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.

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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?

Business Wire reported that the United States District Court for the District of Delaware returned a verdict in favor of Affymetrix in its patent infringement suit against Illumina Inc.

According to Business Wire, the jury found that Illumina’s arrays, scanners, software, and related products infringed on one or more claims of all five of Affymetrix’ (5,535,531, 5,795,716, 6,355,432, 6,399,365, and 6,646,243) patents-in-suit. The jury found that the proper royalty rate was 15 percent, and awarded total damages of more than $16 million for the period of 2002-2005.

Despite the Affymetrix victory, the battle is not yet over.  Forbes reported that Illumina plans to appeal, and that the verdict will affect the market for genotyping and genetic sequencing.  Forbes further reported that:

New customers — chiefly corporate labs — could balk until the case is settled, [UBS analyst Derik] De Bruin said, benefiting Affymetrix.  The analyst also said that by awarding Affymetrix a better than expected royalty rate of 15%, the company may now have better price flexibility in a "very price-sensitive" market.  The patents in question are from 2002 to 2005, and thus the higher than expected royalty rate also bolsters Affymetrix’s case for a similarly high rate "in claiming damage awards from 2006 and beyond should Illumina decide to settle," said De Bruin.  The analyst did, however, add that "unless Ilumina is blocked from the genotyping market, an outcome we continue to believe is unlikely, many customers may still choose Illumina’s products on expectations of better performance and ease of use despite potentially higher prices."

 

 

Santa Clara Law School is going to be hosting a Blawgers Roundtable on Wednesday, March 28th from 6 to 8 p.m. at the Wiegand Room, Arts & Sciences Building at Santa Clara University  The event will cater to Bay Area blawgers, but everyone is welcome.  I will be in attendance, as well as the following, who are confirmed:

Mike Dillon of Sun (see http://blogs.sun.com/Dillon)
Cathy Gellis (see http://www.cathygellis.com)
Eric Goldman of SCU (see  http://blog.ericgoldman.org)
Joe Gratzof Keker & Van Nest (see http://www.joegratz.net)
Chris Hoofnagle of Boalt (see http://choof.org/blog)
Cathy Kirkman of Wilson Sonsini (see http://www.svmedialaw.com)
David Levine of Stanford Law CIS (see http://cyberlaw.stanford.edu/blog/david-levine)
Colin Samuels (see http://www.infamyorpraise.com/)
Jason Schultz of EFF (see http://lawgeek.typepad.com/lawgeek)
Colette Vogele (see  http://cyberlaw.stanford.edu/blog/colette-vogele)

To attend,  please RSVP to Eric Goldman at egoldman@gmail.com.