Catching Flies with Honey

Actions that are publicly appealing in the short term can have undesirable long-term consequences when they secure privileged access to those elected to oversee their conduct. Economists call such influential access, “regulatory capture.” Elected officials often try to block it by post-election directives, but skilled special interests know how to bypass such barriers. Because Citizens United has commoditized financial campaign support, regulatory capture now must be more nuanced to be effective. When a regulators’ front door is locked rear door access can be gained by voluntarily performing “good deeds” that favor their regulators. Our efficient infringer opposition’s ubiquitous incumbencies depend on continued congressional and White House tolerance of their digital dominance. They are skilled at regulatory capture. One means is to voluntarily deploy their vast resources by making “Godfather-like” offerings “that” cannot be refused.” There is nothing unlawful about such conduct. And as the old bromide says, “you can catch more flies with honey.” But because regulatory capture is ultimately corrosive to our rule of law, it’s inevitable capture must be carefully watched.

Readers will recall how Google rescued President Obama after ACA’s initial rollout was technically botched. Google “volunteers” quickly got ACA up-and-running. Readers also may remember that to ward off regulatory capture President Obama barred all lobbyists from joining his administration. So while anti-patent academics streamed in its front door, Google slipped in the back. That Google’s anti-patent bent fit snugly with their academic patent bashing theories was then evidenced by the president’s infamous Rose Garden press conference warning America about patent trolls. Once established, Google’s many lobbyists’ White House visits and administration Google appointments (including our present PTO Director) confirmed the government’s regulatory capture.

Efficient infringement is only one of the many informational efficiencies sought by our five largest corporations. (Apple, Alphabet (Google) Amazon, Facebook, and Microsoft). Patents are a form of commercially useful data. They want all original data. Apple and Microsoft use it to sweep users into proprietary ecosystems. Facebook and Google use it to sell advertising. Amazon uses to sell, well, everything else. None of this is unlawful. Indeed, we cannot do without much of what they do. But incumbencies maintained by data mastery of digital markets call for close congressional and administration watchfulness if only because of their overwhelming size and scalability. The purpose of patent reform is to disrupt disruptive innovation and such regulatory oversight. Patent reform’s success thus far reflects the regulatory capture of much of Congress and the White House. Now we have a new president and Congress. Big tech has no plans to release its captives. Watch for new good deeds aimed this time at President Trump and Leader McConnell.

Google’s Erik Schmidt bet on the wrong presidential horse. Facebook’s Thiel is well placed with Trump but is unpredictable. At present President Trump’s strongest poll support is the public’s perception that he is saving US jobs. Jobs are scarce in McConnell’s home state of Kentucky. US jobs have thus become a priority for both men. Trump’s principal concern at present is “this Russia thing.” Whether or not it deserves it’s coverage, at the very least it pulls focus from the Trump labor initiatives including job creation. In addition to being the spouse of Labor Secretary Chow Senator Mitch McConnell is also the gatekeeper to the Senate floor where votes on tax reform and healthcare (and indeed all else from post offices to impeachment). He will determine Trump’s success or failure. He is Trump’s most prominent DC ally. With Google on the outs, it is Apple’s turn to capture the regulators. Apple’s good deed is a “twofer” because it hits on both of big tech’s congressional and administrative sweet spots.

Continue reading Catching Flies with Honey

Trump is Trapped Again

Our last post referenced the Advanced Patent Law Institute opening Panel’s concerns about the decline of investment in commercialization caused by a precipitous decline in patent reliability and pervasive patent legal uncertainty.  Life science commercialization drew extra emphasis because of the seemingly simple but complex ramifications of price controls for prescription drug products. Bayh-Dole march-in’s compulsory licensing and importation of drugs through Canada were joined last week by prominent discussion of repealing the “nonintervention” law, the statutory prohibition of direct negotiations with drug makers over the price of Medicare prescription by President Trump replacing the insurance companies and PBM’s who negotiate now.

Many believe such negotiations will lower prices. In some cases maybe yes …in others maybe no. Trump said they would save 3 billion dollars. CBO has said savings, if any, would be small. Negotiators however must be ready to disagree. Non-agreement means reducing access to certain medicines because disagreement means removal from patient formularies. While the conference was pondering the commercialization effects of price controls at the USPTO President Trump was meeting with Representatives Cummings to discuss the direct negotiations issue. Speaker Ryan could not have been pleased to see the meeting get two day’s news coverage.

On Saturday NPR commentator Scott Simon caught up with Rep Cummings to learn more about his White House meeting. Cummings said not only that the meeting went well but that Friday night he was advised by the president that he would try to insert repeal of the non-interference law into the contentious ACA repeal debate which began last week. The meeting went well for Cummings to be sure. For Trump …not so much. There is no way Cummings will support ACA’s Repeal and Replace no matter what Trump does but the meeting and its outcome added more uncertainty to the commercialization issue. When Simon asked Cummings about the meeting’s outcome this weekend Cummings, who is one of the president’s harshest critics, cleverly drew Trump back into the direct negotiations debate….

CUMMINGS: I think that we have a chance. As a matter of fact, as late as yesterday – last night – he told me that he’s going to try to get it into his bill.

SIMON: He told you this last night, Friday night.

CUMMINGS: Last night, that’s right. So we’ll see what happens. You know, with President Trump you – I think you have to wait and see. You’re going to have a good conversation. It sounds like he’s going in the direction that you’re going in, and people have told me you step out of the room and next thing you know maybe something has changed. But the conversation that we had with him was a very good one.

Earlier in his interview Simon asked why direct negotiations were not provided for during ACA’s original enactment, noting that true negotiations can only occur when one of the parties can walk away if they do not agree. In effect, he was asking if the president was ready to exclude formerly included drugs from patient formularies. Continue reading Trump is Trapped Again

Will Federally Funded Basic Research Be Victimized By Republican Budget Unrest?

The long-expected clash between Republican campaign rhetoric and the political reality of Republican control begins in the House this week. And what happens to R&D funding in the budget process is still unclear, but because of its size and future benefits as distinguished from immediate impact, its current $130+billion will not be unnoticed by a revenue-starved “controlled” Congress.

Beyond this week’s start of House committee consideration of ACA, including its repeal of revenue producers. And the administration has promised “details” this week on its $54 bn. increase in discretionary defense spending. This implies an equivalent decrease in non-military civilian discretionary spending. Discretionary spending is about a third of our entire federal budget. The remaining two thirds are mandatory paying for debt interest, and the Social Security/ Medicare entitlements Trump has vowed to leave untouched. Like the “Wall” new expenses, must be offset by future budget savings, either from future reductions in mandatory entitlements or from discretionary expenditures like the Depts. of State, EPA, and AID. Repealing small fry funding for the Arts, Head Start Americorps, and the Corporation for Public Broadcasting contribute little to the savings needed to offset Trump’s announced spending increases and tax reductions. Other spending offset sources like more revenue or increased debt have their own problems. So, to put it bluntly, R&D’s annual $130bn. appropriation which includes future basic science funding at NIH, NSA, and DOE is a very tempting offsets target. Will R&D funding it be trimmed… and if so how much? Two Trump budgets (for 2016 and 2017) must clear the House this Spring. And while the coming budget battle may be too complex to knowledgeably monitor both, for those of us who care about federally funded basic research, it makes sense to pay attention, stay alert and be ready to act if R&D funding goes on the chopping block. Here’s the problem. R&D funding invests in the future. The budget quagmire is now. If a deadlock among Republicans emerges Republicans collectively must resolve it because there is no one else to blame. They have postponed defining their actual positions for years. Will they now postpone implementation of long term investment expenditures whose beneficial effect is not immediate?

Continue reading Will Federally Funded Basic Research Be Victimized By Republican Budget Unrest?

Elimination of Further R&D Funding

Bayh-Dole’s (B-D) commercialization of federally-funded basic research is the bridge connecting annual $130+ bn. congressional funding to its congressionally intended public benefits of jobs, economic development and scientific progress. This B-D bridge’s on-ramp is controlled by federal grant agencies, each with its own mission. Life science’s on-ramp is supervised by NIH. Its off-ramp exit is policed by the FDA. Life science’s high-risk commercialization crossing to the off-ramp is difficult, long and costly. Its chances of reaching and using the FDA managed off-ramp are statistically slim. Continue reading Elimination of Further R&D Funding

Will President Trump Directly Negotiate Medicare Prescription Drug Pricing?

Whether prospective voters took Mr. Trump’s pre-election statements “seriously but not literally” or visa-versa, President Trump’s post-election conduct has DC industry advisors guessing rather than predicting. What happens next at 1600 Pennsylvania Avenue is simply unpredictable. And because White House staff must create coherency between campaign promises, like Mexico’s paying for “the wall” and their post-election implementation, even the President’s express assurances are subject to staff walk-back, revision or reversal. A recent relevant example of such uncertainty resulted from candidate Trump’s commitment last Fall to directly negotiate Medicare’s prescription drug pricing. That commitment’s post-election consequences are now roiling DC biopharma, insurance and PBM life science backwaters, creating waves of pricing uncertainty that also are washing-up along the shores of life science’ commercialization and investment partnerships. Why? Even though the savings impact of directly negotiated drug costs is credibly considered “negligible”, any politically driven intrusion into today’s market-oriented biomedical product pricing will further destabilize life science commercialization, which is already disrupted by post-AIA uncertainties.

During the presidential campaign, when polls showed public support for such direct negotiations, Trump proclaimed that his deal-making skill would annually save the US $300 billion, an absurd exaggeration amounting to almost one-half of Medicare’s entire annual budget. Fact-checkers quickly refuted his claim. Trump’s base believed it. Other disparaging, but less specific, post-election remarks about drug pricing have kept its price reduction fires burning, moving Medicare’s existing price containment infrastructure into the disruptive, unpredictable, and choppy waters of future trade agreements. His outlandish claim was taken literally.

Following a recent highly publicized meeting with prescription drug-makers, the President publicly pledged assurances of more support for biomedical innovation. He praised his visitors citing their creation of many US jobs, especially through startups, and promised FDA regulatory reform to strengthen the price containment of heightened competition. But later that day in Facebook remarks attributed to the President, the meeting’s message took a different tone.

Today I met with pharmaceutical executives at the White House. US drug companies have produced extraordinary results for our country, but the pricing has been astronomical for our country. We have to do better. We have to get lower prices; we have to get even better innovation. I expressed to the executives that I want them to move their companies back to the United States — and I want them to manufacture in the United States. Our trade policy will prioritize that foreign countries pay their fair share for U.S.-manufactured drugs, so our drug companies have greater financial resources to accelerate development of new cures — I think that’s so important! Right now it’s very unfair what other countries are doing to us – and in order to MAKE AMERICA GREAT AGAIN — we all need to work together right here in the United States of America.  

Later when asked about direct Medicare direct negotiation, Press Secretary Spicer said the President “is for it” (starting with question at 29:54 – see video below), adding from his notes: “There is a huge burden on American seniors who are so much more reliant on drug prices… in many cases you have people living on a fixed income. And rising health care costs and prescription drugs continue to be a burden on their ability to live out their lives in an enjoyable manner. [Trump’s] commitment is to make sure that he does what he can and I think rather successfully he can use his skills as a businessman to drive them down.”

With all that’s now going on it seems unlikely that legislative changes in the Medicare Modernization Act (MMA) enabling such negotiations will be enacted. But who knows? When should we begin to worry about such endpoint price intrusion?

The “Wall” issue is instructive. Whenever it seems to fade from public prominence, President Trump himself revives it. We also know that “wall-pricing” is now attracting deficit hawk concern especially if Trump’s approach is to “build it now” and gain trade reimbursement offsets later.  Medicare price negotiators can hope MMA revisions will be overcome by other pending issues but with ACA budget discussions coming to a head, non-interference and related budgetary benefits could move to Hill front burners very quickly. A PBM trade association official summed up his association’s recommendation that PBM’s start Hill discussions now.

If this were a conventional Presidency, then the group would wait to present a strategic update once health officials had clearly laid out their policies. Instead, the group has decided to push forward more aggressively,” he said, “given the political uncertainty, headline risk, and other unique challenges that come with a President more inclined toward quick, instinctive action than the traditional, deliberative decision-making process.

Any way you slice it, added commercialization uncertainty resulting from even negligible savings will be seen by the private sector as a foot-in-the-door for more government price controlling. Accordingly, if or when such congressional discussions start, early stage life science research and investment voices will need to be heard. An excerpt from a recent Kaiser Family Foundation analysis of the issue may be a useful starting point.   

Proponents believe that giving the HHS Secretary the authority to negotiate drug prices on behalf of millions of Medicare beneficiaries would provide the leverage needed to lower drug costs, particularly for high-priced drugs for which there is no competition and where private plans may be less able to negotiate lower prices. Opponents believe the Secretary would not be able to get a better deal than private plans already do and that plans have greater leverage with drug companies because of their whole line of business, but, if the Secretary were able to negotiate lower prices, pharmaceutical companies would reduce their investment in pharmaceutical research and development.

Participants in early stage life science development including research universities and medical centers must watch this issue closely and be ready to join MMA’ s more conspicuous defenders if and when MMA’s ban on Medicare direct negotiations suddenly appears. For more on why competition works better to contain drug pricing please see “Trump Moves Towards Life Science Support” at .

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