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

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.

A full transcript follows the video.

This podcast was recorded on Dec. 7, 2016.

Kristine Harjes: So, Todd, the second 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 was stuck 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 billion piece of legislation. A lot of that money is going directly 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 is research that's going into things like cancer and 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 combat opioid abuse. There's a lot of money that is being put into the system, with the concept of doing exactly what we outlined, which is developing 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 the pharmaceutical 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 help get 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 the regulatory body evaluates whether or not to approve a drug or device.

Harjes: Right. What is going to be required for the FDA to green-light a drug is going 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 of what sort of data from trials can be considered. Now, these randomized trials that we're used to can 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 is establishing a review pathway for the use of biomarkets or surrogate 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 for companies that develop drugs for rare diseases that affect children. You have a lot of different pieces to this puzzle. I encourage investors to spend a little bit of time going through the nuts and bolts of it, because there are some things I think will help boost innovation, and in an environment where pricing is going to be more highly scrutinized, innovation is going to become the primary source of revenue and profit growth throughout the industry. That's important.

Harjes: Absolutely. And this is, without a doubt, a win for drug developers. It seems, at least from what we've said so far, that this is a win all around, but I will point out that there are some parts to it that are a little bit more contentious. 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 are talking about to complain about this act, one of the items in it allows for the promotion of off-label use -- off-label is when you use a drug for something 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 the people that are actually making these prescribing decisions are your insurers; it's your formulary committees, rather than the actual physicians themselves. In that case, shouldn't payers be allowed to receive information from the pharmaceuticals? The opposition there is saying this is pretty much fraud, to take a drug that's approved for one thing, and there is no evidence of its efficacy in the other indication, but you're going to market it that anyway to these payers. Not to give my own personal take on that too much, but you can see how that'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 knows what kind of unintended consequences could 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 of preventative 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 these preventative 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 more comprehensive picture of this act, because we have really only talked about the medical research and the FDA part of it, there's also money going to fight the opioid epidemic. This is enormous, if you guys haven't seen it in the news. The CDC says that more people died from drug overdoses in 2014 than any other year on record, and a lot of these are related to opioids. These are your prescription painkillers, heroin. Since 1999, I read that the number of opioid-related overdoses have quadrupled. 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 that I feel like [is] worth mentioning is that there'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.