I had the opportunity last night to represent the California Biotech Law Blog at the Bay Area Blawgers Event, where I met many of the Bay Area’s most prominent blawgers.  Law Professor Eric Goldman at Santa Clara University organized the event, which was attended by more than forty-five blawgers and members of the media, including yours truly. 

It was a great privilege to be in the presence of so many Bay Area blawgers, and to have the opportunity to hear first-hand their thoughts on why they blog, how they dealt with the challenges they have encountered in blogging, and the role we are all playing in developing the law today.

The event was such a success that there are already plans in the works for a second Bay Area Blawgers Event later this year. 

While the focus of the California Biotech Law Blog has always been very targeted on the subject of California biotech law, this event gave me occasion to step back and look at this blog as part of a larger community of blawgs.  We have some very impressive company.

What thoughts did I take away from this event, which are relevant to you as readers of this Blog?

First, I was struck by the fact that the audience of this Blog is very different from the audience of many of my blawger colleagues.  The scope of this Blog crosses over a variety of professions and skillsets, all of which share an interest in the very specialized area of biotech law.  This was in sharp contrast with the audience of many of my colleagues’ blawgs.

Second, due to the nature of this Blog, we have not run into some of the challenges that many of my colleagues have encountered.  This is in large part because we’ve not yet created the same level of controversy with this Blog. is this good or bad?  I am not sure–perhaps it is the nature of our subject matter.  Or our audience.  Certainly, we in the industry have our opinions on the issues, but it may be that we just do not voice them as strongly in this Blog setting as others do. Perhaps this will change down the road.

Third, the tone this Blog has taken to date has been more educational in nature than pushing a particular perspective or agenda.  This was in contrast to some of the other blawgs represented at the event. 

My final thoughts on this issue: this Blog is still a young blawg and I know that this event and the greater awareness of the larger blawgging community will impact in some way its development.  I thank everyone who participated yesterday for giving me the opportunity to develop a better understanding or this Blog’s role in the greater Bay Area blawg community.  I am confident that this will work to the benefit of the California Biotech Law Blog, both in its short-term and long-term development.

Which five biotech companies should industry followers be watching today?

BusinessWeek.com ran a column today written by Eric Halperin, where he identified five of the most promising biotech companies to watch.

Which companies made his list?

1. Alnylam Pharmaceuticals

2.  Affymax

3.  Jazz Pharmaceuticals

4.  Altus Pharmaceuticals

5.   Trubion Pharmaceuticals

How did Halperin decide on this list?

In the case of Alnylam Pharmaceuticals, Halperin wrote:

In October, pharma giant Merck agreed to buy Sirna for $1.1 billion, a staggering sum for a company very early in the drug development process. The reason? Sirna is one of only a few companies developing drugs based on RNA interference, a technology for which scientists won the Nobel Prize, that involves blocking gene expression.

Alnylam is another. The company has only initiated an early-stage safety trial for its lead product candidate, a treatment for respiratory syncytial virus, but RNAi could be the bigger asset. . . .

What about Affymax?  Halperin wrote:

The company priced above its range in December and has a market valuation of almost $500 million. So why does this loss-making company appeal so much to a few investors? Among other factors, the company received funding from big-name venture capitalists like MPM Capital and Bear Stearns Health Innoventures.

Another is potential sales. The company’s hopes rest on Hematide, an erythropoiesis stimulating agent designed to treat anemia in patients with chronic kidney disease and for cancer patients undergoing chemotherapy. Anemia-fighting drugs are blockbuster sellers—generally defined as more than $1 billion-plus in annual sales—for Johnson & Johnson and Amgen. And Affymax believes Hematide could be longer acting and cause fewer side effects than the existing products. The drug is in several mid-stage trials.

While Halperin is a little vague on his reasons for selecting Jazz Pharmaceuticals, he is a bit more definitive regarding Altus Pharmaceuticals, stating:

Cowen has an outperform rating on the stock. The firm likes Altus’ business model of modifying drugs to treat rare diseases . . . .

As for Trubrion Pharmaceuticals, Halperin stated:

Seattle-based Trubion develops drugs designed to bind to targets on cell surfaces. The lead product candidate, now in mid-stage trials, aims to treat rheumatoid arthritis, a market with blockbuster potential. The company believes it may also have use in treating lupus, though it has not yet begun clinical trials aimed at the disease.

Trubion carries all the usual biotech risks, but investors have warmed to the company anyway. The stock is up more than 50% since its October IPO. . . .

Even though as a lawyer, I focus less on which companies are likely to become the best investments than I do on whether or not the companies will prove to be good clients or how they are impacting the law, I think it is always useful to know what is being said in the investment world about a particular company.  It will be interesting to see how his picks do over the next few years. 

From my perspective, however, given all of the innovation coming out of the biotech industry and all of the emerging biotech start-up companies, I think that it is impossible to narrow down the list of young stars in the industry to five players.  I can only imagine that time will show that Mr. Halperin has omitted many of the biotech companies from his list who will ultimately prove to have been terrific investments.  Some of those could very well prove to be even better investments than the companies on his list. 

In case you missed it, The Biotech Weblog recently reported on Fierce Biotech’s release of the Top Five Regions Targeting Biotech Companies in 2007. 

Contrary to what you might expect, Florida–not California–was at the top of the list. 

What propelled Florida to the top of the list?  Fierce Biotech stated as follows:

Florida scored two important coups when Scripps Florida and the Burnham Institute both were wooed here by economic development officials armed with state cash and determined to transform the state by making it a powerhouse in academic research. The Burnham Institute alone garnered $155 million in state support last year for an expansion program and Scripps gained more than $700 million to back its Florida move.

That investment is beginning to pay off. In recent months Scripps Florida signed a $100 million research agreement with Pfizer and saw its first spin-off–Xcovery–take off. The University of Florida, meanwhile, has been cited by the Milken Institute as a leader in the country for its technology out-licensing and commercialization work. And that work is a key contributor to developing startups in biotechnology.

It may take years for the snowball to really get rolling on the commercial side of drug discovery, but Florida has created a blueprint on laying the foundation for a cluster.

Of course, California was not left off the list entirely.  California made Number 3, right after Singapore. 

This is not the first time Florida’s inroads into the biotech industry have received attention.  Prompted by an article written by Richard Krause of Investor’s Business Daily, Seeking Alpha recently wrote:

It all began in 2003 when the Scripps Research Institute of La Jolla, California, was promised by Palm Beach County [Florida] a significant amount of financing to establish a biotechnology research hub in the state. Scripps accepted the proposed $500 million in financing, and initiated plans for a mega biotech site on the Western fringes of Palm Beach County.  .  . .

This much honey tends to attract more bees. Torrey Pines Institute for Molecular Studies lobbied for financing from Palm Beach County for establishing a large research center in Boca Raton. Palm Beach County denied the request, citing the institute’s relatively small level of federal funding dollars. Torrey Pines finally received $100 million from St. Lucie County, about an hour drive north of Palm Beach. Ground breaking for the new site is expected by March.

Burnham Institute for Medical Research also wants a strong presence in Florida, and has so far received over $300 million in state and local incentives to establish a life science research site near Orlando. Not to miss out on the handouts, SRI International of Silicon Valley opened its new marine technology research complex in St. Petersburg. A permanent facility is expected by mid-2008. Almost $50 million has been invested in SRI so far. . . .

According to Seeking Alpha, "[t]here still is room for the biotech industry to grow in Florida, and there are plenty of research institutes, life science companies, intellectual property law firms, and venture capital groups waiting for a piece of the pie."

Will Florida–or any other state for that matter–ever succeed in attracting biotech to such a degree that it will really rival California as a hub for biotechnology?  The elements that have made California such  a success will be very difficult to recreate outside of the state.  Only in California do you have access to venture capital, a highly skilled workforce, and world-class universities–all in close proximity.  While it would be theoretically feasible to build such a community outside of California, it is difficult to imagine that this could be easily accomplished in Florida or any other location. 

As a native of the Southeast, however, I wish Florida the best in its quest to bring build a biotech hub in its state.  While I continue to be a strong supporter of the California biotech industry, nothing would please me more than to see a strong biotech industry emerge in the Southeast.   

Business Week Online ran an interesting article this week on a new trend in the biotech world: private equity investing. 

According to Business Week Online, "at first blush, private equity and biotech make for an odd marriage."  Business Week explains as follows:

The biotech industry is famous for unstable cash flows and massive research-and-development budgets that produce many more flops than blockbusters. Private equity players aren’t known for their patience, either, and successful drugs often take decades to come to market. No amount of financial engineering can speed up the science. Still, some private equity players think they can earn big returns in the sector, even though it means investing in R&D.

The article goes on to say that, to date, the deals have been limited to businesses that have steady cash flow streams or have found ways to keep the money flowing; however, the article concedes that another play is "finding outfits that provide services to biotech scientists and thus don’t have huge research tabs." 

As Business Week Online  points out, the market for private equity could be tremendous in the biotech industry.   Indeed, the article states as follows:

Such biotech treasures could be plentiful for private equity. Stephen Evans-Freke, managing general partner at Celtic Pharmaceutical Management, a private equity firm specializing in the sector, estimates that half of biotech’s 300-odd publicly traded companies have a market value of less than $250 million—a size that makes it tricky to raise extra cash. On top of that, there are 1,000 or so privately held biotech enterprises, many of which have been struggling to pull off a public offering since the 2001 market crash. . . .

The article raises some interesting points.  It would be interesting to know just how much this trend has really taken off.  Could private equity really be another option for biotechs who aren’t quite ready for an IPO? 

Legislation has been proposed that would establish a new Office of Intellectual Property for California.

AB 1456, proposed on February 23, 2007 by Assembly Member Mullin, would accomplish the following:

This bill would establish the Office of Intellectual Property in the Business, Transportation and Housing Agency. The agency would be responsible for tracking intellectual property generated by state employees and by state-funded research, developing a database to track intellectual property, establishing and updating guidelines for use by state agencies in administering their intellectual property, developing an outreach campaign informing state agencies of their rights and abilities concerning intellectual property, and developing sample invention assignment agreements and sample language for licenses or terms-of-use agreements for use by state agencies. The bill would define terms that apply to the function of the agency, and
would make findings and declarations regarding intellectual property. This bill would require that intellectual property policies, established on and after January 1, 2009, meet certain requirements regarding rights and uses of the research or invention. It would also require that state agencies or departments submit an annual report regarding royalties earned pursuant to the agency’s or department’s contracts, grants, or agreements to the office.

The jury is still out as to what the reaction will be by the biotech industry to this proposed new legislation. Bay Bio held a town hall meeting to discuss the legislation last week, and the event description provided the following background on the bill:

[T]he use of technology transfer programs remains a potential vulnerability for the life sciences industry. There are members of the California State Legislature who advocate restricting the use of intellectual property developed at state institutions, (such as the University of California) as a way of lowering the price of prescription drugs or increasing revenue for the state. These individuals have favored provisions that would limit access to state IP only to companies that agree to sell resultant therapeutics at the federal Medicaid price when purchased using public funds. Additional proposals have included mandating payments equal to 25 percent of net licensing revenues or requiring 2-5 percent of revenues from a developed product be paid to the state over the lifetime of that product.

Furthermore, there are state agencies that have developed intellectual property but have no mechanism in place to license it to private industry. Assemblyman Gene Mullin (D-South San Francisco) has reintroduced legislation to create a statewide office of intellectual property. When this bill was considered by committee last year, it was amended by the committee to include some of the provisions previously mentioned. Although the bill did not get out of committee it did raise concerns about the IP and technology transfer policy in California.

The current bill (AB 1456) will be amended to remove the cost control provisions, but the debate continues on the use of IP from state institutions. . . .

Will a California Office of Intellectual Property benefit the state biotech industry?  Will it benefit the citizens of California?  Or will this just create another layer of bureaucracy and red tape?  I fear that establishing such an Office could hamper intellectual property in this state rather than promoting it.  However, I will reserve final judgment until I hear more. 

H.R. 1561:The Enhancing Drug Safety and Innovation Act of 2007 was introduced this week by Representative Henry Waxman (D-CA) and Representative Edward J. Markey (D-MA).   H.R. 1561 is the House counterpart to the Enzi-Kennedy drug safety bill (S. 484). Representative Waxman’s website states that H.R. 1561 will do the following:

• Give the FDA enhanced tools to ensure post-market drug safety through the “Risk Evaluation and Mitigation Strategy” (REMS) process, including: (1) increasing the possible moratorium on direct-to-consumer advertising from two years to three years; (2) adopting the IOM recommendation that the FDA place a symbol on the packaging of a product to let consumers know that the drug is new to the marketplace; and (3) requiring a review of drug products after they have been on the market for 7 years (the average time it takes to detect most side effects);
• Increase the transparency of the REMS review process;
• Enhance FDA’s enforcement authority by giving the FDA the ability to impose civil monetary penalties if drug companies fail to comply with any requirements relating to drugs in the Federal Food, Drug, and Cosmetic Act and increasing the amount of those civil penalties;
• Provide for a balance between funding from user fees and federal dollars in FDA’s drug safety budget by authorizing $25 million for each of fiscal years 2008 through 2012 in addition to other funds available for carrying out Title I activities;
• Require the FDA to report to Congress on its efforts to integrate the expertise of the Office of Surveillance and Epidemiology (formerly Office of Drug Safety) into the Agency’s approval, labeling, and post-approval safety decisions; and
• Strengthen the clinical trials registry and results databases to include more information on more trials (including medical devices), and give the Secretary the added ability to impose civil monetary penalties for non-compliance.

The Scientist reported on the Senate version of this bill in August, 2006, highlighting two opposing viewpoints on the proposed legislation.

The biotech industry has been somewhat silent as to the pros and cons of this bill to date, which may speak to the industry’s views on the issue–clearly there are times when silence speaks more loudly than words. 

Angel investing is reportedly up in 2007, and the life sciences and health care industries are among the key recipients of the funding.

The Biotech Weblog, which reported on a recent study conducted by the Center for Venture Research at the University of New Hampshire, wrote that:

[A]ngel investing picked up in 2006, and is likely to continue to do so in 2007. And biotech is one the top three bets receiving funds from angel investors. 

According to  Red Herring, the trend since the downturn has been that angel investing has increased five to ten percent annually.   Moreover, Red Herring reported:

Angels continue to be the largest source of seed and startup capital, with 46 percent of 2006 angel investments in the seed and startup stage. This preference for seed and startup investing is followed closely by post-seed and startup investments—about 40 percent of total angel dollars. Healthcare services, and medical devices and equipment continued to account for the largest share of angel investments, with 21 percent of total angel investments in 2006, followed by software at 18 percent and biotech at 18 percent. The remaining investments were about equally weighted across high-tech sectors.

These reports are in sync with the trends we are seeing in the Bay Area towards investing in life sciences and health care.  Certainly, investment is being made in technology, but there continues to be a lot of talk about what is going to be the next big thing.  In contrast, with respect to the life sciences, the prevailing perspective is that there are multiple next big things on the horizon.  My expectation is that the gap will continue to grow over time.

Read the rest of this entry »

Bay Bio’s Member Orientation will be held on March 29, 2007.  Contact Maya Hovey for additional information at maya@baybio.org.

Patent reform continues to be a hot topic around the country, particularly in the Bay Area, where the world revolves around the patent system.  The topic of debate is of course, whether the current system which regularly churns out multi-million dollar jury verdicts, is broken and requires a complete revamping. Or whether our system, with all its flaws, is the best it can be. 

On one side of the debate, of course, is the argument that this push to litigation is stifling innovation, which goes against the goals of the patent system, which was intended to encourage innovation.  On the other side of the debate is the argument that litigation is a necessary consequence of the system, and that companies need litigation to protect their investment in innovation. 

Newsweek columnist Steven Levy recently took on the issue in his column, arguing the case for patent reform, taking issue with the argument that our system is the best in the world and far from broken, stating:

I’ll wager, however, that China would be less than delighted to emulate us if the consequences included events like the one in a San Diego courtroom last month. Following the rules of our system, a jury laid a whopping $1.52 billion judgment on Microsoft for infringing on a patent involving the mechanics of playing MP3 music files. Here’s what is outrageous: Microsoft had already licensed MP3 technology from the consortium that developed the standard, for $16 million. Years later, after MP3 technology took off, Alcatel/Lucent (inheritor of patents filed by the fabled Bell Labs) emerged to file its suit, and won almost 100 times as much as what was determined a fair license fee originally (because Microsoft had unwittingly infringed that patent). Unless the judgment is overturned, more than 400 other firms using MP3 technology are prone to a similar ambush.

I’d also guess that China or Brazil does not envy the outcome of the case where Rim (BlackBerry) had to pay $612 million to settle a case—even though the patents in question had been re-evaluated as invalid after the suit had been filed. Those are only two of a number of cases where patent holders used the system to extract huge, apparently unearned, sums.

Are these two cases, both in the high tech industry, really examples of a flaw in the system as Levy suggests?  Or is he taking an extreme position regarding a system that may not be perfect but is the best available?

The answer perhaps lies somewhere in between.  The costs of litigating in this country have skyrocketed generally in recent years, and the high costs of litigating intellectual property infringement cases are only a reflection of that trend.  Moreover, verdicts around the country have gotten larger over time, and verdicts in infringement cases reflect that trend as well.  One could argue that if a flaw exists, it is not really with the patent system but with the trial court system generally that has created these trends toward increased litigation and higher verdicts. 

Oddly enough, that viewpoint does not seem to be getting much airtime in the patent reform debate, but perhaps we should be giving it more consideration as we ponder a large overhaul of the patent system.  Are we focused on the wrong issue?