An Investor's Summary of the 21st Century Cures Act

By Motley Fool

Congress has passed the 21st Century Cures Act, which could ignite innovation and bring drugs and medical devices more quickly to market. Nearly 1,000 pages long, the act is stuffed with innovation-friendly industry perks, including deregulation and funding for the National Institutes of Health and the Food and Drug Administration. Will the 21st Century Cures Act be a driver of industry sales and profit growth in the future?

In this clip from The Motley Fool's Industry Focus: Healthcare podcast, analysts Kristine Harjes and Todd Campbell summarize the key points of the 21st Century Cures Act and how they might impact fellow investors.

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A full transcript follows the video.

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This podcast was recorded on Dec. 7, 2016.

Kristine Harjes: So, Todd, thesecond topic that we wanted to talk about today is also a very exciting one. This is the 21st Century Cures Act, which as of yesterday, Tuesday, has been passed by both houses of Congress and is on its way to Obama for a signature.

Todd Campbell:Normally, with regulation and policy, this year, Kristine, we've been talking about what's happening with drug pricing, and pushback, and all that. We haven't focused a lot on what Washington could do to boost innovation in drug development as a source of growth for the industry. That makes this act really important for investors to know about, because it does exactly that. It provides a series of, we'll call them perks, I don't know how else to call them, to the industry and to regulatory bodies, that are designed to increase the amount of money that's available to research new drugs and medical devices, to speed them more quickly to the FDA, to accelerate the timeline for review of those drugs and devices by the FDA. Essentially, to get these things on the market more quickly so they can start helping patients.

Harjes:Right. The premise here is that the FDA wasstuck in the past and was not equipped for the modern era of medicine. You can even see that in the name of this thing -- it's the 21st Century Cures Act. This is meant to bring the entire drug discovery and approval process into the 21st century.I feel like I'm still doing the Rocket Mortgage ad when I say that [laughs]. It's a $6.3 billionpiece of legislation. A lot of that money is goingdirectly into medical research. $4.8 billion will go to the NIH. This will fund things like the Moonshot Cancer Program, the Brain Initiative, the Precision Medicine Initiative. This isresearch that's going into things like cancerand Alzheimer's,really important and often underserved indications.

Campbell:Right. You have $4.8 billion over 10 years going to the NIH. You have another $500 million over a 10-year period that's heading to the FDA to boost hiring and wages. You have another $1 billion over two years going to help support programs to combatopioid abuse. There's a lot of money that is being put into the system, with theconcept of doing exactly what we outlined, which isdeveloping more drugs more quickly and getting them into patient hands faster. The 21st Century Cures Act is not a small bill. It's almost 1,000 pages long. It was very heavily lobbied by both thepharmaceutical and medical device industries--

Harjes:1,300 lobbyists.

Campbell:Yeah. This was a long bill coming. As a result, there is some debate that it may favor the industry more than it should. However, we'll leave that debate to others and instead focus on what kind of things, specifically, does this act do to helpget those drugs and products into patient hands? There's a number of different sections in this act that address everything from deregulation to changing the way that theregulatory body evaluates whether or not to approve a drug or device.

Harjes:Right. What isgoing to be required for the FDA to green-light a drug isgoing to change a little bit. The FDA is now going to consider what's called "real-world" evidence, so, outside of just clinical trials. There's also a little bit of a notion ofwhat sort of data from trials can be considered. Now, theserandomized trials that we're used tocan be supplemented with more information, such as genetic subgroups of patients. Again, all of this is with the intention to speed this process along, to make it more efficient, more cost-effective for the drug-developing companies, to get their drugs into the hands of the FDA, and then hopefully, eventually, onto the market shelves.

Campbell:Right. You have section 3021, which is encouraging new novel trial design. You have section 3011, which isestablishing a review pathway for the use of biomarkets orsurrogate endpoints that could help speed along drug development. You have section 3001, which, we talked about,elevating the importance of patient experience data in the review process. You have other things in there as well,including the extension of the Pediatric Voucher system, which is a system that provides a relatively high-value voucher forcompanies that develop drugs for rarediseases that affect children. You havea lot of different pieces to this puzzle. I encourage investors tospend a little bit of timegoing through the nuts and bolts of it, because there are some things I think will help boost innovation, and in an environment wherepricing is going to be more highly scrutinized, innovation is going to become theprimary source of revenue and profit growth throughout the industry. That's important.

Harjes:Absolutely. And this is, without a doubt, a win fordrug developers. It seems, at least from what we've said so far, that this is a win all around, butI will point out that there are some parts to it that are a little bit morecontentious. The bill passed by a huge margin. It was 392 to 26 votes. But, just to give a little bit of an idea of what those 26 aretalking about to complain about this act, one of the items in itallows for the promotion of off-label use -- off-label is when you use a drug forsomething other than its approved indication. Say it's approved for one thing,and there's a little bit of theory that it might also work for something else -- it's using it for that something else, that's the off-label use. This bill will allow for the promotion of off-label use to insurance companies.

The argument here is that many of thepeople that are actually making these prescribing decisions are your insurers; it's yourformulary committees, rather than theactual physicians themselves. In that case,shouldn't payers be allowed toreceive information from the pharmaceuticals? The opposition there is saying this is pretty much fraud, to take a drug that'sapproved for one thing, and there is no evidence of itsefficacy in the other indication, but you're going to market it that anyway to these payers. Not to give my ownpersonal take on that too much, but you can see howthat's a little bit of a contentious point.

Campbell:Yeah,without a doubt. If you read through the bill,there are a lot of points where it says, "We are not diminishing the requirements of safety and efficacy in order to win FDA approval." They continue to hammer that home. Yet, you're right, there are parts in there where they're seemingly making it easier for drug companies to advance drugs that you could argue won't be as highly vetted as maybe they had been in the past. Who knowswhat kind of unintended consequencescould result from that? It's something that shouldn't be ignored.

Harjes:Right.I have seen opinion articles stating that the phrase "FDA approval" could come to mean less. So, you have your ups and downs, here, of course, as with everything.

Campbell:Yeah,absolutely. The other drawback, I suppose, would be that this is a fully funded bill, and when you fully fund something,something else has to be a loser, you have to cut back somewhere else. And some of the money that's being used to fund this is actually coming out ofpreventative programs and programs that are associated with the ACA. So,there's a little bit of a debate on that as far as,what is the unintended consequence of shifting money from thesepreventative programs to these programs that are going to be developing devices and drugs instead?

Harjes:That's really interesting.I am personally a huge proponent of preventive care, so, eh,not sure how I feel about that one. Just to give a morecomprehensive picture of this act,because we have really only talked about the medical research and the FDA part of it, there'salso money going to fight theopioid epidemic. This is enormous,if you guys haven't seen it in the news. The CDC says that more people died fromdrug overdoses in 2014 than any other year on record, and a lot of these are related to opioids. These are yourprescription painkillers, heroin.Since 1999, I read that the number ofopioid-related overdoses havequadrupled. So, this is an enormous problem, and something that's going to be addressed with $1 billion going to the states for more treatment, education, and enforcement to try to battle this epidemic.

The other part of this act thatI feel like [is] worth mentioning is thatthere's also a lot toward mental healthcare -- this is an issue that has just recently come to national attention -- particularly for veterans. It's something that is wrapped into the 21st Century Cures Act, that, "Hey,we should pay a little bit more attention to mental healthcare."

Campbell:Yeah,that was a relatively late edition,and I think it's a welcome addition. It's an important addition,because we can and we should do more to improve mental health in our country.

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