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Monthly Archives: June 2010

This is a guest post from Keith Bradbury, Executive Director of Drug Information at Medco Health Solutions, Inc.

Biosimilar drugs to gain greater priority as decade progresses

The Patient Protection and Affordable Care Act will heighten the degree of competition in the field of biotech drugs, a fast growing area of drug therapy that is accounting for a larger portion of drug spending. The law creates a pathway for biosimilars, which are comparable versions of biologics and are also known as “follow on biologics,” to enter the marketplace. These medicines could create a wave of lower cost competition in the biotech industry starting in 2013, leading to savings by as much as 30 percent for some of the costliest drugs.

Biologic and recombinant drugs have been instrumental in treating a variety of conditions such as cancer, diabetes, immune deficiency, metabolic disorders, and autoimmune conditions, as well as rare medical conditions such as Pompe disease, Fabry disease and Gaucher disease. The difficulty making these drugs, the absence of competition and small patient populations in which some of these drugs are used has made biologics among the most expensive drugs currently prescribed, ranging from $6,000 to more than $400,000 annually.

The Congressional Budget Office had projected $25 billion in total savings from biosimilars between 2009 and 2018. Others have estimated substantially larger savings. For employers, health plans and patients, this could represent substantial relief from the double digit growth rates of specialty drug spending. According to Medco Health Solution’s 2010 Drug Trend Report, spending on specialty drugs, a group of drugs that is mostly recombinant proteins, represented 5.6 percent of overall prescription costs in 2003, but by 2009, the figure had soared to 14.2 percent.

Biosimilars will have to undergo analytical studies to demonstrate that they’re “highly similar to the reference product notwithstanding minor differences in clinically inactive components.” The biosimilar must utilize the “same mechanisms of action” and follow the same prescribing instructions and indications as the original product. In other words, there can be no clinically meaningful differences between the biosimilar and the reference product in regards to safety, purity, and potency. The FDA will determine the level of clinical studies needed for biosimilar drugs to gain approval, but some will likely be needed. Also, cross-over studies will be needed to allow a determination of interchangeability.

There are significant protections for the makers of the original product. The law provides reference product biologic manufacturers 12 years of exclusivity for data used in the submission, starting from the date of FDA approval. That data is a necessary part of any filing for a biosimilar to gain approval under the pathway.
The marketplace for biosimilar drugs is likely to be competitive with some leading pharmaceutical makers – namely Eli Lilly, AstraZeneca, and Merck & Co. – entering the area. But biosimilars are not likely to be a significant force in the marketplace until 2014 or 2015.

The drug categories where we’re likely to see significant competition include the following:

  • Human growth hormones are likely to be among the first to face increased biosimilar competition, since they were among the first recombinant proteins to appear in the marketplace.
  • Recombinant insulins and modified recombinant insulins, such as Humulin and Novolin, are apt to be early follow-on biologics, since the reference drugs’ patents have long expired. These insulins should be relatively easily to replicate and biosimilar versions of these drugs could be introduced between 2013-2015. However, as much of the insulin use has switched to modified recombinant insulins, this may not be a large opportunity.
  • Follow-on versions of epoetin alfa, which has been sold under the brand names Epogen® and Procrit® to treat patients with kidney disease or chemotherapy-induced anemia, can have a significant effect upon specialty drug spending. However, it is not clear if cardiovascular safety data will be needed for follow-on versions of these drugs.
  • Leukine® (sagramostim), a treatment to prevent opportunistic infections, could face follow-on competition in 2014.
  • Drugs to combat neutropenia are already facing challenges to patents with Teva’s Tevagrastim seeking to compete against Neupogen® (filgrastim), which has a patent expiration in 2013.
  • Interferon-alfa based treatments were among the first biologic drugs to reach the marketplace and have found uses treating leukemia, cancer, genital warts, hepatitis and multiple sclerosis. Many patents governing these drugs have long expired. Some of the pegylated versions of interferon drugs, such as Peg-Intron (peginterferon alfa-2b) or Pegasys (peginterferon alfa-2a), gained significant extra time on their patents because the reformulation creates a different molecule that improves the efficacy of treatment.
  • Rheumatoid arthritis treatments and other biologics for autoimmune disorders are among the fastest growing drug categories, but this group is not likely to face a biosimilar competition until 2014 or 2015.

Later this decade, many treatments that gained FDA marketing approval from the year 2000 on may face greater competition from biosimilars, as well as new treatments under development. Herceptin® (trastuzumab), Avastin® (bevacizumab), Erbitux® (cetuximab) will be vulnerable to competition in the later second half of the decade, as well as some of the priciest drugs for rare enzyme disorders.

This new regulatory pathway for biosimilars could be a catalyst to greater competition in the biotechnology industry, much like the introduction of generic drugs under the Hatch-Waxman Act spurred competition among traditional small molecule drugs. Many of today’s blockbuster drugs emerged as manufacturers had to replace old revenue sources with new products. Although biosimilars are not exactly like the original products, the prospect of competition could drive the biotech industry to deliver new medicines that further improve the quality of patient care.

About the author: Keith Bradbury is Executive Director of Drug Information at Medco Health Solutions, where he has been employed for the past 14 years. Bradbury has more than 30 years experience in hospital pharmacy, managing pharmacy benefits for health plans, drug information services, developing drug formularies, and managing pharmaceutical benefits provided by a large PBM.
Bradbury also oversees Medco’s new drug pipeline management process, and is the lead author for the drug forecast section of the Medco Annual Drug Trend Report.

These papers are from the 2010 final projects in the NIH Foundation for Advanced Education in the Sciences TECH 366 — Biotechnology Management. The students were asked to tell a story based on the course lectures, and to expand with general lessons biotechnology company management:

If You Build It, Will They Come?
Derek Francis

Profitability and Orphans: The Role of Price and Incentives in Four Different Markets
Nate Hafer

Patent Analysis: A Tool for Making Strategic Business Decisions
Eric Norman

2009 final projects are posted here.

This is a student paper from the 2010 final projects in the NIH Foundation for Advanced Education in the Sciences’ TECH 366 — Biotechnology Management. The students were asked to tell a story based on the course lectures, and to expand with general lessons on biotechnology company management.

Profitability and Orphans: The Role of Price and Incentives in Four Different Markets
Nate Hafer

Drug development is long, expensive, difficult, and complex. Due to the high cost of drug development, many companies will not consider developing a drug unless there is the potential to have a “blockbuster” with $1 billion per year in sales. There are two main factors that influence a drug’s ability to get to this $1 billion threshold: market size and price. As the size of the market increases, the relative cost per drug can decrease and vice versa. Traditionally, pharmaceutical companies have tried to maximize the market size for a product while keeping prices relatively modest (1).

Many factors influence the decision to enter the market with a novel compound. Some of these factors include development costs, the competitive landscape, the present unmet medical need, the intellectual property position of the compound, and the potential market size. Over the course of the semester I became particularly interested in learning more about drug pricing and how a drug’s final price can influence the decision to enter a new market. In this paper I will review some of the basic considerations that influence the price for pharmaceuticals. Subsequently, I will consider the use of the Orphan Drug Act as a tool to incentivize drug development for rare and neglected diseases that would not be profitable under the traditional model. In particular, I will focus on four categories of drug indications and consider how novel drug pricing models and the Orphan Drug Act provide incentives to drug development. In some cases these forces work together to create profitable products with the benefits of an orphan drug designation, while in other cases drugs truly can’t reach blockbuster status but can none the less take advantage of orphan incentives.

To begin, we need to consider how price is traditionally determined for drugs and biologics. Not surprisingly, the price of a new pharmaceutical is often set by the same factors that influence the price of any consumer good. First, it is important to understand the present value of products in the market. Then, the added value of the new product over existing products is determined (2). This straightforward approach is complicated by several additional considerations. First, the health care system is unique from many other markets in that the person who receives a good or service (in this case a pharmaceutical) is usually not the payer. Instead, a third party (often an insurance company or government program such as Medicare, Medicaid, and the Department of Veterans Affairs-VA) pays the cost. In many cases the interests and willingness of the third party to accept and pay a particular price may be different than the interests of the person receiving the drug. Another consideration when pricing a drug is whether to set price based on all costs plus a margin for profit or charge as much as the market will bear. Again, the price that is reasonable to a patient may not be the same as the price a third party will consider.

Over the past few decades an alternative approach to reach $1 billion in sales has emerged. Specialized treatments, mainly for specific types of cancer and rare diseases, have come to market that offer great benefits to a small patient population. The $1 billion threshold market reality made it very difficult for many years to develop drugs for rare and neglected diseases. The Federal Government addressed this in 1983 with the passage of the Orphan Drug Act, which was designed to provide a number of incentives to encourage drug development for these indications (3). A drug is eligible for orphan status if it affects less than 200,000 people in the United States. For the most part this program has been highly successful, as the number of drugs approved for rare conditions has accelerated greatly in the years since the act was passed (4). Some of the incentives to develop orphan drugs include a 50% tax credit for clinical development costs, a seven-year market exclusivity for approved products, the waiver of licensing fees, protocol design support, and grant support. Intriguingly, some companies have been able to take advantage of these orphan incentives and have also been able to develop very profitable drugs. How is this? Companies have been able to use market pricing strategies to charge high prices for drugs that offer significant benefits. In this case the company is getting the double benefit of orphan designation and substantial revenue.

The remainder of this paper reviews four different broad drug indications that are eligible for orphan designation: therapeutics for rare diseases, targeted medicine, neglected diseases, and medical countermeasures. This review is not exhaustive, but highlights what I see as general trends for these different drug classes. I examine the market size and price potential for these products and attempt to explain why they were (or were not) able to achieve blockbuster status.

The first example is therapeutics for rare diseases. In large part, drugs for these indications have been able to enjoy the benefits of orphan drug designation and large revenues. This approach was pioneered by Genzyme, and has since been successfully followed by other companies. Since these drugs typically only affect a few thousand people in the U.S., they are eligible for orphan status. In addition, drug manufacturers have successfully charged very large amounts and have convinced insurance companies and other third party payers to cover the cost of these drugs. The reason is that in many cases these are life saving products that significantly improve patient quality of life. From a cost standpoint, it is less expensive for the third party payer to reimburse the very large price for the treatment than to pay for alternatives that would otherwise represent the standard of care. Since there are no alternatives, the company can charge $100,000-$300,000 per year for treatment and receive payment (5). By charging hundreds of thousands of dollars per treatment course for only a few thousand patients, the company is able to reach the $1billion threshold and take advantage of the additional incentives offered under the Orphan Drug Act.

The second example involves therapeutics that are selected based on specific patient criteria or clinical biomarkers. This approach has been called personalized, stratified, or targeted medicine (for clarity I will use the term targeted medicine throughout). The concept in this case is to identify a biomarker that targets therapy to a particular population that has a high likelihood of response to the therapeutic. In theory, this is an attractive option since the patient population that is most likely to respond to the drug has been pre-selected, and therefore clinical trials should be shorter, cheaper, and faster. The benefit to industry comes as the targeted therapy identifies a patient population that is significantly small enough to qualify for Orphan Drug status. Using these principles, a product can require less time to gain approval, which essentially extends patent protection while also enjoying the benefits of orphan incentives. Critics question why a company would chase down a market that is deliberately being made small as this approach runs contrary to the traditional blockbuster drug model. However, this model can be useful if it allows the drug to reach market quickly, where it can generate revenue and open the door for additional approvals for other indications.

This targeted medicine approach has been highly successful for several products. In these cases drugs reach blockbuster-type levels of sales and can enjoy the benefits of orphan drug status. Two well known examples are Novartis’s Gleevec and Amgen’s Epogen. Gleevec originally received orphan status for patients with chronic myelogenous leukemia. Over the past decade the drug has gone on to gain additional approvals and now is licensed for seven orphan indications and 10 indications overall (6). Even with these multiple indications the total patient population remains relatively small (between 50-100,000 patients), and since this drug is so effective the company is able to charge a premium (estimated $40,000/year) and third party payers are willing to pay (1, 7). Epogen follows a similar story. Originally granted orphan status and approved for anemia due to end stage renal failure and anemia associated with HIV, Epogen was later approved for anemia caused by chemotherapy, a large and lucrative market. Sales of Epogen were more than $2.5 billion for 2009 (8).
Neglected diseases represent a third group of indications that have taken advantage of orphan designation. While these diseases have a high prevalence worldwide, they are rare in the U.S. and are therefore eligible for orphan status. Unlike the previous two examples, however, the price and revenue achievements of neglected diseases have been much more modest (9). Several considerations help explain why these products can enjoy orphan incentives but generally do not charge a premium or generate large sales. Since many of the people affected by these diseases live in developing countries, the sales potential of these products is small. This is because private citizens can’t afford the products and insurance or other third party payers do not exist. Once licensed, special pricing strategies and partnerships are established in these countries to supply these drugs at no or an extremely reduced cost. From this we can see that even though the affected population is large, payers can only afford a very small price.

Recognizing this drug development challenge, the U.S. Government appears ready to take a different approach to accelerate efforts to license products for neglected diseases. Recently the National Institutes of Health (NIH) launched the Therapeutics for Rare and Neglected Diseases (TRND) program in the Office of Rare Diseases Research (10). In March 2010, this office released a Request For Information (RFI) to identify compounds that show promise for rare and neglected indications (11). NIH is particularly interested in compounds that have been halted for strategic or financial reasons. The RFI states that the Government plans to license and develop some of the most promising drug programs. This decision by the Government is essentially an admission that these indications do not present a potentially profitable market. Without sufficient market forces to drive development in these areas, the Government plans to sponsor and perform the work internally to improve the greater good. This approach is not unprecedented, since a similar governmental effort was made to develop drugs and vaccines for allied troops against tropical diseases and biological warfare agents during World War II (12). As the above examples illustrate, the potential patient population for neglected diseases, while large, generally lives in developing countries where the capacity to pay a premium for life saving drugs is very limited. As such, the price companies can charge is very low and offers little motivation for product development. Non-profit groups and governmental agencies are generally the only entities that will develop drugs for neglected diseases. In this case, orphan designation alone does not provide sufficient incentive for industry to develop these drugs.

The final category of products to consider is medical countermeasures (MCMs). These are products to be used against emerging health threats, pandemics, or chemical, biological, radiological, or nuclear terrorism threats. For the most part these indications represent very limited markets where the U.S. Government is the only buyer, and as such it is reasonable to consider these drugs for orphan designation. In fact, companies have used this approach for the approved products cyanokit (for cyanide poisoning), pyridostigmine (for Soman nerve gas), DTPA (to accelerate the removal of americium, plutonium, and curium from the body) and Prussian Blue (to accelerate the removal of cesium and thallium from the body). Sponsors have also applied for and received orphan designation for anthrax and smallpox treatments, though these products are not yet FDA approved (13).

What is the pricing situation and revenue potential for these products – are they more like targeted therapies or neglected diseases? On the surface, there is the potential that these products may be able to charge a price premium, since they fill a critical need against lethal agents. However a variety of political and economic issues make it difficult to imagine that these products will provide substantial returns due to a high price. Federal laws passed in 2004 and 2006 created a $5.6 billion fund to incentivize development of MCMs. This fund is for the procurement of MCMs that are FDA approved and demonstrates that there is a market for these products. Unfortunately the number of new MCMs has been very limited over the past 5 years and since there are few products to buy, portions of the fund have been directed for other purposes. Some experts have argued that this fund needs to be substantially increased to provide a greater incentive to industry to develop products for all of these threats (14).

I think there is little chance that this will happen for several reasons. First, the government deficit is at record levels and I believe there is little political will to substantially increase spending. In addition, the Government tends to pay the lowest price for drugs that it buys for the VA and the Center for Medicare and Medicaid Services (15, 16). Finally, there is the 2001 example of price negotiations for Ciprofloxacin (Cipro) between Bayer and the U.S. Government. Cipro is effective against anthrax, and the Government was interested in purchasing large quantities of the drug during the anthrax letter scares. Typically the Government would pay a wholesale price for Cipro. At the time, Cipro was patent protected in the U.S. but was off patent in many countries, so generic versions of the drug existed and were readily available overseas. Some members of Congress threatened to use compulsory licensing (a power the Government has to approve any drug it chooses, usually to allow it to buy a generic at a significant cost savings) to purchase generic versions of Cipro if Bayer did not agree to the lower negotiated price. In the end, the U.S. Government negotiated the price down to one-fourth the wholesale market price (17, 18). I believe the Government would use this same tactic to purchase any MCM during a public health emergency. Finally, much of the research and development costs for MCMs are being paid for by the Government as opposed to private industry. In this case, since the Government has assisted (and funded) a company to develop the MCM, an argument can be made that they should be able to purchase the final licensed product at a discounted price. For all these reasons I believe that MCMs can enjoy the incentives afforded by orphan drug designation but will not be able to generate substantial revenue by charging a premium price.

Drug pricing plays a significant role in the decision of whether or not to develop a drug. With a $1 billion per year revenue goal, companies can reach this amount based on the number of patients treated and the cost per treatment. For indications that can’t reasonably be expected to reach this $1 billion mark via a high number of patients or a high cost, other incentives such as the Orphan Drug Act have been developed to incentivize the development of rare and neglected diseases. For the most part this Act has been a great success, and in some cases companies have been able to develop products that enjoy the orphan incentives and also generate substantial revenue. These cases involve rare diseases and targeted therapies where there is a substantial benefit of the therapy and payers that can afford the high price charged. Neglected diseases and MCMs can benefit from orphan designation but are much less likely to generate significant revenues. It remains an open question if additional incentives should be considered for these indications that continue to be developed at a slow pace.

References
1. Trusheim, M. et al., Nature Reviews Drug Discovery, 6:287-293, 2007.
2. Gregson, G. et al., Nature Reviews Drug Discovery, 4: 121-130, 2005.
3. U.S. Food and Drug Administration, Orphan Drug Act, http://www.fda.gov/forindustry/developingproductsforrarediseasesconditions/overview/ucm119477.htm, accessed May 27, 2010.
4. Cote, T. et al., Nature Review Drug Discovery, 9: 84-85, 2010.
5. Friedman, Y. Building Biotechnology, 3rd Edition. Logos Press, p 157, 2008.
6. Gleevec package insert. http://www.pharma.us.novartis.com/product/pi/pdf/gleevec_tabs.pdf, accessed May 27, 2010.
7. Orphan Drug Market Catches Pharma’s Eye. Yahoo Finance, http://finance.yahoo.com/news/Orphan-Drug-Market-Catches-ibd-2653919238.html?x=0&.v=1 Accessed May 27, 2010.
8. Amgen Press Release, January 25, 2010, http://www.amgen.com/media/media_pr_detail.jsp?year=2010&releaseID=1378596 Accessed May 27, 2010.
9. Villa, S. et al. International Journal of Health Planning and Management, 24: 27-42, 2009.
10. National Institutes of Health, Therapeutics for Rare and Neglected Diseases, http://www.rarediseases.info.nih.gov/Resources.aspx?PageID=32 accessed May 27, 2010.
11. Program to Advance Development of Drug Candidates for Rare and Neglected Diseases, https://www.fbo.gov/index?s=opportunity&mode=form&id=e67390f54bc6935999963218ccf50553&tab=core&_cview=1 Accessed May 27, 2010.
12. Hoyt, K. Journal of Public Health Policy, 27: 38-57, 2006.
13. FDA Application, Search Orphan Drug Designations and Approvals, http://www.accessdata.fda.gov/scripts/opdlisting/oopd/index.cfm Accessed May 27, 2010.
14. Matheny, J. et al. Biosecurity and Bioterrorism: Biodefense Strategy, Practice, and Science, 5: 228-238, 2007.
15. Congressional Budget Office report, Prices for Brand-Name Drugs Under Selected Federal Programs, June 2005.
16. Government Accountability Office, Prescription Drugs: Overview of Approaches to Control Prescription Drug Spending in Federal Programs. Report GAO-09-819T, June 2009.
17. Bayer Halves Price for Cipro, but Rivals Offer Drugs Free, by Keith Bradsher, The New York Times, http://www.nytimes.com/2001/10/26/business/26CIPR.html, Originally Published October 26, 2001, Accessed May 27, 2010.
18. A Nation Challenged: The Drug; A Rush for Cipro, and the Global Ripples, The New York Times, http://www.nytimes.com/2001/10/17/world/a-nation-challenged-the-drug-a-rush-for-cipro-and-the-global-ripples.html, Originally Published October 17, 2001, Accessed May 27, 2010.

About the Author:

Nate Hafer is currently an AAAS Science and Technology Policy Fellow at NIH.  Previously he worked at the Federation of American Scientists and was a Science and Technology Policy Graduate Fellow at The National Academies.  He received his Ph.D. in molecular biology from Princeton University and his B.S. degree in biology from The Pennsylvania State University.  He can be reached at nathanielhafer@gmail.com .

This is a student paper from the 2010 final projects in the NIH Foundation for Advanced Education in the Sciences’ TECH 366 — Biotechnology Management. The students were asked to tell a story based on the course lectures, and to expand with general lessons on biotechnology company management.

If You Build It, Will They Come?
Derek Francis, PhD

Biotechnology Guru Steven Burrill is Planning to Build a Billion Dollar Biotechnology Center on an Elk Farm in Southeastern Minnesota.  Is it a Field of Dreams?

In March 2009, it was announced that a real estate development firm, Tower Investments, is teaming up with biotechnology financier Burrill & Company to build a biobusiness community on an elk farm just outside Rochester, MN[1, 2].  Elk Run, as it is to be called, will include homes, retail, schools, a recreation center, a hospital, and a biomedical research park.  When completed, the envisioned research facility will house 15 to 25 companies ranging from start-ups to publicly traded companies, employing up to 25,000 people[3, 4].  If that isn’t ambitious enough, the financier plans to raise $1B to fund the project in under a year.  The sheer size of the development, the short time frame, and the economic recession have led many to doubt the plausibility of the project.  As a native Minnesotan with interest in moving back, I was quite intrigued when I read about the proposed biotechnology center being planned in my home state.  This paper explores the current state of the biotechnology industry in Minnesota in an attempt to predict the ability of the Elk Run proposal to succeed.

Areas with thriving biotechnology industries, such as San Francisco, Boston, and San Diego, have several common characteristics.  These regions have strong local research centers with skilled laborers, willingness of the private sector to invest monetarily, and political support of the industry.  These regions with successfully established biotech industries are also the best suited to support the growth of biotech industry.  A successfully established industry attracts additional research, capital, and political support, which in turn promotes growth.  This was illustrated in a study by the Brookings Institution that found that 75% of the new biotech firms launched over the previous decade were formed in cities that ranked in the top ten in terms of established biotech[5].  Many cities and states have attempted to create a local biotechnology industry but have found that a lack of any of these crucial elements can result in failure.

The Current State of the Biotechnology Industry in Minnesota
Minnesota is home to two strong biomedical research centers, the University of Minnesota and the Mayo Clinic.  Minnesota also boasts a strong workforce, ranking #1 in high school graduation rate, #4 in the number of graduate level science and engineering students, and #1 per capita in medical technology jobs.  The state trails only California in the medical device industry, led by the world’s largest medical device company, Medtronic.  Despite having research centers and skilled labor, a 2002 study found that biotech commercialization in Minneapolis/St. Paul was well below the average of the US’s 51 largest metro areas[5].  One key factor contributing to the poor commercialization success is the lack of financial investments available in the region.  From 1995 to 2008, the state’s average share of biotech venture capital (VC) investments was roughly half the national average[6].  Not only has venture funding been poor, it is getting worse.  Recent data show that Minnesota hit a 14 year low in VC investments during Q4 of 2008[7].  Another factor contributing to the lack of financing has been the lack of government support.  The state government has refused to subsidize startup biotech companies and does not provide the tax benefits to angel investors as many other states do.  A particularly dreadful example is the Minnesota Investment Fund, which has a budget of roughly $1M per year compared to the $231M provided by Wisconsin’s Department of Commerce in 2008[8].  Politicians have in turn placed blame on the technology transfer departments within the research institutions.  The University of Minnesota built a biotech incubator called University Enterprise Laboratories (UEL) in 2004 hoping to spur commercialization of its technologies, but has yet to retain a single company using University research[9].  The Mayo Clinic has had some degree of success in commercializing its technologies, but of the 35 companies spun out of its technologies, only three have remained based in Minnesota[10].  Many of these companies are fleeing to neighboring states, such as Wisconsin, which have a more favorable funding outlook.

Elk Run Proposal
As stated earlier, the prospect of a billion dollar research center in rural Minnesota raised many eyebrows.  Many questioned how, or why, anyone would invest such a large amount of money into a completely undeveloped region.  However, the involvement of San Francisco based Burrill & Company has lent credibility to the project.  CEO Steven Burrill is a Midwest native who still has several ties to Minnesota and Wisconsin.  He was an early advisor to biotech giants Genentech and Amgen.  In 1994, he founded Burrill & Company, a venture capital firm that currently manages $950M in assets.  His annual State of the Biotech Industry report has been called “the bible for biotechnology[11].”  In 2002, he was named one of the country’s top biotech visionaries[11].  Burrill plans on securing the $1B funding from pension funds, institutional investors, and big corporations within the state such as 3M, Medronic, and Boston Scientific[4].  His company also has significant capital to invest, but it is unclear how much they are willing to personally invest.  One interesting caveat to the proposed fund is that it will be split between the biotechnology companies and the real estate development team.  $500M will provide as many as 25 companies with $20M each.  The other $500M will go towards the commercial real estate development.  The project has drawn praise from many local politicians, and state and local governments have already invested $15M to provide the infrastructure needed.  Others, however, are less than optimistic about the region’s potential to become a major biotech hotbed.  Many local venture capital firms describe Minnesota as a risk adverse state, particularly during the current recession.  Many seem to agree that raising $1B is nearly impossible, even for someone with Burrill’s credentials.  “I’m not getting a good sense that there is a workable business model here.  This thing defies gravity, in my view,” says Peter Bianco, director of the Life Science Business Development unit at Halleland Health Consulting[11].  Randy Olson, the former GM of UEL, said “There is a risk profile here that is probably off the charts[11].”  Burrill disputes claims that companies will not want to move to rural Minnesota.  Citing the troubled economy, he says “It’s a tough time to be a company, which makes this little thing that we are doing at Elk Run very, very attractive.  If I stand on a street corner at Elk Run and wave around $500M, people will come,” he said[10]. He is convinced that Minnesota has what it takes to be a national player in the biotech industry.  “Elk run is geographically and strategically positioned in a uniquely propitious way,” he said[6].  “Minnesota sits at the intersection of predictive and preventative medicine.  But there has been no catalyst to ignite it here[11].”  For example, Mayo Clinic has been collaborating with IBM’s Blue Gene supercomputer to mine Mayo’s 6 million electronic patient records for disease trends in large populations[11].  Burrill envisions that companies will soon have the ability to create computer chips that will “tell you your blood pressure is too high, your cholesterol is too high, time for you to you’re your pill, time for you to go to the doctor[3].”    Some have argued that building a biotech hub in the proximity of the Mayo clinic is insufficient to ensure that Mayo technologies will move in, citing the lack of any kind of contract between Mayo and Elk Run.  “There has to be a greater tie other than the geographic location,” says Jay Hare, who tracks VC investing[1].  Burrill counters that “there will be enormous synergy between things in Mayo that we can accelerate the development around and build companies around” and says after working with Mayo on various projects since 2005 that “I would put us in the best friends category[10].”  Mayo spokesman Adam Brase says of the project “We do support the concept of a biomedical accelerator that could create new companies and develop new therapies.  If we can have more of that in our area, the better off any medical organization is going to be[1].”

Progress and Assessment of the Future
Burrill initially declared that he would raise $1B by the end of 2009.  By July 2009, he said that he had “one big commitment”, but “no checks yet.”  In late July one prominent local investor, Vance Opperman, declared that he was not interested[12].  As the self-imposed deadline of December 2009 approached, Burrill began to express “disappointment” from the “push back” of local investors.  Unconfirmed estimates suggested that by December 2009 the fund contained anywhere from $0-250M[13].  By creating a “hybrid” investment fund mixing real estate with biotechnology, Burrill may have confused or frightened away potential investors.  When questioned about this, Burrill admitted that he was considering splitting the fund into two separate entities[13].  In February 2010, it was announced that the weak economy was forcing the developer to alter construction plans[14].  As of May 2010, no construction has begun at the site, and Tower Investments is now facing foreclosure on part of the land purchased for development.  Despite the recent troubles being faced by the Elk Run project, an interesting trend has emerged within the state.  Over the past few months, a large number of smaller venture capital funds have suddenly formed in Minnesota, each targeting early stage biotechnology companies[15-17].  One such fund, Coordinate Capital LLC, is clearly connected to Burrill & Company[15, 18].  Burrill is the chair of Coordinate’s board of advisers, and the firm lists Elk Run as an “affiliate”.  In addition to the recent increase in venture capital funding, the state also passed a five year, $50 million tax credit angel investor credit in hopes of spurring early stage investment in startup companies[19].  Additional legislation is being pushed through the state legislature that would create a stronger, more concentrated high-tech economic development authority[20].  The local governments are also advertising financial assistance in the form of grants, bonds, and seed funding.  Additionally, the University of Minnesota has revamped its Office of Technology Commercialization and is planning construction of a 60,000 square foot building as a first step in creating a planned $750M Minnesota Science Park that it hopes will rival Research Triangle Park in North Carolina[21].  This commercialization center would likely compete with Elk Run for a variety of resources.

Conclusion
It remains to be seen whether or not Elk Run will succeed, or even launch for that matter.  Minnesota has historically lacked the financial and political support needed to give rise to a prominent biotech industry, and even the infusion of a billion dollars would not be sufficient to create an industry overnight.  It seems, however, that by simply declaring his intention to invest in the region, Steve Burrill may have provided the spark necessary for these things to change.  The past year has seen the state of Minnesota begin to position itself to build a significant biotechnology industry.  Perhaps Burrill’s assertion that Minnesota will become the next big thing in biotechnology will become a self-fulfilling prophecy, with or without Elk Run.

Citations
1.    Lee, T. 2009. Developer, investor OK Elk Run biosciences project. In Star Tribune, Minneapolis.
2.    Stachura, S. 2009. Officials announce $1 billion Elk Run Project. In Minnesota Public Radio.
3.    April 10, 2010. Elk Run Investor Hopes to Redefine Medicine. In WCCO.
4.    Lee, T. 2009. Elk Run investor raising $1 billion. In Star Tribune, Minneapolis.
5.    Mayer, J. C. a. H. 2002. Signs of Life: The growth of biotechnology Centers in the US. Brookings Institution Center on Urban and Metropolitan Policy.
6.    Lee, T. 2009. Developer, investor OK Elk Run biosciences project. In Star Tribune, Minneapolis.
7.    Lee, T. 2009. Venture capital spigot taps out to 14-year low in 4th quarter. In Star Tribune, Minneapolis.
8.    Lee, T. 2010. Former Pawlenty aide now university champion.  Not as weird as you think. In MedCity News.
9.    Stubbe, G. 2009. UEL still finding its feet. In Star Tribune, Minneapolis.
10.    Grayson, K. 2009. Burrill seeking $1B for Elk Run, but “no checks yet”. Minneapolis St Paul Business Journal.
11.    Lee, T. 2009. Can biotech boom in state? In Star Tribune, Minneapolis.
12.    Lee, T. 2009. Opperman to Burrill: Good luck but no thanks. In Star Tribune, Minneapolis.
13.    Lee, T. December 21, 2009. Wanted: Money for $1 billion Bioscience Project.  Contact Steven Burrill. In Medcity News.
14.    Lee, T. 2010. Bad economy forces Elk Run developer to alter biotech plans. In MedCity News.
15.    Lee, T. January 18, 2010. New Minnesota biotech fund seeks $25 million with a little help from Steve Burrill and yours truly. In MedCity News.
16.    Lee, T. February 18, 2010. Affinity Capital and Triathlon Medical Ventures plan new $10M early stage fund in Minnesota. In MedCity News.
17.    Lee, T. March 2, 2010. Upwind Medical Partners to create $8 million early stage fund. In MedCity News.
18.    Lee, T. 2010. New Minnesota biotech fund seeks $25 million with a little help from Steve Burrill and yours truly. In MedCity News.
19.    Lee, T. 2010. Minnesota Legislature passes historic angel tax credit. In MedCity News.
20.    Lee, T. 2010. Minnesota seeks its own “Third Frontier”. In MedCity News.
21.    Lee, T. 2010. University of Minnesota and developers plan $20M venture fund to anchor major science park.

About the author:
Derek Francis is a post-doctoral research scientist at the National Institutes of Health with an interest in all aspects of biotechnology.  He may be reached at francisd3@ninds.nih.gov.

This is a student paper from the 2010 final projects in the NIH Foundation for Advanced Education in the Sciences’ TECH 366 — Biotechnology Management. The students were asked to tell a story based on the course lectures, and to expand with general lessons on biotechnology company management.

Patent Analysis: A Tool for Making Strategic Business Decisions
Eric Norman

It takes 10-15 years and over a billion dollars to develop a drug and get it to market. Once in the market, only 2 out 10 drugs generate revenues that match or exceed its research and development costs[1]. Of the drugs reaching the commercial market less than a third become blockbusters, drugs that earn or exceed a billion dollars in revenues. These are the numbers for the success stories; in the pharmaceutical industry 1 out of 10,000 chemical compounds discovered are found beneficial and safe for commercialization[2].  In the face of these numbers, can a company truly grow big enough and diversify enough through mergers and acquisitions to ensure stability and future profits? I believe that a change is needed and that change is minimization, focus, and partnerships. This idea is not new for it has been made in a 2004 Businessweek article[3]. However, as with all big things, changing directions is slow and costly. In the eventual necessity of this change there will be a greater need for market analysis and strategic decision making for new drug development as a way of minimizing invested research and development dollars and subsequently, risk. Since innovation drives the market and innovation rests on intellectual property rights predominantly secured by patents, I believe that patent analysis can become the cornerstone for market analysis and strategic business decisions.

As a way of emphasizing patent analysis as a marketing and business strategy tool I have devised a flow chart comprising an integrative model of the resource base-view and Porter’s five forces, both of which are commonly used for assessing risk and potential value of new businesses and drug development.  Although patent analysis does not address all issues that are encompassed by this business model, patent analysis serves as an economical approach to determine a focused marketing area, risk of new drug development, and potential value of a drug by addressing the following questions: What are my resources (IP)? How can I best use my IP? How does my innovation differ from that of my rivals? Who are my rivals? What are the potential markets? How crowded are these markets? Who are the innovators, leaders and laggards in these markets? Are there IP barriers to entry into this market? What is the likely direction of the market? What will it take to stay competitive in this market?

Figure 1: Resource-based view(7): Overview of resource-based view and Porter’s five forces that are predominantly used for market analysis.

Patent analysis begins with a patentability and freedom to operate search. These two searches will provide relevant “prior art” that determines whether your innovation is patentable and has no IP impedance to commercialization. Next, based on the prior art a series of relevant patents can be collected and Patent Citation analysis can be done. Ocean Tomo, the leading Intellectual Capital Merchant Bank, has been innovators in patent analysis since 2003 and has devised various unique ways of using Patent Citation analysis[4,5]. In particular, Ocean Tomo has used Patent citation analysis as a way of determining the relatedness of patents for assessing potential litigation issues. However, modifications of this analysis can bring forth a list of potential markets that your innovation may have a use and potential partners to build collaborations to exploit those markets. In essence, through exploring the relationship between your patent and other patents there is a potential to generate additional revenues and/or diversification through: licensing part of your technologies to non-competitors, setting-up research partnerships to exploit an open market, or in-licensing a particular technology that would allow you to expand your market base or create additional IP barriers to prevent others from entering into the market. An additional use of Patent citation analysis, also utilized by Ocean Tomo, is to create categories of ‘hot topics’ and ‘next generation’ patents (figure 2). Hot topic patents are generally older patents that have a large number of citations by patents that expand a variety of technologies. They tend to be patents that lead to industry standards, disruptive technologies, and/or made a substantial impact across various industries. The ‘next generation’ of patents cites two or more of these ‘hot topic’ patents. The ‘next generation’ patents should represent patents that are improving and innovating upon an industry standard, suggesting that market adoption should be quicker with these technologies as oppose to the actual disruptive technology. Secondly, this analysis provides insight into potential market direction and who the innovators are for a particular technology group.  These analyses should be substantiated through Patent Count Analysis[5]. Patent count analysis adds up the number of published (public) patents pending, issued, and abandoned for a technology group to assess the market drive/pull in a given industry; The greater the number of patents being filed and maintained in a particular industry the greater the probability that there is a profitable and growing market to support the investments being made in those intellectual properties. Furthermore, subdividing patent counts by ownerships gives an idea of the market leaders and how aggressively they are in using patents to prevent others from entering into the market. Pending on the analysis, the best business strategy may be to license your technology to the more aggressive company or seek a partnership with one of the rival companies that have approximately equal market size. Opposite to this, a large number of abandoned patents suggest that there is not enough money being made in the industry to justify continuing with the patent process and incurring additional fees or paying patent maintenance fees.  Under these circumstances it may be better to forgo the patenting of the technology and either license the technology cheaper than it would cost to replicate the technology or make the technology available to everyone as ‘good will’ expense.

Figure 2: From presentation by Ocean Tomo.

A final benefit of patent analysis is the valuation of your intangible properties for merger and acquisition, litigation, and/or taxes. The analyses discussed above can also be used to address three issues that underlie the valuation of intellectual properties: potential litigation issues, potential value of the technology (substitutable, ‘next generation’ technology, hot market area, and potential to be implemented in multiple markets), and the potential value of the market (market competitors, competitor market size, and a growing market). By addressing these issues you can have a clear idea of risk involved in the drug development and/or business development and can better utilized a more appropriate discount rate for calculated values determined by traditional market-base, asset-base, or income-base approach for valuation. In summary, product value is influenced by its scarcity and alternative uses. Patent analysis reflects scarcity and alternative uses of a product by outlining market availability, market need, market size, and market competitors.

In conclusion, through regular use of patent analysis you will be able to bring your drug development, IP portfolio management, business strategy, and business development groups together, using an integrative approach to minimizing research and development spending through targeted research projects and/or partnerships. As a single group, they can collectively use patent analysis to better position the company for the future through innovation and innovative strategies.

References

1.    (Pharmaceutical Research and Manufacturers of America, Pharmaceutical Industry Profile 2010 (Washington, DC: PhRMA, March 2010)

2.    (Davidson, L and Greblov G. The Pharmaceutical industry in the Global Economy (2005) Indiana University Kelley School of Business )

3.    Arnst C, Barrett A, and Arndt M (2004) The Waning of The Blockbuster Drug. BussinessWeek  Oct. 18 (http://www.businessweek.com/magazine/content/04_42/b3904034_mz011.htm)

4.    Malackowski J.E., Barney J.A., Cardoza K, Walker M.D., and Gray C., (2006) Innovation Measurement: The Economic Impact of Patent Value: Business Submission at Ocean Tomo, LLC and Ocean Tomo Federal Services, LLC. Contact jmalackowski@oceantomo.com or 312-327-4400.

5.    Malackowski J.E. and Barney J (2009) Patent Attributions To Equity Returns. Business Submission at Ocean Tomo, LLC and Ocean Tomo Federal Services, LLC. Contact jmalackowski@oceantomo.com or 312-327-4400.

6.    Pohl M (2002) Patent Landscaping Studies: Their Use in Strategic Research Planning. Pharmaceutical Patent Attorneys, Pohl & Assoc. LLC. Contact: Mark.Pohl@LicensingLaw.net

7.    Grant RM (1991) The Resource-based theory of competitive advantage. California Management Review 33:114-135

About the author

Eric Norman received his Ph.D. in neuroscience from the University of Pittsburgh. Eric has spent many years conducting scientific research and has gained a broad knowledge of neurophysiology that culminated in a series of scientific articles. Currently working at NIH’s Office of Technology Transfer (OTT), Eric brings his scientific knowledge and critical thinking skills to the development of marketing campaigns aimed at promoting early stage technologies available at NIH and FDA. As a strong interest and personal passion, Eric studies the use of patent analysis and how it may be used in business development.

Drug Patent Expirations in June 2010

*Drugs may be covered by multiple patents

TradenameApplicantGeneric NamePatent Number Patent Expiration
NICOTROLMcneil Consnicotine6,098,632Jun 8, 2010
NICOTROLPharmacia And Upjohnnicotine5,400,808Jun 8, 2010
NICOTROLPharmacia And Upjohnnicotine6,098,632Jun 8, 2010
NICOTROLMcneil Consnicotine5,501,236Jun 8, 2010
NICOTROLPharmacia And Upjohnnicotine5,167,242Jun 8, 2010
NICOTROLPharmacia And Upjohnnicotine5,501,236Jun 8, 2010
MACUGENEyetech Incpegaptanib sodium6,147,204Jun 11, 2010
MACUGENEyetech Incpegaptanib sodium6,426,335Jun 11, 2010
FERIDEX I.V.Amag Pharms Incferumoxides5,219,554Jun 15, 2010
ZYMARAllergangatifloxacin4,980,470*PEDJun 15, 2010
GASTROMARKAmag Pharms Incferumoxsil5,219,554Jun 15, 2010
XALATANPharmacia And Upjohnlatanoprost7,163,959Jun 19, 2010
MERREM I.V.Astrazenecameropenem4,943,569Jun 21, 2010
VISTIDEGileadcidofovir5,142,051Jun 26, 2010
ARIMIDEXAstrazenecaanastrozoleRE36617*PEDJun 27, 2010
CLIMARABayer Hlthcareestradiol5,223,261Jun 29, 2010
HYTRINAbbottterazosin hydrochloride5,212,176Jun 29, 2010
TESLASCANGe Healthcaremangafodipir trisodium5,223,243Jun 29, 2010
MENOSTARBayer Hlthcareestradiol5,223,261Jun 29, 2010

This information is also available in an email newsletter: Subscribe to the DrugPatentWatch Patent Expiration Bulletin. Courtesy of DrugPatentWatch.com

Announcing a new textbook from Logos Press:

Building the Case for Biotechnology: Management Case Studies in Science, Laws, Regulations, Politics, and Business

Mark J. Ahn, Michael A. Alvarez, Arlen D. Meyers, Anne S. York, editors
Foreword by G. Steven Burrill
First Edition, July 2010
Perfect Bound, 416 pages, US$79.95
ISBN: 978-1-934899-15-1

Building the case for biotechnology: Management Case Studies in Science, Laws, Regulations, Politics, and BusinessThis volume helps to fill the void in life science entrepreneurship and management case books and provides faculty and students with not only the charts, but the simulated experience of sailing the turbulent and exciting oceans of the biomedical industry toward creating significant value for patients and society.

Building the Case for Biotechnology features:

  • Foreword by G. Steven Burrill
  • Introductory chapter on how to teach bioscience using the case method
  • 22 case studies in science; laws, regulations, politics; and business
  • Ample figures, graphs, and tables to complement the text
  • Resources for further reading

Contents Foreword
G. Steven Burrill
Burrill & Company

Preface
Mark J. Ahn, Michael A. Alvarez, Arlen D. Meyers, Anne S. York
Introduction
Yali Friedman
thinkBiotech LLC

How to Teach Bioscience Using the Case Discussion Method
Trent Wachner and Anne S. York
College of Business, Creighton University

Part I: Science

Medarex, Inc.: Realizing its Potential?
Mark J. Ahn, Alan Leong, Wei Wu1, and Masum Rahman
Atkinson Graduate School of Management, Willamette University; University of Washington, Bothell

FoxHollow Technologies: The SilverHawk® Cuts Open a New Market
Erik Miller, Dina Finan, and Michael Alvarez
Stanford University

OraPharma, Inc: Reformulation of an Existing Product
Payam Benyamini and Mark J. Ahn
University of California, Los Angeles; Atkinson Graduate School of Management, Willamette University

DesignMedix, Inc.: Maintain Product Focus or Leverage Technology Platform?
Elizabeth R. Bivins-Smith , Bettina M. Frana , and W. Kellogg Thorsel
School of Business Administration, Portland State University

Oxigene, Inc.: Realizing Value from Multiple Technology Platforms
Mark J. Ahn, Anne S. York, David Ackerley and Rebecca Bednarek
Atkinson Graduate School of Management, Willamette University; College of Business, Creighton University; and Victoria University of Wellington

Part II: Laws, Regulations, Politics

Tysabri Re-launch Decision: Promise and Perils of Addressing Unmet Needs
Mark J. Ahn & Laura Ueki
Atkinson Graduate School of Management, Willamette University

XDx: Navigating Regulatory & Reimbursement Challenges
Laura Elias and Michael Alvarez
Stanford University

Dyadic International, Inc.: From Doom to Dawn—What’s Next?
Polly S. Rizova, Adelaida Patrasc Lungu, and Mark J. Ahn
Atkinson Graduate School of Management, Willamette University

The Prince Edward Island Bioscience Cluster: Creating a Knowledge-Based Economy
Steven Casper, Juergen Krause, and Adelee MacNevin
Keck Graduate Institute and University of Prince Edward Island

The Founding and Growth of On-Q-ity: Developing Advances in Personalized Medicine
Daniel Dornbusch and Mark J. Ahn
Novartis International AG; Atkinson Graduate School of Management, Willamette University

Airway Tools Company Inc.: Changing Medical Device Standards of Care
Andrew Maxwell, Bahram Behnam, Michael Alvarez
University of Toronto; Stanford University

Part III: Business

Genentech Acquisition by Roche: Will Innovation Wither?
Mark J. Ahn, Anne S. York, David Ackerley and David Lee
Atkinson Graduate School of Management, Willamette University; College of Business, Creighton University; and School of Biological Sciences, Victoria University of Wellington

Myogen, Inc.: Are We There Yet?
Mark J. Ahn and Travis Cook
Atkinson Graduate School of Management, Willamette University

Compression Dynamics: In Search of Sales
Anne S. York and Martin Winkler
College of Business, Creighton University and University of Nebraska Medical Center, Creighton University Medical Center

iKaryos Diagnostics: The Rocky Road from Concept to Startup
Anne S. York
College of Business, Creighton University

Biocon: From Local to Global
Ashish Hajela, Shad Shahid, & Mohammad Akbar
Indian Institute of Management, Lucknow, India

Adnexus Theraputics, Inc.: Arranging Resources Needed To Move Through Development
Susan Sieloff, Tucker Marion, John Friar, and Raymond Kinnunen
College of Business Administration, Northeastern University

Gardasil: From University Discovery to Global Blockbuster Drug
Alan Collier, Mark J. Ahn and Brendan Gray
University of Otago; Atkinson Graduate School of Management, Willamette University

Guru Instruments: Bootstrapping a Bioscience Device Startup
Anne S. York
College of Business, Creighton University

Growing Pains at Camelot Biopharmaceuticals
Lynn Johnson Langer
Johns Hopkins University

Sandhill Scientific: Where to Manufacture?
Staci D. Sanford and Arlen Meyers
University of Colorado Denver

Lumina Life Sciences: The Challenges of Raising Capital to take to Market a Promising Technology Innovation
Magda Choruzy, Andrew Maxwell, Michael Alvarez
University of Toronto; Stanford University

Resources