Drugs Defy Deflation

We seem to have stumbled on a theme this week: drugs, drugs, drugs.

In spite of the “deflation” that has much of the banking world spooked, brand-name drug prices increased 8.3% in 2009, says a study AARP released this morning. They’ve nearly doubled in the past five years.

Prescription Drug Inflation

AARP tracked the prices of the 217 drugs most commonly used by elderly Americans and found last year had the highest rate of inflation since at least 2006, when the Medicare drug benefit kicked in.

Coincidence? We think not.

Just in time, a federal judge in South Carolina put the kibosh on President Obama’s plan to allow federal funding for embryonic stem cell research.

“If one step or ‘piece of research’ of an embryonic stem cell research project results in the destruction of an embryo,” ordered South Carolina Judge Royce Lamberth, “the entire project is precluded from receiving federal funding.”

Judge Lamberth cited the ban on federal funding of embryonic destruction from the previous administration. (Thank goodness someone in the federal government is willing to stand up for moral rightness and correctitude.)

Fortunately, “the ruling will have little impact on private companies that have been living with the ban on the use of federal funding for unapproved embryonic stem cell lines for years,” says Patrick Cox, editor of Breakthrough Technology Alert and in whose wheelhouse this bit of the news cycle firmly resides.

“Primarily, the ban will effect academic institutions that accept federal research money, which counts for a very small fraction of the money that has gone into stem cell research.

“And ironically, the biggest impact will be felt by important universities. They’ll no longer be able to profit from collaborations that produce marketable technologies. Today, these collaboration incomes are a significant source of funding for many academic research labs. And ultimately, it will slow the progress of regenerative medicine.

“But assuming it stands, the ban will concentrate stem cell IP in private firms that are unaffected by the ruling,” which could be good for investors in the right companies.

Further, “the ruling,” Patrick continues with a recurring theme since the financial crisis began, “reduces the motive for leading stem cell companies to stay in the US. Stem cell companies want to collaborate with US researchers. If they cannot, they will probably look elsewhere.”

Already, one of Patrick’s leading stem cell research companies has launched an operation in China, because the regulatory environment there is in many ways more lenient.

“Whereas our FDA often acts to protect established pharma interests,” says Patrick, “Asian authorities are consciously attempting to establish new medical industries to compete with American companies and technologies.

“For investors, this is largely irrelevant, but for Americans it means that we will probably see the current trend toward offshore research and development continue. Luckily, investors are not restricted by national borders and can follow the science and profits wherever they find a friendly home.”

Patrick Cox
for The Daily Reckoning