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Archive for December, 2005

Calculating and Proving Patent Damages

Written by on Sunday, December 18th, 2005

Law Seminars International will be sponsoring the conference Calculating & Proving Patent Damages on February 27-28 at Crowne Plaza Union Square in San Francisco, CA.

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Dilemma of the Reasonable Royalty Rate

Written by on Sunday, December 11th, 2005

If you missed the recent blogpost by Stephen Albainy-Jenei, What’s a Reasonable Royalty Rate?, I urge you to check it out. Stephen addressed the question I know that many transactional lawyers like me struggle with: what exactly is a reasonable royalty rate in any particular transaction?

While Stephen acknowledges that Organizations like the Association of University Technology Managers (“AUTM”) and the Licensing Executives Society (“LES”) publish lists and statistical analyses of royalty rates, Stephen says of those publications:

Granted, using an established royalty rate shown in certain guides sounds good since these are derived from prior actual licenses for comparable products. The rates in the guides come from negotiation and paid by a sufficient number of licenses. As with reasonable royalty, an established royalty rate derives from the outcomes of willing parties licensing without the threat of a suit, or resultant from litigation. These rates are reflective of the profitability of industry segments. Correspondingly, what might pass muster for an established royalty depends upon the definition of a market segment. Commodity items tend to garner a relatively low royalty rate, just shy of 3%, consumer goods 5%, while software garners around 7-8%. But generalities don’t tell you anything about your particular deal.

So, if you can’t rely on particular guides to tell you what is reasonable, how do you ever really know what is reasonable? Stephen says to this point:

A reasonable royalty rate is often based on economic sense by utilizing a financial model which relates the investment required to develop a therapeutic technology to the income generated by such technology. What does that mean? It means you have to have a good business plan in place before you can talk turkey on royalty rates. And I don’t mean those wildly inflated fluffy business plans that companies create showing revenue in colorful logarithmic growth charts to impress potential investors. No, I mean a real, down-to-earth, cold shower type of business plan that takes into account all of the pain and suffering that could be encountered along the way.

Stephen shares with us some examples, but in the end, he seems to come back to the fact that the reasonable royalty rate is a somewhat amorphous concept, which is, of course, is basically how most of us have been answering the question when it is posed to us. We give the classic “it depends” answer, which is sure to drive the non-lawyer public nuts everytime they hear it. Still, Stephen has some interesting royalty rate negotiation insights that he shares in his blogpost, which are quite helpful, so even if he provides no definitive answer to the issue, I would definitely urge you to take a look at it.

Category: Biotech Deals, Practical Tips  |  Comments Off on Dilemma of the Reasonable Royalty Rate

San Diego-Based Ambrx to Collaborate with Roche

Written by on Friday, December 9th, 2005

San Diego-based Ambrx, Inc., and Roche have entered into a collaboration agreement, in which Ambrx will use its proprietary technology to develop next generation proteins and peptides. The parties plan to use the technology platform to generate novel pegylated interferon alpha molecules.

The terms of the agreement provide for Roche to fund research and development of the products and to retain exclusive worldwide commercialization rights. In return, Ambrx will receive license fees, research funding, development milestone payments, and royalties on product sales. The Roche Venture Fund has also agreed to make an equity investment in Ambrx.

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American Pharmaceutical to Acquire Santa Monica-based American BioScience

Written by on Friday, December 2nd, 2005

The Biotech Stock Blog raised some noteworthy concerns about the recent announcement by American Pharmaceutical Partners, Inc. that it will acquire its largest shareholder, American Bioscience, Inc., creating a biopharmaceutical company “Abraxis Bioscience.” If you did not read BioBlogger’s blogpost Bait and Switch: American Pharmaceutical Partners’ Proposed Acquisition of American BioScience (APPX) , you should check it out.

The terms of the acquistion provide for American Pharmaceutical to issue 86 million additional shares to American Bioscience, raising American Bioscience’s ownership of American Pharmaceutical’s shares from 64.4% to 83.5%. Abraxis Bioscience will own the global rights to Abraxane, a cancer treatment marketed in the United States for metastatic breast cancer, and American Pharmaceutical chairman and American BioScience CEO Patrick Soon-Shiong will become the chairman and CEO of the new Abraxis Bioscience.

It is this last point that caught the attention of BioBlogger, who said of the acquisition:

The rationale behind the transaction is to simplify the corporate structure while acquiring all the rights to the cancer drug, Abraxane, and a pipeline of development stage drugs. The question is: Is this transaction being done in the best interests of shareholders? In my opinion, the only person that will be enriched by the deal is American Pharmaceutical Partners’ (APP) Chairman and CEO, Patrick Soon-Shiong, who also happens to own over 80% of American BioScience (ABI) and is its President and Chief Financial Officer. . . . The most disquieting fact pertains to Patrick Soon-Shiong who owns more than 80% of ABI and is its President, Chief Financial Officer, and a Director while also serving as APP’s Chairman and CEO. Since ABI owns almost 48 million shares of APP, Mr. Soon-Shiong is a de facto shareholder in APP to the tune of about 40 million shares. The relationship between ABI and APP isn’t what one would define as “arm’s length.” Mr. Soon-Shiong’s interests are clearly not aligned with APP’s minority shareholders. The proposed merger of APP and ABI illustrates this point…

BioBlogger further explains his concerns:

As a consequence of the merger, existing shareholders, in addition to their shares being diluted, will sacrifice 50% of their interest in the profitable generics business in exchange for ABI’s early stage pipeline. The majority shareholder in ABI, and as a result the de facto majority shareholder in APP, Patrick Soon-Shiong, will increase his APP interest from about 40 million shares to about 130 million shares. In the process, Mr. Soon-Shiong gets a top valuation for is private stake in ABI and converts the aforementioned stake into publicly traded APP shares. He accomplishes all this while also pawning off ABI’s product development risk to APP shareholders and gaining exposure to APP’s profitable generic business. It’s easy to see how this benefits Mr. Soon-Shiong, but how does it benefit APP shareholders?

Clearly, BioBlogger raises serious concerns regarding the underlying reasons for this acquisition, including even the rationale for the $4 billion valuation for Abraxane. It goes without saying that many people are going to be watching Mr. Soon-Shiong as this deal closes.

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Power Tools to Maximize Career Success: A Workshop to Promote Professional Development

Written by on Thursday, December 1st, 2005

The San Francisco Association for Women in Science will be hosting the event Power Tools to Maximize Career Success: A Workshop to Promote Professional Development on February 26, 2006 from 10:00 a.m. to 3 p.m. at Genentech Corporation, Genentech Gateway Campus, Bldg 83, Rm 1A, 611 Gateway Blvd., South San Francisco, CA. Dr. Gail Schechter will be speaking.

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Ruling on Suits Challenging Legality of California Stem Cell Institute

Written by on Thursday, December 1st, 2005

Stem Cell advocates suffered another setback yesterday, when Alameda County Superior Court Judge Bonnie Sabraw denied a motion to dismiss two lawsuits challenging the legality of the state’s stem cell institute, the California Institute of Regenerative Medicine (“CIRM”). The ruling means that funding for the CIRM will continue to be blocked into next year, and that the CIRM will have to continue to operate with only the $3 million loan from the state and a $5 million grant from the founder of Dolby Laboratories. Robert Klein, chair of the CIRM, has said that the agency has only enough money to operate until May, 2006.

As a transactional lawyer who has some familiarity with the litigation process, I wonder if five months is really enough time to resolve these suits and fund the CIRM. It would not surprise me in the least if five months from now we find ourselves watching as the CIRM closes its doors and lays off all of its employees and Proposition 71 becomes just another failed experiment. The test for California will be to see if the public will come to the CIRM’s rescue. Do Californians really believe in the concept of stem cell research enough to keep Proposition 71 alive?

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