Prometheus gave man fire, thankfully he didn't charge every time man lit a match. Prometheus Labs in contrast wants to charge patients for a rule that says when to increase or decrease a drug in response to a blood test. Quoting Tim Lee:

The patent does not cover the drug itself--that patent expired years ago--nor does it cover any specific machine or procedure for measuring the metabolite level. Rather, it covers the idea that particular levels of the chemical "indicate a need" to raise or lower the drug dosage.

Even this is not quite right for suppose a physician notes that the patient's metabolites are within the range where a change in dosage is not necessary; although the physician takes no action she still has used the patent and thus must pay Prometheus Lab a fee or infringe.

We already have significant incentives for producing pharmaceuticals (and thus the instructions required to best use those pharmaceuticals), we support medical research through universities and non-profit hospitals, and there is plenty of opportunity to profit from the manufacture of tests. Will we really get enough additional innovation to justify the monopoly prices and deadweight losses when we enforce patents on medical rules? Remember, we have to pay the higher prices on all the rules not just the ones brought into being by the patent.

And if medical patents why not economic patents? Will Scott Sumner now patent a rule for adjusting the money supply in response to metabolites the futures market?

Patents like this are a logical consequence of the extension of patentable matter to software and business methods but extending patents to software and business methods has created huge legal costs without any increase in innovation.

Most importantly, patents can reduce innovation and are especially likely to do so in fields where innovations build on innovations. In fields of cumulative innovation, previous patents owners become veto players who can threaten to holdup the new innovation unless they are granted a share of the proceeds. In theory, bargaining can result in an efficient outcome. In practice, it means lawsuits, delay, waste and reduced innovation.

Since a smartphone may rely on many thousands of previous patents, the smartphone industry has heretofore been considered a classic case of how too many veto players can impede innovation. But now consider human metabolism, one of the most complicated systems known to man (just a tiny fraction of that system is shown at right), and note that if Prometheus is successful in this lawsuit that any correlation in that system can be patented. This is a recipe for disaster.

Addendum: Scotus Blog has a roundup of links. See Launching the Innovation Renaissance (Amazon link, B&N for Nook, also iTunes) for more on patents and their problems. Hat tip also to E.D. Kain who writes:

The world, it appears, is determined to turn me into a full-fledged libertarian. What with SOPA, PIPA, the NDAA, software patent trolling, police violence, and now patents on how doctors provide treatment to their patients, it's becoming more and more clear how pernicious the law can be when it's designed for powerful special interests, national security hawks, and big corporations.

Cross Posted from Marginal Revolution.

Merck announced this week that it's opening a new R&D center in Beijing, with 47,000 square feet of labs and 600 employees. And this isn't just for pre-clinical research, but for everything from drug discovery to clinical trials. Reuters reports that Merck isn't the only company ramping up investment in China:

Aiming to take advantage of China's lower costs and supply of scientists, global drug makers, including Pfizer, Abbott and Novartis, have made big investments in Chinese R&D operations in recent years.

Beijing is home to several of China's top universities as well as the country's food and drug regulator, whose approval is needed for medications to be sold in the country.

Now, on the one hand, this is all to the good. As China and other developing nations like India become more wealthy, and modernize their own R&D base, drug regulations, and improve patent protection, they naturally become more attractive markets for drug and biotech companies.

But this should also be a warning to U.S. policymakers and regulators: the R&D and manufacturing base of the biopharmaceutical industry doesn't have to stay in the U.S. It can - and will - move to other markets that offer a more attractive "ecosystem" for life sciences innovation.

To the extent that U.S. becomes less competitive in the biopharmaceutical sector, we'll lose those high paying jobs and tax revenues. And, to add insult to injury, because the U.S. taxes global profits of U.S.-based companies, American multinational firms are much less likely to repatriate profits generated abroad and reinvest them at home. In short, money and jobs that flow abroad are more likely to stay abroad.

This is exactly the point that former CBO Director Douglas Hotlz-Eakin and I make in our recent City Journal article, Liberating Medicine's New Frontier.

America is, and will likely remain for some time, the global leader in biomedical innovation. Of course, Detroit used to be the automobile capital of the world too.

Lipitor's domination of the cholesterol market ended when the blockbuster drug fell off the patent cliff on Wednesday. Less-expensive generics will eventually begin to flood the market, all but eliminating Pfizer's monopolistic share. But what would happen if Pfizer now made Lipitor available at a price differential so great that no one could afford not to continue to take it?

Let's start with the challenge of the patent cliff, the value of the Lipitor brand and the impact that Lipitor has had on the people who have been able to manage their cholesterol because of it. During the days Pfizer continued to support the patent-protected drug from a sales perspective, savvy insiders knew that "even a monkey could sell Lipitor." So why let Lipitor be substituted by a generic alternative? Why not let loyal Lipitor customers (patients and prescribing physicians) continue to take advantage of its enormous clinical value...and at a price point that can't be resisted?

A Federal Trade Commission report on so-called pay-to-delay drug patent settlements that was released this month has given new life to congressional efforts to ban the deals in which brand manufacturers pay potential generic competitors to drop patent challenges. A CBO analysis suggested that a ban could save federal health programs $2.68 billion over 10 years by getting cheaper generics to market sooner. And Democrats are pushing the deficit reduction super committee to include the ban in its proposals. In practice, though, a ban could actually delay the introduction of more generic drugs than it would accelerate, resulting in higher drug prices.

Current law provides incentives for generic producers to challenge potentially weak drug patents in court. But when faced with the uncertainty of patent litigation, brand manufacturers sometimes offer to settle the lawsuits by paying the challengers to drop the litigation. The patents remain in place that way. But as part of the settlements, the brand manufacturers usually agree to let the generics on the market a few years before the patents in question expire.

The FTC hates these deals and calls them anti-competitive because successful patent challenges would get generics to market sooner still. But that assumes that the majority of patent challenges would actually succeed, which isn't borne out by the data. Just over half of the drug patent cases that make it all the way to a court decision fail. And there is no evidence that settled cases would have been more likely to result in patent invalidation.

The FTC already has authority under existing antitrust laws to block patent settlements where evidence indicates consumers would be harmed by higher prices. But the agency loses many of those cases because the evidence isn't on their side. And, in the handful of cases where the FTC succeeded in blocking a settlement and forcing the litigation to go forward, courts more often upheld the patents than ruled them invalid.

As it turns out, settlements almost always result in a generic product reaching the market before the patent's expiration -- something a ban could not deliver. So, banning settlements altogether and forcing these cases into court would prolong the amount of time the typical brand drug enjoys a monopoly with no generic competition. That's why federal courts have so far refused the FTC's pleas to make these settlements per se illegal. In one decision, U.S. Seventh Circuit Judge Richard Posner wrote that "a ban on reverse-payment settlements would reduce the incentive to challenge patents by reducing the challenger's settlement options." He suggested that it was the proposed ban, not settlements, "that might well be thought anticompetitive."

Collusion between competing firms in any industry often raises red flags that suggest anticompetitive, anti-consumer behavior. But at least in these pay-to-delay cases, cooperation among brand and generic firms does seem to promote overall consumer welfare.

Yesterday, the Senate voted 45-55 to defeat an appropriations amendment that would have permitted U.S. patients to purchase individual-use quantities of FDA-approved prescription drugs from Canadian pharmacies. According to The Hill, Sen. Barbara Milkuski (D-Md.), floor manager for the underlying appropriations legislation, based her argument against reimportation on safety concerns.

"You don't know that what you are taking has been made in Canada or approved from Canada or that that it comes from a real website or from a legitimate pharmacy," she argued. "We could be importing death."

As part of his deficit reduction plan, President Obama recently announced two proposals that would reduce innovation and employment in the biomedical industry.

First, the president has proposed lowering data exclusivity protections for biotech medicines from 12 years to 7, which would allow "biosimilars" to come to market much faster than under current law (the Affordable Care Act, signed by the president in March 2010).  This would sharply reduce incentives to invest in biotech medicines, as discussed in this recent AEI paper by Henry Grabowski:

Data exclusivity periods of twelve years or more provide an "insurance policy" to stimulate innovation in cases in which effective patent protection is limited in scope or time, or uncertain in nature. If the data exclusivity period is only a nominal five to seven years, many products with limited patent protection, regardless of clinical value and importance to patients, will not enjoy sufficient exclusivity time to recover R&D costs and earn positive returns.

President Obama also wants to expand Medicaid price controls for "dual eligibles" in Medicare's Part D prescription drug program, which may deter innovation and likely raise premiums or reduce prescription drug plans avaialble to many seniors. For more on this perspective, see this paper, from Douglas Holtz-Eakin and Michael Ramlet.

While controlling health care costs and lowering the deficit are critical national priorities, they should not come at the expense of the most innovative medical therapies.  Cost shifting through price controls or reducing market exclusivity for biotech medicines would impact all innovative therapies, regardless of their overall impact on health or health care costs.

A better approach is to focus on Medicare (and Medicaid) reforms that encourage recipients chose health plans that coordinate care or use the most effective therapies (new or old) to improve health outcomes at lower cost.   

I've got a new op-ed in today's Washington Examiner explaining what President Obama and Congress can do to revive American innovation. 

It's very easy to complain about what policymakers get wrong.  After all, it's a target rich environment.   

But it's even more important to point out what they get right.  In this case, U.S. dominance of the global biopharmaceutical and medical technology industries is the result of smart policy decisions made over the last 30+ years. 

Better market incentives = more innovation.

The Medical Progress Today blog provides a forum for economists, scientists, and policy experts to explore the scientific, regulatory, and market frameworks that will best support 21st century medical innovation.  We will focus especially on the U.S. Food and Drug Administration, the agency responsible for overseeing the nearly half-trillion dollar drug and medical device markets in the United States.

The blog will range widely in terms of topics and POV.  But, at its heart, MPT is about harnassing the power of science, market incentives, and (prudent) regulation to create the kind of health care system that we all want - more effective, efficient, and affordable.

We live in a time of breathtaking advances in the capacity to treat--and cure--illness. The translation of the human genome and an explosion of information from new sciences like metabolomics and proteomics have given researchers powerful new tools for understanding, treating and (eventually) curing deadly diseases like cancer and Alzheimer's. The old medical paradigm treated illnesses symptomatically with one-size-fits all medicines; the new paradigm will analyze disease at its molecular roots and to develop personalized therapies that match a patient's own unique biochemistry.

The question is not whether personalized medicine will become a reality, but when. Innovation is currently struggling in the face of regulatory, reimbursement, and insurance frameworks built around public health assumptions that fit the middle of the last century, rather than the first decades of the 21st century.

Turning personalized medicine from an aspiration into a reality will require regulators, companies, and researchers to breakdown binary regulatory frameworks; develop collaborative approaches to rapidly validate new technological standards; and embrace clinical tools that allow patients and physicians to become full partners in the innovation process.

Through both this blog site and the original essays it will commission, MPT will provide a forum to explore the most current ideas--and emerging challenges--in the field of personalized medicine.

We hope that you will find MPT a vital and provocative resource for building a health care system ready to embrace the full potential of personalized medicine and sustain U.S. leadership in biomedical innovation.