Guest content

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.


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 (

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 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 or 312-327-4400.

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

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.

This is a guest post from William H. Kitchens, partner at the Atlanta law firm Arnall Golden Gregory LLP. Do you have a response to Kitchens’ post? Respond in the comments section below.

Buried in the recently enacted Patient Protection and Affordable Care Act of 2010 is a significant benefit for small- and mid-sized biotech, pharmaceutical and medical device companies. The legislation provides a 50 percent tax credit for investments in qualified therapeutic discoveries for tax years 2009 and 2010, or a grant for the same amount tax free. The latter feature will be of particular benefit to biotech start-up companies as tax credits are worthless to start-ups that are not profitable and do not pay income taxes. The cash grant option will allow more companies to receive an immediate return.

The tax credit/grant program covers research and development costs in tax years beginning in 2009 and 2010 for all qualified “therapeutic discovery projects.” To qualify, a company must not have more than 250 employees in all businesses of the taxpayer (e.g., a small biotech project at a large pharmaceutical company will not qualify). These tax credits/grants are available to passthrough entities, such as partnerships or S corporations, as well as traditional C corporations.

A qualifying therapeutic discovery project is a project designed to do one of two things:

  1. treat or prevent diseases or conditions by conducting preclinical studies or clinical trials or carrying out research protocols for the purpose of securing approval from the Food and Drug Administration; or
  2. diagnose diseases or conditions or to determine molecular factors relating to diseases or conditions by developing molecular diagnostics to guide therapeutic decisions.

The new legislation provides that “qualified investments” include “the aggregate amount of costs paid or incurred in the taxable year for expenses
necessary for and directly related to the conduct of a qualifying therapeutic discovery project.” Excluded from the definition of “qualified expenses” are the salaries of certain employees identified in Section 162(m)(3) of the Tax Code (e.g., highly compensated chief executive officers). Other expenses that will not qualify include interest costs, facility maintenance (e.g., mortgage or rent, insurance, utilities) and certain indirect costs (e.g., general and administrative expenses).

So what’s the catch? True to the adage that “there’s no such thing as a free lunch,” the new benefit has a substantial limitation unlike most programs establishing tax credits for qualified taxpayers. As presently structured, the tax credit/grant program will not be available in unlimited amounts to all eligible taxpayers. Instead, the new law creates a set pot of money—$ 1 billion for the two tax years. Moreover, companies will have to apply and compete for access to the tax credits/grants, and the money is expected to go quickly.

Consequently, applicants for the program should move rapidly to prepare, as the government is expected to issue regulations implementing the program around May 21st. It will be imperative that applicants demonstrate they have met the key requirements for accuracy, documentation and justification of the expenses for a “qualifying therapeutic project.” The law provides that the Department of Treasury will assess applicants’
projects in consultation with the Department of Health and Human Services with emphasis on a number of criteria. Although a better picture of what should be included in an application will be forthcoming when the implementing regulations are completed in a few weeks, the new law suggests that successful applicants will demonstrate that their qualifying projects combine both a medical benefit and a jobs and economic

The medical benefit criteria are grounded on a showing that the project will:

  • result in new therapies that will treat unmet medical needs or prevent, detect or treat chronic or acute diseases or conditions;
  • reduce long-term healthcare costs in the U.S.; or
  • significantly advance the goal of curing cancer within the next 30 years.

The jobs and economic criteria can be met by demonstrating that the therapeutic project will:

  • create and sustain high-quality, high-paying jobs in the U.S.; or
  • advance U.S. competitiveness in the fields of life sciences, biological sciences and medical science.

There is no bar against research expenses outside the U.S., but the strong sentiment of Congress in including this program as a part of healthcare reform was that the focus of the tax credit/grant should foster domestic jobs.

As noted, Congress directed that the program be in place by May 21st, and applications are to be approved 30 days after they are submitted. This may be ambitious, as the Treasury is still working on drafting the application process; but Congress clearly intends for the Treasury to move expeditiously.

The program has generated significant interest, and undoubtedly the $ 1 billion earmarked to fund the program will not be sufficient to cover all qualifying projects. Left unanswered at this time is whether applications will be reviewed on a “first to file” basis, or whether the implementing ground rules for applications will instead establish a designated time period for all applications to be submitted, which arguably will facilitate
more qualitative reviews by the government regarding the projects that should be given priority for the tax credit/grant. Likewise, the law itself establishes no upper limit on the total expenses per project that will qualify for the tax credit/grant. Given the tremendous costs associated with developing new breakthrough therapies, this leaves open the possibility that the $1 billion cap could be significantly committed by the research expenses of only a relatively small number of qualified projects.

The take-away for the moment is companies should not delay in assessing whether their research and development activities qualify for the tax credit/grant. Likewise, now is the time to determine whether you have the required documentation to tie expenditures to a specific therapeutic project and whether you need to hire experts to assist with the application process. With the race to qualify fast approaching, companies with
qualifying projects should take steps to ensure they will be able to file their applications as soon as possible after the final regulations are published.

This alert provides a general summary of recent legal developments. It is not intended to be, and should not be relied upon as, legal advice.

About the author:
William H. Kitchens is a partner at the Atlanta law firm Arnall Golden Gregory LLP (, where he practices in the areas of food and drug law, environmental law and trade association law. He advises clients on matters related to litigation, compliance and enforcement, product approvals, advertising and labeling, and regulatory, licensing and permitting strategies. Mr. Kitchens was the firm’s managing partner from 1996 to 2008.

This is a guest post from Cliff Cramer, Director of the Healthcare and Pharmaceutical Management Program at Columbia Business School. Do you have a response to Cramer’s post? Post them in the comments section below.

  • Multi-national pharmaceutical and medical technology companies will increase their investments in emerging markets, notably China and India, to access cost effective human capital and a growing middle class of consumers better able to afford more advanced medical products.
  • Information technology will make greater strides in a healthcare industry which has been slow to adopt, driven by financial incentives (e.g., government subsidies) and employees and consumers demanding better and more accessible information (e.g., transportable e-records) as their share of healthcare spending increases.
  • Healthcare reform will continue across developed (U.S. and EU countries) and developing (China) markets, focused on increasing access to affordable and quality patient care. These initiatives are likely to be incremental due to political and economic (budget) considerations.
  • Consolidation will be a major theme in 2010 as insurers and hospitals seek additional leverage in contract negotiations, and pharmaceutical companies explore transformational mergers to broaden product lines, strengthen geographic breadth (emerging markets) and seek to manage earnings given major patent expirations in the near term.

About Cliff Cramer:

Cliff Cramer has spent more than 25 years in the healthcare / pharmaceutical and financial services sectors. He was managing director at Merrill Lynch in the Global Healthcare Investment Banking Group and managing director at JPMorgan in the Corporate Finance Group, where he served as head of M&A for the pharmaceutical sector. Earlier, Cramer was vice president, corporate planning & development, for Merck & Co., Inc., with worldwide responsibilities for strategic planning and business development. In addition, he was cofounder of American Health Capital / VHA Enterprises, Inc., a healthcare / financial services company serving the capital needs of multihospital systems.

This is a guest post from BiotechBlog reader Viren Konde. Do you have a response to Viren’s post? If so, you may respond in the comments section below.

The recent editorial on “Intellectual property and biotechnology innovation: To protect or not protect” by Dr Yali Friedman, Managing Editor of the Journal of Commercial Biotechnology was thought provoking and led to this write-up. The editorial emphasized on the intellectual property protection differences between the developing and developed countries, and their drug manufacturers on the issues of patents, price controls, and research & development investments in the biotechnology sector. The remarks indicate that, the developed countries, being the ‘technology producer’ have favored strong intellectual property protection to motive the innovation and apparently the trade; while the developing countries being the ‘technology consumers’ have exploited the benefits of it at much lower cost by building a weaker intellectual property protection system.

Although it is logical that all countries, whether, developing and developed, should offer the strongest intellectual property protection possible, it is believed that, there are no legal definitions of “developed” and “developing” countries. The WTO members have announced for themselves whether they are “developed” or “developing” countries, with an open option to challenge the decision of a member to make use of provisions available to the developing countries. It was also believed in the agreement that the developed countries need maximalist IP regimes, as they are highly innovative and strong IP regimes provide the requisite incentives in this regard. On the other hand, developing countries require minimalist IP regimes, as they are hardly innovative and are often net importers of technology. These norms have also formed the basis for the 1970’s Indian Patents Act for the ‘developing India’. The amendments to Indian Patent Act in a timely fashion [Indian Patent (Amendment) Acts of 1999, 2002, and 2005] have driven India to ‘innovative (Product Patents) regime’ in its intellectual property policy.

Today, although, India continues to remain a “developing” country; it is also considered a ‘technologically proficient’, and therefore as an innovative developing country. Therefore, in the present times, the older definitions of intellectual property based on the differences between developed versus developing countries can not relate to India. Some developing countries like India are more scientifically advanced than others as a result of decades of investments in education, medical infrastructure, and manufacturing capacity. India hosts more drug manufacturing facilities that have been approved by U.S Food and Drug Administration than any country other than the United States. India’s biotechnology industry is managing to position itself on the strength of contract research, clinical research and contract manufacturing services together with the sales of off-patent biologics in the local as well as lightly regulated markets in the Middle East, Africa and Asia.

Unfortunately, India’s patent regime does not appear to be satisfying to the developed world given that India, though “technologically competent” in certain technology sectors like software and pharmaceuticals have not yet witnessed any significant levels of “innovation” in the biomedical utility sectors like biotechnological products and processes. Recently, the US-based Biotechnology Industry Organization (BIO) criticized India’s patent law and the Office of the US Trade Representatives kept India (and some other countries) on the USTR’s “Priority Watch List” in order to bring India’s patent law more in line with Western IP protections. Clearly, there are some issues and concerns that need clarification and that will be discussed here, such as the patentability criteria under section 3(d), and the provision of compulsory licensing in the Indian Patent Act; the price control and the cost difference of the innovator verses generic biotechnology drugs; the TRIPS mandate on clinical data protection and exclusivity; and also the pre- and post-grant patent opposition provisions used by Indian biogeneric manufacturers.

– Viren Konde

In these videos Pfizer’s Vice President and Global Head of Molecular Medicine, Aidan Power, talk about a future where everyone’s genome is sequenced and drug prescriptions are based on your genetic makeup, and argues that personalized medicine will be the defining paradigm for discovering and developing drugs of the future.

To put these videos into context, consider the recent report which found  that a majority of patients receiving Herceptin had not been tested for HER-2 overexpression — Herceptin is a targeted drug intended primarily for patients overexpressing HER-2. The apparently common prescription of Herceptin independent of it’s diagnostic test suggests that the practice of medicine needs to adapt to keep pace with scientific advance.

Vice President and Global Head of Molecular Medicine

Guest content from Naturally Obsessed

Naturally Obsessed: The Making of a Scientist

A documentary about careers in science

Naturally Obsessed
Naturally Obsessed

“So what is it that you actually do, Dr. Rifkind?” (groan, groan) It didn’t matter if the question was from my accountant, my dinner party companion or my cousin Minnie, I was never able to give an answer that satisfied either the questioner or me. That’s why, when I retired from the laboratory bench five years ago, I decided to tackle the challenge of making biomedical research more transparent.

I recently had the opportunity to conduct a brief interview with Jeff Parkins, Vice President of Clinical Development and Regulatory at Koronis on his company and the future of the biotechnology industry:

Can you tell me a little bit about Koronis and its mission?

Koronis Pharmaceuticals develops anti-viral therapeutics based on Viral Decay Acceleration TM (VDA), a novel drug mechanism that accelerates the accumulation of genetic mutations in a viral genome and causes a degradation of viral fitness.  Degrading fitness diminishes the viability of a viral population in a host and results in a decrease in viral replication.  In vitro experiments have demonstrated that this process leads to collapse of the viral population.

Koronis’ lead program is in phase 2a trials against human immunodeficiency virus (HIV); a second program against hepatitis C virus (HCV) is in preclinical development.

How long has Koronis been around?

Koronis was founded in 1999 to commercialize the research published by Drs. Larry Loeb and James Mullins at University of Washington, and Dr. John Essigmann at Massachusetts Institute of Technology in the Proceedings of the National Academy of Science in 1999.

Their research paralleled the earlier thinking of Nobel Laureate Manfred Eigen who coined the term “quasispecies” to describe an immensely large number of variant viral strains that result from a high replication rate in an error-prone virus.  Both HIV and HCV are excellent examples of such viruses.  Eigen hypothesized an “error threshold” that defines the population tipping point and leads to “error catastrophe” and a collapse of that viral population.

Serious commercial development began in 2000 when an investment syndicate was formed by Pacific Horizon Ventures. Pacific Horizon provides interim general management today.  The three founding scientists—Loeb, Mullins and Essigmann–continue their involvement as development collaborators and members of the Koronis’ Scientific Advisory Board.

Can you talk about your HIV lead, KP-1461?

KP-1461 is in phase 2 clinical development and since 2005 the drug has been administered to 61 HIV-infected patients—37 in a placebo-controlled, dose-escalating, 14-day dosing, phase 1b trial (KP-1461-102), and 24 in an open-label, 124-day dosing, phase 2a trial (KP-1461-201).  In each study the drug was found to be generally safe and well tolerated.

Human studies have shown evidence of anti-viral drug activity.  Today, further tests are being designed to confirm efficacy and define an optimal drug dose and formulation to support a pivotal trial design leading to product registration.

How is KP-1461 different from other treatments on the market?

If approved, KP-1461 would be the first HIV drug to utilize a non-inhibitory mechanism to control viral replication.  By avoiding direct suppression of viral replication, a VDA agent such as KP-1461 is expected to be better tolerated and more durable therapeutic against HIV.

All existing approved drugs suppress viral replication by inhibiting a critical enzymatic process or blocking viral entry to uninfected T-lymphocytes.  Each of these approved drugs exerts selective pressure on the virus as a consequence of suppressing replication.  It is selective pressure that leads to drug resistance and it is suppression of a particular enzymatic process that provokes the adverse side effects that characterize antiretroviral therapy today.

What is the biggest challenge facing Koronis right now?

Koronis’ biggest challenge is attracting the financial resources necessary to develop a novel drug mechanism for a disease that people mistakenly believe to be a well served chronic condition based on existing and derivative products utilizing current inhibitory mechanisms.

Koronis believes—as does the Center for Disease Control—that the HIV epidemic is far from over.  However, funding for HIV drug development has ebbed as the financial community has come to believe that the existing group of approved products is sufficient to address this epidemic.

What do you think is the biggest challenge facing the biotech industry as a whole?

Koronis’ challenges are shared broadly by other companies in the biotech industry as economic conditions, regulatory considerations and attitudes toward risk combine to influence the allocation of financial resources to later-stage and derivative products.  If there are to be next-generation products for tomorrow’s healthcare needs, it is necessary for the industry to address the shortage of development stage financing.

What’s up next for Koronis?

As Koronis concludes the proof-of-concept for VDA in HIV, the next step is a development partnership to fund additional late-stage clinical development.  In addition, Koronis is seeking a development partner for the preclinical HCV program.

About Koronis:

Koronis Pharmaceuticals, a Redmond, Washington-based company, was one of the winners of the Biotechnology Industry Organization 2009 International Convention’s Be the Buzz of BIO contest.

These papers are from the 2009 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:

Financial opportunities for early stage biotech companies
Tamara Jones

The changing roles of CRO
Alex Bao

Discovering potential drug targets
Myung K. Kim

This is a student paper from the 2009 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.

The changing roles of CRO

Alex Bao

Contract research organizations (CRO) have played significant roles in the research and development (R&D) of biotechnology industry ever since its first appearance in the late 1970s.  CRO provide important services in clinical trial management, safety monitoring, formulating and manufacturing, laboratory services, data management, NDA writing and filing as well as other regulatory affaire support, etc.   The CRO industry had shown stable and increasing revenue on the global scale in recent years despite the weak growth of global economy.  For instances, CRO shared $15 billions of global biotechnology R&D market in 2007 and $18 billions in 2008.  In the United States, approximately $9 billion, accountable for 15% of total of R&D funds flowed to CRO in 2007.  Even under the impact of global financial crisis, CRO revenue increased to approximately $10 billion when the total U.S. R&D increased to $65 billion in 2008 (Fig 1).

In recent years, the biotech industry has generated several lines of biomedical products that are sold over billion dollars each year, giving more room for CRO industry to grow.  In 2008, for instances, monoclonal antibodies sales reached $33 billion, TNT blockers reached $18 billion, and erythropoietin reached $9.5 billions.  The global sales of biotech drugs jumped from $75 billion in 2007 to $125 billion, almost 16% of global drug sales, in 2008.  This fast growth (Fig 1) of biotech revenue may encourage R&D expenditure in biotechnology and therefore expand the market size for CRO in the near future.

Fig 1. Global sales by CRO and Biotech industries.  (data source: reference 1, 2, 3, 4.).

Today’s CROs may operate either as local niche services or on international scales.  Several CROs, such as Quintiles translational corporation, Covance Incorporated, Pharmaceutical product development, Charles river labs and MDS incorporated, have generated over billion dollar revenues each in 2008.  Out sourcing to CRO has become an attractive strategy for many biotech firms because CRO may provide services that are not available in-house for start-up firms.  In some other cases, CRO may provide services with more competitive quality and better-targeted milestones than in-house research department for some large biotech firms.  CROs are often used because their ability to reach out for regionalized patient populations and ability to efficiently manage international clinical studies.  In any cases, however, the conventional role of CRO is to merely act as the “extra capacity” to facilitate R&D projects of the sponsors.  By saving time, capital, labor, and/or space using specialized skills and/or research facilities of CRO, sponsors can focus more on the “core skills” and the growing regulatory demand that are relevant to their products.

Compared to other types of biotech firms, CROs have much better success rate as business entities either as small privately owned companies or as large international corporations.  One of the important reasons is that CROs are less dependent on external funds such as VC than other biotech firms.  CROs may survive on the service fees when external funds are not available for expansion.  However, CROs usually do not request for the right of the potential intellectual property (IP) that may be generated from the services it provides. The matter of fact is that, most often, the part of the R&D project that CROs are involved are unlikely to generate any IP.  The fact that the CRO is unable to claim for the right of the IP that may be generated through their own activities is probably the most obvious “downside” of the CRO business, especially when IP rights after Bay-dole act are usually claimed by research organizations even if the research might had been sponsored by the other parties.  Therefore, CROs may be characterized as “low risk, low return” type of business and may be less attractive to investors who are looking for high return opportunities.

The global financial crisis may have created an opportunity for CROs to break the “low risk, low return” formula and enter the arena to compete for IP titles.  As the financial support for start-up and early stage biotech companies quickly reduce to the very minimum, the so-called “valley of death” would become more “deadly” .  As the result, new IPs are unlikely be developed to relatively maturation stages where the large and well-funded firms can see promising products and to invest further R&D efforts.  Soon will see a shortage of relatively mature biotech drug candidates to supplement the inheritably insufficient in-house R&D of the established biotech firms.  Having the infrastructures and funding in place for research and development, the profiting CRO may invest in early stage biotechnologies and seek for higher returns. CROs may not necessary become the replacement of small biotech firms, but an extra funding mechanisms for the desperate industry that is not on the “bail-out” list of the government.

Initiatives should be launched to invite CROs to invest in early biotechnologies.  It is a risky idea for CROs to invest in early stage biotechnology.  But the potential benefit of this initiative is not for CROs alone if “we” are seriously considering the challenges caused by lack of funds for early and small biotech firms.  Here, I define “we” as the local government and established biotech firms because the pressure won’t be on the small and vanishing biotech firms’ shoulders alone if “we” are not going to do anything about the development pipelines that will soon be more broken in the “valley of death”.

Then the question comes to how to invite CRO to the IP hunting arena.  The Maryland technology development corporation (TEDCO) had provided a good model by collaborating with Johnson & Johnson (J&J) to establish a co-managed funding agreement in 2005.  This funding awards seed biotech companies with funds to develop technologies that are potentially of interest for J&J.  TEDCO matches the J&J funds.  J&J has opportunity for equity investment as the technologies mature (reference 5).

To invite CROs to joint collaborative research agreement, funding should be established by pooling money from government and sponsor companies to fund part (eg. 2/3) of a specific R&D project.  CROs will identify and license the IP of interest and provide the rest (eg.1/3) of projected cost.  Collaborations of the like will significantly increase the pipeline portfolio of early stage technologies for the sponsor with reduced risks without significant increase in R&D costs.  CROs will obtain opportunities for generating IP assets without exhausting the profits earned from the contract works.

Local government, especially the state government, should take the initiative to invite CROs invest in early biotechnologies, not just to benefit CROs, but to stimulate the biotech industry and the economy of the state.  Historical data showed that states that paid more attention to the biotech R&D received more returns from the industry.  When the relative efforts in biotech R&D by states (national ranking of state expenditure in 2006) were plotted against the relative benefit received by states (national raking in patent number, VC investment, and NIH funding received), a clear positive correlation was seen between the state’s effort in R&D and the benefit the state received in a long run (Fig 2).  For instance, California invested $6.5 billions (13.6% of total U.S. investment) in biotech R&D, ranking number one in the U.S. in 2006, indicating the involvement and focus of the state government.  At the mean while, California received 24,293 patents between 2002-07 (nearly 20% of the national total), $20.7 Billion CV investment between 2002-07 (40.5% of national total), and $3.2 billion of NIH funding in 2007 (15% of national total), all ranked in number one on the national list.

State involvement and policy in biotech development play no doubt the most critical roles nurturing the growth of local biotech industry, including the CRO industry.  Investing $1.7 billion in biotech R&D, North Carolina ranked in number eight on the national list in 2006, and now hosts two of the world-top-10 public-traded CRO companies, Quintiles transnational corporation and Pharmaceutical product development, making $3.57 billion of revenue in 2008.  The state attracted capital investment from several internationally operating pharma/biotech companies.  Recently, Novartis announced to build a $267.5 million vaccine manufacturing and Merk announced a $100 million expansion on its vaccine facility in the state.  Constella Group, a private CRO company in Durham North Carolina grow from a statistical consulting service to a $200 million revenue-making bioinformatics firm in 2007 by assisting life-science clients.

In conclusion, encouraged and appropriately guided by the local government, CROs may deliver great value to the local economy.  It’s important to recognize that the value of a CRO does not only exist in the revenue it generating, but also exists in its readiness to help the biotech industry overcome the current financial challenges.

Fig 2. The correlation between the state R&D expenditure and the returns (number of patents, VC investment, and NIH funding to the state). The colored trend lines are regression lines corresponding to the data points of the same color. The Y-axis is the national ranking of the state with smaller numbers indicating the top states. (data source: reference 6)

1. US Pharmaceutical Industry Report, 2008-2009:
2. Business insights:
3. Global market review:
4. IMS health:
5. Maryland TEDCO: fundingopportunities.cfm
6. Biotechnology Industry Organization:

This is a student paper from the 2009 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.

Discovering potential drug targets

Myung K. Kim

At the NIH, I am focusing on discovering potential drug targets in diseases associated with obesity and aging, and developing orally available, small molecule drugs against these targets with the potential to treat metabolic disorders such as obesity, type II diabetes and various aging-related disorders. The Tech 366 course helps to identify business/science issues for the future development of the compounds of our study.

Obesity is a major risk factor for developing Type 2 diabetes, heart disease, stroke, certain types of cancers and neurodegenerative conditions such as Alzheimer’s disease. The FDA now recognizes obesity as a disease. While there are many aging-associated diseases, aging per se is not considered a disease and one cannot get an FDA approval and validation for a treatment of a non-disease.

Exercise and calorie restriction (CR) produce many health benefits for the treatment and prevention of aging- and obesity-related illnesses, but most people do not exercise regularly and consume an excess of calories. Our drug candidates are thought to mimic certain beneficial health effects of exercise and CR at a low concentration, without requiring a change in exercise or eating habits, by activation of the kinase that we believe may control rate-limiting steps in the key pathways of the processes associated with aging and obesity.

Increased calorie intake and sedentary lifestyle have fueled the obesity epidemic in developed nations. Since 1980, the number of obese adults has doubled, and the number of obese children has tripled in the United States. Approximately 65% of Americans are now overweight or obese. One in three children born in the year 2000 will develop diabetes as a result of obesity. Another factor that affects obesity is age; an average American gains 1 lb per year starting from the second decade of life and the number of people 65 or older is rapidly rising throughout developed countries. The Centers for Disease Control and Prevention (CDC) estimate that by the year 2030, there will be 70 million elderly Americans, more than twice the current number. Additionally, the United Nations recently estimated that the world’s population over the age of 65 will reach two billion within 50 years. The aging and obesity in America and the rest of the world mean an increased demand for better compounds to combat those diseases and indications specific to the elderly or obese people.

One of the reasons for the lack of exercise in the elderly and obese people is that the capacity for exercise diminishes as age and obesity increase. Aging causes loss of mitochondria in skeletal muscles in lean and healthy individuals, the organelle that burns fat and produces energy, and loss of mitochondria increases abdominal fat accumulation and decreases physical stamina. As skeletal muscle loses mitochondrial function, the capacity to oxidize fat and generate energy during physical activity decreases, resulting in accumulation of fat, particularly abdominal fat. Therefore, a majority of people in developed countries is caught in a vicious cycle that is difficult to break; obesity and aging lead to a decline in physical fitness, which leads to physical inactivity, which further increases obesity. CR (calorie restriction), on the other hand, increases mitochondrial biogenesis and reverses many aging- and obesity-associated declines.

One of the hallmarks of aging is increased oxidative damage, including double-stranded breaks of nuclear DNA. We have found that the mitochondrial decline is driven, in part, by an enzyme that senses DNA-breaks. Our study proposes that this DNA-break sensing enzyme is responsible for aging and obesity in mammals, and that when used at a low concentration, the enzyme inhibitors reproduce many beneficial effects of exercise and CR such as induction of mitochondrial biogenesis in skeletal muscle and increase in insulin sensitivity in skeletal muscle and fat. The enzyme inhibitors also lower blood pressure and blood glucose level, reduce inflammatory signaling, improve memory and cognitive abilities and decrease anxiety/depression in mice. Overall, the enzyme inhibitors showed a reversal of obesity- and aging-associated loss of capacity in mice.

Because increased mitochondrial content could lead to increased oxidative damage, it is possible that repeated exercise may damage muscle and decrease endurance. This potential concern may not be a problem, because both the genetically modified mice deficient in this DNA-break sensing enzyme or mice treated with the enzyme inhibitors showed reduced serum lactate levels and increased endurance even after many days of repeated exercise, indicating that these muscles were not prone to damage by repeated exercise. Our work demonstrates that modulating this enzyme in muscle and fat could represent a novel strategy to increase exercise capacity and to reduce obesity-aging-related diseases.

With two-thirds of Americans said to be obese or overweight, a successful obesity drug could have huge sales. There is a need for better drugs because the existing ones are hampered by serious side effects. Anti-obesity drugs in the market operate through one or more of the following mechanisms; suppression of the appetite, increase of the body’s metabolism, or interference with the body’s ability to absorb specific nutrients in food. Some anti-obesity drugs have severe and often life-threatening side effects. These compounds carry a risk of severe psychiatric problems, high blood pressure, tachycardia, heart palpitations, closed-angle glaucoma, drug addiction, restlessness, agitation and insomnia. One of the drug targets for obesity is a serotonin-receptor affecting appetite. However, since eating and reproducing are absolute priorities in life, it is difficult to alter these pathways without causing serious side effects. Because of the safety concerns, developing a successful obesity drug appears to be a treacherous task. For example, Sanofi-Aventis, Merck and Pfizer all discontinued work on experimental obesity drugs last year because of concerns that the drugs, which all worked by similar mechanisms focusing on a serotonin-receptor, could contribute to depression and suicidal thinking.

The enzyme inhibitors in our study work by a different mechanism to induce weight loss and decrease anxiety/depression in mice showing no sign of psychiatric side effects. Also, there was no sign that the drug damages heart valves in mice. Mice treated with the compound ate more than the control group indicating that the compound would not induce a simple nausea which leads to weight loss.

Our initial goal is to get FDA approval of the enzyme inhibitors for the treatment of metabolic symptoms and abdominal obesity in overweight type II diabetics. If we take this out into the broad obese or overweight population which includes both pre-diabetics and diabetics as an anti-obesity drug, safety could become a problem once millions take this drug. We think that it would be better to start treating (abdominal) obesity and diabetes in overweight diabetics initially, which just about all type II diabetics are, to target a narrow segment of the population. This is based on our data that the enzyme inhibitors of our study improved all metabolic parameters in mice 1) by inducing weight loss; and 2) by directly increasing insulin signaling in skeletal muscle and fat.

Although there are many diabetes drugs on the market, there is no drug that can target both obesity and diabetes effectively. Weight loss is essential for the treatment of type II diabetes. Given that, the enzyme inhibitors of this study which can target both obesity and insulin resistance could provide an attractive treatment option. All diabetes drugs operate according to one of the following three mechanisms: stimulating insulin secretion from pancreatic beta cells, reducing glucose production in liver, or reducing insulin resistance in insulin-sensitive tissues (i.e., skeletal muscle, fat, liver). Among these, TZD  type drugs (rosiglitazone, pioglitazone), the insulin sensitizers, are known to induce a significant weight gain, because these drugs activate a transcription factor called PPARg that promotes fat cell formation. It is dangerous for diabetics to gain weight. Furthermore, when concerns were raised about the safety of rosiglitazone (Avandia, GlaxoSmithKline) in May 2007, many patients and doctors made the decision to discontinue use of the TZD type drugs. Rosiglitazone discontinuation left many diabetic patients without good control for their insulin resistance. For these reasons, we think that the enzyme inhibitors of our study can claim a distinct position even in the crowded diabetes drug market.

The trend in drug development suggests that one can sell something which does not cure a disease if one has a good enough argument that it can prevent a disease. For example, high cholesterol is not a disease, but six billion dollars is spent each year on cholesterol-lowering drugs. Obesity in general, abdominal obesity, in particular, is a major risk factor for many diseases such as type 2 diabetes, cancer and Alzheimer disease. Our hope is that we may be able to expand our trials to a broad obese population that includes pre-diabetics, based on the efficacy and toxicity data in the overweight type II diabetics. With an ever-increasing obese population, a successful obesity drug could have huge sales.

With these goals in mind, we are currently engaged in IND-oriented preclinical trials for the first-in-human studies. We are also treating animal models for Duchenne muscular dystrophy, which is an orphan disease, and are planning preclinical trials in various age-related diseases.