes and obesity, so if these scientists are working together with a number of partners it could help us, actually, to understand what is driving hunger, for instance, how can we reduce overeating or how can you increase metabolism in a way to get rid of fat in the body, so I think it's for us can we get a better disease understanding so that we can then rapidly develop new therapeutics.
RUSSELL: One of the hopes for a lot of start-ups and mid-size companies is to develop into an area where they finally can sell their technology to a large company or develop it, commercialize it on a large market. Mr. Knerr, the biotech sector has set new records in recent years, including the volume of M&A deals and the overall value of alliances. What's driving this burst of activity and is it likely to continue?
KNERR: Yeah, so as you mentioned, the global M&A market in the life sciences space has been in excess of 200 billion dollars over the last several years, and that originally was driven a lot by some of these big, massive mergers and M&A activity as well as these corporate immersions, but really over the last couple years what we've seen is that what's been driving that is a couple things, the biggest one, and I touched on it earlier, is just the payer activity and their drive to reduce prices as well as the pressures that have come from both the public and the government sector on price in the pharmaceutical and biotech as well as just health care in general, that they've driven down the ability for health care companies to increase their growth or to drive growth through simply price increases and that has caused what at least at EY what we view as there's a gap for a lot of these companies in how they're going to achieve their mid-term financial targets, and so one way to do that is to go out and acquire companies that have researched things or moved things further along, fill their pipelines a little more in the near mid-term than they would've otherwise thought they needed to achieve the growth targets that they were looking for, so we're seeing a lot of that, you know, over half of the M&A activity is in small to mid-size cap companies, less than five billion dollars, that's really driving a significant amount of the M&A activity, so we expect that to continue because we don't believe that the pricing environment is going to get any better and so we believe companies are going to continue to look for ways to grow outside of just price, it's going to be innovation and it's going to be volume-driven type growth. Going forward will that level continue? We think likely it will, especially if tax reform occurs, frees up capital to come back from outside the U.S. into the U.S from tax holidays associated with overseas earnings, but also it might provide the opportunity if corporate rates are lowered to allow U.S. companies to compete for acquisitions and provide them extra firepower, if you will, to complete acquisitions because they can be more competitive with companies across the globe who perhaps have lower corporate tax rates.
RUSSELL: Mr. Small, speaking of companies that have done deals, yours is one of the big success stories over the last few months. You recently made headlines, as I announced earlier, doing a licensing deal with Allergan. How hard was it for you to find a big partner to help with drug developments and what lessons are there for other biotech companies trying to reach this stage?
SMALL: Well, it's always a long process to do large transactions like that, so we were very fortunate, really, a number of factors came into play for us which were -- Jan and I were talking a little bit about this before, too. It's a partnership that, just so folks know, too, it's a partnership that focuses on the development of technology to utilize bacteria within our body, it's called microbiome, how that bacteria either symbiotically or therapeutically helps certain pathologies, and we've made the ability to make drugs out of this using a special drug delivery technology and to deliver these live bacteria right into specific regions of the colon or terminal ileum, and the collaboration with Allergan was to develop specifically these types of drugs for inflammatory bowel disorders and there's also syndromes such as IBS symptoms that we are looking at specifically with Allergan. There's a number of different diseases and cases where this can happen, so for us it was prioritization of what we wanted to accomplish with this technology, making enough progress with that technology to kind of make our own investment decisions. You know, we were a company with enough resources to be able to make investment decisions for a long period of time, which we did, and we made it just long enough to the point where we felt the platform's large enough, the markets, essentially, are large enough and the relative probability of success is now at this point where we can say a partner would really help us for this specific indication, for this specific region, if we can find it within these certain value parameters, and with all of those little special keyholes and turns and lefts and rights that we have to do to make something like that happen and finding the right partner that kind of has the same interests or the same desires, same research goals, the same strategy long term, is pretty hard, there are a lot of companies, there's a lot of pharmaceutical companies, but when you have a certain bar of expectations it becomes quite hard, so really that whole transaction took over a year to put it together and then things happened, so different competitors or different market instances come into play that make it more complicated to do. So, yes, it was very difficult. Was that your question?
RUSSELL: It was. Ms. Ruff, one of your specialties is legal and ethical concerns over human subjects research. What recent changes in the law should companies know about when they prepare for clinical trials and have their proposals reviewed by Institutional Review Boards?
RUFF: That's a great question and very timely. This year there's actually been two big rules that have come out in kind of the life sciences and clinical research space, one is more I think focused on the drug and device companies, the sponsors is how I'll refer to them, and one is more I think important for the institutions to keep in mind in their operationalization, and the first one is the clinical trials results and registration transparency changes. There is kind of a push right now based on some studies that showed out of like 400 studies 30 percent of them weren't reported to clinicaltrials.gov within four years after completion and there was this kind of push within the scientific community that even no results or results that aren't positive are still results and not having that information we may be duplicating trials, we may not be giving people full pictures of what is available, and so there has been new regulations put out on what needs to be registered with clinicaltrials.gov and then what results need to be reported, and generally that's a sponsor requirement and so a lot of our sponsors are starting to look at that data-gathering and what are the new elements, and actually the compliance date was this month, April 18th of this year, so it's very current. And then, I'm sure a lot of you know, on the institution side we had final regulations for the Common Rule, which is referred to as kind of the federal policy for protections of human subjects, and that really changes how IRBs review clinical trials. We're looking at now -- I'm sure many of you understand, especially if you're on the institution side, sometimes how long it takes to get approval of a trial, and now with some of these cooperative studies you can do single IRB review, which in the past we've had every IRB from every participating institution review, so there's a lot of positive hope that that will really move things along in getting trials up and running, and there are changes in the Common Rule, too, to informed consent forms, hoping to make those shorter and more understandable and kind of some changes to what is exempt research, and I think the big thing that impacts a lot of the people in this room is that there was in the proposed rule the idea that a biospecimen would be considered a human subject and that caused I think hundreds of comments because the concern was if we have these biospecimens how are we supposed to go back and get consent for secondary research, some of them don't even have identifiable information, how we could find those people, so that did not make it into the final rule, so we are still using biospecimens the way we have in the past and I think that's positive for life sciences going forward.
RUSSELL: Speaking of clinical trials, these trials are often astoundingly expensive. Dr. Lundberg, I heard you say a week or two ago that every time you hold a large clinical trial it costs as much as the construction of Lucas Oil Stadium, which cost over 700 million dollars to build. Is this expensive model of testing sustainable because even the big differences, of course, when you give the green light on Lucas Oil Stadium it goes up, but clinical trials are so uncertain. Is there a more efficient way that Lilly is looking at to bring products to market and test them faster?
LUNDBERG: Right. So it's kind of special to compare then the big clinical trial Phase 3 cost with Lucas Oil Stadium, and I have my office at the Lilly top floor and I can see the Lucas Oil Stadium every day, but John Lechleiter clearly told me that you have to be careful here with our bets. On the other hand, I think it's the same with Lilly, just the Lucas Oil Stadium will not win the Super Bowl and maybe they need better..."Luck"? So if we look at our efforts then and I know when I came seven years ago, the first two/three years that happened was that most of the Lucas Oil Stadium trials failed, which, you know, was clearly a worrying experience, but what we did at Lilly under John then was to really raise the bar for betting on the Lucas Oil Stadium, and I think we have seen in just a few years now that things are turning around and we are building many more stadiums that are real and we have done this by clearly some strategic focus into therapeutic areas that we have a better chance of understanding disease and creating successful products and we embrace the strategy which I call timely valued medicines to patients which has five key components and it comes back to IBRI, even, do we understand disease well enough and is there an unmet medical need, which means that if we succeed with our products, payers and patients would want this, right, and then do we know which patient to treat, and for IBRI, which I didn't mention, one of the problems with diabetes Type 2 is that you give the same drug to every patient and assume that they will respond in the same way. We have to find the best responders and we are really trying that very hard in Alzheimer's and also in oncology, the right therapeutic agents was No. 3 so that we don't fail based on compound characteristics, and if we need combination treatments, identify that early. And I think that probably the biggest change is that we need to see where it's possible grade Phase 2 data. We see in the medium-size patient trials that we have a response or an endpoint that is very similar to what FDA needs for approval, so we call that robust Phase 2. And, finally, when we are in Phase 3, yes, we need to have a successful trial but it should also be compared then to the standard of care so it's really preferred when it comes there. And I think we have seen now in the last few years that Lilly's on kind of a record path, although I know we have had two setbacks relatively recently in relation to some data, but I think it looks very promising that we will have ten new products approved in five years, which is unheard of in the history of Lilly and probably in the pharmaceutical industry, in particular for a size of Lilly's company, remember, which is only a third of Pfizer's, or whatever, so there I think we see great promise. And in addition to we have already eight approved, No. 9 is likely to be, abemaciclib, which recently then was stopped at the interim analysis on metastatic breast cancer because efficacy was so good that the Data Monitoring Committee had said it's not ethical to continue, stop this trial, and we have in the next five years coming, or three years even, five to six more compounds that we already have clinical validation, we have Phase 3 data on one new migraine agent that we bought last year, the CoLucid lasmiditan, the CGRP migraine agent, galcanezumab, will readout Phase 3 very soon. We have tanezumab, I think extremely interesting non-opoid analgesic, non-opoid painkiller, which everyone is asking for, right, which is also coming, and we have some agents also in immunology and diabetes. So I think from that standpoint, yes, you have setbacks in pharmaceutical industry, but we see the glass as not half empty but it's almost full, and right now our biggest problem is actually to fund all the opportunities we have, particularly for doing additional indications which are very rationale and likely to succeed from already on their own licensed products.
RUSSELL: Thank you. So some of the most interesting research and the most promising technologies are taking place in universities all across the state and the question is how much of it is getting used and commercialized. Mr. Armstrong, during the last fiscal year your organization racked up some pretty impressive numbers, it completed 43 licensing agreements, researchers submitted 115 invention disclosures, 165 domestic and global patents were issued to your organizations, but just four start-ups were launched. That sounds like a small number. Is it and what can be done to turn more of the research into start-ups?
ARMSTRONG: Yeah, that's a great question. I think part of that is we have had a focus on, you mentioned the licenses, making sure that we're choosing the right partners in do doing that, so we kind of focus on making sure we're trying to work with certainly established companies if we have a chance to do that with a group that actually has the resources and the wherewithal to move those forward, we really have focused on that. But I would say one great limiting factor for us has been the talent piece that we've talked about and I'm on the panel here with two guys that have done a great job with helping move some of our assets along, Derek, with Dr. Adam Zlotnik down in Bloomington, he's done a tremendous job with them, and Joe with Dr. Chen here at the Krannert School and what they're working on with Arrhythmotech. I had a chance to walk in this morning with Joe Muldoon who's got FAST Diagnostics and who's done a great job with that, and I see Fritz French sitting here who's had a great run for us with Dr. Richard DiMarchi, we mentioned David Broecker who's done a great job on his own but helping us with Mark Kelley and his ApeX Therapeutics, so what we like to do is try to find folks like that and I think that's been for us in some ways the rate-limiting factor in start-ups is making sure if can we find more talented people like these guys that have been a tremendous help with us and with our faculty members and helping move those forward, that's been one of the challenges. We've had a lot of discussion recently about capital and that is a challenge with start-ups as well and I think it's more of a challenge if maybe we don't have the right people helping us lead those opportunities, but when we've had the guys that I just mentioned and others that I'm probably forgetting who have done a great job in helping us, it does make it a little bit easier for us to raise money internally, I mentioned some of the federal opportunities that we try to take advantage of, and then venture funding, but I think for us in some ways this pool of talented individuals that can help us take these technologies and move them from the laboratories down in Bloomington and up here in Indianapolis and turn those into opportunities that we can raise money around, that would be a tremendous help for us.
RUSSELL: Mr. Trebley mentioned or Mr. Armstrong mentioned the shortage of management talent or sort of the challenge in matching the scientific with the management talent. Is there enough of that in Central Indiana to help science start-ups get going in the business world and if not, what can we do about it?
TREBLEY: I think that's a very difficult question, right, and I think that, and we could talk all day about it, but I think really the answer is there's enough raw talent in Indiana. I think what they lack is incentive and they lack connection to groups that can help them at every step of the way because in reality, you know, Tony was very gracious to say that I'm helping, that we're helping, but it's not just me, it's not just our group, it's a network of people that are willing to even just pick up the phone and say "Hey, do you want to talk to these people? These guys have been doing this forever." Maybe it's a group at Allergan, maybe it's a group at Biomet DePuy. So they need to have connection, but then there's also this incentive piece. The earlier you go in an assets timeline, the riskier it gets. They still need guidance, they still need management, if that's what you want to call it, they still need leadership, but the reality is they don't need ten million dollars, right, they need a half a million dollars to derisk the asset in a way that makes it investable at that Series A stage, and so the real question is how do you incentivize good management to come in and play that early and the reality is that there's not enough capital to be competitive to recruit that management to that stage, but if you become comfortable with the idea of one management team working on several projects and providing that shepherd, I think in a lot of ways start-ups have become like this milestone in our head, like as soon as we form a company and name it we've done something. Well, that's not necessarily true. You know, $87.50 and a WIFI connection can get you a company. The hardest part's coming up with a name. I'm horrible at it, you can ask anyone. So the reality is we need to build an infrastructure that can shepherd a number of different ideas because some of the brightest minds on the planet are living in our backyard and they're working on some of the biggest problems that our society faces and so we need to help them. We can't count on them to start, form and run their own start-up companies at the same time they're doing research and writing grants and doing all the things and publishing papers and supporting their institutions, we can't count on them to do that, and so we need to create an ecosystem that helps shepherd those early-stage assets, and I think once you get them through to that seed or Series A stage then capital will come, management will come, but we need to do a better job at that early stage.
RUSSELL: Question from the audience. There are several innovative technologies emanating from our universities and taken to commercialization by start-ups. How do our established companies stay aware and consider collaborative opportunities with these companies? So up 'til now we've been talking about start-ups, collaborating with them, with big pharma or the other major companies, but established companies maybe that aren't that large, how can they get involved?
ARMSTRONG: I think we're always trying to find opportunities to find new groups that have an interest for our faculty to connect with. Hopefully it's a chance for us to partner with a group and commercialize but hopefully it's a chance for us to help that faculty member get more funding maybe for their lab, for the graduate students that are working in that laboratory to have a chance to get experience with an established company, maybe one that's a little smaller. In some ways I think of tech transfer, I mean certainly it's licensing and technology that we've got a disclosure and a patent for, but a lot of that is just this back-and-forth, hopefully, between our faculty and students and companies that are out there. I sometimes describe what we do, we try to be a bridge in a way that obviously we're trying to take the technologies that are being developed and move those out into the marketplace, but at the same time we're really trying to gather competitive intelligence or opportunities or where the market's headed and bring that back into the university and share that with as many folks as we can, so I think if they get in touch, we probably could do a better job of letting folks know. IU's a big place, all the schools, it's probably daunting to think how do I connect with that group, but that's one way what we try to do is be a front-door to the university and get people to the right place.
RUSSELL: A question for Mr. Small or whoever else might be interested in this, speaking of talent as we just were a moment ago, there's been a lot of talk over the last few years about a brain-drain of scientists and science students in Indiana. A third to a half of all science students at universities in life sciences, engineering, mathematics, leave the state after graduation, making it a smaller pool to choose from. How tough is it to find scientific talent for the young biotechs and even for big pharma in this area, how tough to recruit?
SMALL: Well, for me to speak about, I mean I think different people have kind of a different situation to work with, but for us we have -- because Lilly has a certain situation, you know, Joe has a certain situation, IU and so on, and I think about things a little bit differently, I mean the concept of the brain-drain to me is still more about kind of -- you know, all these things are all together, the 16 Tech, the IBRI, the tech transfer. I thought that was an interesting fact that you put in there that only four companies started, but I think that's less of a reflection on IU and more of a biomarker of the question about management and talent and is it really there, I mean I think that's a pretty strong sort of an indicator that it's not, it's not here yet at a very, you know, kind of large scale, so not having that ecosystem here is -- or, you know, a young ecosystem, it's growing, it's big, all the numbers we talked about for life sciences and so on, but I mean really creating this pool of management talent is what's in my opinion making it hard for companies like ours to bring the scientists there or make scientists feel comfortable that they can stay here, and I'm just as interested in brain-drain in other states, bringing more people to Indiana, I think that actually creates a lot more momentum for us and a better environment for the people who aren't here to feel like they can stay here, too, if that answers your question.
RUSSELL: Is brain-drain affecting recruiting at Lilly?
LUNDBERG: Well, as you know, Lilly is actually a global player and we are competing with the best of the best of international pharma companies, so recruitment of talent or access to talent is clearly a key thing not only now but also for the future, and I just wanted to start with to say that you can have talent inside the company but it's also as important to have access to talent outside the company, and coming back to the local ecosystem with academics and other activities, if you look at Lilly research today, it's highly international if you look at recruitment and we have hundreds of foreign people that chose to come to the U.S., having education here, having chose the state, right, and clearly I'm one myself as a relatively recent immigrant, so I think the immigration rules for giving visa to highly talented people coming to the U.S. and being educated at Purdue or at IU will be I think very important also for the future and not only giving this to CROs but really then to PhDs and other people that really can contribute directly to the high-end industry like Lilly. We are trying to approach two main things right now. Clearly, we need expertise in certain therapeutic areas but it's also in evolving technologies like innovation or information technology like artificial intelligence and so on, and I mean there is a constant need I think for people that also have a little bit different experiences than just biomedicine to interact with our Lilly scientists. We really need also to look at diversity and for us at Lilly, diversity means many things. Yes, it's about gender and race, but it's also about origin and competence and what type of skills do you bring then to the teamwork, but clearly our ambition is to become more diverse, and I know that, you know, I myself belong to the middle-aged white man which may not be the top priority when diversity is being discussed, but I'm really keen on that we are not polarizing different groups against one another. I saw this happen in Sweden a long time ago when only females were allowed to get promotions and I don't think that's allowed really by law, and it should be the best person for the best job. We should try to remove our unconscious bias and really be open to different people, and I have tried also to attract people that are different than me, which I think for innovation is a key thing. The other thing is between young and older people and again I think it's not really a controversy, both need each other. I mean a company like Lilly, which is 140 years old, needs a constant renewal of new, fresh blood coming in from campuses and young students with ideas and no prejudice about what can be done and what can't be done, so we really need post-docs, we need the younger generation, but the more mature, experienced people are also extremely valuable because they represent the corporate memory of innovation, of decades of experience and should transfer their knowledge into the new ones. I know they transfer their knowledge to biotech companies when they leave Lilly, that's fine, but Lilly also wants the brain kind of to be kept at Lilly and come in the younger generation. So in short, talent continues to be clearly the prerequisite for competing. Indiana is fine, but we also have expanded on the west and the east coast of the U.S. to have even more talent access.
RUSSELL: Mr. Trebley.
TREBLEY: Yeah, I would just like to add because I think Dr. Lundberg's immigration, the issue of immigration is not just one for large companies like Lilly, it's very much a part of our daily lives trying to get the first employee into a company. Oftentimes when we work with a faculty, I think Purdue has one of the largest populations of international students in the country, and when we're working with that faculty member this graduate student or this post-doc is literally the one person in the world that knows how to do what we need to do, and we can do a license, we can file patents, we can 34
raise money, but the transfer of knowledge is so much a part of the commercialization. We always say it's not an event, it's a process, and being able to take that post-doc student and put them in a company is one of the most important steps early on, and I can't tell you how many times I run into H-1B visa issues in that situation and because for whatever reason their major doesn't qualify or whatnot, and if you look at that just from a business perspective, Hoosiers are very practical, right, you know, we've had this brilliant scientist living in our community for years and she's been largely supported with federal dollars, so we pay to train her and she's done amazingly good work and we couldn't be prouder to have her part of the community. Here we have a chance to start a company but we can't because she has to go back home. So that is a real issue I think not just for Lilly but as we sort of think about leveraging all of our talent and our brain-drain, part of that is not just leaving the state, part of that's leaving the country and that's something that we feel in the state. Maybe we're losing some opportunities. And I think one other suggestion. I've been on a similar panel and sort of suggested this. Maybe I should just start working on it. Quit talking about it, right? But the tech industry has done a really great job with their Orr Fellowship program and putting brand-new graduates in different start-up companies or strategically placing them in areas where they're going to keep them in the state. They're going to be paid a little bit but they're going to get two years of really great experience and sort of create a network. I would love to see that with newly-minted PhDs coming out of Indiana because I think that is one of the least leveraged talent pools that we have and I think a lot of the reasons that they leave is because they have to do a post-doc somewhere and we only have so many post-doc positions in Indiana and so a lot of them are going to the east coast and west coast to do post-docs. Maybe it's before they go, or maybe it's after they go, maybe they go spend two years in Boston and then we have a fellowship that brings them back as an alternative to a tenure-track position. I think there's a lot of ways we can be creative and I think there are folks in the community that have given us a blueprint and if we could copy that in life sciences that would be great.
RUSSELL: Another question from the audience. What will be the impact of nontraditional players like Google, IBM and Microsoft and Apple, what will they bring to the life sciences landscape? Is that an issue any of you think about?
KNERR: I guess broadly at Ernst & Young we've seen this, this is one of the things that we really see happening from a life science perspective is this concept of connecting care, is this concept of patient-centric care, and a lot of that is data driven and that's what these companies excel at and so we've seen that these companies are moving into the life sciences space. One thing that they think they're good at, and by the size of their market capitalization they are good at, is disruption in some fashion and so they're looking at new ways to apply data, take data and use data to perhaps create value in the health care space, so I think we're seeing them become a much bigger player in the space, some of them even with Google getting into actual development and research sciences, others playing perhaps a little bit along the outside and helping establish companies really develop their processes, their research processes, as well as develop their technologies that they're going to use in combination with treatment to really make sure that they've got the information about the patient so that the doctors can prescribe the right medicine or the right therapeutic.
LUNDBERG: If I can add there. Clearly, we have, like I said, a strong interest in exploring and synergizing with various advanced information technologies, including artificial intelligence. I can just note, though, that the IBM Watson won in Jeopardy, right, but it has not yet won in discovering drugs. Clearly, you can joke about it, but the more rational approach is to kind of bring in the components that you can benefit from, right, so we are really trying to make discovery and development increasingly information-technology driven, which clearly is the future, and make things more accurate, rapid, and hopefully then we can predict which trials should work and which trials would not, for instance, so connected care I think is another space where Lilly clearly has an interest with our insulin franchise.
RUSSELL: Speaking of data, another question from the audience, how important is digitalization or industrial internet of things to connect research and manufacturing data to speed innovation and time to market for life sciences? Is that a question that any of you entertain, it keeps you up at night? 38
KNERR: We're in the information age and so if companies aren't thinking about their digital footprint and how they can use information and use data to improve their supply chain, improve their business operations, the life sciences space isn't immune to that, the ecosystem from a life sciences perspective can benefit from the use of digital and the use of information across their organization, not just in research, not just in supply and manufacturing, so I think to that extent we see cutting-edge companies bringing that in and working with it. You mentioned AI, robotic process automation, all those things, it's something that I think the life sciences industry has to stay on top of and we're absolutely seeing companies focus on that and try to bring those technologies in to make them more successful.
ARMSTRONG: I'd just add I had a chance to spend some time, we have a new Dean of Informatics in Bloomington, Dean Raj Archarya, and I think we have a new engineering program, Intelligence Systems Design Engineering, and I think what Dean Archarya has started to talk about is this engineering curriculum they're building as more he calls it a "renaissance engineer," so it's not mechanical or chemical or electrical, but it's an engineer, somebody that has the chance, as Dr. Lundberg said, to be a part of and have a number of experiences within that in some ways we think of information technology as sort of a liberal arts, but it's really infused with every type of discipline, the social sciences, biological sciences, drug discovery, different things, that really information technology is just a part of that and another tool, and so if it's data analytics or AI, those kinds of things, are going to be involved in every discipline these days, so it's not in some ways a separate entity, it's a way for us all to create and grow the work that we're doing, and so I can see with these other companies that are sort of getting into autonomous cars and different things when you think about the nontraditional, the non- Detroit companies that are a part of that, I think they're finding ways and they're going to be I think tremendously helpful for us as we go forward.
LUNDBERG: One aspect which I think needs to be emphasized here, information technology may be one of our future opportunities but it's also one of our future problems because to protect information and protect against espionage and data leakages it's become increasingly important, so, yes, we need to generate the information but we also need to protect it.
RUSSELL: Protecting information is important on a privacy level as well, patient privacy. Ms. Ruff, when many people think about HIPAA, they think of patient privacy in a hospital setting, but the law also applies to medical research. Can you talk about one or two of the most misunderstood provisions of HIPAA as it applies to researchers?
RUFF: Absolutely. I think one of the big things that, to tag on to what Dr. Lundberg had said, is when we do studies and collect information, I think a common misconception is that the sponsor has a similar obligation to comply with HIPAA and that's not true, sponsors are very rarely covered entities under HIPAA, and so you sign a HIPAA authorization and then they use the information in accordance with the HIPAA authorization you sign but not necessarily in the same way that a hospital has to protect it, there's not similar requirements for privacy and security as far as how do you manage ePHI, what kind of encryption do you use. I think there are standards for the industry but it's not the same, and so I think that's a common misconception is that, well, if I share my data with a sponsor it's just as safe as it is in the hospital and the standards are different. I also think we do a good job in industry-sponsored research. We understand that if we share PHI with a third-party that we should have a waiver, we should get a HIPAA authorization. We're not as good at that when we're doing internal research within hospitals and academic medical centers and I think the problem with that is because the HIPAA obligation follows the use but a lot of times the access doesn't change and what I mean by that is physicians are inundated with PHI every day, they go in the EMR, they do so much with it, and that all falls under the treatment exception and so we don't get any additional permissions for that, we just do what we need to do to get the job done, essentially. The minute you want to use PHI for research the obligations under HIPAA change and that's sometimes hard for people to grasp because they're looking at it and they're looking at it right now and they're saying "I can look at it for this but not this" and so I think we have to do a better job sometimes in educating our physician researchers and that when you're a physician and when you're a researcher they're different under HIPAA.
RUSSELL: One of the other challenges that we mentioned, I think Mr. Armstrong alluded to but we haven't talked about much yet is raising capital. I talked to a CEO of a small biotech a day or two ago who has a very proven molecule that's just about to go into clinical testing, but he's out there pounding the pavement making 50 presentations a month trying to get money to fund these trials and future trials and try to tee up future molecules. How tough is it to get out there and sell your story and why isn't the life science industry successful today as maybe the software industry, as consumer goods industries into getting the money? Mr. Small, you've been able to get this far by keeping your investors very patient without having any revenues to date. What's your experience been in this regard?
SMALL: Well, I'm trying to remember what "revenues" actually mean. I actually did have revenue this year in our partnership deal. So I think it's just about how you look at it. Like I said in my e-mail back to you, too, is I think we just have a different vehicle. So I actually even started out in the tech community a long time ago and started companies in that world and working with that investor base and that investor return model, risk-return model, too. In theory I think it's a little bit of a misconception that less investment means less risk means shorter timeframe to returns. Yes, it's faster revenue because they have less regulatory constraints, but it's not necessarily supported with data. I think we have to look at it on a return model and I do think this isn't just altruism, you know, we're not just looking for donations for our research to be able to advance science, I mean that's a part of it, that actually is definitely a byproduct, but certainly we take, either my own investment or people that we bring into the companies, every dollar very seriously that's invested, I want there to be a significantly outsized return in a reasonable timeframe, so I mean IRR is a very commonly used calculation in biotech, too, even though we aren't necessarily going to see commercialized products in the timeframe for us to receive that return, so I do think that there's a lot of opportunity just from the kind of bigger picture standpoint. It's not as risky on a relative basis if you look at the facts as even IT is in a lot of ways and returns over a longer period of time are outsized that of IT, too. On specifically raising money, though, the 50 presentations a month, you know, I've done that and that's exactly how it took us five years to raise two million dollars at Norax (phonetic spelling) originally and then ultimately we ended up raising 160 million dollars and the company sold for over -- well, a lot of money, and the investors made a lot of money on that investment and that was in Phase 2 clinical trials, so really now Allergan just took over the Lucas Oil Stadium investment and made a 6000 patient clinical trial Phase 3 development program for the drug that we spent over a hundred million dollars on, but it's very hard to break that seal, and as far as my experience, and I know it's Joe's experience, too, is that's just what we have to do to get there.
RUSSELL: Mr. Trebley, you deal with these early-stage scientists and business leaders all day long. Do you have any advice for them on what they're doing wrong and how they can do it better?
TREBLEY: I think one of the things that this conversation is kind of alluding to is we're competing for capital, right, not just for the tech community but also just putting your capital into an index fund, right, so I think one of the lessons that researchers have to learn when they take their baby out of the academic world and into the marketplace is that it may be the love of their life but it's competing against some other easier, less risky, perceptively less risky opportunities, so you have to make the case, you really do, and then have to accept what the market's going to bear for that, but the reality is the 50 presentations a month, yeah. I mean I think the real advice is just start early. I was at JP Morgan discussing this with a VC and explaining and we said "We're not raising capital yet, we just want to start the relationship and we want to tell you what we're doing." It was a 30-minute meeting, but their response back was "This is great, this is the best way to do it, I don't think I've invested in a deal that I haven't looked at for two years."
RUSSELL: Thanks. One last question and this is going to be in the form of a lightning-round, 30 seconds each. I started off with some of the big headlines in life sciences over the last 12 months. What's your prediction for the big headline for life sciences in Indiana over the next 12 months, big headline, big trend, big development to keep your eye on, anybody's hand going up? I've got to pick on someone.
LUNDBERG: Success with registration of new products and one of them could be for metastatic breast cancer and the other one in migraine.
ARMSTRONG: I think one might be -- I think we talked about the IBRI and the continued roll-out and success there and I think, thinking about the recent legislative session that ended in the Next Level Trust Fund and the ability hopefully to get some more funding that we just talked about into early-stage companies, that we have some new tools to do that, so hopefully that together helps to build this ecosystem and 16 Tech continues to develop and we start to see that location start to take life.
RUSSELL: Very good. Mr. Knerr.
KNERR: Yeah, I guess I would say that maybe on a broader scale that with tax reform hopefully happening it really should free up capital here in the U.S. which should give perhaps the individual that you were talking with who's making 50 presentations a day an opportunity to have a little more capital and a little more opportunity to put that science to work and be funded.
RUSSELL: "50 a month." "A day," wow, that would kill somebody. Ms. Ruff.
RUFF: I think there's going to be a big push, like Mr. Knerr mentioned, in this administration to redo regulation and I think in some areas that might concern me but in some areas I think, including like drug and device taxes, regulations on moving things to market, we may see some real advancements in that.
RUSSELL: Mr. Small.
SMALL: I don't know. I think with the progress that Lilly's going to make this year they're going to buy Pfizer.
RUSSELL: Mr. Trebley, you have the last word.
TREBLEY: I would say Assembly Biosciences is going to announce a major payment from Allergan for a milestone.