IPOs in the United States Drop

According to Ernst & Young and PwC, the number of IPOs and their value in the United States have dropped significantly from the similar time period from the prior year.  Interestingly, PwC notes that China's numbers of IPOs has remained relatively strong.  Cal Matters and others report that California's number of IPOs is very weak compared to the last year.  As pointed out by commentators, it seems to make sense to wait and see in this market--if you are able.  Notably, if IPOs as an exit strategy dry up, it makes acquisitions a much more important alternative.  It will be interesting to see the direction regulators in the United States take toward acquisitions--particularly in the tech space.  

The U.S. Funding of the Moderna mRNA Technology and a Patent Dispute

Ana Santos Rutschman at Saint Louis University Law School has authored an interesting short article titled, "Why Moderna Won't Share Rights to the COVID-19 Vaccine with the Government that Paid for Its Development" in The Conversation.  The article basically outlines the U.S. government's technical and monetary contributions to the development of the mRNA technology and a dispute between Moderna and the U.S. government.  The article is available, here.  Moderna's stock has been falling overall, and I imagine this will not help as this is resolved. I've been worried about vaccine availability for some time, but I didn't realize so many would choose not to be vaccinated.  It appears COVID-19 mutation will continue relatively unabated.  

Who Benefits from the Fruit of Research from Human Cells? Civil Rights Attorney Representing Henrietta Lacks Family

In a fascinating turn of events, Ben Crump, the prominent civil rights attorney who represented the family of Treyvon Martin and Breonna Taylor, is representing the family of Henrietta Lacks, a deceased African-American woman.  Ms. Lacks’ cells were used without her consent to develop a cell line at Johns Hopkins Hospital (extracted from her in 1951).  There is a book and movie concerning her story.  According to Johns Hopkins Medicine’s website honoring Ms. Lacks:

Today, these incredible cells— nicknamed "HeLa" cells, from the first two letters of her first and last names — are used to study the effects of toxins, drugs, hormones and viruses on the growth of cancer cells without experimenting on humans. They have been used to test the effects of radiation and poisons, to study the human genome, to learn more about how viruses work, and played a crucial role in the development of the polio vaccine.

. . . Over the past several decades, this cell line has contributed to many medical breakthroughs, from research on the effects of zero gravity in outer space and the development of the polio vaccine, to the study of leukemia, the AIDS virus and cancer worldwide.

The website also states:

In 2013, Johns Hopkins worked with members of the family and the National Institutes of Health (NIH) to help broker an agreement that requires scientists to receive permission to use Henrietta Lacks’ genetic blueprint, or to use HeLa cells in NIH funded research.

The committee tasked with deciding who can use HeLa cells now includes two members of the Lacks family. The medical research community has also made significant strides in improving research practices, in part thanks to the lessons learned from Henrietta Lacks’ story.

Moreover, the legal area and practices have developed since 1951, including the development of informed consent laws.  The website also notes that John Hopkins was one of the few hospitals that accepted poor African Americans as patients in 1951. 

The likely defendants will include pharmaceutical and biotechnology companies as well as John Hopkins.  This case—assuming it survives many legal challenges and is not settled relatively early (those are big “ifs”)—could result in some very interesting law on the merits that may be challenging to the biotechnology and pharmaceutical industries. 

In 1990, the California Supreme Court basically decided in Moore v. Regents of the University of California that a patient did not retain a property interest in tissue extracted from him.  Notably, his cells were also used to develop a cell line.  The majority’s decision was influenced by prudential concerns, including expressed fear about impeding the development of the promising biotechnology industry.  Importantly, the case was decided when the biotechnology industry was arguably quite young and the reasoning in that case was based on some factors that may not hold true today—due to changes in the law, the development of technology, and changing expectations and practices.  Other courts in the United States, in deciding similar issues, have basically stated that equity (unjust enrichment) may provide hope for some compensation to the party whose cells have been utilized by researchers.  A rejection of Moore would have interesting implications for the field and the preservation and protection of human dignity. 

The timing of the filing of the lawsuits is interesting because my guess is that public opinion of the pharmaceutical/biotechnology industry is relatively high in the United States given the development of the vaccines for COVID-19.  However, the continuing disaster of the failure to get enough vaccines to the Global South and other parts of the world will result in additional human death and suffering, including the proliferation of variants which may evade vaccines.  This could turn the tide of public opinion in the United States—along with high pharmaceutical prices—and result in additional pressure to settle. 

It is simplistic and short-sighted to undermine Covid-19 patent rights

President Biden’s administration is making a major mistake by its top trade advisor, Katherine Tai, advocating a waiver of patent rights for Covid-19 vaccines.

While all who are involved, or would like to be, should move heaven and earth to increase Covid-19 vaccine supply until everybody worldwide who wants to be vaccinated has been vaccinated, undermining patent rights will not help but only hinder achieving that objective.

Patents are not recipes and do not provide the knowledge and expertise needed for production

All evidence is that the limiting factor is in vaccine supply—not in patent-licensing costs. The pressing need is to remove constraints—such as export bans that block ingredient supply chains— and to increase manufacturing capacity. Production supervision and training from those with the expert knowledge in operating such facilities who can ensure high-quality output reliably and on a massive scale are also required.

Instead of stripping Covid-19 patent owners of their core assets and rights, incentives to license patents and owners’ wider range of intellectual property—also including vital trade secrets such as how to make the vaccines with manufacturing process know-how—should be retained.

Vaccine demand remains immense. Many highly populated nations still have very low vaccination rates in the single digit percentages, for example, in India where the pandemic is currently raging with hospital facilities being overwhelmed. Satisfying demand will benefit us all when most of the world’s entire population is vaccinated because none of us will be safe from the virus and the threat of new variants until then. This is also a major incentive to vaccine patent owners—for example, BioNTech whose business model is in technology transfer, licensing and collaboration with downstream partners—to scale up that further. Fair reward for such efforts will enable licensors to justify up-front commitments and investments required in providing that support.

Patents encourage R&D investment and licensing-based horizontal business models

While the debate about whether patents stimulate or impede R&D investment and innovation continues among those with strong vested interests on either side, research including empirical data over many decades indicates that strong patent rights are particularly important to small, non-vertically integrated firms like BioNTech. A recently recorded LeadershIP seminar publicly available online illustrates this by featuring academic Jonathan Barnett’s new book on the subject entitled Innovators, Firms and Markets: The Organizational Logic of Intellectual Property. The session also includes remarks from others including entrepreneur and venture capitalist Greg Raleigh on the importance of patents to small companies such as BioNTech in biotechnology being able to raise investment capital to fund R&D.

The first-to-market and highly efficacious BioNTech/Pfizer vaccine is a stellar example of how the patent system works. In absence of strong patent protection companies like BioNTech would not exist. Not only did patents incentivise venture capitalists to make large and risky investments ahead of BioNTech’s technology commercialisation prospects, patents also enabled the firm to partner Pfizer, with its wide gamut of complementary resources required to collaboratively complete R&D and bring the vaccine through clinical trials to production and distribution. The partnership’s rapid delivery of Covid-19 vaccine is a huge technical, commercial and humanitarian success story.

Vaccine costs including patent fees are small versus economic costs of pandemics

The Covid-19 epidemic has cost several trillion dollars in the $88 trillion global economy—given a projected economic decline of 5.2 percent in 2020 versus growth of 2.3 percent in 2019. Patent licensing fees pale in comparison to this given that the entire cost of doses has averaged approximately $20 each. In comparison, I recently spent more than $100 on a Covid-19 PCR test and anticipate having to do that several more times in coming months. With competition among many different clinically approved vaccine technologies and suppliers including the highly effective, safe and easy to distribute Oxford/AstraZeneca vaccine priced at around $5 per dose already, existing free market commercial pressures on licensing charges—including patent royalties and for transfers of other intellectual property—are substantial.  With around 1.3 billion total doses of Covid-19 vaccines administered worldwide so far, at that price, vaccinating the rest of the world’s entire 7.8 million population with two doses would cost around $70 billion.

Other people’s money and redistribution of wealth

While, as Tai said recently, "This is a global health crisis, and the extraordinary circumstances of the COVID-19 pandemic call for extraordinary measures", this is not the first and it will not be the last global health crisis. President Biden plans to spend $3 trillion in government borrowings and tax receipts with various programmes including construction in response to the economic harm from the pandemic. An opportunistic raid on patent owners would also redistribute wealth to intermediaries such as manufacturers, but the world needs ongoing technical developments from large and small, young and old companies in the biotechnology and pharmaceutical industry to deal with new variants of Covid-19 and other new pathogens that will surely emerge. There is abundant economic justification not to undermine the valuable long-term gains the patenting and licensing system is providing. As well as rewarding existing patent holders, availability of such potential returns in “a global health crisis” will reassure and attract others to invest in additional R&D. While this pandemic is terrible with around 3.3 million deaths worldwide already, the next one could be even worse given that the 1918 Spanish flu epidemic killed 50 million people. We need to be as well prepared as we possibly can for whatever might ensue.

Alliance for Regenerative Medicine: 2019 is Second Best Year in History for Regenerative Medicine Financing

The Alliance for Regenerative Medicine (ARM) has recently released its annual report.  Notably, ARM states that 2019 was the second-best year in history for regenerative medicine financing.  A whopping $9.8 billion US was raised globally.  $7.8 million was raised for gene modified and cell therapy.  Tissue engineering received $442 million.  The report further specifies deals for significant sums as well as public offerings.  The financing numbers are also broken down by type, such as venture capital, with comparison to 2018 and 2017 numbers.  VC financing is up almost a billion dollars in 2019 over 2018.  Financing numbers are also reviewed for the EU and Israel.  The report also specifies that there are 1,066 clinical trials proceeding at the end of 2019.  New approvals and expected approvals are also discussed. 

Improving the Allocation of Resources: Artificial Intelligence to Predict Future Clinical Success of Basic Research

In a new paper published on October 10, 2019 titled, “Predicting Translational Progress in Biomedical Research,” authors B. Ian Hutchins, Matthew T. Davis, Rebecca A. Meseroll, and George M. Santangelo describe a new way to use artificial intelligence to measure and predict which basic research type findings are likely to be translated into clinical advances.  The abstract states: 

Fundamental scientific advances can take decades to translate into improvements in human health. Shortening this interval would increase the rate at which scientific discoveries lead to successful treatment of human disease. One way to accomplish this would be to identify which advances in knowledge are most likely to translate into clinical research. Toward that end, we built a machine learning system that detects whether a paper is likely to be cited by a future clinical trial or guideline. Despite the noisiness of citation dynamics, as little as 2 years of postpublication data yield accurate predictions about a paper’s eventual citation by a clinical article (accuracy = 84%, F1 score = 0.56; compared to 19% accuracy by chance). We found that distinct knowledge flow trajectories are linked to papers that either succeed or fail to influence clinical research. Translational progress in biomedicine can therefore be assessed and predicted in real time based on information conveyed by the scientific community’s early reaction to a paper.

The full paper is available, here.  This appears to have the promise of mitigating some significant investment risk.  

New Report: UK's Cell and Gene Therapy Sector Growing at a (very) Healthy Rate

The Alliance for Regenerative Medicine and the Bioindustry Association of the UK have released a report (Report) concerning development and growth of the cell and gene therapy field in the United Kingdom.  The Report notes “four key takeaways”: 

[1] The UK is a leading source of innovation in the research and development of advanced therapy medicinal products (ATMPs) in Europe.  [2] There is strong government support for scientific innovation, capital formation, and patient access to cell and gene therapies in the UK. [3] There is significant investment in the UK   to support the development of these life-changing therapies. [and 4] The clinical pipeline in the UK, both in terms of UK-based companies and other companies interested in clinical development in the UK, is robust and growing.

The Report states that 24% of ATMP companies in Europe are headquartered in the United Kingdom, additionally there was over a billion US dollars in funding.  The funding in 2019 is on track to meet or exceed 2018’s funding.  There are detailed stats on funding by type in the Report.  Moreover, since 2012, there has been a substantial uptick in ATMP activity—from 22 companies to over 70 companies, some of which is attributed to significant government support and organization.  The Report also contains data regarding current and past clinical trials and case studies concerning relevant companies and their technology.  


The Report concludes with the following recommendations: 

Support scientific research to develop and advance both cell and gene therapies and ancillary processes, including manufacturing and scale up.

Foster economic development and the creation of a skilled workforce to promote the continued growth of this industry in the UK.

Cultivate a positive regulatory environment for the research and development of cell and gene therapies, including fostering accelerated pathways to ensure that patients are able to access safe and effective therapies in a timely manner.

Develop the necessary infrastructures within NICE and its counterparts in Scotland, Wales, and Northern Ireland to ensure health technology assessments are able to address the long-term value provided by cell and gene therapies.

Collaborate with the NHS and other public and private payers in the UK to develop innovative financing models to ensure patients can access approved therapies in an efficient manner.

The development of a skilled workforce (and attraction of one) and the related issue of international collaboration is important, but not expressly tied together in the recommendations. The full Report is available, here. 

Heavily Taxing Billionaires to Promote Innovation

An important issue confronting the world concerns the high concentration of wealth and redistribution of that wealth through the tax system. Part of the problem is what to do with the wealth gained from additional taxation of billionaires (and what is a politically defensible use of that additional revenue). Democratic presidential candidates are starting to create a "dream list" of things to do with billionaires' money.  Well, why not use that money to invest in research and development which may lead to more jobs, innovation (even life saving innovation), and additional tax revenue.  

Professor Michael Simkovic from University of Southern California Gould School of Law takes on general claims that taxing billionaires may lead to less innovation in a short five page article titled, “Taxes, Spending and Innovation.”  Professor Simkovic points to studies concerning patents and Nobel Prize winners.  Professor Simkovic states:

Public policy can be used to promote innovation by raising taxes and extensively funding high quality science, math, and engineering education, or by encouraging immigration of people with those skills.

There has been a general decline in the amount of federal funding in terms of real dollars for some time for the National Institutes of Health.  Well, billionaires give to universities and other charities, right?  We don't need to heavily tax them as they choose to give their wealth to charitable organizations that innovate.  Professor Simkovic notes that voluntary gifts to charity, including to universities, is relatively small at “2% of GDP”—for gifts from all donors.  He concludes we should look to peer-reviewed empirical work to test claims and that, “Claims that we can drive more innovation and growth through a higher concentration of resources in the hands of a small number of billionaires—while providing fewer resources to middle and upper middle--‐class knowledge workers—are not empirically supported.”  [Hat Tip to Professor Paul Caron’s Tax Prof Blog]. 

FDA Attempts to Shame Pharmacuetical and Biotechnology Companies

The U.S. Federal Drug Administration (FDA) recently decided to try to “shame” some pharmaceutical and biotechnology companies for failing to provide samples to companies who wish to produce generic versions of their pharmaceuticals.  The FDA states:

In passing the 1984 Hatch-Waxman Amendments to the Federal Food, Drug & Cosmetic Act, Congress created a system that balances encouraging and rewarding medical innovation with facilitating robust and timely market competition. One of the primary ways that FDA facilitates a competitive marketplace is through the efficient approval of generic drugs, which are often lower-cost than brand drugs.

Unfortunately, the process established by Congress may not always function as intended. At times, certain “gaming” tactics have been used to delay generic competition. One example of such gaming is when potential generic applicants are prevented from obtaining samples of certain brand products necessary to support approval of a generic drug. The inability of generic companies to purchase the samples they need slows down, or entirely impedes, the generic drug development process – leading to delays in bringing affordable generic alternatives to patients in need.

As described in further detail below, these kinds of problems with generic access to necessary samples may occur when brand products are subject to limited distribution – whether the company has voluntarily adopted limitations on distribution, or the limitations have been imposed in connection with a Risk Evaluation and Mitigation Strategy (or REMS), a program that FDA implements for certain drugs to help ensure that their benefits outweigh their risks. In some cases, brand drug sponsors may use these limited distribution arrangements, whether or not they are REMS-related, as a basis for blocking potential generic applicants from accessing the samples they need.

As part of the FDA’s Drug Competition Action Plan (DCAP), FDA is committed – among other things – to addressing and improving transparency about this and other gaming tactics that delay the generic competition Congress intended.

There are around 50 drugs listed, including about 40 different pharmaceutical and biotechnology companies.  Do you think this tactic will work?  Interestingly, a New York Times article describes Celgene’s response, here. 

Chinese National Convicted of Conspiracy to Steal Trade Secrets in Kansas

Recently, Newsweek has published an article titled, “A Chinese Scientist Stole American Rice and will Spend a Decade in Prison,” by Max Kunter.  The article explains how Mr. Zhang worked for a biotechnology company, Ventria, around Manhattan, Kansas (the location of Kansas State University) and genetically modified seeds from that company were found in the baggage of Chinese research visitors from a Chinese crop research institute on their way back to China.  Mr. Zhang is Chinese national and a legal permanent resident. He has been convicted of conspiring to steal trade secrets.  He will serve 10 years in prison. 

Interestingly, the article notes:

FBI Director Christopher Wray has also warned about China. Asked during a Senate intelligence committee hearing in February about the counterintelligence risk from Chinese students in the U.S., Wray said, “The use of nontraditional collectors, especially in the academic setting, whether it’s professors, scientists, students we see in almost every field office that the FBI has around the country…. They’re exploiting the very open research and development environment that we have.”

Here are a couple of observations.  First, there could be an argument that this activity is not sponsored by the government in China.  Mr. Zhang may be acting illegally, but on his own accord.  He may realize that this seed is very valuable and that by passing the seed on to co-conspirators he may be entitled to a piece of a new company started in China selling the same seed in other markets.  The people starting the new company may similarly be operating without government approval or sponsorship.  However, it is interesting that he passed the seeds on to a Chinese crop research institute.  I wonder who sponsors the work of the research institute.  Mr. Zhang was also defended by public defenders, but I imagine that if this was state sponsored the government of China is likely not going to pay for his defense—that would look bad.  Second, I am curious to learn more about data substantiating Mr. Wray’s comments about “every field office . . . around the country.” 

EPO Releases Annual Report on 2017 Patent Activity: Interesting Stats

The EPO has released its annual report for 2017 patenting activity.  Notably, patenting and patent filings are trending up at 3.9% and 4.4% respectively.  In the electrical engineering field, patenting is up in the audio visual space by 10.6% and semiconductors by 13.5%.  In instruments, patenting is up in optics by 15.6% and analysis of biological materials by 12.5%.  In chemistry, biotechnology is up 14.5%, but micro-structural and nanotechnology is down by 12.6%.  Interestingly, US nationals as first inventor lead patent applications in the EPO with a 26% share.  The EU member state inventors as a whole have more nationals as first inventor (47% total).  However, Germany, the leader in the EU, has a 15% share.  Japan has 13%, and China has 5%.  The top three technical fields in patent applications are 1) medical technology; 2) digital communication; and 3) computer technology.  The top ten applicant companies are: 1) Huawei (China); 2) Siemens (EU); 3) LG (Korea); 4) Samsung (Korea); 5) Qualcomm (US); 6) Royal Phillips (EU); 7) United Technologies (US); 8) Intel (US); 9) Robert Bosch (EU); and 10) Ericsson (EU).  Sixty-nine percent of the total applicants are large entities.  Twenty-four percent are SMEs/individual inventors.  Seven percent were universities/public research.  Interestingly, SMEs/individual inventors share is down from 28% in 2016.  Universities/public research is up 1 percentage point from 2016. 

Biotechnology Stock Value: Uncertainty the New Normal or Just the Same Old Deal?

In a recent article in the Wall Street Journal, What's Behind the Biotech Sector's Rebound: Biotech ETFs are Getting Hearts Pumping Again, Gerrard Cowen discusses the swings in the value of biotechnology stocks.  Last year was a relatively poor year for biotech stocks—perhaps attributed to the election campaign rhetoric about reforming drug prices.  This year biotech stocks are looking up, and why?  The article discusses several reasons provided by experts: 1) Trump was elected and he’s likely to treat the sector more favorably than Clinton despite his rhetoric; 2) merger and acquisition activity is likely to increase in the coming year because of likely Trump tax changes; 3) Trump may streamline FDA regulations; and 4) biotech companies were undervalued last year.  The article also outlines risks to the sector which mostly revolve around problems with uncertain politics and difficulty in valuation. 

Interestingly, the article notes that despite difficulty with valuation one helpful baseline, so to speak, is “patent protection.”  I can understand why the author points to the exclusivity of patents—supposedly hugely important to the industry—as a “steadying” factor especially when compared to other industries where perhaps patent protection may not protect a market as well as in biopharmaceuticals.  However, patent protection in the U.S. has been anything but stable.  Indeed, as one example, patent eligible subject matter is a mess and efforts to “clean it up” are moving through the U.S. Congress championed by American Intellectual Property Law Association and the Intellectual Property Owners Association.  If those proposals are enacted, it will be interesting to see how the U.S. Supreme Court interprets those provisions.  And, what of the future of trade agreements?  The basic point is that patent law is ever evolving and despite that change the belief in its ability to protect a market continues—and thus draws capital for hopefully socially productive uses.  The belief may align well with reality for the biopharmaceutical industry.  For more on belief and patents, see Professor Mark Lemley’s article Faith-Based Intellectual Property. 

And, for more on politics and patents, what about the security of patents (and trade secrets)?  Will things change substantially in the coming years?  One article I find particularly interesting is Professor Richard Epstein’s The Constitutional Protection of Trade Secrets and Patents Under the Biologics and Price Competition Act of 2009.  

The Big Boys and Smaller Players of Technology Transfer Offices

One criticism of technology transfer offices is that some may have difficulty making enough money through deals to cover their overhead.  Surely, the benefits of a technology transfer office shouldn’t be limited to revenue generated and there are other opportunities to benefit a university such as practical training opportunities for students.  Moreover, the local community may even benefit through new jobs and tax revenue.  An article in the Recorder came across my desk this morning concerning University of California, San Diego's (UCSD) technology transfer office titled, "UC-San Diego Director Touts its Plethora of Patents." It describes an interview with a technology transfer office at a high performing University of California campus.  Another notice I received concerns a webinar about how smaller technology transfer offices can “overperform.”  

San Diego, located in southern California, has long been known as a hot bed for biotechnology research.  Interestingly, the article notes that of all the University of California campuses the San Diego campus leads in number of patents.  UCSD produces more patents than UC Berkeley, UC San Francisco and all of the other UC campuses.  It also produces more deals, more invention disclosures and sometimes even more startups.  The Director, Ruben Flores-Saiib, notes that this is maybe because of the size of the institution and number of departments.  Flores-Saiib, a recent hire at UCSD, also discusses efforts to expand opportunities for UCSD start-ups including a partnership with a VC that evaluates all startups from the university.  He further notes some of the patent prosecution firms UCSD uses as well as stating that they apparently avoid up front licensing fees and are flexible in working with milestones and royalty payments for firms. 

Notably, Tech Transfer Central is offering a webinar (Thursday, February 23rd) on successful strategies by "overperforming" smaller technology transfer offices by technology transfer officers from Wilkes University and Southern Mississippi University.  Here is a description of the webinar:

Our presenters represent two distinctly different tech transfer offices in distinctly different areas of the country. Each presents its own unique set of challenges, but both TTOs have thrived by employing unique methods for doing more with less, and implementing efficiency strategies that allow for high ratios of commercialization per research dollar and per FTE. Whether your office is considered small or not, you’ll come away from this nuts-and-bolts session with dozens of proven strategies for stretching your budget and your staff, and boosting your TTO’s deal flow. Register today for this information-packed webinar filled with best practices and tons of takeaways. Our panelists will discuss:

• How to navigate your high-dollar budget line items using:

o    Volunteers

o    Interns

o    Alumni

• How to impact your local and regional start-up community and the economic development goals with a smaller budget and fewer staff
• Small office strategies for building strong TTO/faculty relationships
• Ecosystem development in smaller markets
• Strategies for filling the funding gap in flyover regions
• How a variety of approaches to commercialization benefit smaller ecosystems:

o    Traditional licensing

• Entrepreneurial focus
• Engaging corporations in smaller regions
• Tactical and strategic methods for success with limited resources         
• Lessons learned and forecast for the future

Biotechnology Stock Value Swings

In a July 6, 2013 post, this blog discussed the upswing in biotechnology patenting and the rising numbers of biotechnology IPOs.  The blog also mentioned promising R&D and an increase in FDA approvals as a potential cause of the IPOs.  Fast forward to recent months and there is a substantial amount of chatter about a bubble in biotechnology stocks (here, here and here).  In late March, biotechnology stocks took a dive, rebounded soon thereafter and now look like they are headed for another dive.  So, why the swings in value?  On the positive side, there is promising R&D, FDA approvals and pharmaceutical companies with lots of funds to acquire biotechnology companies.  The negative side is described by a recent article by Gregory Zuckerman in the Wall Street Journal titled, Biotech’s Rally Fuels Bubble Fears:

Biotech shares in the Nasdaq now trade at almost 50 times their earnings over the past year, compared with a price/earnings ratio of 27.5 for the overall Nasdaq Composite. Nasdaq biotech shares trade at 31.5 times their expected earnings over the next 12 months, above the 21 ratio for the overall Nasdaq market, according to FactSet Inc.

Just like Amazon.com Inc., eBay Inc. and some other technology companies were growing companies with shares trading at sky-high valuations in 2000, some worry that today’s highflying biotech shares also are strong companies trading at prices that are too high. Celgene currently trades at a p/e ratio of 51.1. Biogen, Amgen and Gilead are at 36.6, 24.8 and 13.8, respectively.

I suspect that there are also two other reasons to worry about the value of biotechnology companies.  First, the FDA is moving toward approval of generics—biosimilars—for biologics, here.  Indeed, in March of 2015, the FDA approved the first biosimilar, Sandoz’s Zarxio, which is the biosimilar for Amgen’s Neupogen, a cancer treatment.  Second, there is growing discontent with the pricing of some drugs, particularly the amazing drug Solvaldi for Hepatitis C.  Notably, Gilead Sciences has moved to make its drug available at a lower cost in some countries such as India.  What do you think? 

Patent Trolls Coming Soon to the Bio-pharmaceutical Industry--and a Roadmap?

In a recent article titled “Patent Trolling: Why Bio and Pharmaceuticals Are at Risk”, Professor Robin Feldman of University of California, Hastings College of Law, and W. Nicholson Price II, Fellow at Harvard Law School, argue that so-called patent trolling is likely to develop in the bio-pharmaceutical industry.  The authors examine the biotechnology patent portfolios of five major universities and find many patents that could be used against players in the relevant industry.  Monetization anyone?  Notably, the authors state:

In deciding whether to undertake this analysis, we lost sleep over whether the potential for harm outweighed the potential benefit. If reform efforts are not undertaken, our work could do no more than provide a handy road map for those who would follow. However, with scattered anecdotal evidence suggesting that monetization is moving into biopharmaceuticals, life sciences trolling is predictable and in its infancy. If reforms are implemented before the problem proliferates, legislators and regulators could cabin the activity before it becomes deeply entrenched and too much harm occurs.

I think the authors’ concerns are well-founded, but more information is always helpful.  The authors’ also note that “the Association of University Technology Managers recently announced that it was re-examining its policies that had recommended against transferring rights to non-practicing entities.”  Would anyone like to expand on any anecdotal evidence about monetization in the bio-pharmaceutical industry? 

In examining why “trolling” may occur in the bio-pharmaceutical industry, the article also explains:

There is much truth to the conventional wisdom. Biotechnology and pharmaceutical research does involve a greater investment of time, money and expertise. This results in fewer patents, fewer targets, and a longer lead time for problems to emerge. In addition, developments in product type and patent rules affect the opportunities for patent demands. Biotech and pharmaceutical products tend to have fewer components, and patents in the field tend to be less broad than the software and business method patents that proliferate in the technology industry.

However, the conventional wisdom suffers from three weaknesses. First, it ignores the role that regulation plays in making some pharmaceutical patents harder to invent around, thus raising the potential hold-up costs of what patents are available to monetize. Second, it assumes a classical model of patent bargaining, rather than the strategic bargaining and suit filing adopted by modern monetizers. Third, it assumes that monetizers will confine themselves to a relatively narrow set of technological targets; while high-tech may be low-hanging fruit, the proliferation and increasing sophistication of monetizers means that other industries are likely to be targeted in the near future.

The article goes on to discuss the specific patents held by five universities that could be used by “trolls.”  (Oh, my.  Now I am losing sleep over this blog post about the article.)  And, on to reform efforts and data, IP Finance reader Dr. Reuven K. Mouallem from Israel has sent me links to two of his papers on “patent trolls.”  One paper discusses the issue of “patent trolls” from the patent quality perspective and the second paper examines statistics/procedures from the USPTO, JPO and EPO that evidence quality problems. 

OECD 2012 Updated Biotechnology Indicators: Funding for IP and Other Interesting Stats

The OECD recently released its updated 2012 Biotechnology Indicators here. Some of the statistics are updated and others are not. On the number of biotechnology firms in 2011: Germany, 678; United Kingdom, 488; Ireland, 237; New Zealand, 369; Sweden, 129; Poland, 91; Finland, 157. The latest numbers for the United States are from 2009 with 6,213 biotechnology firms. My guess is that this number has dropped. The Biotechnology Industry Organization has around 1,000 members (many of them universities) and most of those are based in the US. According to this 2011 BIO report, "the number of public biotech companies in the U.S. has decreased by 25% since January of 2008."

According to the OECD Biotechnology Indicators, the total biotechnology R&D expenditures in the business sector in 2011 includes (in millions of US dollars): Germany, 1,221; Sweden, 534.7; Ireland, 380; and the Russian Federation, 137. In 2009, the United States spent 22,030. The total public (Government and Higher Education sectors) biotechnology R&D expenditures in 2011 includes (in millions of US dollars): Russia, 763.4; Poland, 241.5; and the Czech Republic, 146.9. For 2010, Germany spent 5,972 and Korea spent 2,468. The percentage of share of biotechnology PCT patents from 2008-2010 included the United States at 40.76%, Japan at 11.49%, Germany at 6.77%, United Kingdom at 3.92%, Korea at 3.74% and China at 3.12%.

Open Source and Biotechnology: Whither or Whether Ideology?

I venture to say that most of us are well aware of the fault lines between proprietary and open source software. Proprietary software is characterized by keeping source code secret together with contractual restrictions on the use of the software, plus a reliance on the negative right aspects of copyright and other relevant IP law. Open source, to the contrary, rests on collaborative development and disclosure of source code, subject to various terms and conditions.

Less well-known is the effort to adopt the open source model to subject matter other than computer software. A particularly interesting effort in this regard is the use of open source principles in connection with biotechnology. A useful summary can be found in an article by the prolific and distinguished Professor Robin Feldman (left) of the University of California Hastings College of Law and Kris Nelson (a member of the Class of 2009 of the same school) that appeared in the Fall 2008 issue of the Northwestern Journal of Technology and Intellectual Property, "Open Source, Open Access, and Open Transfer: Market Approaches to Research Bottlenecks."

The authors discuss what they call Open Source Technology and Open Science. While the proponents of these variations of open source software are aware of the differences between the underlying subject-matter of software and biotechnology respectively, there appears to be a belief that that there is enough common ground to speak of both areas in a roughly similar fashion.With respect to Open Source Technology, there are two general categories. The first is described as focusing on bioinformatics ("the application of computer software and methodologies to solve biological problems"). The second category is marked by a move from the specific focus of the software interface to an effort "to ensure that the biotechnology tools required for research and innovation are openly available."

In particular, this second category centres on solving biotech-related problems in what the authors call "underserved communities." By this the authors mean communities with limited financial resources, with the result that there is an inability "to navigate the maze of patent rights and licensing necessary to engage in the targeted research." Stated otherwise, this approach intended to enable projects to deal successfully with the daunting problem of patent thickets.

Examples of projects of this kind are: (i) the HapMap Project here (a multi-country project researching genetic differences, with the goal of a certain mapping the human genome); (ii) CAMBIA here (expanding access to biological research, with a focus on disadvantaged communities); and (iii) the Public Patent Foundation here (aimed at solving the problem of patent thickets by establishing patent pools with open accessible patent rights to the participants of the program).

The authors point out several salient differences between Open Source licensing and the biotech variety:

1. Open Science is based on patent rights, which will sooner or later become public knowledge at some point. The same cannot be said of software under Open Source.

2. The resource requirements of Open Science, with an emphasis on sophisticated lab equipment, favor large organizations.

3. The very fact that Open Science is based on patent rights, while Open Source is based on copyright, means that each arrangement will reflect that particular aspects of the underlying legal right.

The authors conclude, with perhaps a tinge of understatement, that "Open Science Systems have not always matched their initial expectations." Perhaps the problem lies in the expectations themselves. When one considers the history of open source software, one is struck by the unique combination of ideology and technology that came together to forge "the movement". It is not at at all clear that this combination exists with respect to biotechnology, with the possible result that ideology may be the driving force, sometimes in an exaggerated and less than helpful fashion. That said, I have virtually no direct experience with open source arrangements in the biotech context. Perhaps my own views on the subject are themselves driven by my own ideological predilection on the subject.