This paper connects ideas from recent literature on the economics of intellectual property (IP) to address the question: Did the strengthening and broadening of IP rights from important patent policy changes in the US promote greater innovation? The analysis rests on the theory of cumulative innovation, which shows that if IP rights on a pioneer invention extend to follow‐on research and impediments to contracting exist, then strengthening patents can actually reduce overall innovation. Recent empirical studies are consistent with the theory: patents can significantly deter follow‐on research in “complex” technology areas where contracting is difficult (computers, electronics, telecommunications) but not in drugs, chemicals and human genes. I outline remedies from court decisions and antitrust policy for addressing inefficiencies from patent trolling, patent thickets and the anti‐commons of fragmented ownership. I then apply the analysis to the antibiotics market, drawing on recent research, to examine how patent and competition policies can be used to improve incentives for drug development in the battle against antibiotic resistance. The literature provides persuasive evidence that the policy changes overreached in broadening and strengthening IP rights and reveals important patent reforms for improving the effectiveness of patent systems in the US and Canada.
The FDA’s regulation of regenerative medicine therapies, such as stem cell treatments, bioengineering and cell and tissue therapies, is an area of intense interest in Congress and the FDA and is the subject of current reform proposals. Vocal critics of the FDA’s current regulatory structure assert contradictory charges: some complain that the FDA over-regulates regenerative medicine therapies thereby impeding innovation and harming needy patients, while others charge that the FDA’s regulation is too loose and allows unsafe products to reach the marketplace. This article evaluates recent reform proposals that have arisen in proposed bills, policy reports, and public hearings. Relying on the recent scientific literature on regenerative medicine therapies, I argue that the FDA should incrementally reform its regulation of moderate-risk products to address technological and scientific developments, but that proposals to overhaul the regulation of higher-risk regenerative medicine therapies are unworkable and normatively unwise. The main thrust of these proposals is permit early licensing based on less robust clinical evidence but require substantial post-marketing studies. By applying a theoretical framework on iterative regulatory action that first arose in environmental law, I conclude that the current regime leads to a superior balance between the FDA’s dual goals of protecting public health and encouraging innovation.
The number of drugs approved by the FDA for treating cancer has increased substantially during the last 40 years. Moreover, cancer drug innovation has been accelerating: more than 8 times as many new cancer drugs were approved during 2005-2015 as were approved during 1975-1985 (66 vs. 8). During the period 2010-2014, the average annual growth rate of cancer drug expenditure was 7.6%–more than 3.6 times the average annual growth rate of nominal U.S. GDP. This has contributed to a lively debate about the value and cost-effectiveness of new cancer drugs. In this study, we attempt to assess the average cost-effectiveness in the U.S. in 2014 of new cancer drugs approved by the FDA during 2000-2014. Cost-effectiveness is measured as the ratio of the impact of new cancer drugs on medical expenditure to their impact on potential years of life lost due to cancer. We use a difference-in-difference research design: we investigate whether there were larger declines in premature mortality from the cancers that had larger increases in the number of drugs ever approved, controlling for the change in cancer incidence and mean age at time of diagnosis. The vast majority of the data we rely on are publicly available.
Price gouging in the US pharmaceutical drug industry goes back more than three decades.
In 1985 US Representative Henry Waxman, chair of the House Subcommittee on Health and the Environment, accused the pharmaceutical industry of “gouging the American public” with “outrageous” price increases, driven by “greed on a massive scale.” Even in the wake of the many Congressional inquiries that have taken place since the 1980s, including one inspired by the extortionate prices that Gilead Sciences has placed on its Hepatitis-C drugs Sovaldi since 2013 and Harvoni since 2014, the US government has not seen fit to regulate drug prices. UK Prescription Price Regulation Scheme data for 1996 through 2010 show that, while drug prices in other advanced nations were close to the UK’s regulated prices, those in the United States were between 74 percent and 181 percent higher. Médecins Sans Frontières (MSF) has produced abundant evidence that US drug prices are by far the highest in the world.
The US pharmaceutical industry’s invariable response to demands for price regulation has been that it will kill innovation. US drug companies claim that they need higher prices than those that prevail elsewhere so that the extra profits can be used to augment R&D spending. The result, they contend, is more drug innovation that benefits the United States, and indeed the whole world. It is a compelling argument, until one looks at how major US pharmaceutical companies actually use the profits that high drug prices generate. In the name of “maximizing shareholder value” (MSV), pharmaceutical companies allocate the profits generated from high drug prices to massive repurchases, or buybacks, of their own corporate stock for the sole purpose of giving manipulative boosts to their stock prices. Incentivizing these buybacks is stock-based compensation that rewards senior executives for stock-price “performance.”
Like no other sector, the pharmaceutical industry puts a spotlight on how the political economy of science is a matter of life and death. In this paper, we invoke “the theory of innovative enterprise” to explain how and why high drug prices restrict access to medicines and undermine medical innovation. An innovative enterprise seeks to develop a high-quality product that it can sell to the largest possible market at the most affordable price. In sharp contrast, the MSV-obsessed companies that dominate the US drug industry have become monopolies that restrict output and raise price. These companies need to be regulated.
Following the generally accepted theories of the legal scholar Robert Bork and his Chicago School colleagues, vertical restraints such as exclusive dealing contracts are presumptively procompetitive and welfare-enhancing because it would be irrational for a buyer to exclude the lowest cost supplier.
On September 20, 2017, the drug manufacturer Pfizer filed a lawsuit Pfizer Inc, v Johnson & Johnson et al (link to the full court filing) claiming that Johnson & Johnson (J&J) violated Section 2 of the Sherman Antitrust Act by monopolizing the market for its incumbent biologic drug Remicade®.
This was achieved via rebate contracts with the largest insurance companies in the USA that had the effect of excluding from coverage Pfizer’s biosimilar drug Inflectra®.
We will present the case that Pfizer’s antitrust case is weak because it was unlikely that Pfizer was the low cost supplier based on a view of lump sum rebate offers as efficiency-enhancing “signals” of expected consumer demand for a product.
What insurance companies are doing is similar to the AdWord algorithm Google came up with for “slotting” search ads based on a calculated “AdRank”, which is a function of both unit bids and expected demand as measured by estimated click-through rates.
This Perspective estimates potential future savings from biosimilars in the United States, summarizes the experience to date with the first marketed biosimilar in the United States, and discusses key policy issues surrounding biosimilars. We estimate that biosimilars will reduce direct spending on biologic drugs by $54 billion from 2017 to 2026, or about 3 percent of total estimated biologic spending over the same period, with a range of $24 to $150 billion. While our estimate uses recent data and transparent assumptions, we caution that actual savings will hinge on industry and regulatory decisions as well as potential policy changes to strengthen the biosimilar market.
Squeezing the Last Drop Out of Your Suppliers: An Empirical Study of Market‐Based Purchasing Policies for Generic PharmaceuticalsDecember 7, 2017
We study the effect of the degree of exclusivity for the lowest bidder on the average price of generic pharmaceuticals in the short and long terms. Our results indicate that a 1‐percentage‐point gain in market share of the lowest bidder reduces average costs by 0.2% in the short term and 0.8% in the long term, but also reduces the number of firms by 1%. We find that reducing the number of firms has a strong positive (and hence counteracting) effect on average prices, a 1% reduction raising prices by approximately 1%.