We describe the broad range of uncertainties faced by the developers of medical technologies. Empirically, we estimate the asset market incidence of two realizations of uncertainties we classify as within-market policy risks. The events we analyze concern the intellectual property of Myriad Genetics, Inc., an American molecular diagnostics firm. In July 2013, the Supreme Court invalidated several of Myriad’s intellectual property claims. Subsequently, the Center for Medicare and Medicaid Services reevaluated the reimbursements it pays for the services at issue in this patent litigation. We estimate that these events substantially moved Myriad’s market capitalization, by just under 25 percent in the case of the Supreme Court’s decision and nearly 20 percent in the case of CMS’s reimbursement rate re-determination. Myriad’s exposure to the realization of these intellectual property risks reflects its unusually high reliance on revenues linked to the services at issue. We discuss the implications of these risks for the total volume of medical innovation and for its organization across firms.
Representative Fred Upton, chairman of the House Energy & Commerce Committee, recently released a discussion draft of legislative language for the 21 Century Cures Initiative. This initiative attempts nothing less than to “boil the ocean” of regulations and incentives that govern medical innovation in the U.S. The 400-plus-page draft rolls up a number of previously proposed bills (including an updated version of Representative Marsha Blackburn’s SOFTWARE Act, discussed in a previous column).
A large share of the draft incorporates legislation that is designed to improve the incentives for inventing new medicines, or finding new uses for old medicines. This is important, because we are facing a crisis in pharmaceutical innovation.
Stiglitz argues that enshrining stronger protections will slow cheaper generic drugs from entering the market. Not only is this not true, but he also fundamentally misunderstands IP: firms in IP-based industries depend on intangible capital, such as source code, molecular compounds and digital copy-written content. But if competitors are able to enter and/or remain in the market because they obtain an innovator’s IP at less than the fair market price (either through theft or coerced transfer), they are able to siphon off sales that would otherwise go to innovators, thereby reducing the ability of innovators to reinvest in the next round of innovation.
This new war between the drug giants seems unlikely to cease soon.
As for price-controls, if a large, private PBM like Express Scripts could secure a major deal pitting drug rivals against each other, it is strong evidence that, even in a patent-protected market, competition can work wonders. This outcome is, in fact, precisely what we pay insurers and PBMs to do—a job they generally do well.
Hatch-Bennet bill sharpens hill health IT focus — Feuding vendors join forces to make FHIR – POLITICO Morning eHealth – POLITICO.comDecember 5, 2014
Industry groups praised the bill introduced Thursday by Sens. Michael Bennet (D-Colo.) and Orrin Hatch (R-Utah) that would exempt low-risk medical software and mobile apps from FDA regulation and provide greater regulatory certainty. The Medical Electronic Data Technology Enhancement for Consumers’ Health, or MEDTECH, Act joins a handful of other bills that would restrain FDA’s regulatory powers in the health IT domain. The act’s language is more focused than other Senate and House measures, and Hatch’s prominence and history of health care legislation immediately pushed the bill to the fore. Also, the MEDTECH Act hews more closely to the risk-based approach taken last spring by the FDA Safety Innovation Act work group. Its key element concerns clinical decision support software, which is often part of electronic health records and provides prompts to physicians based on research-based algorithms.
The high nominal prices of new drugs do not compensate for the smaller patient populations that they target. Deloitte and Thompson Reuters estimate that the IRR internal rate of return of R&D spending has dropped in half since 2010, from 10.5 percent to 4.8 percent. Sales of new drugs are not overcoming the loss of patents, weak pricing power for older drugs, or reduced productivity of R&D.