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Yearly Archives: 2014

In recent years, the major research-intensive biopharmaceutical companies (big pharma) have come face to face with a perfect storm of eroding profit margins from blockbuster expiration and generic competition coupled with growing R&D expenses and declining advances in truly novel therapeutics. With long-term research divisions shed in favor of short-term outsourcing options and with public good will at historic lows, industry innovators have sought to reinvent the model of big pharma, its relationship in public-private partnerships, and the role of technology and technology policy in reform. In this paper, we highlight a number of the major alliances reshaping the industry and the role of government, research institutions, and other players in the public-private interface in these endeavors. In particular, this paper looks beyond traditional biotechnology parternships and focuses instead on the developing consortia between biopharmaceutical companies and with clinical research organizations and academic institutions. We examined each alternative model of alliance, identified specific hurdles and potentials for increased productivity.

Ihave had the pleasure of participating in national forums on biotechnology development in diverse countries. A common theme I see is that emerging economies wish to develop ‘a biotechnology industry like the United States.’ I generally temper these ambitions by explaining that the United States does not have a biotechnology industry per se, but rather a handful of states have very strong biotechnology concentrations and many other states are still trying to build their domestic biotechnology industries. So the lesson for many emerging economies is to set ambitions at the US-state level rather than the US-national level. Furthermore, I also caution against aiming for drug development. Drug development is extremely expensive and risky—focusing on domestic agricultural or industrial biotechnology opportunities may be a better option.

Industrial biotechnology is the commercial application of biotechnology using cells or components of cells, like enzymes, for industrial production processes including consumer goods, bioenergy and biomaterials. In the last years this area has gone through a fast technological development resulting in a high number of basic technologies based on research efforts at universities and research institutions. But a technology transfer gap exists between basic research and the commercialisation of the results. This gap can be closed by academic spin-offs which manage the technology transfer from universities and research institutions to industrial companies. After the spin-off process, the technology is further developed within the new venture normally using additional resources from external investors. As soon as the technology reaches a certain grade of maturity, the spin-offs can co-operate with an established company and work for them as a service provider or be acquired. The chosen approach of technology transfer depends on the type of company. Whereas multinational enterprises (MNEs) are very active in making new technologies available both by acquiring spin-offs or engaging them as service providers, small and medium enterprises (SMEs) are focused on partnering with spin-offs, due to limited financial and management resources.

If you walk into most private biotech company boardrooms today, it is likely that you will hear a discussion about whether to go public. Companies at every stage of development are either getting ready to file for an initial public offering or thinking about it. Although the slowdown in new issues at the end of 2013 gave observers pause that the robust biotech IPO market of 2013 might slow down in 2014, the reality has been just the opposite. By the middle of March, 28 life sciences companies had completed initial public offerings on U.S. exchanges, raising $1.8 billion in new capital, and collectively on average trading 47.4 percent above their initial offering price.

Is it Worth it for Generics to Challenge Patented Drugs. Copyright © Building Biotechnology

Is it Worth it for Generics to Challenge Patented Drugs? Copyright © Building Biotechnology

The FTC is reportedly seeking $1 billion from pharmaceutical companies for the role in paying generic companies not to challenge their patents. Despite first appearances, these agreements for a generic company not to challenge a patent, called ‘reverse settlements’, may actually be good for innovation.

The rationale for reverse settlements is discussed in my textbook, Building Biotechnology, and the box “Is it worth it for generics to challenge patented drugs?” summarizes some of the financial considerations behind patent challenge.

Is it too Easy to Challenge a Patent?

Consider the case of Abilify, which had sales in excess of $6 billion last year. Under provisions the Hatch-Waxman Act, the first generic challenger to defeat a patent on a drug is eligible for 180 days of generic exclusivity. In this period, the generic tends to sell for roughly 80% of the price of the branded drug, due to there being no other alternatives.

So, the math for a generic company is pretty clear. In an ideal case, on winning a patent challenge, the generic would get 80% of the revenues (due to the lower sale price) of half the market share of the patented drug for six months, or roughly $2.4 billion dollars (I realize the math is very rough here, but it’s simply to illustrate a point). The cost of litigation may be roughly $10 million dollars (AIPLA Economic Survey). And there are stage-gates along the litigation path that enable a patent challenger to limit their legal expenses, meaning they can ‘test’ their patent challenge before committing to the full amount.

The potential for generic challengers to obtain a better-than 100-fold return-on-investment on patent litigation creates the potential for innovative firms to become mired in potentially frivolous patent litigation. While the cost for each challenger may be $10 million dollars, the innovator could face dozens of lawsuits and therefore face substantial budget drains to reactive patent protection, which would limit their ability to invest in new drug development. Accordingly, innovative firms have been paying generic companies not to challenge their drugs. This effectively changes the financial incentives for the generics. If they feel that they have a particularly strong case, then they should certainly go ahead and challenge a patent to obtain their 100-fold ROI. But if they feel that there is a chance they will not win the challenge, then obtaining a financial settlement to withdraw their challenge may be preferable.

But isn’t this anti-competitive and monopolistic behavior?

Perhaps, but consider that patents themselves are essentially tools that create temporary monopolies. The reason why the government provides these temporary monopolies is to incentivize innovation. To quote Building Biotechnology once more:

…patents provide a means by which the public can gain valuable cutting-edge scientific knowledge and abilities in exchange for a temporary grant of monopoly, which allows innovators to recoup their investments in research and development.

So, while reverse settlements, and patents, may negatively impact competition in the near-term, they are part of a large scheme which drives long-term innovation by providing temporary benefits to innovators. When these benefits expire, society as a whole wins because the innovations become freely available and normal competition can drive down prices and ensure wide-spread adoption.

What do you think? Is there a case for reverse settlements? Sound off in the comments below.

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Drug Patent Expirations for March 18 2014

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Journal of Commercial Biotechnology This paper is part of the free Open Access archive of the Journal of Commercial Biotechnology

A maturing industry: Strategic patenting trends, US and academic dominance, and the global biotechnology landscape

Go to paper

ABSTRACT: Patent analytical data has proved itself a key enabler in measuring the commercial focus and activity taking place within highly research and development (R&D) intensive industries such as biotechnology. Marks & Clerk has assessed biotechnology patent application and grant records from a range of international patent office and proprietary databases, with a view to gauging the industry's commitment to R&D and the particular areas of biotechnology that are attracting investment...

The Journal of Commercial Biotechnology is a unique forum for all those involved in biotechnology commercialization to present, share, and explore new ideas, latest thinking and best practices, making it an indispensable guide for those developing projects and careers within this fast moving field.

Each issue publishes peer-reviewed, authoritative, cutting-edge articles written by the leading practitioners and researchers in the field, addressing topics such as:

  • Management
  • Policy
  • Finance
  • Law
  • Regulation
  • Bioethics

For more information, see the Journal of Commercial Biotechnology website

For those who missed the live presentation, here is the discussion of the 2014 Scientific American Worldview scorecard, featuring myself, Mike May (Worldview Editorial Director), David Brancaccio ( public radio’s Marketplace), and Caroline Rugierri (Access Life Sciences).

Some of the themes we discussed were:

  • Innovation’s true “value proposition” and the ways in which investing in science has multilayered societal returns
  • The biggest issues in biotech that continue to “flatten” the world and create common missions among countries
  • The ever-changing landscape of international innovation and the ways government and industry can best support life science development

I hope you enjoy the preview. You can see past issues of Worldview at www.saworldview.com, and the 2014 issue will be launched at the BIO 2014 convention in San Diego.

2013 and 2014 have been very good for biotechnology public markets. 35 biotechnology companies went public in 2013, and well over a dozen have gone public in the first few months of 2014.


Figure 1: Nasdaq Biotech Index since February 1 2014

With the surge in public launches, one must ask the question: “How long can it last?”

Just a few days ago Barrons’s cautioned about a potential bubble, and as Figure 1 (courtesy of MSN Money) shows, recent drops have effectively wiped out NASDAQ biotechnology industry gains since February 1st of this year.

While this quick rise and fall of value may be sobering, long-term value investors should take some comfort in the bigger picture. The recent IPOs enabled many companies which had been sitting on the sidelines for years to raise public cash and to offer exit opportunities to investors — both of which will support future growth in the sector, and the NASDAQ biotechnology index has generally been on a tear for the past five years (Figure 2).

Nasdaq biotechnology index March 2004 - March 2014

Figure 2: Nasdaq biotechnology index March 2004 – March 2014

So, the short-term question remains — is this a short-term correction, a closing of the IPO window, or the start of a larger correction?