Twist in the patent wars

I recently ran in to this interesting twist in the patent war — how patents and FDA approval can work to knock out the competition. The story involves Adams Respiratory Therapeutics. They make the cold medicine Mucinex – and run the ads featuring Mr. and Mrs. Mucus who take up housekeeping in your nasal passages.
As SmartMoney relates:

Adams has patented the ability of Mucinex to deliver that 600mg dose over a 12-hour period, and relied on favorable regulatory rulings to push the product’s growth. After the company gained Food & Drug Administration approval for its extended-release guaifenesin product in 2002, the agency ordered all competing drugs off the market. Now, however, the U.S. patent office is reexamining one of Adams’ patents, an action requested by an undisclosed third party.

Yes, you read that right, once Mucinex was given FDA approval, all other competitors became illegal. The Adams 2006 SEC 10-K report goes into further detail:

In 2002, the FDA approved our 505(b)(2) application for Mucinex SE as an OTC long-acting guaifenesin product. Prior to our 505(b)(2) application for Mucinex SE, only short-acting guaifenesin products had been marketed OTC, while long-acting guaifenesin products were marketed as prescription drugs, despite their lack of formal approval by the FDA. Under the Durham Humphrey Act of 1951, the FDA established that no drug may simultaneously be sold as a non-prescription product and as a prescription product at the same dose for the same indication. Any products that violate this rule are subject to FDA regulatory action and removal from the market.
On October 11, 2002, the FDA issued warning letters to 66 manufacturers, distributors, marketers, and retailers of single-ingredient guaifenesin extended-release products. The letters stated that such prescription products require FDA approval, and without FDA approval, they could no longer be marketed legally. A number of the manufacturers and distributors that received a warning letter from the FDA filed a “Citizens Petition,” which is similar to an appeal, with the FDA requesting that the agency either elect not to enforce existing regulatory policies requiring removal of the drugs from the market or delay such enforcement. On February 25, 2003, the FDA issued a letter in response to the Citizens Petition to the 66 recipients of the original warning letter, reiterating that following the FDA’s approval of Mucinex SE in July 2002, all other single-ingredient guaifenesin extended-release drug products may no longer be marketed legally. The FDA decided, however, to allow a grace period for the manufacturers and distributors to remove such drugs from the market as follows:
• the FDA required that the warning letter recipients cease manufacturing unapproved single-ingredient guaifenesin extended-release products no later than May 21, 2003;
• no distribution (including distribution by secondary wholesalers or other distributors) could occur after October 23, 2003; and
• no retail sales could occur after November 30, 2003.
Historically, long-acting prescription guaifenesin products and, according to the FDA, several thousand other drugs were marketed without FDA approval. Resource limitations prevented FDA enforcement actions against many unapproved prescription and OTC drugs. In October 2003, the FDA published a draft compliance policy guide articulating its existing informal policy regarding drugs marketed in the United States that do not have required FDA approval. In June 2006, the FDA announced that it had finalized its policy, under which the FDA will exercise its discretion in taking enforcement action against unapproved drugs once the FDA has approved a similar drug, whether the similar drug is prescription or OTC. In publishing the policy guide, the FDA publicly affirmed the actions it took relating to long-acting, single-ingredient guaifenesin products. As of this date, however, the FDA has only taken regulatory action to remove from the market single-ingredient, extended-release guaifenesin. The FDA approved Mucinex DM and our maximum strength, long-acting guaifenesin and dextromethorphan combination product, as well as Mucinex D and our maximum strength, long-acting guaifenesin and pseudoephedrine combination product, pursuant to Section 505(b)(2) NDAs. We are hopeful the FDA will take similar action on extended-release guaifenesin combination products. However, we can offer no assurance that the FDA will do so or when any such action may take place.

The company’s November 2006 SEC 10-Q filing had this to say about the result:

The FDA’s removal of competitive long-acting, single-ingredient guaifenesin prescription products in November 2003. This removal resulted in Mucinex SE being the only long-acting, single-ingredient guaifenesin product available in the United States. Based on data from IMS Health—NPA TM , we estimate that, for the 12 months ended June 30, 2003, there were approximately 10.5 million prescriptions filled for long-acting, single-ingredient guaifenesin products. After November 2003, we believe that a majority of prescriptions written for long-acting, single-ingredient guaifenesin resulted in OTC sales of our Mucinex SE product. Humibid SE is now also available to meet this demand in a maximum strength formulation.

But, the saga isn’t over. As the SmartMoney story pointed out, the patents are in re-examination. And the company points out in its SEC filings, another company is seeking FDA approval for a similar drug.
All in all, as I said, an interesting twist. It is also an interesting insight into the competitive nature of businesses built around intangibles and intellectual property.

Financial competitiveness – part 8

From this morning’s Financial Times — Spitzer moves to update Wall St regulation:

Eliot Spitzer, New York governor, is to form a top-level panel of Wall Street chief executives, lawyers, consumer groups and regulators to modernise financial services regulation in the state.
Chaired by Eric Dinallo, the New York insurance superintendent, the group will seek to keep New York competitive with London by streamlining and modernising regulation without sacrificing the state’s tradition of strong investor protection.
The focus will be to rationalise state regulation of insurance companies, state-chartered banks and securities dealers and perhaps serve as a model for other states and the federal government.

Given Spitzer’s record on investor and consumer protection, this effort may have the credibility to actually get something done — and, I hope, determine what are the real issues.

Immigration bill

There is an interesting dynamic being played out in the immigration bill vis-a-via competitiveness and offshoring.
There is this from the New York Times a week ago — Many Employers See Flaws as Immigration Bill Evolves:

Employers, a major force in the national debate over immigration, say their discontent with the bill shaping up in the Senate has deepened over the last week because of changes that could make it more difficult for them to hire foreign workers.
High-tech companies, like Microsoft and Oracle, and employers of lesser skilled workers, like restaurants and construction contractors, already had qualms about the original version of the legislation, forged in three months of talks between the White House and a dozen senators.
But from the point of view of many employers, the bill has become worse in the last week.

And this today — Washington Wire – WSJ.com : High-Tech Companies Seek Change in Immigration Bill

Under the bill being debated this week, businesses would lose the ability to petition to keep a specific worker; instead, a merit-based system would to determine which workers would be able to come to the U.S., with workers getting points for special skills, expertise in science and math and the support of their employer.
The amendment will “preserve the ability of U.S. employers to determine the critical skill sets needed for global competitiveness and innovation,” the Information Technology Industry Council, which represents such firms as Dell Inc. and eBay Inc., wrote in a letter today to Senate leaders. It was signed by dozens of other groups that represent companies in need of high-skilled workers.

Yet, there is this from the Washington Post about how the bill changes the preferences toward business needs —
Immigration Bill’s Point System Worries Some Groups:

For weeks, U.S. senators wrestled among themselves and with White House officials over the question of what mix of skills, background and experience prospective immigrants should bring to their new country.
The answer they came up with, embodied in the immigration bill now on the Senate floor, would represent a radical shift in the philosophy of the U.S. immigration system. Rather than focus on reunifying families, the system would emphasize bringing in better-educated, higher-skilled immigrants who would help the United States compete in the world economy.

Then there is this — Immigration Fight: Tech vs. Tech:

Oracle, Intel, Cisco, and Motorola (MOT) appear to be taking a similar approach, based on a review of government documents and interviews with some of the companies. Oracle is largely hiring software specialists for work at its Redwood City (Calif.) headquarters, and many are paid more than $100,000 a year. Oracle’s Hoffman says that 90% of its H-1B workers are green card applicants. Intel often uses the visas to recruit engineers with advanced degrees from U.S. schools. “Our philosophy is that these people are the golden eggs; they’re the innovators and future job creators,” says Jenny Verdery, Intel’s director of workforce policy.
The outsourcing companies have a different approach. They frequently will bring in workers from their overseas operations to help service a client in the U.S., and then the worker will return home. While Wipro declined to comment for this story, Laxman Badiga, the company’s chief information officer, said in February that the company brings to the U.S. roughly 1,000 new temporary workers each year and rotates the same number back to India. He said the on-site training allows Wipro to serve clients better.

Lots of different tensions swirling around in this one. And this is just the first step. If the bill survives the Senate, it still has to go to the House (where it may be killed by technicality) and then conference between the two bodies (with the White House weighing in).
So, stay tuned to this one. I’m not sure what to make of all this or where it is headed. But where ever come out of the process will be an important change in the rules of the I-Cubed Economy.

Dani Rodrik’s blog

For those of you who haven’t seen this, Dani Rodrik has a new (snarky?) blog. Here is a recent sample:
Dani Rodrik’s weblog: It’s front page news in the WSJ, so it must be a big deal:

May 24, 2007
It’s front page news in the WSJ, so it must be a big deal
Frank Levy chides me for overlooking today’s page 1 story in the WSJ on globalization. It’s called “Globalization’s Gains Come with a Price,” and it’s all about how the wage distribution has gotten wider in developing countries, contrary to what a lot of people were expecting. When I read it, my first reaction was, “this is news?” Frank assures me that it is to most WSJ readers.

Always worth the read.

Economic mobility in the I-Cubed Economy

A generally agreed upon “fact” of the US economy is the trade off between economic security and economic mobility. American workers may be less secure than in other countries, but that is the price we pay for greater economic mobility.
Wrong, says a new report by the Economic Mobility Project. As the Wall Street Journal put it starkly — Not Your Father’s Pay: Why Wages Today Are Weaker:

American men in their 30s today are worse off than their fathers’ generation, a reversal from just a decade ago, when sons generally were better off than their fathers, a new study finds.

The project press release elaborates:

According to the report, men who were in their thirties in 1974 had median incomes of about $40,000, while men of the same age in 2004 had median incomes of about $35,000 (adjusted for inflation). Thus, as a group, income for this generation of men is, on average, 12 percent lower than those of their fathers’ generation. While factors other than cash income also contribute to economic mobility, these data challenge the two-century-old presumption that each successive generation will be better off than the one that came before. The findings rely on new analysis of U.S. Census Bureau data.

What about flexibility and mobility. The WSJ notes:

The study suggests that absolute mobility — the rate at which an entire generation’s lot improves relative to previous generations — has declined. But within a particular generation, individuals can still get ahead if relative mobility, the rate at which the rich and poor trade places, remains high. Poor fathers may have rich sons, and vice versa.

As the study describes:

To illustrate the importance of relative mobility, consider three hypothetical societies with identical distributions
of wealthy, poor, and middle-class citizens:
The meritocratic society. Those who work the hardest and have the greatest talent, regardless of
class, gender, race, or other characteristics, have the highest income.
The “fortune cookie” society. Where one ends up bears no relation to talent or energy, and is purely
a matter of luck.
The class-stratified society. Family background is all-important — children end up in the same relative
position as their parents. Mobility between classes is little to nonexistent.
Given a choice between the three, most people would choose to live in a meritocracy, which is, by its
nature, fairer and more just.

However, the report states::

Data on relative mobility suggest that people in the United States have experienced less relative mobility than is commonly believed. . . .
There is little available evidence that the United States has more relative mobility than other advanced nations. If anything, the data seem to suggest the opposite. Using the relationship between parents’ and children’s incomes as an indicator of relative mobility, data show that a number of countries, including Denmark, Norway, Finland, Canada, Sweden, Germany, and France have more relative mobility than does the United States (see Figure 3).

The report offers little guidance as to why this is occurring. According to the WSJ,

Ms. Sawhill said several factors could explain the divergence: a growing share of income going to the highest-paid workers, or to profits; an increased share of labor compensation going toward benefits such as health care; or a decline in the number of wage earners in the typical family.

Let me offer one of my own reasons — the changing nature of work. In part, the I-Cubed Economy is a social network economy. How well you do depends on whom you know as well as what you know and how hard you can work. Those with a broader social network of higher income/wealth connections will do better. And in part, the changing nature of work has disrupted the traditional employment and career ladders (see for example Stephen A. Herzenberg, John A. Alic, and Howard Wial, New Rules for a New Economy,: Employment and Opportunity in Postindustrial America (Twentieth Century Fund, Cornell University Press, 1998). I hope the project will look into these factors more closely.
The report goes conclude with a warning and a sobering thought:

One thing is clear. A society with little or no absolute mobility is one in which for every winner there is a loser. It’s a zero sum game. And a society with little or no relative mobility is one in which class, family background or inherited wealth loom large. Equal opportunity is a mirage. Recalling the three hypothetical societies, it is easy to envision why, for these reasons, high levels of both absolute and relative mobility are desirable. Society should strive for both. But rates of growth in mature economies are often slower than they are in societies that are still developing, and this fact makes a focus on relative mobility of increasing importance.
. . .
While belief in this American Dream remains a unifying tie for an increasingly diverse populace, it is showing signs of wear, with both public perceptions and concrete data suggesting that the nation is a less mobile society than once believed. This is not good: the inherent promise of America is undermined if economic status is, or is seen as, merely a game of chance, with some having the good fortune to live in the best of times and some the bad luck to live in the worst of times. That is not the America heralded in lore and experienced in reality by millions of our predecessors.

The Economic Mobility Project promises more analysis and discussion as to how to reverse this disturbing trend. But we will need concrete action at the end of that analysis. Let’s see if our political system is willing to take that next step – whatever it may turn out to be.

Buyers versus users – and the challenge of design

Some time ago, I posted a piece on how many products are returned simply because people can’t figure out how to use them. This was, I said, an opportunity for improved design.
But,as Shakepeare said, the fault lies not in the stars, but in ourselves. We demand that complexity. As James Surowiecki’s latest column in the New Yorker (Feature Presentation) explains:

You might think, then, that companies could avoid feature creep by just paying attention to what customers really want. But that’s where the trouble begins, because although consumers find overloaded gadgets unmanageable, they also find them attractive. It turns out that when we look at a new product in a store we tend to think that the more features there are, the better. It’s only once we get the product home and try to use it that we realize the virtues of simplicity.

This is presents an extraordinary challenge to designer:

The fact that buyers want bells and whistles but users want something clear and simple creates a peculiar problem for companies. A product that doesn’t have enough features may fail to catch our eye in the store. (A cell phone that doesn’t offer a Bluetooth connection, for instance, may be dismissed as underpowered, even though relatively few Americans use Bluetooth headsets.) But a product with too many features is likely to annoy consumers and generate bad word of mouth, as BMW’s original iDrive system did. Intended to give drivers unprecedented control over navigation, temperature, and entertainment through a single device, it was so hard to use that it has been described as “arguably the biggest corporate disaster” since New Coke.

Great products, like the iPod, rise to that challenge. Others are simply swamped by it — destined to be returned to the store by a buyer turned user who won’t spend more that 20 minutes figuring out how it works.

Financial competitiveness – part 7

According to Alan Murray’s column in today’s Wall Street Journal Wall Street’s Capital ‘Crisis’ Moves to Back Burner, the battle cry has turned into a whine:

last week came the dull denouement. The Treasury announced it was creating yet another study committee…as if the previous three hadn’t been enough. And it named former Securities and Exchange Commission Chairman Arthur Levitt as co-chairman, along with former SEC chief accountant Don Nicolaisen. Mr. Levitt has told anyone who asked that hand-wringing about Wall Street’s competitiveness is, as he delicately puts it, “absolute garbage.”
. . .
At an event sponsored by the Council on Foreign Relations in New York last week, which was held after Mr. Levitt agreed to head the new committee, but before the committee was publicly announced — the former SEC chief feistily attacked most of the major recommendations of the so-called Paulson committee. “The IPO issue is a nonissue,” he declared.

Murray seems to agree with that assessment:

Of course, it was never that much of a crisis to begin with. Wall Street moguls made much of the statistic that only one of the 20 largest IPOs in 2005 occurred in the U.S. But that oft-cited statistic provided a pretty narrow and misleading window on Wall Street’s overall health. Moreover, it was distorted by the fact that some of the largest IPOs were former state-owned enterprises in China and Russia that listed elsewhere for nationalist reasons, and that might have had a hard time meeting U.S. listing standards anyway.
Last week, [Treasury Undersecretary Robert] Steel himself cited a compelling set of numbers showing that the U.S. financial markets remain “second to none.”

I’m glad to hear that folks are backing off the rush to deregulate in the name of competitiveness. However, I hope that there will be continued thought given to ways to improve our financial markets. Two areas — not included in the current discussions — come immediately to mind: how financial markets deal (or don’t deal) with intangibles and whether the short term focus is hurting long-term innovation. A study (or studies) that looked at those two issues would be a huge step forward in assessing the competitiveness of our financial markets in the I-Cubed Economy.