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Monthly Archives: March 2007

I touched briefly on the Medimmune v. Genentech case in a previous Carnival of Biotechnology, but I didn’t go into great detail on the case because I didn’t want to scoop David Morrill who interviewed me for an article on the case.

You can read my thoughts in David’s article, but I’ll go ahead and repeat them here.

In order to challenge a patent, the challenger must either be in litigation with the patenter, or be able to demonstrate that they are likely to be sued for infringement. This restriction is presumably in place to prevent deep-pocketed bullies or uninvolved firms from racking up legal expenses for innovators. Under this system, licensing a patent therefore grants benefits to both parties. The licensee is assured that they won’t be sued for infringment, and the licensor is assured that the licensee won’t infringe and/or challenge their patent. The case of Medimmune v. Genentech has redefined the balance of power in patent licensing.

In this case, Medimmune was licensing a patent from Genentech. In 2001 Genentech claimed that a new Medimmune product, Synagis, was covered by the patent and demanded additional royalty payments. Interpreting this demand as a threat of litigation, Medimmune proceeded to pay royalyies into an escrow account ‘in protest’ and challenged the validity of Genentech’s patent – effectively licensing a patent while challenging it. The Supreme Court validated Medimmune’s actions, effectively making it possible for a company to abide by license terms in escrow (thereby avoiding a potential trebling of damages if they were found to be willfully infringing a patent) while challenging a patent.

The effect of this ruling is that patent licensors have more power because, while licenses still protect them from being challenged for infringement, they do not prevent them from challenging patents upon which licenses are based.

Just came across an article on diabetics going to Mexico to receive pig xenotransplants. Unlike other forms of medical tourism, where patients travel to other countries for lower cost treatments, better quality treatments, or to receive ethically questionable organ transplants, xenotransplantation carries significant safety concerns.

Xenotransplantation is the transplantation of organs or tissues from non-humans (such as pigs) into humans. The potential to introduce new diseases which can spread among the general population – like AIDS – is a real threat, and needs to be evaluated and controlled if xenotransplantation is going to be a viable therapy. The case of xenotransplantation is an example of the need for progressive regulation. The inability to prevent individuals from travelling abroad to receive treatment creates an impetus to increase research into xenotransplantation to determine its safety and, if possible, develop guidelines for implementation in order to stem unregulated treatments.

Source article: Xenotourism and Xenotravel: Some notes on global regulation

This follow-up to my post on the technical reasons why biogenerics are so hard to regulate provides some updates the status of biogenerics, background on the key issues, and the impacts on the industry of the various possible approval schemes.

Clinical Trials
The clinical trial requirement for biogenerics is the leading issue from a regulatory and cost perspective. All new drugs must undergo a comprehensive clinical trial process to demonstrate that they are safe and effective, prior to receiving FDA approval for marketing. Generic versions of small molecule drugs can avoid clinical trials if they are manufactured using the same processes, produce identical an product to the original drug, and exhibit the same bloodstream concentrations over time. The issue with biogenerics is that it’s not (currently) technically possible to demonstrate that the generic version is identical to the original.
So, are abbreviated clinical trials the answer? Well, not quite. This article from Bloomberg presents counter-arguments on the extent of clinical trials potentially required for biogenerics, and suggests that abbreviated clinical trials may be insufficient to reveal safety issues.

Rigorous Lab Testing?
So, if abbreviated clinical trials aren’t the answer, then what about developing new means to demonstrate that two biologic drugs identical? This testimony from the FDA’s CMO Janet Woodcock and follow-up technical inventory from BMS Senior Scientist Declan Moran illustrates the extent of current scientific abilities and the challenges involved in developing improved abilities.

Bottom line
It is reasonable to conclude that a regulatory path for generic biologics will likely involve more clinical trials and more lab testing than traditional generic drugs. So, two questions emerge: When will the FDA develop a regulatory path, and what will its impact be? In the six years I’ve been tracking biogenerics, I’ve seen little progress. Regulations could emerge in the next years or two – or it could take longer. Furthermore, what will the cost of biogenerics be? Traditional generics can be produced at a fraction of the cost of the drugs they copy – how much of a discount can we expect from biogenerics, given the additional costs of development and approval?

If there’s one sure rule about private equity, it is that there are no rules about private equity! Venture capitalists will tell you that they have different investment philosophies than everyone else, they’ll tell you that they’re not venture capitalists, they’ll tell you that they focus on areas that everyone else ignores.

So, it should come as no surprise that mere days after I posted an article on angels filling the biotechnology funding gap, Business Week should put out an article touting VCs are ‘Biotech’s Unlikely New Pal‘. Truth be told, the investments described in this article aren’t anything new. They’re hybrid business models that combine modest revenue streams with long-term R&D plays.

These hybrid models have been seen before, and were generally abandoned by investors with deep pockets in favor of more mature companies with demonstrated prospects of delivering large returns.

While these hybrid models sound like an intelligent combination of cashflow-positive business units with high potential R&D endeavors, there are some serious drawbacks. Firstly, companies can ‘shift from one foot to the other’, alternately selling the praises of their cashflow business or R&D efforts to distract investors from the fact that neither option actually has any long-term potential. This was clearly demonstrated by firms simultaneously genome databases and internal drug delivery programs in the genome craze of the late 90s. Secondly, the burdens of running a cashflow-positive business can distract management and operations from the company’s real mission – to develop innovative new products leading to significant growth.

Biotechnology companies have been facing a widening funding gap. Between frozen federal research budgets and a growing focus among venture capitalists and senior partners for larger, more mature, biotechnology firms – at the expense of smaller ones – a funding gap is growing between basic research and initial proof-of-principle commercial research.

So, who fills the gap between basic research funding and venture capital? Angels! Angel investors are wealthy individuals who make equity investments in biotechnology firms. Angels differ from venture capitalists because they tend to invest their own money, they tend to invest earlier than venture capitalists, and they may be less experienced in funding start-ups than venture capitalists. A leading question on many industry-watcher’s minds has been whether angels have been addressing the funding gap. Having been burned by dilution from later investors in past funding cycles, and having lost great amounts of money on technologies which didn’t pan out, many angels have shied away from early-stage biotechnology investing. A recent report from the Center for Venture Research has found that angel investing is up 10.8 percent from 2005. Furthermore, healthcare services, and medical devices and equipment continued to account for the largest share of angel investments, with 21 percent of total angel investments in 2006, followed by software at 18 percent and biotech at 18 percent.

What’s interesting is that angels are spending more. A total of 51,000 startups got angel funding in 2006, up just 3 percent from 2005. That translates into average deal sizes notching up 7.5 percent over 2005 levels. All that money came from a pool of investors that hasn’t changed much either.

The United States is the world’s largest pharmaceutical market. Japan is the second largest, although the combined European Union is larger than the Japanese market (but smaller than the U.S.). Naturally, any company looking to sell drugs should focus on these markets, but there are reasons to reach out into smaller markets:

This article describes a strategy to reduce revenue risk by diversifying into markets with reduced regulatory and intellectual property oversight.

Countries use various methods to control drug expenditures. Beyond simple negotiation, countries can also implement price controls or use WTO-authorized compulsory licensing, which enables a country to produce generic versions of branded drugs if they face a health crisis without violating international patent agreements.

The United States threatened to use compulsory licensing to acquire cheap stocks of the antibiotic Cipro in the wake of anthrax-tainted letters being sent through the mail. Thie threat of compulsory licensing was sufficient to compell Bayer to reduce the price of the drug.

It doesn’t always work out so favorably, however. New Zealand nearly saw AstraZeneca pull out of their market in the face of Zoladex price controls. More recently, Abbot has threatened to stop licensing any drugs to Thailand.

The bottom line here is that there is a clash of interests. Countries need to reduce the burden of health care expenditures on their economies, and drug companies need to recover development costs and make a profit. Price controls and compulsory licensing give countries leverage over drug firms, but if these measures eliminate profits, drug companies are liable to simply stop selling drugs – and also stop developing drugs – for specific markets.

So, what is the solution? How do countries which can’t afford to pay for drugs get drugs developed for their specific needs? Organizations like OneWorld Health and the Bill and Melinda Gates Foundation specialize in developing drugs for needy and under-served markets.

Investing and Clinical Trials

PharmaGossip has an illuminating excerpt from The End of Medicine describing a method to invest in drug companies as they progress through clinical trials.

Ted Love, CEO of Nuvelo Inc., explains how biotechnology companies are frequently able to recover from seemingly disastrous clinical trial failures.

Patents

When manufacturers seeking to sell generic drugs challenge patents in order to try and enter the market, the patent holders will sometimes settle out of court and pay the generic company to wait until the patent expires. There is growing opposition in congress to this practice, with some lawmakers calling it anticompetitive.

In order to challenge a patent, a challenger must either have been sued for infringement, or be able to demonstrate that they are likely to be sued for infringement. This can place licensees in a dilemma where they must decide to license a patent they feel is invalid, or infringe a patent and challenge it but risk paying triple damages for willful infringement. A ruling in the case of Medimmune v. Genentech has strengthened the case for licensees, permitting them to pay licensing fees “in protest” and still challenge a patent.

International

The Chinese biotechnology and pharmaceutical sectors are rapidly growing as increasing numbers of expatriates are returning, bringing skills and connections from abroad back home. Chemical Engineering News profiles the Chinese pharmaceutical industry and investigates the challenges it still faces.

Sir Chris Evans, founder of Merlin Biosciences, blames British biotech investors for having a ‘sick garden syndrome’, stating “We keep pulling the flowers up every six months to look at the size of the roots, and ram them back in the ground wondering why they struggle to grow.”

There’s been a lot of press floating around lately about the push to develop a framework for biogeneric (or biosimilar, or follow-on, etc.) approvals.

Why are biogenerics so hard to regulate? Why can’t they just follow the same path as traditional generic drugs? The answer lies in their size and complexity. I’ll use the following excerpt from my book:

Generic vs biogeneric drugsThe difference between traditional drugs (typical of traditional pharmaceutical techniques) and biologic drugs (typical of biotechnology techniques) is illustrated in Figure 4.1. Aspirin is very small. Erythropoeitin (Epogen) is more than 500 times larger than aspirin. This size difference alone makes it difficult to determine that a generic version of erythropoeitin produced by a second party is identical to a version produced by an innovator. Furthermore, biologic compounds can undergo subtle modifications which are currently very difficult to detect.

In order to gain approval, traditional generic manufacturers must demonstrate that their drugs are chemically identical to pioneer versions and exhibit the same properties in the human body as the original drugs do. How can you do this for biogenerics? Well, you can’t. It’s currently not possible to demonstrate that a second-source biologic drug is identical to an innovator’s drug. That’s why the path to biologic generics is likely going to involve abbreviated clinical trials and it’s why the resulting generics will likely exhibit slightly different properties than the original drugs. Because of these differences, biogenerics won’t be as relatively cheap as traditional generics are, and they’ll face an extra burden to demonstrate that they are as safe and effective as the established branded drug they’re competing with.