The evolution of pharmaceutical development with Paul Kohlhaas of Molecule Protocol

Blockchain Meditations Podcast - Episode #02

In Episode 02 of the Blockchain Meditations podcast, we have Paul Kohlhaas – blockchain entrepreneur with a passion for open source utility networks. After graduating in economics and politics, he co-founded Linum Labs, a blockchain architecture studio and worked as Business Development Director at ConsenSys, uPort, pioneering real-world implementations in digital identity. A profound passion for chemical and pharmaceutical economics led him to found the Molecule Protocol, a network for the decentralized R&D of molecular compounds.

Episode Transcript

 

Nick: Hello guys, and welcome to this week episode of the Blockchain Meditation Podcast – the podcast where we meditate about business applications of Blockchain, the new business model it brings, and a social impact we’re witnessing the result. This week my guest is Paul of Molecule. We will discuss his company, the new business model brings to the market and how these affect the big Pharma companies. Stay tuned and I hope you enjoy the episode.

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Nick: Hello everybody and welcome to this episode of the Blockchain Meditation Podcast! On this episode, I would like to welcome Paul of Molecule. Paul, Welcome!

Paul: Hey, thank you so much, Nick, for being here.

Nick: Yeah, it’s a pleasure mate! Can you tell me a bit more about yourself? And so our listeners had a bit of background about you and you know, how you started in the industry. You’ve been all over the place in the last couple of years. So can you tell us your story?

Paul: Yeah, absolutely. So, I first studied economics and political science and Switzerland. And as I was studying, we had a small group of friends at university. We were trading stocks, so a lot of like small-cap biotech stocks, tech stocks, anything that could have had high volatility. And one person in our friend group kind of introduced us to Bitcoin because he was doing an internship at a small bitcoin trading firm in Switzerland, which was back then a bitcoin Swiss. So back then it was one of the first companies that were doing anything in that space. And I got really fascinated by the underlying concept. So this was like late 2013. So it was when the first bubble really came about and I had a few bitcoins sitting on my docs, but I lost them when the exchange got hacked. And then I wanted to do my university thesis . on Bitcoin and what it meant for the financial system. Unfortunately, all of the professors that I went and talked to shut me down completely, no one really wanted to hear much about the topic at the time that; they deemed it kind of a Ponzi scheme. ..As often the case. And then I would kind of briefly worked in, in private equity, but started really looking deeply again into blockchain and late 2014, mid-2015 because I was doing an internship and Burma, Myanmar. And one of the huge problems that they have there is capital control. So how can money move across the border? Myanmar didn’t have any cash machines at ATM until 2012 – so a very cash-based economy and so as looking into the potential of using bitcoin for that. And through that, then we started going much deeper into the Dogecoin community, which I found really fascinating the way that it was growing at the time. And then through that on Reddit, the Ethereum community. I was living in South Africa about early 2016 and at that point, I decided my career to just start focusing on Ethereum full-time. So, started running a few meetups and we started our company, Linum Labs there in early-mid 2016 offering the first kind of training to larger corporates there were also getting more my interest to into blockchain and through that worked on a digital identity project and then through that project and ended up joining Consensus. And worked at Consensus just under one and a half year. Then I left Consensus in May last year to focus full time on Molecule.

Nick: Awesome, thank you. I wonder by the way, what your professor would think about Bitcoin right …It is kind of a fascinating thing how things turn around… So, some background about our listeners: Actually, we had the pleasure to meet Paul I think it was 2017 or 2018 – I’m not quite sure, in South Africa, it was a really fascinating community out there. At that point, we were just entering the ecosystem. We didn’t have a lot of expectations about the community in South Africa but was really, really good and it was really pleasantly surprised with what happened there. So, it’s really a hotbed. Can you tell more a bit about Molecule?

Paul: Yeah, absolutely. Jumping back a little bit, even before I became interested in blockchain, just after high school I’m doing high school, I became very fascinated with pharmacology and Pharma Economics. And if you look inside Pharma and the way that it impacts our health care system, it’s really one of the most kind of broken industries on the, on the planet. You have very high drug prices. In some cases you have, kind of bad medication coming onto the market, which you can most dominantly see at the moment in the US opioid crisis where last year alone there was over 50,000 people, over 50,000 deaths from overdoses from prescription opioids that were sold to the public by Pharma companies. And there are many treatable diseases that we could develop solutions for, but where there are not enough financial or economic interests from Pharma companies to bring those two markets – Malaria treatments, for example, or Mycetoma. And so I got very fed up with that after high school. As a lot of new systems were emerging in early 2017, Pete Domenici among them, some of the work that Simon de la Ruvi has been pioneering, whom I had the pleasure to meet and make friends with it in Cape Town around curation markets and token bonding curves. I saw that other leaders in the space, such as Ocean Protocol which were really actively looking at these things to redesign your system, engineering, and system design you can fundamentally change how the industry works. And then kind of came back and started really thinking deeply about these, these problems and how to apply solutions there. So, Molecule in that way is an open marketplace or protocol for decentralized research development and funding of chemical intellectual property. Potentially imagine that you could create a market for any potential piece of pharmaceutical IP, which could be a new drug, a therapeutic, and allow in that open market, anyone to contribute, both financially, by purchase, buying into the market. But that then driving open source data creation around that acid. Because if I can find myself as a researcher, if I can put my research out into the open and, and contribute to that research around a new drug, then we now create incentives for open source to happen. And I can get it a little bit more in depth later on.

Nick: So, if I understand correctly, basically you’re decentralizing the research for the drugs first and open source it. So, you’d democratize the whole industry in a way.

Paul: Yeah. Yeah. That would be our goal. Um, maybe if we go back a little bit, like why is… So drug development today is very expensive – costs about 2.5 billion USD on average to bring a drug to market. It’s very slow. It takes up to 10 to 12 years.

Nick: Two and a half billion?!?

Paul: Yeah. There are different statistics on it. Statistics can range from 500 million up to two and a half billion. A lot of those costs come from…Those are the costs that have stated by big Pharma companies and now we have to imagine that these are massive companies that are trying to bring these drugs to market it that also in their potential market failures. But one question that you can ask yourself, for example, I was like, why should, as a society as a consumer, why should you pay the tail end of pain to keep a massive corporate structure intact to bring new drugs to market inefficient? It’s kind of like, imagine if you, if one example that I really like is drug development and to some extent wider innovation practices in these big corporates where software development was around 30 years or 40 years ago. So research and development in Pharma companies is entirely closed source. Um, and collaboration and research don’t share; It doesn’t get shared across the industry. If you are a researcher at a specific university and you’re, you see there’s the spray in molecular structure, but it’s been patented by a specific Pharma Company, depending on the jurisdiction you’re in, you’re not allowed to research that compound in any way. Let’s say if you want it to create a study about it and the only way to do it, it would be to get an NDA would be to engage that company, get an NDA from them and then do your research privately. From a software development perspective, it’s a little bit like every company is writing its own code. They imagine all the software companies just wrote their own code and then no company collaborates or licenses their coach or other companies. So negative data and the industry is never published. All the companies do their own research on their own drugs. That would kind of be the example of every company does security audits on their own code internally. And still, the pharmacist in that way hasn’t changed at all in a way that, for example, as software development has changed. And while they are big differences in how we can develop drugs, the underlying principle; fundamentally pharmaceutical companies are technology companies, but the innovation principles that we’ve seen in software, for example, haven’t been at all applied to what would rationally make sense in something like Pharma.

Nick: Well, collaborating in software came out of necessity, while the big Pharma companies, they have these big financial back, right? So, I’m kind of wondering, are you concerned about this contradicts actually with the way the big Pharma players are doing business? I mean, after all, there are approaches to have their hands-on all possible patents and ensure exclusivity of products, certain drugs, right? So this, in a way will end this era while we know everybody would have access to the patents if such patents even exist because of this collaborative matter in collaborative research, right?

Paul: Yeah. Yeah, that’s a very good point. I think like – why did Linux ever happened? Like Engenix got very big corporates to join. Linux fundamentally came together because Microsoft was threatening to take over large parts of the industry and Microsoft kind of at the approach that big Pharma has today, which has extremely proprietary. We set the prices, we own the data. What’s happening in Pharma though today is because these companies have gotten very big, and the innovation that they’re bringing to market is continuously declining. So, it’s expected that in about 2020, the internal rate of return on Investments on R&D investments is expected to hit about 1.1%. So that means for $1 that the Pharma companies spending, they may be making $1.10, no $1.01. Um, so imagine that I tell you this investment opportunity and you get 1 cent in return. That presents a big problem for the big pharma because they used to be very innovative, but what’s happened over the past 10 years is that the percentage of revenue that they can derive from new products has continuously gone down. So basically they are, they still have massive revenue’s coming in, but all that revenue is derived from drugs that they develop 10 to 15 to 20 years ago and they haven’t created either it’s a cultural problem or it’s a systemic problem, but within the companies they’re not creating new innovation, which means they don’t focus on buying IP,  to mid-stage IP and those big M&A takeover deals where, yeah, I won’t name any names, but like we’re one where a big company buys up a small company to take in that IP, bring it to market and then hike up their prices, which is also not a sustainable model. So the Pharma companies themselves, if you Google innovation crisis and pharma, you’ll find, you’ll find pages and pages of articles around different people from an economic background, from a Pharma background who are kind of saying this industry is entering, is in big trouble because it’s kind of falling off a cliff where it’s kind of, it doesn’t have anything to back up future revenue because it’s becoming less than as innovative.

Nick: Do you think we have a chance to unite those guys? I totally get the point here, but one concern I have is actually we’re human after all and we know how we act, right? I mean people will still be greedy and, you know, uniting those people. It is not out of necessity. It’s really, really hard to do it right.

Paul: I think it comes down a little to developing new business models, uh, which is also kind of comes back to the analogy of software. Companies like Google, AWS, Red Hat, GitHub were able to create completely new business models around open source approaches,  and for software development as a whole, they have been extremely beneficial. However, in the 90s, when open sources first being proposed, there was a huge push back from large players like IBM and Microsoft. IBM actually very quick came around because they saw such a threat and Microsoft, um, but to kind of to come to your point, I think, I think these incumbents will realize that they need to develop new business models in order to get to stay competitive and to stay relevant.

Nick: What is actually Molecule business model. Can you go in more details?

Paul: Um, okay. So essentially the way that molecule works for or that the protocol would work for companies or research organizations, individuals is that, um, for example, you as a, as a researcher or as a small start-up, you have a specific piece of IP and often these, often people are sitting on multiple pieces of IP. Um, and in many cases that company might have a very innovative solution, but they only have funding to develop the most promising drug they have. What that also means is that a lot of intellectual property, especially when it’s patented, is sitting kind of shell. So, we’ve kind of claimed it, but we don’t have the funding at the moment to continue developing it. And all that is kind of a bottleneck to innovation because that IP tends to be stuck in, in companies. So what would happen is, let’s say I created a new market on the Molecule protocol for my piece of IP for this new drug that I’m proposing – it could be a new pathway, it could be a part of like a part of a drug, like how the drug is delivered in the human body; it could be a vaccine, so on and so forth. And I say I don’t want to, I want to sell a share in it or I don’t want to own it anymore, but kind of offloaded into an open market. Um, and so what I would do is I would create a market for this. I’m using a mechanism called a token bonding curve.

Nick: And by the way, by a market, you mean a project?

Paul: No. So, it wouldn’t be a project, it would be an actual market. So, the first thing that I do is I claim digital ownership that I am the owner of the, of this piece of IP. Let’s say you have a patent and you say: “Hey, I own this patent. I went to put it on the Molecule platform.” You would then, depending on what the use cases exactly you would, you would need to move that into, into a different legal form. So, for example, one way to do that as you could put the pattern into a trust and the trust then has a legal agreement with a protocol where it says our acids and now me being managed by the protocol and in retur,n you receive a certain number of shares in the market. What would then happen is you first claim digital like singular ownership in the form of an NFT (non-fungible token) and then you take that NFT and you move it a token bonding curve, which is the market. And then you met anyone; from that point onwards, depending on how you define the parameters that the market, anyone can freely buy shares in your piece of IP. Now the shares, depending on the use case can mean multiple things. They can mean research licenses; they could be royalty licenses if you’re drug ever gets commercialized or they could be actual ownership. Actual ownership gets a little bit more, more complicated. Um, what that then brings in as well as there are several governance functions depending on how kind of how distributed you want the drug to be. And for some use cases it can make a lot of sense to have, let’s say if it’s a, so one example is the Open Source Pharma Foundation and Open Source Pharma Movement, which is a set of researchers from India to the UK to Australia that are working on tropical diseases and they submit code, not code, they submit data about their findings of potentially using different molecules to treat specific diseases in an open source. Now a project like that would be like a community developed drugs depending on the use case, that would work differently than if you said -“We’re a company. We want to sell 40% of ownership in the IP. We are keeping the remaining 60%. We want to raise X amount and here are the terms.” So, we envisioned that depending on the use case, depending on the type of IP, they would be different user flows and kind of different, um, different interactions. But let’s go back a little bit. Like when your market is set up, technically anyone who is interested in that piece of IP can start buying shares in it. And what that now means is we now have to have a discovery layer. So, actuation layer of IP that market participants believe will be valuable. And in many cases, this could be in the early days, this could be speculation, it could also be researchers who are either speculating or they or they have an interest in researching a specific drug. And they now also have the legal rights to research that drug because they’ve kind of become co-owners or they have a research license to research that drug. And now they also have an incentive to publish their data open source, because if I’m not a researcher, I own a certain share in the market and I’ve produced a good dataset that proves that this compound could be used in a specific setting, maybe I’ve done a lab essay, maybe I’ve done an animal trial, and then I have an incentive to publish that data out in the open because if the data is positive, it’s likely that more people would buy into the market. And there’s, we envision a lot of different layers in which kind of this could play out. Um, and where we come in as a company or like as a project. So, we are currently building this as a, as a company, but the IP is going into a non-profit foundation to provide an eve equal and neutral level playfield for the industry. And when we could kind of come in, we envisioned in the beginning that will help, try to try to best build use use cases that could work. But in the long run we kind of hope that an ecosystem around this can develop and that these markets can run fully autonomously.

Nick: What currently is your progress with the project?

Paul: Uh, so we’ve been, we started building the project late last year and uh, have been kind of building out, kind of building out our team. We currently have a, let’s say a prototype that’s running. Um, the prototype is still very basic though, and you may know this from blockchain development. It’s especially with bonding curve, there was still a lot of different parameters that need to be set for, I think for these markets to fully function in a positive economic right. Um, for example, there was a lot of quite a few attack vectors that need to be tested out in terms of how the markets can function, in terms of how they can be efficient running on a blockchain. Um, so in terms of the state where we’re at the moment, we’ve, uh, we’re currently based in Basel, Switzerland, uh, to be able to interface with them very closely with the pharmaceutical industry here. Um, and yeah, we have a prototype build out that we nearing completion with kind of as our first big sprints that we’re now going into use testing with and kind of trying to build an early, a cohort of Alpha users. Um, read it just to test requirements to test interactions if our assumptions are right. Um, and then I plan to time to launch a close better. In probably early last early next year, Q1 or Q2. Um, there’s still a lot of legal work that needs to go into that though as well.

Nick: Yeah, I imagine a lot of legal aspects will have here, because you’re tackling topics like patents, like ownership of shares. So, it’s kind of complex thing, but it’s really interesting to see how the legal aspect of boarding girls mix here because it’s own on the edge of the cutting edge with technology. And as you said, I mean with the bonding curve, we’re really early on, but one of the things that have really big potential here and could definitely change the industry and change business models here. So, it’s very interesting. 

Paul: Yeah, really. Just on that note, I think, uh, why bonding curves are really interesting for this use case as, because I mean, you could say in general, why hasn’t securitization or why aren’t people selling the shares of patents or IP on the Stock Exchange or creating derivatives for that? So traditionally when you try and, and so ownership or like shares in something like a patent, the problem is that you wouldn’t need an underwriter for that offering. Um, so typically that is someone who, let’s say you only sell 10% of the market, but that means the underwriter takes on the remainder and then you need a market maker to SD creates liquidity and trading volume for your shares on an exchange, even if it’s just a very small extent. So now all of that comes with a lot of friction and very high costs. And just the pure thought has said selling ownership in a highly risky drug too, let’s say through a financial derivative is very, very complex because it might be hard to find buyers when you do the offering. So, an IPO in that sense is always like a very specific point in time and where bonding curves are really interesting because they allow us to bootstrap a market for any assets, be it with $1 or $1 million and measure the interest of people buying in. It’s also not typically structured as an offering because, uh, at least in the way that vanilla-like bonding curves at design and very vanilla way, I’m not actually raising funding with a bonding curve and just creating a market for, for the underlying asset. And that’s where we think this could be really interesting specifically in very early stage IP markets. So we’re thinking quite heavily as well run pre-patented compounds where I would not be trading. Imagine, I could be, I could buy into it, GitHub repo that doesn’t have like there is no IP in a way as an asset, but I might be now, I might be now of like my, my shares are my tokens in that, in that repo could mean I have governance rights over how that, how the underlying IP is commercialized in the long run. So for early-stage drug development and early-stage innovation, that’s where we see this from a financial market perspective being really useful.

Nick: Awesome. Can you describe how,  if everything goes really well and everything happens according to plan, how do you think that the future might look like because of Molecule, you know, what would be your, you know, the best thing you wish to happen?

Paul:

The whole reason why we’re building this or like what I’m really interested in is to him to make to make health care and medicine and biotech more open and to make it a public utility.I think in the same way that things like the internet or things like certain types of software or knowledge should be open. I think in the same way that having access to the best healthcare and having access to human innovation should be something that’s open as well. And the way that the Pharma Industry has evolved around this is extremely exclusive and non-open.

Тhere was kind of a scandal last year where I think it was a hepatitis treatment was one of the best new treatments, it literally cured it, but it’s a single treatment I think was $84,000. And the people who haven’t had been tied is a, normally the type of people who due to their living circumstances can never afford that. And so, we’ve created this like abstruse system where the best possible medicine has actually not made it to market. And there’s a common thing; so Goldman Sachs wrote an interesting article, um, in I think early last year titled: “Is curing patients a sustainable business model?”. Obviously curing people is not sustainable, because you lose your customer, but healthcare should be curing people. So, we should be focused on bringing the best drugs and therapeutics to market. But we’ve created a system where that doesn’t actually happen. So, if we, even if we had great medicine, it’s not an in the current system’s interest or brings that to market. And so my hope is if we have an open market and open system and that should be it. Let’s say that’s one company has 10 potential treatments for disease and they find a new one that is much better, much side effects, it makes all the other one’s obsolete. They would be stupid to bring that to the market because they’re killing their own revenue. But in an open system naturally, people would make, would bet on the drugs that make the most sense for people and see how my, my hope and this says we need that this could spur a whole new wave of innovation in an industry that really needs it and empowers scientists and researchers. And most importantly empower, empower patients and the people who rely on these things.

Nick: What’s the one thing you need to, for progress molecule?

Paul: The one thing we need?

Nick: If we can wish for everything and if the community can help out in, you know, support your project, what will be the one thing you wish to have and you currently need?

Paul: I think there are too many things in parallel. The one thing that I would really wish for is that we could get, um, awareness quickly with all of the different user groups that this affects. Um, like kind of raising awareness because it’s what we’re trying do is highly ambitious, but the more people we talked to, the more everyone tells us this makes some, this makes a lot of sense for this industry. Um, so I guess one is awareness and I guess another one would be you can never have enough funding to build something this ambitious.

Nick: This is broadcasting get all your message to the universe. What’re your final words to our listeners here?

Paul: Yeah, guys, thank you so much for tuning in. And thank you so much Nick for setting this up. This is great. If you, if any of you are interested in the intersection between blockchain and Pharma or open source and Pharma, if you know anyone, if you are someone that’s affected by high drug prices, like please feel free to reach out. I’m always keen to get feedback and hear thoughts on what we are building.

Nick: And spread the love. Thank you, Paul.

Paul: Thank you so much, Nick, take care.

Nick: Hey guys. Thank you for listening. Hey, hope you have enjoyed this episode of the blockchain meditation podcast. Please make sure to subscribe and comment and stay tuned for our upcoming episodes. See you soon.

 

ABOUT THE AUTHOR

Nick Todorov
CEO
Nick Todorov brings together experience in building companies, brands and applying blockchain technology. This deep appreciation of business needs alongside a firm grasp of the technical capabilities of blockchain allows him to act as the crucial link between his team’s technical expertise and his clients’ needs.