In his blog Secondhand Smoke, J. Wesley Smith makes an interesting argument that California’s stem cell priorities have been misplaced.  Wesley points to an article in today’s San Francisco Chronicle as evidence for his argument.  The Chronicle article is a human  interest story on State Senator Carole Migden’s push for a state system to collect and store umbilical cord blood.

J. Wesley Smith writes as follows:

This story illustrates how politics has twisted the proper pursuit of regenerative medicine in California. During the last six years or so, the legislature went GA-GA over ESCR and human cloning. It passed a state law explicitly permitting human cloning research. And then, under a $35 million propaganda barrage, state voters agreed to an initiative (Proposition 71) that created a constitutional amendment to permit human cloning research and to fund SCNT and ESCR to the tune of $3 billion over ten years using borrowed money–meaning the actual cost will be about $7 billion. And all to pursue utterly unproven and ethically contentious approaches to regenerative medicine–and to supposedly “defy Bush,” even though Bush has done nothing to prevent state jurisdictions from funding whatever they want.

And yet, the legislature is only now getting around to creating an umbilical cord blood banking policy

Smith certainly makes a strong argument that California’s priorities have been misplaced.  The question for those of us in California: is he right?

Certainly, there is evidence that State taxpayers’ decision to fund stem cell research was a purely political one.  It is no secret that President Bush will not go down in the record books as the most adored President in this state.  One can absolutely make the argument that the decision to fund stem cell research was in part a reaction to the President’s repeated opposition for stem cell legislation, particularly since stem cell research is such a popular issue in this state.

Of course, a counter-argument could also be made that this State’s economy will be supported by the investment into stem cell research, since the investment will go largely toward hiring people to conduct the studies.  Many jobs will likely be created by the investment, which will trickle down to the economy at large.

However, one cannot help but wonder if the money couldn’t have been better spent elsewhere, even if you are a supporter of the biotech industry and of the concept of the research generally.  Our schools, health care, keeping drugs off the street, illegal immigration, crime, overcrowded prisons, and terrorism are just some of the many issues facing this state that could have also been better funded with the same money.  Did we as taxpayers make a good decision when we voted to use the funds instead on stem cell research?

It’s a thought-provoking question that all Californians should  consider.

The U.S. Appeals Court in D.C. has ruled in an 8-2 decision that the terminally ill have no right to take unapproved drugs, even when their doctor says it is their best hope for survival.

The Mercury News reported on the decision as follows:

[T]he court said federal drug regulators are entrusted by law with deciding when new drugs are safe for wide use.

The families of terminally ill patients, several of whom died after they were denied promising drugs that were still in tests, filed the lawsuit. They said that dying patients were far more willing to take risks and argued that they should not be forced to wait for new treatments to win final approval from the Food and Drug Administration.

The judges said the families should take their pleas to Congress, not the courts.

However, the two dissenters said the ruling ignored the Constitution’s protection for individuals and their “right to life” and instead bowed to “a dangerous brand of paternalism” that put the government’s interests first.

According the The Mercury News, the next step is going to be to take this case to the Supreme Court.  It goes without saying that this is not likely to be the last we are hearing on this issue.

I have not seen a copy of the decision yet, so I’m interested to see how the majority reached the decision that they did.  My best guess without reading the decision is that the Court felt that this is a policy issue that should be decided by Congress, which seems to be what was reported above.

Clearly, from a pure policy perspective, the denial of access to potentially life-saving drugs to the terminally ill does not seem to be sound policy.   While the guinea pig argument (i.e. we want to protect the dying from being guinea pigs to be experimented on in their last days) may sound compelling to some, the reality is that most doctors are not going to do that to their patients.  They are only going to recommend possible treatments that hold some hope of working.  And why shouldn’t a patient who chooses to take a chance on an unapproved drug have that opportunity?  What is likelihood that any patient will really face a fate worse than what they are already going to face?

DrugWonks voiced a similar opinion today on the outcome of this case:

I believe the Abigail Alliance and others can make the case that they are not asking for wide use but targeted, tailored and scientifically responsible use that is consistent with their constitutional rights under the Fifth Amendment. This notion that somehow such rights are trumped by Padzur’s effort [to] take a wrecking ball to accelerated approval is a joke. The FDA is inconsistent on who gets what and when with respect to access to medicines and I don’t think the Supreme Court is going to let this “wide use” nonsense pass particularly since the Alliance is not asking for patients to determine when a product is safe but only to have the FDA create a regulatory pathway for allowing dying patients access.

It will be interesting to see what the Supreme Court says on this case, if it is indeed heard by the Court.  As those of us who have studied Constitution Law know, the concept of “rights” has been liberally interpreted on occasion, according to Constitutional scholars, to reach a particular result that seems “just” from a policy perspective.  Could the current Court do the same?

I somehow doubt it.  We have a “conservative” Court in place right now, so I doubt this Court will be reading new rights into the Constitution.  Granted, I am not a Constitutional Scholar, but that is my take on the current Court.

So, it’s quite possible that this will ultimately be placed in the lap of Congress, which will hopefully do the right thing and change the current policy.  There should be some way to legally access unapproved drugs in this country that might save your life when you are dying.  If someone wants to continue to fight to live until the bitter end and not throw in the towel, even if that person is grasping at straws, why should the FDA have the right to deny him or her that chance?  Who is the FDA really protecting in such a case?

The Silicon Valley Chapter of Licensing Executives Society ("LES") recently sponsored an event in whch representatives from Stanford and the University of California ("UC") offered tips on licensing with the Stanford and UC systems.  Katharine Ku of Stanford University and Viviana Wolinsky of Lawrence Berkeley National Laboratory each gave an excellent presentation, outlining their respective university’s policies and procedures, as well as some of the issues of concern currently facing each organization.  Nader Mousavi of Wilmer Hale, which hosted the event, also participated.

What were some of the insights on their employers’ respective licensing programs that the two speakers shared?

Regarding the issue of exclusive licensing terms, Ku indicated that Stanford prefers fixed terms of exclusivity.  In contrast, Wolinsky indicated that UC is generally more willing than Stanford to agree to exclusive licenses that run for the full term of the patent.

On the issue of royalty rates, the speakers agreed that the range often runs from 3 to 6 % of net sales.  Wolinsky shared that the UC system is willing to consider royalty stacking, if this is brought up in the negotiations, and that UC may be willing to reduce the royalty rate on each license to half of what would otherwise be agreed to. 

On the issue of sublicensing, the speakers agreed that a royalty based on net sales from sublicensees is the current standard for UC and Stanford license agreements, replacing the once-common standard of a royalty based on sublicense income (which, in all honesty, I have never seen used in the licensing negotations I have been involved with).  The panel advised that in cases where sublicense income is used as the standard for the sublicensing royalty rate that the following should be excluded: research and development payments, equity, patent reimbursements, other research and development materials and equipment, and the fair market value of cross-licenses. 

The speakers highlighted an important distinction in how UC and Stanford prefer to handle patent prosecution in exclusive licenses.  The UC position is that the university controls all patent prosecution, whereas the preferred Stanford position is that the licensee controls all patent prosecution.  In both cases, the universities require that the exclusive licensee pays for the costs; however, UC prefers that the licensee reimburse UC for the patent prosecution costs, whereas Stanford prefers that the licensee pay the costs directly.

How do the universities deal with patent enforcement?

Ku indicated that Stanford’s default position is that Stanford has the right to enforce the patents, and that the licensee can step in if Stanford declines to enforce the patents.  Ku further stated that if the licensee enforces the patents, any damages recovered should cover costs first and then the balance should be treated as net sales/sublicense income. 

In contrast, Wolinsky stated that UC’s default position is the same as Stanford’s position, except that any damages recovered should go to the party bringing suit. 

Both Stanford and UC require university consent prior to any settlement, and provide the right to name the university as a party for standing.

How are Stanford and UC dealing with the recent MedImmune v. Genentech decision?

UC is taking the most unforgiving position on this issue.  According to Wolinsky, the position is that UC is drafting language into the license to state that if a licensee disputes the validity of a patent, the patent terminates.

In contrast, the Stanford position is a little more tolerant: Stanford is drafting language into the license to state that if a licensee disputes the validity of a patent, the licensee has to pay all costs.

Regarding other issues in the news, both Ku and Wolinsky indicated that the universities were very concerned about the prospect of patent reform, particularly with respect to the proposed changes to the "First to File" Rule.  Ku and Wolinsky also stated that both systems were now adding export control language to their NDAs as well as licenses.  Finally, with respect to sponsored research, Ku indicated that the Stanford policy is that the university is declining to set a royalty rate for inventions arising out of sponsored research, whereas Wolinsky indicated that UC continues to agree to a royalty rate range.

All in all, Ku and Wolinsky gave a very informative presentation on current licensing policies at their respective institutions.  After attending this presentation, however, I now find myself wanting to hear more from other universities on their current policies and procedures on licensing.  So, I am formally issuing an invitation into the blogosphere to any other universities who would like to share information to prospective licensees on their current licensing policies, procedures, and negotiating strategies: please share with us any insights on licensing at your schools, and this blog will gladly provide you a platform to publish that information to the biotech and licensing community.   I welcome your commentary. 

The International Herald Tribune ran an interesting article last week on the clash between biotech and high tech over patent reform.

The International Herald Tribune reported:

Both industries depend on patented inventions, but high-technology firms have been pushing for changes to lower the risk of expensive patent-infringement lawsuits. And much of what they want is reflected in a bill making its way through Congress.

Biotechnology companies, however, argue that such changes would make it harder to protect new discoveries. . . .

The biotechnology industry. . . . foresees damaging consequences. Biotechnology firms, major drug companies, and universities all stand to earn millions, sometimes billions of dollars on inventions that can be as small as a single molecule.

They attract financing based largely on the potential value of their inventions, whose profits may be many years in the future. If those inventions were more vulnerable to patent challenge, with decreased penalties for infringement, they would become far shakier foundations on which to build a company. 

The article raises an interesting question: is patent reform a bad idea for the biotech industry?

While clearly a case can be made that patent reform is not favored by the industry, I think it is a bit leap to say that patent reform is actually going to harm biotech companies.  Sure, proponents for patent reform are largely members of the high tech industry, which has increasingly had to worry about the phenomenon of "patent trolls" and high litigation damage awards, but that does not mean that patent reform is going to actually have a detrimental effect on biotechnology.  Isn’t it possible that, despite the gap between the industries on this issue, that in the end any patent reform measure passed will ultimately affect both industries to a similar degree? It is not as though the patent reform measures will be industry specific, although I am not so sure that the industries wouldn’t prefer otherwise.

Pfizer may serve as a good case study for the potential impact of new generics legislation, in light of its reports today of plunging profits due to generic competition.

Dow Jones Marketwatch reported:

Pfizer Inc. said Wednesday its second-quarter profit fell 48%, largely due to generic competition for its top-selling drugs Zoloft, Norvasc and Lipitor. . . .

Pfizer’s top line has been under pressure in recent quarters because of the loss of patent protection for several of its once-popular products, such as Zoloft, Zithromax and, most recently, Norvasc.

Once a patent expires, other drugmakers are legally permitted to make generic versions of the drug, which are often sold at considerable discount.

Pfizer has said that it expects revenue to be largely flat until 2009, when it sees sales of newer products compensating for those lost to patent expirations.

The United States Patent and Trademark Office (“USPTO”) has agreed to reconsider patents on Gilead’s HIV drug Viread, according to a report by The Mercury News.

The Mercury News reported:

The Public Patent Foundation, a consumer advocacy group, claimed in a petition filed with the agency in March that the patents shouldn’t have been issued because key facts about the makeup of Viread – generically dubbed tenofovir – had been made public previously. . . .

Invalidating the patents would let other companies seek federal permission to sell the same drug, which could make Viread more widely available and lower its price, said Daniel Ravicher, the foundation’s executive director. Retail prices for drugs vary, but a 30-day supply of Viread can easily cost more than $1,000.

Viread sales were nearly $690 million in 2006, so it goes without saying that the invalidation of these patents could potentially be very costly for Gilead.  Moreover, Viread is a key component of two other Gilead drugs, Truvada and Atripla.  Thus, the invalidation of the patents could potentially impact the sales of those drugs as well.

Should Gilead be concerned?  The USPTO agrees to reconsider a large number of patents each year and only a small percentage of those patents are actually invalidated, so the odds of these patents being invalidated are probably relatively small.  Still, Gilead has to have some concerns, since the invalidation of these patents is likely to have a very real impact on the company’s bottom line.

Biotech companies continue to rely on mergers & acquisitions over IPOs as a primary exit strategy, according to a new report by the San Diego Business Journal.

The San Diego Business Journal reported:

Normally, we can get a better valuation by doing a trade, sale or merger than an initial public offering,” said Ivor Royston, managing partner and founder at Forward Ventures. “We get better returns. I see a continuation of mergers and acquisitions that has been so dominating over the last two years. We just don’t see that many IPOs" . . . .

Royston, who was a founding partner of the former Hybritech, the first San Diego biotech, said large pharmaceutical companies are increasingly interested in acquiring startups as their pipelines run dry.

“Drugs are going off patent, and there is stifled innovation,” Royston said. “There are good relations now going on between private biotech and large pharmaceutical companies.”

Despite the continued trend toward reliance on mergers & acquisitions to cash out, the biotech industry has seen some IPO activity in the last year.

The San Diego Business Journal further reported:

The value of IPOs in the biotech industry in 2006 was $944 million, up 50 percent over 2005, according to the Ernst & Young 2007 Global Biotechnology Report.

But just $80 million, or 8.4 percent, of the total raised by companies going public in 2006 came from the San Diego region. Cadence Pharmaceuticals Inc. and SGX Pharmaceuticals Inc. were the only two [San Diego] biotech IPOs in 2006.

The San Francisco Bay Area had twice as many in 2006, according to the report, raising a total of $211 million — making up 22 percent of the amount raised by biotech IPOs in the nation last year.

IPOs in the Mid-Atlantic region and New England each made up 20 percent of the nationwide total raised from stock offerings in biotech.

The San Jose Business Journal’s report is consistent with what I have always seen in the biotech industry–that the ultimate plan of most biotech companies is to sell the company.   Of course, in recent years, high tech companies have been following a similar strategy.  IPOs in the Silicon Valley have been few and far between, but there have been many transactions by merger or acquisition.  So, for many companies across the board, mergers and acquisitions rather than IPOs have become the preferred manner by which to raise capital or exit the business. 

Will this trend continue?  My prediction is a definite "yes."  While I think IPO activity is starting to pick up and there may be more IPOs in the biotech industry as well as other industries in the coming year, I predict that mergers and acquisitions will continue to be the primary exit startegy for biotechs for many years to come. 

Biotech companies continue to rely on mergers & acquisitions over IPOs as a primary exit strategy, according to a new report by the San Diego Business Journal.

The San Diego Business Journal reported:

Normally, we can get a better valuation by doing a trade, sale or merger than an initial public offering,” said Ivor Royston, managing partner and founder at Forward Ventures. “We get better returns. I see a continuation of mergers and acquisitions that has been so dominating over the last two years. We just don’t see that many IPOs" . . . .

Royston, who was a founding partner of the former Hybritech, the first San Diego biotech, said large pharmaceutical companies are increasingly interested in acquiring startups as their pipelines run dry.

“Drugs are going off patent, and there is stifled innovation,” Royston said. “There are good relations now going on between private biotech and large pharmaceutical companies.”

Despite the continued trend toward reliance on mergers & acquisitions to cash out, the biotech industry has seen some IPO activity in the last year.

The San Diego Business Journal further reported:

The value of IPOs in the biotech industry in 2006 was $944 million, up 50 percent over 2005, according to the Ernst & Young 2007 Global Biotechnology Report.

But just $80 million, or 8.4 percent, of the total raised by companies going public in 2006 came from the San Diego region. Cadence Pharmaceuticals Inc. and SGX Pharmaceuticals Inc. were the only two [San Diego] biotech IPOs in 2006.

The San Francisco Bay Area had twice as many in 2006, according to the report, raising a total of $211 million — making up 22 percent of the amount raised by biotech IPOs in the nation last year.

IPOs in the Mid-Atlantic region and New England each made up 20 percent of the nationwide total raised from stock offerings in biotech.

The San Jose Business Journal’s report is consistent with what I have always seen in the biotech industry–that the ultimate plan of most biotech companies is to sell the company.   Of course, in recent years, high tech companies have been following a similar strategy.  IPOs in the Silicon Valley have been few and far between, but there have been many transactions by merger or acquisition.  So, for many companies across the board, mergers and acquisitions rather than IPOs have become the preferred manner by which to raise capital or exit the business. 

Will this trend continue?  My prediction is a definite "yes."  While I think IPO activity is starting to pick up and there may be more IPOs in the biotech industry as well as other industries in the coming year, I predict that mergers and acquisitions will continue to be the primary exit startegy for biotechs for many years to come. 

A new biotech infringement decision as issued this week by the U.S. Court of Appeals for the Federal Circult, which ruled in favor of ViaCell against Pharmastem in PharmaStem Therapeutics, Inc. v. Viacell, Inc. (Fed. Circuit 2007).

The press release issued by ViaCell following the ruling stated as follows:

The Federal Circuit upheld an earlier decision by the U.S. District Court for the District of Delaware that ViaCell, through its marketing of ViaCord®, a product offering through which families can preserve their baby’s umbilical cord blood at the time of birth for possible future medical use, does not infringe PharmaStem’s U.S. Patent No. 5,192,553 (‘553) and U.S. Patent No. 5,004,681 (‘681), which relate to certain aspects of collection, cryopreservation, storage and use of hematopoietic stem cells from umbilical cord blood. The court also found the ‘553 and the ‘681 patents invalid based on prior art.

Peter Zura’s 271 Patent Blog discussed the infringement issues:

One of the sticking points in the litigation was language in the claims that required that the recited composition contained stem cells “in an amount sufficient to effect hematopoietic reconstitution of a human adult.”

Each of the defendants are in the business of servicing families with newborn infants in which blood from the infant’s umbilical cord is collected and cryopreserved for possible later use. The problem was that PharmaStem could not show enough evidence that the defendants’ cord blood contained a “sufficient” supply of stem cells to effect successful reconstitution of an adult. An expert provided testimony based on the defendants’ marketing materials, but did not consider any data regarding the composition of the cord blood units. Accordingly, the expert’s testimony was excluded.

In a more interesting move, the CAFC also determined that the method claims could not be infringed because all the steps were not performed by the same party – the defendants were responsible for collecting and cryopreserving cord blood samples, while transplant physicians unrelated to the defendants thawed the cord blood and used it for transplanting. Also, since the defendants never “owned” the blood, there was no contributory infringement. . .

Patent Docs further addressed the obviousness issues:

In finding there was not substantial evidence, the Federal Circuit stated that the obviousness standard required a “reason” the skilled worker would make the claimed device or carry out the claimed process, and have a reasonable expectation of success in doing so.  The Court found strong evidence in the prior art that the first prong of this test was satisfied.  As to the second prong, the Federal Circuit was not persuaded by evidence that it was unknown in the art that cord blood contained hematopoietic stem cells.  The Court cited portions (as characterized by Judge Newman’s dissent, by “simply reweigh[ing] selectively extracted evidence”) of the art to show that cord blood was known to contain such stem cells.  It appears that the Federal Circuit interpreted the art based on its understanding that the existence of progenitor cells in the blood was evidence for underlying stem cells, although elsewhere in the opinion the Court appears to conflate the two cell types.  The Federal Circuit’s explication of the biological underpinnings suggests that it believed that a production of such progenitor cells was accompanied by persistence (and thus the presence of) stem cells in the blood.  In discounting PharmaStem’s expert testimony, the Court relied upon what it considered contrary statements made by the inventors, and refused to credit the expert’s explanation that the cited art used the term “stem cell” inaccurately.

Patently O described the rationale for the decision:

Invention is Obvious: When asserting obviousness based on a combination of prior art references, the patent challenger must show that a PHOSITA “[1] would have had reason to attempt to … carry out the claimed process, and [2] would have had a reasonable expectation of success in doing so.”

Reason to attempt: In view of the prior art references, the first part of that test is plainly satisfied here. The idea of using cryopreserved cord blood to effect hematopoietic reconstitution was not new at the time [of filing]. Two of the prior art references…suggest using cord blood for that purpose. Two others…suggest cryopreservation and storage of the cord blood until needed. Accordingly, this is not a case in which there is any serious question whether there was a suggestion or motivation to devise the patented composition or process.

Expectation of Success: The inventors appear to have conclusively proven that umbilical cord blood is capable of hematopoietic reconstitution.  Unfortunately for them, completing a proof is not necessarily inventive. Rather, prior scientists strong suspicion of the capability creates an expectation of success so strong that “no reasonable jury” could find the patent valid.

While the inventors may have proved conclusively what was strongly suspected before—that umbilical cord blood is capable of hematopoietic reconstitution—and while their work may have significantly advanced the state of the science of hematopoietic transplantations by eliminating any doubt as to the presence of stem cells in cord blood, the mouse experiments and the conclusions drawn from them were not inventive in nature. Instead, the inventors merely used routine research methods to prove what was already believed to be the case. Scientific confirmation of what was already believed to be true may be a valuable contribution, but it does not give rise to a patentable invention.

The House has passed legislation that will overhaul the Food and Drug Administration, but has declined to address the provisions of the legislation dealing with generics, which previously passed in the Senate.

The Wall Street Journal reported:

The House FDA bill, approved 403-16, mostly parallels a bill that passed the Senate in May. Both versions would devote more money to monitoring the safety of marketed drugs and increase the agency’s authority over medications that raise safety concerns. The agency would have the clear ability to order follow-up studies, restrict distribution and enforce changes to the medications’ labels. The bills don’t grant the FDA the power to force a moratorium on direct-to-consumer advertising, a tough restriction that was discussed earlier, though the agency would be able to levy fines for false and misleading promotions.

The conflict between the House and Senate legislation means that we can expect more debate over generics in the coming months.

According to The Wall Street Journal’s Health Blog, house leaders appear to be “cooler on biogenerics than their counterparts in the Senate.”

Does the House’s action signal the death knell for generics legislation this year?  It may be too soon to say for certain, but it is clear that the legislation still has a rocky road ahead.

Of course, even if the House ends up passing the legislation ultimately, it’s unclear whether it will be supported by President Bush.

The Los Angeles Times reported:

It’s unclear how the White House will react to the finished product. Before the Senate voted in May, the administration said it agreed with the goals of the legislation but had serious concerns about aspects of the risk plans.

So, if the generics provisions of this legislation were not passed by the House, what did make it through?  The Los Angeles Times explained as follows:

The House bill follows the same basic approach to safety as the Senate version, but consumer groups said it would give the FDA stronger regulatory powers in some areas.

Both bills would set up a computerized network to scan medical insurance and pharmacy records for patterns that could signal problems with new drugs. The FDA now relies on anecdotal reports submitted by doctors and drug companies, which are believed to capture only a small fraction of bad drug reactions.

A computerized system could take several years to deploy. The Senate bill sets some benchmarks for the FDA; the House version does not. . . . .

The House bill also includes stiffer fines for drug companies that violate FDA requirements and tighter rules to reduce conflicts of interest among outside scientists who advise the agency.

There is little doubt that we are in for a long battle ahead on the generics issue.  The biotech world will be following this issue closely over the next few months to see how it unfolds.