Feb 18, 2025

Production Note: Since this episode was recorded, Robert F. Kennedy, Jr. was confirmed as the head of HHS. Steve didn't know that at the time but it was a pretty good bet, so the analysis holds up.

In this topical episode of The Life Science Effect, Steve explores the uncertainties facing the life sciences industry under the new U.S. administration. He discusses the potential impact of leadership changes at HHS and the FDA, industry perspectives from Eli Lilly CEO Dave Ricks, and the significance of multi-billion dollar pharmaceutical manufacturing investments in the U.S. Through analysis, anecdotes, and even a Breaking Bad analogy, Steve considers how these factors shape the future of life sciences and BPM Associates’ strategic positioning. Will his predictions hold up? Tune in to find out.

Link to Dave Ricks interview: https://www.statnews.com/2025/01/15/readout-loud-podcast-eli-lilly-dave-ricks-obesity-trump-jpm/

TRANSCRIPT:

You are about to experience the life science effect season 2 brought to you by our presenting sponsor, BPM Associates. Extraordinary people. Relationships that matter. Important change for a better world. The joy of belonging. Life, science, leadership.

Welcome to the next episode of Season 2 of the Life Science Effect. Hey everybody, it's Steve. And this is another topical episode. I'm going to be talking about some current events and how current events may impact our industry and may impact our company specifically. So I'm either going to sound really prophetic if you're listening to this in the future, or you're going to be sitting there going. What was he thinking? Either way, what we're seeing right now is quite a bit of uncertainty. We have a new administration in the US and there's always uncertainty when there's a new administration. They bring in their way of doing things and they appoint new heads of agencies and things like that. So we're used to seeing some some uncertainty when there's a new. This one, probably more than most, because the strategy seems to be somewhat fast-paced, faster paced than we're used to. Weigh in on the idea of being outsiders and coming in and shaking things up. And so that creates even more sort of uncertainty than we're used to, but we can handle it. Can handle. We'll talk about. I do talk about it with multiple people in the industry. Try to consume as much. Information as I can from. That may even know more than me have more access to the administration, etc. So that I can formulate some ideas and talk with my fellow leaders and make sure that our strategies are aligned with. What we think might happen, and so that we can have strategies to mitigate risk moving forward since we don't know what's going to happen. So I mentioned the new US administration. Fact I'm sitting here. The confirmation hearings for the nominee for the director of HHS for the Secretary of Health and Human Services is Robert F Kennedy. We don't know yet if he's going to be confirmed. But this is a chance for us to sort of see what the administrations priorities might be going forward. And if Robert F Kennedy junior gets confirmed, we're getting a chance to see how he might govern. In that post. HHS, as you may know, and as a reminder, overseas, the Food and Drug Administration, they oversee the Centers for Medicare and Medicaid Services, National Institutes of Health Centers for Disease Control and some other agencies. Those are the ones I pulled off just to those those have the biggest impact on the pharmaceutical medical device industry, probably the biggest one well in our line of work. The FDA has the biggest direct impact. The other ones, Medicare, Medicaid have impacts on pricing and the economics of the industry. The NANIH and CDC, of course, do research and direct programs. That impact the industry, but the FDA is by and large the the biggest impact on us. I'll explain that in a minute. Regardless of who ends up being the secretary of HHS, if it's RFK, junior or someone else. This current US administrations focus seems to be on smaller government fewer. They're already trying to cut staffing and things of various agencies and certainly reduced funding with some of the executive orders and memos that are coming out. We can see they're looking for ways to cut funding rather quickly. And they're looking for ways to cut staff. So we'll keep an eye on those things. We also know if RFK junior happens to be happens to be confirmed as the nominee for HHS, which again overseas FDA. We know that his attitude toward the pharma industry has been. Let's say somewhat negative. He has not been a fan of the industries, not been a fan of the FDA, how Medicare Medicaid is. Handled CDC, NIH, all those in all those agencies, he has made remarks in the past that indicate he may not be the biggest fan of those agencies. So we don't know what he'll do. If he if he is confirmed as the as the secretary, there could be big shake ups in those agencies, so we'll see. So why does any of this matter to? Well, obviously as CEO, it's my job. Part of my job is to track these industry trends and work with leadership to make sure our strategies are aligned accordingly. Obviously that gets harder when it's uncertain, and we know that there might be changes coming, so we tend to position ourselves somewhat conservatively so that we can, you know, stay viable. As things change, our responsibility is to stay as profitable as we can, make sure our revenue stays up and by profitable I really mean. Make sure revenue can pay our folks 1st and then have money leftover to invest and to grow, and we're in a pretty strong position to do that. We've managed our finances relatively conservatively, so we're in a pretty good position to handle sudden changes and risks with small company like any small business, there's risk. We have done our best and we continue to do our best to manage things so that we can handle wide swings in the industry. That's why it matters to. So what about what's happening in the industry? I listened recently to an interview. With Dave Ricks, who's the CEO of Eli Lilly and Company large pharma medical device company in in central India. And he was at the JP Morgan Health. I'll put a link to the one I listened to in the show notes. It's called the readout or the readout loud, and they had a great interview with him. Dave Rex talked about how he and other CE OS from the pharma medical device industry met with the transition team. Interview was done before January. So it was before the new administration took. But you could already start to tell what some of their priorities were going to be. And Rick Scott, to meet with the transition. He was there, along with representatives from the industry group called Pharma PHRMA, and they were able to get some of their points across as well as listen to the administration now. I'm OK with. I mean a lot of. Well, every time there's a new administration CE OS try to get access with the transition team. Try to get. Their priorities clarified and how things might affect their business and then try to understand what the new administration might do. Only unusual thing from this, and he pointed out, is like the setting was unusual. It's like in Washington, DC, somewhere. In a an office building, it's usually not at a Country Club in Florida. But that's what it was. Where they went. And he had some insights. So Rick's perspective was. He's hopeful about the new administrations. He believes this new administration is probusiness and is receptive to industry needs, and he emphasized that the Pharmaceutical industry. Medical device industry is sort of unusual in that they want a really good, well functioning regulator. Most industries you kind of hear a lot of industries. Here they see the regulators as kind of in their way, and if it worked for these regulations, we could do a lot of other stuff. The pharmaceutical medical device industry is one that wants to get the point across to the administration that no, we need and want. A good well functioning regulator because that's how we get safe and effective medicines to the market. That's our mechanism. And he made that point several times. The other point and why FDA is so. The United States FDA is a lot of countries in the world don't do what he called primary data review was. The FDA does primary data review. And if there's not a well functioning FDA? If it is defunded or de staffed or or disrupted in some way, then global regulation would suffer and getting safe effective medicines and medical devices to patients would suffer. And that doesn't do anybody any good, no matter whether you you mean politically or economically. This would disrupt the business operations, so the Pharmaceutical industry through their CE OS through their trade organizations are going to be pushing hard for a while, functioning well funded. I encourage you to listen to the interview with the CEO, Dave Ricks of Eli Lilly, because he is one of its the biggest and one of the biggest, not the biggest I'd have. Pharmaceutical companies in the world right now, and they're growing like crazy. Have a pretty strong pipeline they have. Really. Well, selling drugs out on the market now. And met and devices and they. Have a strong interest, let's say, in a functioning industry so. It was an interesting interview and I learned a lot. Go check out the show notes for a link. To give you another perspective and some more considerations. I was having a conversation with a potential collaborator recently. Exploring joint efforts on some large upcoming projects. And we were sharing. We keep hearing about several multi billion dollar drug manufacturing facilities being announced in the US including bulk drug substance or API facilities. Still finished facilities, biologics, small molecule and. We're really encouraged by these really large investment announcements. So one in particular that I'll zoom in on here is the bulk drug substance. Or API facility. These API stands for active pharmaceutical ingredient API. And that simply means the active ingredient in the medicine that you take. If you pick up a bottle of Tylenol. Say you'll see in the little box that says active ingredient. Acetaminophen, 500 milligrams. That means there's 500 milligrams of the active pharmaceutical ingredient in that pill or capsule or liquid, or however you're taking it. The rest of the stuff is inactive ingredients because if it's a liquid, it's probably some syrup and water. If it's a pill, there's probably cellulose and some other caking agents to make it form into a pill. So the active pharmaceutical ingredient, bulk drug substance are these big factories that make the actual? Active medicine. I worked in. That's why I started my career back in the early 90s. I started making bulk drug substance as giant chemical factories. A chemical engineering. I became a process. That's where I started my career. And around the mid to late 90s, company started outsourcing that not outsourcing is the wrong word but started building factories outside of the continental US. In Puerto Rico, in the United States and in Ireland and other areas of the world, it is to save on labor costs taxes. Etcetera. These are large. Required a lot of Labor and the island of Puerto Rico and the in the country of Ireland were given big tax incentives to build these things. So they started moving out now. These announcements that we're starting to hear multi billions of dollars to build these factories here in the US and bring that manufacturing back into the US that's going to be something I believe that the current administration is going to want to see happen. To give you another idea, before we move on, what is what might one of these API facilities look like? Well, if you've ever seen breaking. Bad. The Nice facility where they cooked meth down and underneath that laundry. That's what it kind of looks. An API facility, different equipment, maybe it would be a little bigger, but on a smaller scale. You know, you see some tanks, you see some dryers, you see some other pieces of equipment and pumps and things like that. Are gowned up and their hazmat suits. That's kind of what an API facility might look like. Nice one. If you think about though. When they took Jesse down to Mexico. And showed him that. And they were going to have him cook there and the guy with the lab coat shows up, thinks he knows what he's doing. And Jesse says their place is filthy. It's awful. Got to clean everything. That's about what the one looked like where I worked in the early 90s. So I look like the my the facility where I work looked like the Mexican cartel. Dirty, nasty looking one. And then nowadays they look more like the one underneath the laundry that guts frame built. Now don't come at me. I'm not advocating for cooking meth. I'm just saying that's kind of what they look like. All right, back to the show. So the other thing that's happening is is new new technology. For making what's called biologics or large molecule. And small molecule or synthetic route, traditional drugs. These biologics are really expensive to make and. They don't sell as many of them, so they're higher risk, but they are investing in these facilities now, also investing in the. What they call small molecule facilities as well. OK, why did I spend so much time on these investments that they matter? Because these are long term projects. Not like you announced $8 billion and you get it spent in the next few months. Five to seven-year projects. It's really hard to cancel. The longer that project goes on, the harder it's going to get to cancel. Now these are the kind of projects you see like from the highway where you see all the bulldozers and the trucks and they're putting in new roads and. You see steel going up and things like that. Not talking about a warehouse though. Warehouse you can put up. Takes six 8-9 months to put up this warehouse and you get it functioning and running with these highly complex, technologically advanced API facilities. It takes a lot longer putting up the shell is one thing, but then you have to put in the equipment, the information systems, the automation and who knows what techn. Going to bring over the next few years, it's going to take a while to get these put in and after the first couple of years you've spent a few billion dollars already. It's going to get really hard to cancel those for one. Aceo that tries to cancel one of these multi billion dollar projects would have to answer to the stock market. It might backlash and say what's going on. Why are you cancelling? Are you going to? Do you not predict you're going to need the capacity for your drugs? To sell or what is happening now, the current administration, they would face backlash from them if they said we're going to try moving them outside the US. This current administration, more than all administrations, wanna brag about jobs they've created. But this one has made it a central point of their administration, so I would expect government support of these projects rather than disruption, so strategically. We're well positioned if we can help our clients get these projects done, help get them done on time, under budget without leaving a trail of carnage, and make sure that there's. Lasting change there build up their teams. With people first approach, we think we can be a huge benefit from that point of view. And so we think we're strategically positioned. So to summarize, our sort of key strategic considerations as we look at this. Long term nature of the pharma projects. Not short projects. Hard to stop multi billion dollar investments. The industry needs a functioning FDA so that they can get these facilities approved, get their new drugs approved and support getting safe and effective. Medicines and devices to market political optics are favoring US manufacturing. With government incentives and support for the projects, we see that continuing. Now uncertainties, always a factor, but our values are carry us through people first. Service to a greater cause. Diversity, equity, inclusion and belonging as long as we stay true to those values. Believe that the business will remain. Strong thanks for listening to another episode. If you're listening in the future. I got it. Let me know in the comments if I got it right. Let me know that if you're listening closer to the President. Hey, tell me where you what you're hearing, what you're seeing, who you're listening to. And especially if you disagree, like if you're seeing something different, if you're seeing more doom and gloom than I am, please let me know about that. Have a conversation. You can send me an e-mail at Steven dot Vinson at BPM dash Associates.com you can go to the live science effect com you subscribe follow.

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