Pod Insights a16z Podcast a16z Podcast: The Economics of Expensive Medicines About this episode with Andrew Lo (@AndrewWLo) and Jorge Conde (@JorgeCondeBio)
The advent of new gene and cell therapies are beginning to approach that holy grail of medicine—that of a possible cure. But they are also more expensive than any medicines ever sold befor...
Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Speaker 00 The content here is for informational purposes only, should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com/disclosures.
0:19 Hanne Tidnam? Hi, and welcome to the A16Z Podcast. I'm Hannah. The advent of new gene and cell therapies are beginning to approach that holy grail of medicine, that of a possible cure. But they are also more expensive than any medicines ever sold before. In this episode, MIT economist Andrew Lowe and A16Z general partner on the bio fund, Jorge Conde, discuss how exactly we place an economic value on a cure, the questions we still need to figure out, like who should pay for what and how, and how we need to start thinking about handling the coming influx of highly-priced medicines like this into our healthcare system. Jorge and Andrew also talk about the economics and risk of drug discovery and development overall, and how our markets might just function more like biological systems than anything else.
1:03 Jorge Conde? So, what does an economist know about healthcare?
1:07 Speaker 03 Yeah, that's a good question. I probably should start with a disclaimer, kind of like the disclaimer that you find on drugs. This podcast could cause confusion, irritability, and drowsiness, but it should all pass within a few minutes.
1:21 Jorge Conde? That's the black box warning.
1:22 Speaker 03 Right, exactly. My background's really in financial economics. I got interested in this because friends and family were dealing with cancers of various different types, and so the more I learned about what they were going through, the more I got curious about the underlying economics of cancer drug development.
1:37 Jorge Conde? A lot of the work that you have done as an economist has been around thinking about value. We have one approved gene therapy, the Sparks Therapeutics Gene Therapy, for a rare inherited form of blindness. There are many, many more in the clinic. There are many engineered cells or cell therapies that are also in the clinic. And these therapies have one great promise that has been in all too short supply in our industry, which is the promise of a potential cure. How do we think about the value of a cure in a system, and specifically, how do we think about paying for cures in a system that really isn't designed for that?
2:14 Speaker 03 Now, that's a really interesting challenge. And that challenge, by the way, is only going to grow because although we only have one gene therapy right now on the market, there are over 300 gene therapy clinical trials registered at clinicaltrials.gov. And my guess is that within the next three years, we're probably going to see somewhere between five and 10 gene therapy approvals. So we're talking about a pretty significant impact on payers and patients.
2:39 Jorge Conde? And just to give people a sense of scale, so look, Xternia, the spark therapeutics, gene therapy for blindness, what's the sticker price on that?
2:48 Speaker 03 The list price right now is $850,000 for both eyes, $425,000 per eye. So we're talking about some really expensive therapies, and that's not even the most expensive. People are talking about therapies for, say, hemophilia A, that if it gets approved, a price tag could be well north of a million and a half dollars. Now, when you think about these kind of numbers, it's really shocking, but the way I think about it as an economist is, is it justified, given the kind of value that it creates for consumers? So typically, the way I think about value is very much the way that someone would think about value from any kind of a commodity purchase.
3:28 Speaker 03 If you buy a home, the price of the home should be related to some degree to the housing services that the home will provide you over the course of your lifetime and beyond. And so we typically think about a house as not simply what is going to provide you in terms of shelter for the next month. That would be an apartment that you would rent one month at a time. When we buy a house, as opposed to renting an apartment, we're buying a stream of future housing services. So I think about that the same way that I think about gene therapies. When you are cured of a disease, you're basically getting a lifetime of health, as opposed to renting health one pill at a time with a chronic manageable condition.
4:12 Speaker 03 So when thinking about that framework, it stands to reason that if you're going to get value from a particular cure over a period of your life, you ought to be able to amortize your payments over that kind of a period. And so if you think about the idea behind a mortgage for a home, we can also apply that to thinking about a mortgage for drugs, drug mortgages.
4:35 Jorge Conde? So mortgage for a cure?
4:36 Speaker 03 Exactly.
4:37 Jorge Conde? Okay. And who pays that mortgage?
4:39 Speaker 03 Well, that's a good question. So... In my view, insurance companies should pay for it because that's why we have health insurance. There are challenges, though, with the current system in getting insurance companies to pay for it, simply because they're going to have a hard time in terms of balancing the cost of the insurance with the payouts that they have to make. Typically, the way insurance works, if you join an insurance plan, you pay premiums every year, and in the event that you get ill, they cover your cost. And the idea is that the amount that you're paying every year, on average, should roughly equal the cost that they're paying out, maybe a little bit less so that they can make a profit.
5:19 Jorge Conde? And run a business.
5:20 Speaker 03 Run a business, right. That economic calculus becomes very difficult when you've got patients that can leave a plan after two or three years. So imagine a health insurance company, A, paying for a cure for you, and with the expectation that now that you're healthy, you're going to be able to pay premiums for the rest of your life, and that will make up for the cost of the cure. But suppose that after three years, you leave Plan A and move to Plan B. Now, Plan B has the benefit of your health and the premiums that you're going to be paying for the rest of your life, whereas Plan A is stuck having paid for your therapy. So the solution to this is to allow Plan A to amortize, to space out the payment of
6:04 Speaker 03 your therapy over the course of many years. And if you leave after three years, the remaining payments, the remaining drug mortgages that the health plan A was supposed to pay, that moves to Plan B. And in a way, that creates a level playing field for all insurance companies, so nobody is disincentivized to provide those cures to their patients.
6:24 Jorge Conde? So that's a fascinating concept, because, you know, one of the things when people think about insurance, when they think about people moving around from plan to plan, and we have now legislation around this, is, well, what's the obligation of the payer to pay for a pre-existing condition?
6:40 Speaker 03 Exactly.
6:41 Jorge Conde? We've always assumed a pre-existing condition is a disease. But what you're describing is, in some cases in the future, the pre-existing condition might actually be a cure.
6:49 Speaker 03 Right.
6:50 Jorge Conde? And so there'll be a liability, not associated with the treatment of a disease, but there's a liability associated with the treatment for a cure.
6:56 Speaker 03 Exactly. And so we can actually fix the system with one stroke of a pen. By changing in the Affordable Care Act, the sentence that prevents insurers from refusing to serve a planned participant because of pre-existing conditions, to change that to pre-existing financial conditions.
7:14 Jorge Conde? Yes, exactly.
7:16 Speaker 03 And if we do that, then this whole issue about mobility is not a problem. But good luck trying to get legislators to do that right now. I think it's going to be a challenge.
7:24 Jorge Conde? Has, do we know that debate has even taken place? Because it does feel like a logical solution.
7:30 Speaker 03 As far as I know, the debate has not yet taken place, largely because there's no need. But if we institute these payment plans for one-time therapies, and we're able to start developing cures for some of the larger prevalence diseases, for example, we're on the verge of developing a cure for sickle cell anemia. Well, there are 100,000 patients in the United States with sickle cell, and that's going to hit health plans pretty hard.
7:54 Jorge Conde? Right.
7:55 Speaker 03 A few weeks ago, in the UK, a group announced the launch of a clinical trial for applying gene therapy to deal with age-related macular degeneration. There are 600,000 AMD patients in the UK, 2 million patients in the US. If we have a gene therapy for AMD that succeeds, that's going to be a real problem for our healthcare system.
8:15 Jorge Conde? The concept of a drug mortgage, or a cure, a mortgage for a cure is a fascinating one. But when we use the analogy of a home, does it start to break down? In the sense that I know how much I'm going to pay for my mortgage, because the value of the house is agreed upon and determined when I buy that house. And in some ways, the equity I get in my home is the difference between what the value was when I bought it versus the value when I sell it, and I end up paying off the mortgage at that point in time. In the case of the cure... How do we get agreement on what the value of the cure is at the moment of treatment?
8:58 Jorge Conde? Because I would imagine that for a patient, they're going to put one value on it. Society may put a different value on it. The payer may put a different value on it. So how do we get to agreement on value so we can, from there, determine the mortgage payments?
9:14 Speaker 03 Well, different countries answer that question differently. For example, in the United Kingdom, their process for determining what the price of a drug should be, or what an acceptable price is, is a group of individuals that do pharmacoeconomic analysis to try to calculate cost effectiveness. This is an organization called NICE, N-I-C-E. And this organization does economic studies to try to determine whether or not, at a given price, it's worthwhile for their society. And not everybody agrees with what NICE comes up with, but the bottom line is that the National Health Service in the United Kingdom will take the recommendations of NICE and follow through. Now, in our country, we would call that a death panel.
9:56 Speaker 03 And it's a politically loaded term, but effectively, that's unfortunately what it is. You have to make trade-offs between money and lives saved. Now, in the United States, we have a very different system. It's a multi-payer system. And at first, I thought, oh, that just means it's a free market. But in fact, the complexity of the regulations surrounding the pharma industry is anything but a free market. There are all sorts of incentives, in certain cases, that cause drug prices to be higher than usual, and in other cases, to force them to be lower than usual. I think that the best way to think about it is to start back and ask the question, what do patients get out of it? What is the value to a patient?
10:39 Speaker 03 We can layer on top of that all sorts of other considerations, but to me, the patient should be the first consideration. And there are economists who study that all the time. They come up with the notion of quality-adjusted life years, and they ask the question, if you're going to save a patient's life, if you're going to literally cure the patient of an unfortunate early death, you can actually calculate the number of quality-adjusted life years you've given back to that patient. And that's the beginning of where value comes from.
11:07 Jorge Conde? The other argument would be, if you cure a disease, you avoid... The cost of treating that disease over the lifetime. So one other argument for pricing or giving value to a cure is to say, well, let's take the net present value of all of the avoided costs. And so I'm going to ask you an overly simplified question. Would a way to price these cures be, let's take the value of the qualities, right, the quality adjusted life years and add to that the net present value of the costs avoided?
11:43 Speaker 03 Well, that's certainly a consideration that people have used in making an argument one way or the other for pricing. But I think that you have to be careful because there are many other factors then that you might want to also bring in. For example, if a patient is now going to live a natural life, that patient will pay taxes for the rest of his or her life. Should we factor that into the calculus? That patient, on the other hand, will be consuming other aspects of society. And for example, if that particular patient ends up becoming unemployed, then they'll be drawing unemployment insurance. So you can go down this rabbit hole of all sorts of costs and benefits that you have to do the math for. And unless we're really set up to do that, it's very easy to cherry pick the particular statistic
12:28 Speaker 03 that makes your case look stronger than the opposing side. So I think that the approach that we seem to be gravitating towards is to try to come up with an objective notion of value. And there's an organization called Iser. It's a nonprofit organization. That's job is to focus on developing these cost effectiveness studies, maybe using that as a starting point. And then going from there to try to see whether or not we can come up with a rational pricing model that basically all stakeholders can live with.
12:59 Jorge Conde? Has Iser looked into the spark therapeutics drug?
13:02 Speaker 03 I believe they have. I know that they did a study on gene therapies in general, and they were very positively inclined, particularly given the cost of many of the diseases without the gene therapy. Hemophilia is a good example. Even at a price of, say, one and a half million, we don't actually know what the price will be. One and a half million is actually a bargain relative to what it costs to deal with a current hemophilia patient, which can be anywhere from 300,000 to 500,000 a year.
13:29 Jorge Conde? A year.
13:30 Speaker 03 For the rest of that patient's natural life. So at one and a half million, that seems to be a bargain from that kind of calculus.
13:37 Jorge Conde? So it's a fascinating conundrum. If we look at the history of the biotechnology industry, we've seen a small-scale version of this challenge with rare genetic diseases. So to pick one sort of well-known example, when Genzyme comes onto the scene, the founder and CEO of that company, Henry Temer, pioneered the idea of, you know, we can develop and commercialize therapies for these patients that have these rare diseases. And there is a lot of value associated with treating them and alleviating the conditions to the extent that we can. And as a result, we can charge, we can price it based on that value.
14:18 Jorge Conde? So those therapies were on the order of, on the order of $100,000 and above. Well, oh my gosh, how can we possibly pay $100,000 for a therapy? And part of the rationale for doing it was, well, these are rare diseases, so collectively the probability that you would have many patients in any given plan that are going to have this therapy in general, on scale, these were going to be very much one-off events for most plans, and therefore, they could, they could shoulder that kind of payment. What's fascinating about what we're describing here, and you've given a lot of great examples,
14:58 Jorge Conde? SMA, hemophilia, AMD, these are all diseases that even if they were individually rare, which many of these are not, collectively, this is going to be a common condition. And so we're going to see another reckoning, I think, across the industry in having to think through this problem that Genzyme tackled from the micro scale to the more macro scale. And my take on this is, I'm an optimist. My assumption is that the innovation is going to lead the regulation, the policy, the coverage here, and that we will get to an answer. On how to actually make sure that patients get these cures.
15:38 Speaker 03 Well, I'm absolutely optimistic that we'll come up with an answer. But I don't believe we're going to get to that answer until the system is forced to deal with this issue in a direct way. And maybe that ends up being when we develop a gene therapy for a really big indication like Alzheimer's. There are currently 5 million patients that have Alzheimer's. If we develop a gene therapy to stop the progression of the disease or to be able to delay the onset, that's going to create tremendous pressure on the healthcare system. And at that point, we're really going to have to confront this as a nation. And it's complicated because you're dealing with life and death issues. You know, when we think about pricing things like a car, it's not a big deal because, well, if you can't afford a car, maybe you'll get a cheaper car.
16:22 Speaker 03 But if you need a drug, you can't afford to get a cheaper drug if there's only one drug that cures your disease. So I think that's one of the reasons why economics, as much as I love the subject and feel that it's critical, these are not just economic considerations. We have to bring in all of the relevant stakeholders to make these decisions. And that's really what our policymakers are trying to do.
16:41 Jorge Conde? It's clear we're on the cusp of a new age in medicine. And it's going to be fascinating to see how all of this plays out. One of the things that I found most surprising about your work is what the work you've done around trying to develop risk metrics for drug discovery. Can we talk a little bit about some of the conclusions that you drew from that and how we can apply them?
17:01 Speaker 03 That's a really interesting aspect of the healthcare industry that puzzled me for the longest time. When I first started looking at the way drugs were developed, I couldn't understand why it was the case that so many amazing breakthroughs have been made over the years, while at the same time, I kept hearing about the fact that there's this valley of death and there's not enough funding at the early stages of drug discovery. And the more I looked into it, the more I realized that these incredible breakthroughs are actually increasing the economic risks of drug discovery. You know, when I first looked at Ehrlich's Law, I never heard of Professor Ehrlich. It took me a while to realize, oh, Ehrlich is Moore spelled backwards, the opposite of Moore's Law.
17:43 Speaker 03 And the idea that as we get smarter, as pioneers in the drug development field develop all of these amazing therapies, that it actually gets harder from an investments perspective, that was really counterintuitive. Usually, in my field, as we get smarter, Typically, things get easier. The more you know about a company, for example, the less risky is an investment in that company.
18:06 Jorge Conde? That's right.
18:06 Speaker 03 But that's not true with drug development. Thinking about drug development requires thinking carefully about risk. The more you know about the underlying biology of disease, the riskier it can get from a financial perspective. And the reason for that is that as we learn more about these various different mechanisms of disease and how to deal with them, it can actually increase the risk of a drug becoming obsolete because some young upstart decides to try this new pathway that ends up working really well. So a good example is combination therapies. We now know that one or two drugs that don't work particularly well can work magnificently well when put together.
18:48 Speaker 03 The best example is the HIV cocktail, the five antiretroviral therapies that by themselves don't do very much, but when you put them together, they can turn a deadly disease into a chronic manageable condition.
18:58 Jorge Conde? That's an interesting example, right? Because if you look at HIV cocktail therapy, there was a theory for why the combination of the compounds that go into the cocktail would work, right? So some block the attachment of the virus to the cell, some don't allow the cell to replicate. That had a logical basis for the combination therapy, but that's not always true, right? Sometimes the synergy of therapies happen experimentally or they're observed experimentally. They're not sort of a priori known.
19:26 Speaker 03 But the fact that we now know that combination therapies can work, that means that from a scientific as well as an ethical perspective, we're obligated to search for combinations to come up with new therapies. In fact, some people say that we don't need any more new drugs. We've got all the drugs we need of the 2,800 drugs that are approved. All we need to do is to find the right combination to treat all disease. So now that we are smarter and we know that combination therapies work, what does that mean? It means that the drug development landscape has become that much more complex. And it also means that for existing pharma companies that have drugs that are producing good revenues, their revenues can be wiped out by a new combination that just comes out of the blue because some researchers hit upon that.
20:09 Speaker 03 Just by accident or by theory.
20:13 Jorge Conde? But the flip side of that is there is latency in the system, right? In other words, it takes, assuming that you, one could hypothesize or test a combination.
20:21 Speaker 03 Right.
20:21 Jorge Conde? The period of time from which that original hypothesis is tested until it's actually impacting patient care can be on the order of years.
20:29 Speaker 03 It could be, but that just means that we now understand the risks can be drawn out over a period of years. And so that really surprised me in that idea that we actually, as we get smarter, things could get riskier.
20:43 Jorge Conde? That's fascinating. So to set the table a bit in terms of the drug discovery and development paradigm, I think in the US alone, the biopharmaceutical industry spends about $75 billion per annum investing in R and D. And a big chunk of that is the D side of the equation, right? The statistic that gets thrown around a lot is that it takes, on average, about 10 to 15 years for a new drug to reach approval, to get FDA approval and reach patients.
21:12 Jorge Conde? And when you account for all of the failures along the way, the total of amount of investment to get to that one drug 10 to 15 years later is something on the order of 2.5 billion. If you just look at sort of the survival statistics, it's something on the order of one in 10,000 compounds actually makes it all the way through this gauntlet. Are those statistics real? Have they been borne out in the work that you've done?
21:37 Speaker 03 Well, the short answer is no, mainly because what we're trying to do is to understand how these statistics change over time. So the numbers that you cited are accurate when you look at the entire expanse of history. But the problem with that is that medicine has changed a lot. In particular, if we think about the fact that it was only since 2003 that the human genome was sequenced, we're not even 20 years out. And nowadays, we understand that sequencing the human genome is fundamental for lots of diseases and therapies like cancer, immunotherapies. So we're in a very different period today than we were even 10 years ago.
22:19 Speaker 03 So when you take a look at statistics like it takes $2.6 billion to develop a drug, or the probability of success for developing a drug in oncology is 5%, those numbers are aggregated over a period of time and over a particular sample of firms. What we've done over the course of the last couple of years is to try to come up with better numbers, numbers that use a larger data set over a longer period of time, but looking at it through time so that we can actually see what the trends are. So here's a case in point. If you take data from 2000 to 2015, so that's 15 years of data, the probability of success in oncology, in cancer drugs, is actually less than 5%. But if you
23:01 Speaker 03 look at the last five years, the probability of success is triple the historical rate. So just within the last five years, the probability of success in oncology is about 10 to 15%, especially if you look at lead indications and you add biomarkers. So when you stratify the data in that way, you get a very different picture.
23:19 Jorge Conde? Even if the probability of success is 10 to 15%, that obviously means that 85% to 90% still fail.
23:25 Speaker 03 Right.
23:25 Jorge Conde? The main reason that drugs tend to fail is either because the target that you're trying to hit with your drug, with your molecule, doesn't necessarily modulate the disease, that doesn't have the intended effect, or it does modulate the disease, but it's also important elsewhere. So you get sort of on-target toxicity for that molecule, or you made the wrong molecule, and the molecule either hits the target maybe not hard enough, or hits that target and a lot of other targets, and so then you get off-target toxicity. We're learning a lot more about biology and what confounded you as you entered into the space that that actually has increased the risk. How do you sort of connect the dots between
24:07 Jorge Conde? that insight with the last data point you just gave us, that the success rates are actually going up and not down?
24:13 Speaker 03 Right.
24:13 Jorge Conde? How do I connect those two thoughts in my mind? Because I would imagine if the risk was going up, that means success is going down, but it sounds like you're saying both are happening.
24:22 Speaker 03 That's right, and that's really a fascinating conundrum. So first of all, when my co-authors and I calculate success rates, what we're looking at is path-by-path success rates, meaning if you start off with a compound at phase one, what are the chances that that will eventually become a drug, that is, you can file successfully for a new drug application? So we're actually following a drug coupled with an indication through the entire process. And it is true that when you look at it path-by-path, the success rates are going up. At the same time, what I was talking about was the financial risks of investing in these things, and that's also going up. And here's the key.
25:06 Speaker 03 The key is that, how many investors do you know that put money in a Phase 1 trial and leave it there and follow through until NDA? Very, very few.
25:17 Jorge Conde? I see, yeah. So they, you know, they basically, they may trade out of that investment at a value inflection point, whether that's an IPO or an acquisition, and that's uncoupled with the approval of the drug.
25:27 Speaker 03 That's right. In fact, those are the good events, but more often than not, they get wiped out because a compound has these off-target effects, toxicity, or it's not doing what it's supposed to do. As a result, they basically get the plug pulled on the project and they lose all of their initial investment. A good example is a drug, Velcade, which is a very successful drug, but it probably wiped out two or three sets of investors before it actually got to approval. And so that's the problem. Drug development is actually not a marathon. Actually, I think it's more of a relay race of marathons. And the problem is that, very often, we drop the baton.
26:09 Jorge Conde? Right.
26:10 Speaker 03 And that's the challenge. That's the increase in risk, while at the same time, we are also increasing approval rates. It's ironic, but it's both, they're both true.
26:19 Jorge Conde? And so the work that you've done on understanding risk and benefit in drug discovery, does it hold true across different disease areas? Because we've spent a lot of time talking about cancer and combination therapies, and you mentioned HIV as well, but how universal a truth is this across disease areas?
26:37 Speaker 03 Well, there are a couple of things that are common across disease areas, and then there's certain aspects that are very different. So the commonality is that drug development takes a very long time. And because of the length, if the funding gets interrupted midway, it really destroys a tremendous amount of value. Where there are differences, though, in the risks across the therapeutic areas is that certain areas are just harder than others. For example, we now know that Alzheimer's is probably the most difficult challenge facing our nation and frankly, the world today. It's since 2003, the probability of success for Alzheimer's drug development is zero. We have had literally no drugs since 2003 to treat Alzheimer's.
27:22 Speaker 03 So we need to think about a different approach for that particular area. Now, let me turn to vaccines. The probability of success for developing a vaccine is north of 30%. So it seems like vaccines is a slam dunk. And yet, why aren't we developing vaccines for lots of the diseases that we need to deal with? Because the economics of vaccines-
27:42 Jorge Conde? Financial incentives are not in place.
27:44 Speaker 03 Exactly, they don't work. So that's another area where despite the differences in the probability of success, the economics are really preventing us from dealing with that terrible set of afflictions.
27:54 Jorge Conde? Going back to the first point you made earlier in terms of the risk going up as we learn more about disease, I think that's very true in the world where each drug discovery program was its own sort of bespoke thing. So you made a target, you made a molecule for a specific target, and if that was successful, then fantastic. But when you had a second program as an innovator, there's really not a whole lot of knowledge or value you could take from that first program into the next one. Right, value doesn't really accrue from one program to the next. And of course, by extension, if there's a failure, there's not a whole lot of experience
28:39 Jorge Conde? that you can take from that first program into the second. But that starts to change when you start to talk about things like gene therapy and cell therapy in that if we figure out how to deliver genes to specific cell types, in other words, if the vehicles get very sophisticated, that could be used across a number of diseases. And that was one of the big risk factors for gene therapy, sort of we went back over the last couple of decades as this approach is being developed. The same is, I'm sure, going to be very true for things like CAR-T. What follows in terms of engineered cells, there are going to be built off of some of the innovations, all of the components that are used in these kinds of therapies. So value will start to accrue over time.
29:19 Jorge Conde? You'll have therapeutic platforms that could be very broadly applied and won't be as bespoke. Have you given thought as to how that impacts sort of the risk model? Because in this case, it might be that as we learn more, risk actually goes down because you know if it worked in delivering a gene to one cell, it is more likely to work in delivering a different gene to a different cell.
29:41 Speaker 03 So you're absolutely right. You gave a great example where as we learn more about delivering genes, we're going to actually reduce the risk across all gene therapies. We only have one approved gene therapy, of course, but there are a number of clinical trials and many of them are using this AV vector. What happens if we discover that there are some off-target effects? That's going to affect all of these gene therapies at the same time. So in a way, using these commonly used techniques, it's a good thing because we've learned that they seem to work, but at the same time, they also build certain kinds of common risk factors across all of these therapies. So I think we need to be aware of that and we need to assess that kind of risk when we're dealing with these types of therapies. It cuts both ways. Obviously, we learn more.
30:26 Jorge Conde? Yeah, it's a systemic risk.
30:27 Speaker 03 But it's systemic. Exactly right.
30:29 Jorge Conde? I see. So you've mentioned that one of your early surprises, or at least one of your early insights when you came into the healthcare space is that in many ways, it's not really a rational market. There are structurally a lot of impediments to have a sort of truly well-functioning market in healthcare. There's regulation, there's cross-incentives, there's general issues around economic feasibility of being able to run healthcare systems in the first place. And I read a quote from you where you said, "Markets behave more like biological systems than physical devices." Can you explain what you mean by that?
31:09 Speaker 03 Well, for one thing, we ought to think about using evolutionary biology as a paradigm for understanding how markets change over time. Markets are not immutable objects that are set in a particular path that never changes. Because we've got a variety of different species that are interacting with each other, we actually understand that now markets can be very different from even one day to the next, depending on who shows up. And once you understand the kind of paradigm that biologists use to think about various interactions in their domain, you can see that it applies almost directly. It's not even metaphorical. It is actually literal that markets are biological adaptations to dealing with certain challenges that we face every day.
31:51 Speaker 03 And through that lens, all sorts of behaviors that were puzzling from a pure traditional economic perspective become a lot more understandable. Take, for example, how stock markets have these incredible booms and busts. We think that that's irrational because, well, either you're overvaluing stocks during the boom, or you're dramatically undervaluing them during the bust. But that doesn't take into account the fact that at the early stages of innovation, nobody knows whether or not that's going to have any value. Gene therapy is a good example. The first gene therapy was a big leap of faith. And in fact, even before that first gene therapy, there was an example in Philadelphia of a gene therapy trial that went awry and a patient died.
32:35 Jorge Conde? Jesse Gussinger.
32:36 Speaker 03 Exactly. We need to develop an understanding about these kinds of therapeutics and technologies. And in order for us to do that, we have to take these kinds of leaps of faith. And as these leaps of faith turn out to work out, we become eventually overenthusiastic and the market overshoots. And once we realize that they've overshot, we then start to unwind and correct, and the market sometimes crashes. So that kind of feast and famine, the boom and bust cycle, that may not be rational from a strictly physical perspective, but from a biological perspective, it's actually expected.
33:15 Jorge Conde? Truly evolutionary landscape.
33:16 Speaker 03 Red in tooth and claw.
33:18 Jorge Conde? Biology eats economics.
33:19 Speaker 03 Absolutely.
33:20 Jorge Conde? Thank you, Professor.
33:21 Speaker 03 Thank you.
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