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Archive for August, 2008

Report Raises Concerns about Medical Identity Theft

Written by on Tuesday, August 26th, 2008

Medical identity theft is on the rise, according to a report by the Chicago Tribune.

What exactly is medical identity theft?  Well, it is when someone steals your identity in order to either submit fraudulent claims or to obtain otherwise unaffordable medical care. 

The Chicago Tribune reported on this issue as follows:

In many cases the crimes are not discovered until a collection agency begins calling. Often, the thief will arrange to have the insurers’ billing documents sent to a false address. . .It’s common for thieves to create fraudulent driver’s licenses and insurance cards, which are all most medical centers ask for before they provide care. . . .

Even if the victim does not end up paying the bill, he will have to deal with false information in his medical and health insurance records.

Having someone else’s information mixed in your medical record could compromise your own care. What if the test results or physical findings are those of someone else, but doctors use them when you have a medical emergency?

So, given the increasing prevalence of identity theft in the medical area, what can Americans do to protect their information?  Well, the most obvious ways to protect ourselves would be to take better care of our insurance cards and destroy all medical data before disposing of health-related records.  And, of course, we can check our credit reports frequently to ensure that no collections activity has been taken against us by medical clinics, etc.   Beyond these obvious courses of action, however, it is a bit unclear what can be done to stop medical identity theft, since most of us are not even privy to our health records, which are often scattered all over a number of healthcare facilities.  Given the fact that many of these records are not even stored in a centralized database to date, it seems highly unlikely that we are going to be able to start monitoring our health records in the near future in the same way that we currently monitor our FICO scores. 

All in all, the issue definitely raises cause for concern.   In my opinion, privacy experts need to start grappling with these issues now before they can become a more significant problem down the road..

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Genentech Launches Employee Retention Program

Written by on Monday, August 25th, 2008

Genentech has launched an employee retention program aimed at retaining employees following the recent bid by Roche to acquire Genentech.

The Mercury News reported that Genentech’s plan is to spend $371 million in cash on retaining its personnel, which the company had planned to spend instead on its employees in a previously established stock option program.  The prevailing wisdom is that spending the money now on cash will be much more attractive than spending the money on stock options to be cashed out in the future.

Will this program help to discourage the departures of personnel who would otherwise choose to leave the company, in light of the uncertainty now about its future?

In all likelihood, the answer to this question is “no.”  Given the current state of the economy and the collapse of the housing market, the average Genentech employee will probably be concerned enough about his or her future to start looking for a new salaried position.  Also, many of Genentech’s employees are already well enough off as a result of the company’s successes over the years to not be swayed by a retention package.  Moreover, the conventional wisdom is that Roche will ultimately be successful in its bid to acquire Genentech, which means that many employee jobs may prove to be on the cutting block wiithin the very near future.

Still, you have to admire Genentech’s attempts to slow down the flow of departing employees out the  company doors.  I feel confident that most observers would agree that spending $371 million on retaining employees in the face of a likely acquisition is an impressive effort to ensure that the company can continue to operate, regardless of what happens with the acquisition effort.  And, of course, such an effort may have the other important effect of maintaining the company’s value as the acquisition talks move forward.  The California Biotech Blog will continue to watch this issue as it unfolds and will report on whether or not these efforts by Genentech prove to be successful.

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Former City of Hope Inventor Files Suit to Collect Back Royalties

Written by on Thursday, August 21st, 2008

A former City of Hope inventor has filed suit against his former employer to collect back royalties on technology that was the subject of a recent verdict for City of Hope against Genentech.

Robert Crea, the inventor at issue, filed suit in Los Angeles superior court in early August, following the resolution of the City of Hope’s dispute with Genentech.  The California Biotech Law Blog previously posted on this verdict, which was reached in April, 2008.

The Silicon Valley/ San Jose Business Journal reported on Crea’s suit against City of Hope as follows:

Crea worked in 1977 and 1978 as the lead synthetic chemist at the City of Hope DNA Chemistry Laboratory before moving on to Genentech, according to the lawsuit. . . .Crea is seeking approximately 5 percent of the royalties that went to City of Hope related to technology developed there, according to his attorney, Robert Yorio, a partner at Carr & Ferrell LLP, who is representing Crea. The Southern California medical center is collecting close to $5 million in damages and interest as a result of the suit.

“The City of Hope policy is a 15 percent (royalty) that is paid to inventors,” Yorio said. “And that 15 percentage would be shared. We are asking for his share.”

This case will be interesting to follow as it moves forward, given the fact that the suit seems to be based on the alleged failure by the City of Hope to fairly implement a royalty policy as opposed a breach of an existing written contract with the individual inventor.   I have not yet tracked down a copy of the complaint, but would be interested review the exact nature of the plaintiff’s allegations against City of Hope.

This case may very well serve as a warning for other institutions with similar royalty payment policies in place for their employees: perhaps such institutions need to take another look as to how these policies are dealt with upon an employee’s departure from the institution.  I doubt very many employers expect their former employees to sue them on such grounds after they have left the company for a new position elsewhere, but perhaps in today’s world where large verdicts on IP matters are commonplace,  they should be giving this issue further consideration.

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SBA Seeking Comments on Plans to Raise SBIR Award

Written by on Thursday, August 21st, 2008

The SBIR Reauthorization Insider has announced that the Small Business Administration ("SBA") is currently seeking comments on its plans to raise the SBIR award amounts from One Hundred Thousand ($100,000) in Phase One and Seven Hundred Fifty Thousand ($750,000) in Phase Two to One Hundred Fifty Thousand ($150,000) in Phase One and One Million Dollars ($1,000,000) in Phase Two.  The Federal Register states that comments must be received on or before September 15, 2008.

To submit a comment on this issue, the Federal Register instructs you to do the following:

You may submit comments, identified by RIN 3245-AF61 by any
of the following methods: (1) Federal Rulemaking Portal: http://
www.regulations.gov
, follow the instructions for submitting comments;
(2) Mail: Office of Technology, 409 Third Street, SW., Washington, DC
20416; or (3) Hand Delivery/Courier: Edsel Brown, Assistant Director,
Office of Technology, 409 Third Street, SW., Washington, DC 20416.

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Two DNA Testing Companies Set to Resume Business in the Bay Area

Written by on Wednesday, August 20th, 2008

Following up on our previous postings regarding California’s issuance of cease and desist letters to thirteen (13) genetic testing companies doing business in California, two DNA testing companies are now set to resume business in California, after having received new licenses to do business in the state.

According to The Mercury News, the California Department of Health has issued licenses to Navigenics of Redwood City and 23andMe of Mountain View, which will enable them to resume business operations.  Both companies had always argued that they were lawfully doing business in the state, and the fact that the state issued them both licenses seems to be a validation of their positions.

International Herald Tribune reported on the development as follows:

The companies had argued that they were not offering medical testing but rather personal genetic information services, and that consumers had a right to information from their own DNA. The companies also said they did not need a license because the actual testing of the DNA samples was being done by outside laboratories that did have licenses.

But the two companies do their own interpretation of the raw genetic data. Now, after reviewing the procedures used by the companies, the state is satisfied that the companies’ interpretation is based on the scientific literature. . . . the companies also satisfied the requirement for a doctor to be involved.

Navigenics already was paying a physician to review customer orders and now it appears that 23andMe might be doing something similar.

There is no word yet as to whether or not the other eleven (11) genetic testing companies, which also received cease and desist letters, will likewise receive licenses to resume operations in the state of California.  Today’s move should at the very least be viewed as encouraging by the similarly affected companies.  The action should also help to calm fears as to the state’s ulterior motives in attempting to regulate genetic testing companies.

Having said this, direct-to-consumer genetic testing has been virtually non-existent in the state of California for the past two months, and it is very likely that all of the genetic testing  companies have suffered at least some financial consequences as a result.  We have yet to see what the long-term impact of this incident will be on all of the affected businesses.

For now, however, concerned Californians can rest easy knowing that direct-to-consumer genetic testing will live to see another day in this state.

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Senate Committee Passes Compromise SBIR Reauthorization Bill

Written by on Monday, August 18th, 2008

The Senate Committee on Small Business and Entrepreneurship ("SBE") recently passed a compromise Small Business Innovation Research ("SBIR") reauthorization bill that would allow small companies that are majority-owned by venture capital firms to be eligible for SBIR awards.

According to the SBIR Reauthorization Insider, the SBIR/STTR Reauthorization Act (S. 3362) is a  "completely new bill" that is "not related to H.R. 5819, the House’s SBIR/STTR Reauthorization Act passed in the House" back in April, 2008.  The complete draft of the bill is attached.

According to the SBIR Reauthorization Insider, some of the highlights of this bill are as follows:

  1. Higher Award Amounts – The SBIR and STTR awards are increased to $150,000 in Phase One, $1 million in Phase Two, and are now able to exceed the guidelines by up to 50%.
  2. Increase in the SBIR/STTR Cap– The SBIR cap will be increased from 2.5% to 3.5% at a rate of .1% over 10 years.  The one exception is the NIH, which will stay at 2.5%. The STTR cap will double from 0.3% to 0.6% over 6 years.
  3. Venture Capital Eligibility-A "small business" that is majority owned and controlled by multiple VCs will be eligible to participate in the SBIR program under certain conditions. No single VC can own more than 49% of the small business entity; the VC must be a United States Venture Capital Company; the VC owned small business must register with the SBA when they submit an SBIR proposal. The NIH will be limited to awarding not more than 18% of their SBIR award funding to such VC owned small businesses, and the remaining 10 agencies are limited to 8%.
  4. Length of Reauthorization – The new bill would be reauthorized for fourteen (14) years, resulting in new sunset dates of September 30, 2022, for SBIR and September 30, 2023, for STTR.
  5. Crossover Between Agencies– The new bill would allow Phase One awards at one agency and Phase Two awards at another.
  6. Crossover Between SBIR and STTR Programs-The new bill would allow Phase One awards through the SBIR and Phase Two awards through the STTR, or vice versa.
  7. SBA Waivers Will Not Be Required–SBA waivers will not be required for partnering, subcontracting, or entering into a Cooperative Research and Development Agreement ("CRADA") with a  federal lab of a federally funded research and development center.
  8. Reorganization of the SBA’s Office of Technology.  The bill will move the Office of Technology out from the contracts department and make the Office of Technology directly reportable to the SBA Administrator.  The aim is to restore some of the authority to this office, which was intentionally rendered ineffective in the past due to funding and staff cuts.

This bill obviously falls short of what the biotech industry was seeking in reauthorization legislation, as there is a cap on the percentage of awards that can be given to vc-backed businesses.  However, the industry should be pleased at the fact that a reauthorization bill is now likely to be passed, and some progress has been made toward opening  up awards to vc-backed businesses.  In all likelihood, the final legislation will no longer include a ban on awards to vc-backed companies, which is in itself a victory for the biotech industry.

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Fallout Continues on Roche Bid for Genentech

Written by on Monday, August 18th, 2008

Despite Genentech’s rejection of Roche’s $43.7 billion offer last week, coverage of the fallout from the "failed" bid continues as industry observers speculate on Roche’s next move. 

According to a report by the Silicon Valley Business Journal and San Francisco Business Times, Reuters has forecasted that the final purchase price of Genentech will be $53 billion or $107.50 per share.  According to The Pink Sheet Daily, such a high price could prove to be problematic for Roche, who may be forced to make operational cuts as a direct result of the deal.

Speculation is also growing as to whether or not Genentech is going to be able to keep its talent in anticipation of a potential acquisition by Roche.  SF Gate reported that, as anticipated by analysts, there already is a flurry of recruiter activity erupting at Genentech as a result of the initial Roche bid.  The Pink Sheet Daily noted that it will be difficult to retain Genentech’s current talent, as many of the senior-level people will have no financial incentive to stay.   Of course, it goes without saying that the general atmosphere of uncertainty and the anticipated change of culture will likely start driving employees out the doors of Genentech.  However, observers seem to agree that Roche has likely worked the loss of key Genentech employees into the equation in deciding to pursue a bid to acquire the company. 

The Genentech/Roche deal is viewed as just the first of  a new wave of big pharma acquisitions of biotech companies to come in the near future, as pharma companies continue to explore opportunities to replenish their pipelines.  Seeking Alpha explained as follows:

Big Pharma is feeling the need to find new products with blockbuster potential as several important drugs approach the expiration of their patent protection. . .  . Many large pharmaceuticals have lots of cash on their balance sheets, making acquisitions an affordable option. The weaker dollar has also made U.S. companies look more attractive to biotech and pharmaceutical firms abroad. Another major factor is the difficult process of receiving FDA approval. This lengthy and grueling process provides an additional incentive to buy companies that have already received FDA approval on their drugs, ensuring smooth pipeline production going forward.



Potential buyout targets to keep an eye on: Amylin Pharmaceuticals (AMLN), United Therapeutics (UTHR),  Alexion Pharmaceuticals (ALXN), Onyx Pharmaceuticals (ONXX), Vertex Pharmaceuticals (VRTX).

To date, there has been no word on Roche’s next move or when it is likely to take place.  How high will Roche go with the next offer?  The California Biotech Law Blog will keep you posted on any developments.

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Genentech Declines Roche $43.7 Billion Acquisition Offer

Written by on Thursday, August 14th, 2008

Following up on our July 24th posting about Roche’s bid to acquire Genentech, it is now official: Genentech has declined Roche’s $43.7 Billion Acquisition offer.

A Genentech press release explained the decision as follows:

The special committee of the Board of Directors of Genentech, Inc. announced that, after careful consideration, it has unanimously concluded that Roche’s proposal to acquire the shares of Genentech not owned by Roche for $89.00 per share substantially undervalues the company. Therefore, the special committee does not support the proposal. However, the special committee would consider a proposal that recognizes the value of the company and reflects the significant benefits that would accrue to Roche as a result of full ownership.

The Genentech press release further indicated that the special committee also approved the "implementation of a broad-based employee retention program to address any employee concerns created by the Roche proposal."

Will Roche increase its offer, now that its opening bid has been rejected? If so, what will it cost for Roche to close the deal? 

My expectation is that Roche will make another offer and that the next offer will be larger than the first.  However, it is an open question as to how much money Roche will have to pay to get the deal done.  According to Seeking Alpha, the final sale price is likely to be over $105 per share and could even be as high as $130 per share.   Either way, there is no question that Roche is going to have to come up with more money to get the deal done. 

The California Biotech Law Blog will continue to keep you posted as any new developments regarding the Roche-Genentech talks arise.

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