Billionaire Investor Carl Icahn has filed suit against Biogen in a Delaware chancery court in order to force Biogen to turn over documents related to its failed sale of the company last year, according to a Reuters.  Biogen was reported by Delaware Online to have lost $5 billion in market value as a result of its decision to abandon its plan to sell the company.  Icahn is a major investor in Biogen, owning shares valued at $650 million, according to Delaware Online.

Reuters described Icahn’s complaint as follows:

[In his complaint] Icahn demanded the right to inspect documents and board meeting minutes to determine what the board of directors knew about the sale process, which Icahn claims Biogen deliberately sabotaged.  According to the complaint, Icahn and his associates are demanding the documents in order to alert shareholders to any non-confidential information they discover about the performance of the board.

Xconomy provided some additional insight on the complaint as well:

Icahn’s complaint, filed in Delaware Chancery Court, repeats his earlier accusations that the confidentiality agreements prospective buyers were required to sign before they could talk to two key Biogen partners, Elan Pharmaceuticals and Genentech, were too restrictive. Both companies hold some change-of-control rights on key Biogen drugs—Elan on the multiple sclerosis and Crohn’s disease drug Tysabri, and Genentech on cancer-fighting Rituxan. Biogen’s restrictions on how suitors could talk to the companies, Reuters said Icahn charged in the complaint, “prevented any potential bidders from learning where Biogen’s third-party partners stood on exercising change-of-control options on key Biogen drugs.”

Biogen refused to hand over the documents when requested by Icahn on March 28th–a move which prompted the filing of the complaint.  Xconomy reported on the reasons Biogen has given for its refusal:

Biogen refused to hand over the information that Icahn demanded in part because CEO Jim Mullen and the company already shared much of it at a JP Morgan conference in early January. . . .  What’s more. . . .Icahn himself was a potential bidder on the company, and has already received much of the information he’s now seeking. “He has the information he says he’s looking for,” [says Naomi Aoki, a spokeswoman for Biogen], To disclose anything beyond what is already disclosed, which would include confidential internal documents, “we believe would compromise and negatively affect our ability to maximize value for shareholders in any future sale process,” she said.

So, you might wonder: who exactly is this billionaire investor Carl Icahn?  The Boston Globe ran a good story on Icahn last August, which provides some background on Icahn and context to his fight with Biogen:

Icahn . . . . might be best known as a corporate raider who piloted TWA in 1985 and tried to grab Nabisco in 1996, often buys large stakes in companies and pushes them to make changes or find a buyer. Icahn, a former medical student, has also shown increasing interest in rattling the cages of biotechs and drug makers. He gradually accumulated shares in ImClone Systems, Inc.., a cancer drug developer in New York linked to the Martha Stewart insider trading scandal. Last year, Icahn finally took control of the company after a raucous shareholder battle and vowed to install his own management team.

In February, Icahn revealed he had taken a 1 percent stake in MedImmune, Inc., one of the country’s largest biotech firms. Shortly afterward, he threatened to start a shareholder fight to force the sale of the Maryland company, complaining about its "lackluster" performance. In April, MedImmune agreed to sell itself to drug maker AstraZeneca PLC for $15.6 billion. . . .Not all of his moves have paid off. In late 2004, Icahn disclosed he became the biggest shareholder in Blockbuster, Inc. and quickly pushed for changes at the movie rental chain to compete with online competition like Netflix, Inc. Since then, Blockbuster’s stock has fallen from about $10 a share to less than $5.

I have not had the opportunity to review a copy of Icahn’s complaint, but based on the reporting, it appears that the sole justification for this lawsuit is to obtain documents.  It would be interesting to know what other claims, if any, are included in the complaint. 

Will this suit succeed in forcing Biogen to be put up for sale once more?  It seems very unlikely.  So, what is Icahn going to accomplish by this lawsuit?  While it is possible he will obtain the documents he is seeking, it is difficult to come up with any other real benefits that could result from his action.  Is he hoping to come up with evidence of wrongdoing in order to take corporate decisionmakers on at an individual level? Or is this merely an act of aggression to encourage compliance with his wishes?

In all honesty, this suit leaves me scratching my head a bit.  We will follow how it develops at the California Biotech Law Blog and keep you posted, as I am certain that many of you in the biotech world will want to take notes on Carl Icahn’s activites.  The knowledge will likely be useful if and when he ever invests in your biotech company. 

The Patent Office is considering whether or not to appeal a recent ruling by a U.S. District Court in Virginia, which voided the new rules limiting how many times companies could submit patent applications, according to a report by the San Francisco Business Journal.

The ruling was viewed as a victory for the biotech industry, since the industry had opposed the new rule changes. 

The San Francisco Business Journal explained the industry’s position as follows:

The problem is that, for competitive reasons, the biotech industry often has to submit patent applications before it has completed clinical trials. New drug technology only gets patent approval if it has been proven to help cure disease, but as clinical trials take years, companies might loose out if they wait to file until the benefits have been demonstrated in humans. Instead, applications are usually based on lab data that show a drug is likely to impact the molecular processes involved in disease. Sometimes patent reviewers find this data to be insufficient, especially if a new, little-understood class of therapies are featured in the application.

This is why the biotech industry disliked the changes. They only allowed companies two chances to resubmit if the patent reviewer rejected an initial application. The patent applications would also have to be more narrowly focused, forcing companies to limit the scope of their drug therapies early on.

In contrast, the opposing view by patent rule change supporters was that the "changes would help prevent abuses of the system," and that the biotech industry had been guilty of those abuses.  The San Francisco Business Journal reported on the position of supporters as follows:

[Many biotech companies submit patent] applications before new drug candidates have been thoroughly investigated. In these cases the patent application is used to curtail competitors while the research process continues. This goes against the fundamental nature of the patent process, which has never allowed a patent application to serve as a "hunting license."

The new rules were scheduled to go into effect on November 1, 2007, according to The Recorder.  However, Triantafyllos Tafas, founder of Ikonisys, and GlaxoSmithKline filed suit against the Patent and Trademark Office and its director Jon Dudas, to block this from happening.  Eastern Virginia U.S. District Judge James Cacheris granted a preliminary injunction on Oct. 31, 2007 and GlaxoSmithKline and Tafas filed for summary judgment on Dec. 20, 2007.

According to The Recorder, Cacheris granted summary judgment to the plantiffs earlier this month, ruling that the patent office can’t make "substantive" changes to the rules, only "procedural" ones. 

Ultimately, the Patent and Trademark Office’s decision on whether or not to appeal this ruling could be irrelevant.  The San Francisco Business Journal reported:

If a patent reform act passes over the next few years, the debate may become a mute point. A patent reform bill was proposed in early 2007 that would grant the USPTO more rule making autonomy.

Of course, patent reform legislation has not to date been passed, and so life sciences companies, including biotech companies, are likely to continue their challenge of this exercise of Patent and Trademark Office rulemaking.

The Biotech Industry Organization ("BIO") spent $6.6 Million on lobbying efforts in 2007, reported the Associated Press.

BIO’s lobbying efforts last year addressed a range of issues from patent reform to generics to FDA-related issues.  The Associated Press reported as follows:

[BIO’s] lobbying efforts went toward cloning issues ahead of the Food and Drug Administration’s ruling that cloned meat and milk is safe for consumers. Several members of Congress tried to compel the agency to do more studies before issuing a ruling, but FDA cleared the products for consumption in January. 

The biotech industry also lobbied on legislation to allow the Food and Drug Administration to approve generic copies of biotech drugs. Generic drug companies already market cheaper versions of regular, chemical drugs, but the FDA does not have the authority to approve copies of biotech drugs, which are more complicated.  Biotech makers opposed a bill that would have made generic biotechs medically interchangeable with the originals. The industry also argued generic biotechs should be classified as similar, but not interchangeable.

They also want biotech medicines to be guaranteed at least 12 years on the market before having to compete with generic copies. Generic drug makers say any protection beyond five years is unreasonable. Senate lawmakers attempted to pass a compromise bill last year, but negotiations broke down over the length of exclusivity.

This report raises some interesting questions about how much various industries spend today on their Washington lobbying efforts.  One of the issues that has repeatedly come up in the patent reform debate is how minimal the biotech industry’s lobbying efforts are in contrast with the high tech industry.  The argument has been that the proposed patent reform legislation favors the high tech industry, which has traditionally had more of a voice and presence in Washington.  However, as this report makes clear, the biotech industry’s expenditures on lobbying–at least BIO’s expenditures on behalf of the industry–are not inconsequential.  So, this report begs the question: if biotech’s lobbying efforts pale in comparison to high tech’s lobbying efforts on Washington, just how much is the high technology industry spending on Washington lobbying?  What kind of lobbying money is considered adequate to have a voice in Washington?

The California Biotech Law Blog wrote a blog posting on March 21st about legislation under consideration which would require doctors to disclose the acceptance of gifts from drug companies and we addressed the issue of whether doctors should have an ethical duty to disclose potential conflicts to patients; however, a column today by Peter Huber in Forbes.com looks at a new angle to this debate: whether the public should really be concerned about doctor bias against drug companies?

The crux of Huber’s argument  is that some doctors out there are biased against the drug companies because if drug companies churn out drugs that are too good, doctors will lose business.  Huber writes as follows:

Brilliant doctors often work closely with big drug companies, and they seem to like their corporate partners just fine. Too fine, say their vocal critics–no doctor can have objective views about Lipitor when he takes Pfizer‘s money to develop or test it. But when the critics are doctors themselves, as they quite often are, keep in mind that there’s a deeper conflict in play here that the critics never acknowledge or discuss. By working at the cutting edge of pharmacology in close collaboration with Big Pharma, top-tier doctors are taking over the whole medical show. It’s because of their work that so many of their less able colleagues are destined to provide doc-in-a-box services at Wal-Mart, at cut-rate prices prescribed by Big Insurance or Big Government. . . .

In the old way of looking at things, drugs are just extensions of the physician’s wise hands, like stethoscopes and sutures. But when Big Pharma’s products get good enough, they displace a whole lot of hands-on doctoring. A pregnancy test used to be an office visit and a lab analysis; now it’s a remarkably smart dipstick sold over the counter. Diagnosis used to be almost all doctor; now it’s almost all lab–and the lab technicians rely on higher-caliber dipsticks, assays and reagents developed and mass-produced by the same teams of top-tier doctors, research hospitals and big drug companies.

When drugs get good enough, they displace hours of ineffectual (but remunerative) human monitoring and palliative care. Drugs displace doctors, nurses and hospital beds because they really work and because they often work long before bad chemistry morphs into clots, plaques, lumps and other symptoms that require scalpels and beds. In the first half of the 20th century almost all medically supplied gains in health and life expectancy came from germ-killing vaccines and antibiotics. All the important gains since have come from arrays of drugs that target clogged arteries, strokes, cancer and other diseases rooted in our own human chemistry. Human eyes can’t see and human hands can’t handle most of the things that make us sick–bacteria, viruses, white blood cells, antibodies, proteins, enzymes, fats and genes.

At first glance the argument seems a bit ludicrous.  Isn’t there a doctor shortage in many places?  Aren’t we having to import doctors from overseas? Isn’t there talk about the fact that the baby boomers growing older means we need more doctors than medical schools are already churning out?  Why would doctors be concerned about losing work? Or at least work that is the most profitable?

But on further consideration, you have to admit that there may just  be a glimmer of truth in the argument.  Coming from a medical family myself, I know that the real money for a physician is in specialization–becoming board certified in a particular field.  This is not so different than in the legal field.  You specialize to become an expert on a particular field, since experts can stand out in the profession and potentially make more money. 

In the medical profession, patients go to specialists when they have an illness that seems to need the attention of an expert in that field.  However, if a miracle drug exists that eradicates the illness, would that patient ever need to go to the specialist?  The patient might never get past the primary care physician.  Or, if the the patient did go to the specialist, at the very least the physician wouldn’t see the patient very often. The patient would take the drug and not really need a specialist unless the drug stopped working, which in the case of the miracle drug perhaps wouldn’t happen.  Perhaps the specialty wouldn’t really be that profitable any more.

Sounds crazy?  Maybe.  But it does happen in the legal profession.  Specialties become unprofitable all the time.  Lawyers get asked to leave law firms, or they just gradually realize that they need to switch specialties if they intend to have a profitable practice.  Isn’t it just possible that the same could happen to specialist physicians?

I think the answer is yes: it can and probably will happen to some physician specialties.  Perhaps not as quickly as a legal specialty becomes unprofitable, but just like certain jobs are getting phased out due to technological advances, the same probably will happen to certain physician specialties over time as biotechnological advances make certain specialties unprofitable.  Look what is happening in the medical profession: the same consolidation that has happened in the legal industry is increasingly happening among medical practices.  With consolidation comes the reality that practices and specialties will be viewed through the eyes of the business on their overall profitability to that business.

So, back to the argument–is it just possible that there is a bias by some doctors against pharma due to a fear that  pharma may be doing its job too well?  Perhaps. I’ve certainly seen things written by lawyers worrying that technology will cause us to be able to do our job too efficiently.  Why wouldn’t doctors have similar worries?  Can’t those worries cause a conflict?  Of course, they could.  I would be concerned if the practice I had built was looking like it might not have a future–or at least a very profitable future. That’s only natural. 

How concerned should we the public really be about this?

Well, I think we should keep it all in perspective.

In the end, technological advances benefit society and our professions at large.  Doctors, like lawyers and other professionals, will inevitably develop new expertise as the need for various specialities changes with those advances–we all have to adapt in this world to survive.  So, any damage to a practice that might be caused by those advances will likely be temporary.  Savvy doctors will develop new expertise just like savvy lawyers and other professionals have to do to change with the times.  In my opinion, the majority of doctors will recognize this reality and not let fear get the better of them. 

Nevertheless, Huber makes some interesting points, which are definitely worth considering in parallel as Congress considers legislating that doctors disclose potential conflicts with drug companies.  Should we perhaps be taking another logical step and asking if Congress should really be legislating on doctor conflicts?  Or should we perhaps consider other possible doctor conflicts in tandem to what Congress has been proposing?   Is focusing in on doctor conflicts arising from receiving gifts from drug companies too narrow a focus for the legislation?  I think that these are all valid questions to consider as Congress moves forward and addresses this issue.

While investors may not aways support biotech alliances as discussed in our  March 27th blog posting, entering into an alliance with a pharmaceutical company can still make good business sense, as in the case of the $320 million Cell Genesys-Takeda deal that closed this week. 

The In Vivo Blog reported on the terms of the deal as follows:

Takeda agreed to fork over $50 million in up-front payments, plus additional regulatory and commercialization milestones worth up to $270 million for exclusive world-wide rights to the product. In addition, Takeda will pay Cell Genesys tiered, double-digit royalties based on net sales of the GVAX immunotherapy in the US; in all other regions, Cell Genesys will receive flat double-digit royalties. Not quite a profit split, but again, by no means stingy.

Just as important, going forward Takeda will pay for all external development costs associated with the the immunotherapy’s clinical development and will also pick up the tab for all additional development and commercialization costs. Cell Genesys even managed to wrangle a co-promote option–US only–out of the Japanse firm. Finally, the deal only includes the prostate cancer immunotherapy. Cell Genesys is free to develop its GVAX technology to treat other cancers.

Why did this deal make good business sense for Cell Genesys? 

According to the In Vivo Blog, one reason is that Cell Genesys obtained a deal which will pay the company a significant amount of money in an agreement for technology that remains unproven–Cell Genesys Phase III GVAX immunotherapy for prostate cancer.

Moreover, the partnership will provide the cash to cover the costs that Cell Genesys anticipates burning this year,  The In Vivo Blog explains as follows:

On its fourth quarter earnings call in late February, the company’s CFO, Sharon Tetlow, reported it had just $147 million in cash. Not bad for a biotech, but not good considering the $100 to $105 million burn the company forecasted for 2008, thanks largely to the significant costs associated with its prostate cancer immunotherapy trials, VITAL-1 and VITAL-2. With one partnership, the company has managed to off-load the lion’s share of these costs, giving it some much needed breathing room, while still enjoying upsides in terms of development and generous royalties. 

All in all, the In Vivo Blog concludes that "[t]here’s no doubt the deal makes financial sense for Cell Genesys.  However, did this deal really make sense for Takeda?

First of all, backing the GVAX Prostate is highly risky, according toThe Street.com’s Adam Fuerstein, who argues that the clinical data to date is unreliable. 

Second of all, the controversy surrounding cancer immunotherapies may have been a red flag to other companies, who In Vivo Blog suggests would have "steered clear of Cell Genesys’s GVAX Prostate."

On the other hand, the In Vivo Blog suggests that the deal furthered Takeda’s recent growth strategy:

[Takeda] is desperate to extend its reach beyond Japan given that country’s sluggish growth and harsh price cuts. And, like other pharmas, Takeda certainly faces its own patent cliff. But the Japanese pharma is taking bold steps to play in the large molecule arena; according to Windhover’s Strategic Transactions Database, Takeda has signed 9 large molecule alliances since 2006. While most of the deals have focused on antibody technology–a la the Amgen partnership–the company is no stranger to risky ventures. Last summer, Takeda became one of the first pharmas to collaborate with aptamer pioneer, Archemix. . . .

So, perhaps this deal will really be a win-win for both parties.  Feurstein expresses his doubts and even the In Vivo Blog is not so sure.

Regardless of how Takeda fares, it is clear that Cell Genesys will benefit from this alliance–thus demonstrating in a very clear way why entering into alliances can be a good business decision for biotech companies.