The information revolution reaches pharmaceuticals: balancing innovation incentives, cost, and access in the post-genomics era.

Recent developments in genomics--the science that lies at the intersection of information technology and biotechnology--have ushered in a new era of pharmaceutical innovation. Professor Rai advances a theory of pharmaceutical development and allocation that takes account of these recent developments from the perspective of both patent law and health law--that is, from both the production side and the consumption side. She argues that genomics has the potential to make reforms that increase access to prescription drugs not only more necessary as a matter of equity but also more feasible as a matter of innovation policy. On the production end, so long as patent rights in upstream genomics research do not create transaction cost bottlenecks, genomics should, in the not-too-distant future, yield some reduction in drug research and development costs. If these costs reductions are realized, it may be possible to scale back certain features of the pharmaceutical patent regime that cause patent protection for pharmaceuticals to be significantly stronger than patent protection for other innovation. On the consumption side, genomics should make drug therapy even more important in treating illness. This reality, coupled with empirical data revealing that cost and access problems are particularly severe for those individuals who are not able to secure favorable price discrimination through insurance, militates in favor of government subsidies for such insurance. As contrasted with patent buyouts, the approach favored by many patent scholars, subsidies would take account of, and indeed capitalize on, the institutional realities of health care consumption. These subsidies should, however, be linked to insurance regulation that works to channel innovation in a cost-effective direction by requiring coverage of drugs that provide significant benefit relative to their cost.