Now that President Obama signed the patent reform bill into law on Sept. 16, 2011, it is only fitting to ask whether the passage of this bill was a win for the biotech industry?

According to Roy Zwahlen, manager of intellectual property and technology transfer policy at BIO, the answer is a clear “yes.” He posted a blog posting on the BIO website, in which he articulated a number of reasons why he thought the bill was good for biotech:

1) Greater resources and operational flexibility for the PTO;
2) New and improved proceedings for patent quality review;
3) Will end the abuse of a loophole in false patent marking litigation;
4) Change America’s first to invent system to a first to file system;
5) Make it easier for inventors to file a patent; and
6) Eliminate the “best mode” requirement in patent litigation.

I thought Mr. Zwahlen’s apparent support for the patent reform bill was interesting in light of the industry he represents. Like many of my Bay Area counterparts, I have a completely different take on the issue.

While I am all in favor of making government agencies work better, as someone who regularly works with start-ups, I simply fail to see how changing our prior first to invent system in the U.S. to a first to file system could possibly have been good for the biotech industry. There is no question that the rest of the world has been using a first to file system and that our system was out of sync with the system adopted by the rest of the world. Yet, I would argue that our first to invent system was beneficial to cash-strapped start-ups and small businesses, which often do not have the budget when they first launch their businesses to immediately file patents to protect their inventions. As a lawyer working with start-ups, I frequently get the question “how much time do I have to file?” Particularly in the current times, when start-ups and small businesses are arguably more cash-strapped than they have ever been and investment money is so difficult to come by, patent prosecution costs are a huge concern. It’s hard to see how it can be in the best interests of a start-up to have to race to file a patent on an invention or to risk losing the opportunity to own the rights on the invention altogether.

Moreover, I can’t help but ask the question: in light of the challenges posed by the current economy, why in the world did Congress and the President choose now to impose yet another burden on start-ups and innovators?

Stepping back from this issue a bit, as a small business owner myself, I’ve been very vocal in my criticism over what I think is our country’s recent misguided financial support for so-called too-big-to-fail businesses at the peril of small businesses, which I would argue are the backbone of our country and of our country’s future. The average small business in this country (with a few notable exceptions such as the scandal-ridden and bankrupt Solyndra) has not been able to so much as pay a financial institution to loan it money in this environment. Yet, all kinds of taxpayer money has been handed out to large institutions since the recession started. This is not a criticism of any particular administration, as both the Bush and Obama administrations have taken this approach, as well as the past few Congresses. Moreover, while I’ve listened over and over again to the arguments in support of why these decisions have been made, I continue not to agree with them. My position is that the innovation we are all seeking to give our economy a much-needed boost is just not going to come from a large business, and that starving small businesses of capital and funding instead the largest businesses in this country is just a very misguided policy approach. So, this is the perspective I come from as a small business myself, whose business is largely comprised of working with start-ups. And that is the perspective from which I approach this issue.

The bottom line: I would argue that the decision to move to a first to file system in a bad economy is yet another example of enacting policies that hurt the little guy in tough times. And I think that it ultimately is bad for the biotech start-up out there who is trying to come up with cash to fund a patent program, or for the inventor who is trying to do something productive with his or her invention.

Well, unless you have spent the last few weeks stranded on a desert island, you probably know that yesterday was the big health care vote.  As expected, the Democratic majority in the House passed the health care reform bill–despite the fact that the bill was vigorously opposed by a large percentage of the American public.

While the legal battle challenging the constitutionality of the law is just getting started and is likely to continue for some time, the biotech industry is just starting to process what yesterday’s vote will mean for its industry.

BIO,  the biotech industry organization, released a statement on the vote yesterday, which took a decidedly positive tone.  In support of its position, BIO cited three key benefits of the bill:

1. The bill provides hope for Americans living with debilitating diseases.
2. The bill created a pathway to enable the U.S. Food and Drug Administration (“FDA”) to approve biosimilars.
3. The bill included a Therapeutic Discovery Project Tax Credit, which is designed to provide financial relief to some biotech companies that are suffering in tight credit markets.

Why was BIO so positive about this legislation?

Well, the remarks suggest that BIO is happy with several of the carrots that were thrown at the industry in this bill: biosimilar legislation and a tax credit for biotech companies.

Noticeably absent in the BIO statement, however, was any statement to the effect that health care reform will advance the biotech industry in any way.  Instead, the only reference made to reform itself was that it will bring “hope” to Americans suffering from diseases.  Is this an oversight on BIO’s part?  In my opinion, no.

While there is no doubt that most biotech industry members applaud the idea of providing health care to all Americans, and you can certainly say that reform will increase the potential customer base for biotech products, it is a definite  stretch to say that this reform bill will prove beneficial in any way to the biotech industry.   How could it?  Any enterpreneur in the biotech space knows that the U.S. market has always been the most lucrative due to compensation issues–the U.S. consumer finances the world’s drug development costs.  What happens when you impose drug price controls, which are inevitable in government-controlled health care?  It doesn’t take an expert to see that the world’s most lucrative market will become a lot less lucrative.  It will become like most of the other markets in the world, which have price controls, too.  This kind of change will inevitably impact entrepreneurship in the biotech space.  Launching a biotech company requires huge risk and tremendous investment capital.  Will the capital be there when the huge  potential payoff is not?  It will take a huge amount of increased business to make up for the loss of revenues in the U.S. market due to price controls.  Will what is left be enough to encourage drug development?

While the answer to that question is still unclear, I think it is a safe bet that true entrepreneurs will find away to adapt to the new realities of the market.  Many entrepreneurs–me included–have had to do this in the past year to survive the recession.  I have adjusted my business model completely to deal with the new realities of the legal market,  and I think it is a safe bet that many other small businesses who survive this recession will have done the same thing for their markets.  I am sure that there will be biotech entrepreneurs who can adjust their business models to the new realities of the U.S. market after the passage of this bill as well.

Having said this, there is no question that this bill is going to have an impact on the industry.  Change is coming to biotech–and it may not be the kind of change that members of the biotech industry wanted.

So, what about the carrots that got thrown into this bill for the industry?  What kind of impact will those carrots have on the industry?

Well, the tax credit may be beneficial to some companies, but my guess is that it will have a minimal impact on struggling companies who are unable to land the capital they need to survive this recession.   It seems a stretch to say that a tax credit is going to “save and create thousands of jobs across our nation” as the BIO statement claims.  A tax credit only helps if you are generating revenue to pay taxes with, and many stuggling biotechs likely need investment capital more than they need a tax credit at this point in time.

As for the biosimilars piece to the legislation, this topic has been heavily debated for some time and remains controversial.  It is legislation that is going to benefit some companies at the expense of other companies, so it is difficult to say it really will “benefit” biotech.  The legislation will benefit companies seeking to manufacture biosimilars at the expense of the brand.  The California Biotech Law Blog will explore this issue in more detail in a separate blog entry.  The bottom line is that BIO is supporting the legislation simply because it creates a pathway for the approval of biosimilars, which previously did not exist, and BIO is taking the position that this is the right decision for biotech.

All in all, the impact of this bill on biotech is one that may be debated and evaluated in the months to come.  The California Biotech Law Blog will continue to follow the developments as they unfold.

Two biosimilars bills have just been introduced in the House, each of which would establish regulatory path for biosimilars to be approved.

The first bill, HR 1427, the Promoting Innovation and Access to Life Saving Medicine Act, was introduced on March 11, 2009 by Representatives Henry Waxman (D-CA), Frank Pallone (D-NJ), Nathan Deal (R-GA), and Jo Ann Emerson (R-MO).

A second bill was introduced the following week. H.R. 1548, the Pathway to BioSimilars Act, was introduced on March 17, 2009 by Representatives Anna Eshoo (D-CA), Jay Inslee (D-WA), and Joe Barton (R-TX).

What are the key elements of each of the bills?

According to the HR 1427 Bill Summary, highlights of HR 1427 include as follows:

• FDA authority to approve biosimilars;
• approval process will require showing that (1) there are no clinically meaningful differences between the two products and (2) that the two products are highly similar in molecular structure and share the same mechanisms of action;
• biosimilar may establish that it is “interchangeable” with the original product, and the first such biosimilar able to make such a showing will receive six months of exclusive marketing;
• an original product with a novel molecular structure is entitled to five years of exclusive marketing, and a modification of a previously approved product is entitled to three years of exclusive marketing.  These periods can be extended by up to one year if it can be established that the product can be used for a new disease or that it conducts pediatric studies; and
• a new procedure is established to resolve patent disputes prior to approval of the biosimilar, and penalties are put in place for failure to timely litigate such disputes.

In contrast, highlights of HR 1548 are as follows:

• establishes safey standards for establishing interchangeability;
• establishes exclusivity for the first  product found to be “interchangeable”  for a period of 24 months after the product has either been deemed to be interechangeable or goes on sale;
• the reference product receives 12 years exclusivity, and that period of exclusivity will extend to 14 years in the event that a new indication is found for the product in the first 8 years after licensure;
• an additional exclusivity period is also established for pediatric studies and use of product;

Which bill has been more widely received by the biotech industry?

Well, the biotech industry group BIO has indicated its preference for the second bill, according to reports by Fierce Biotech.    Fierce Biotech explained as follows:

For biotech companies, the difference between five years and 12 years of exclusivity could amount to billions of dollars.

In contrast, BIO did not have such a positive opinion of the first bill, stating in a press release as follows:

Unfortunately, the legislation introduced today would take patients and our industry down the wrong path – a path that jeopardizes the continued development of new breakthrough therapies and potential cures for debilitating diseases such as multiple sclerosis, HIV/AIDS and Alzheimer’s. . . .

“This bill seeks to cut prices but instead cuts corners.  This proposal leads us off the map as we seek an effective, fair and safe pathway to a biosimilars market.

“The legislation introduced today does not strike the necessary balance for patients or the economy.   Any biosimilars legislation must ensure safe and effective biosimilars, promote the continued development of new therapies and cures, and ensure the benefits of additional competition among biologics through the entry of biosimilars.

The California Biotech Law Blog will continue to follow this issue as debate on each of the proposed bills continues.

The Baltimore Business Journal is reporting that life sciences companies spent a record amount on lobbying efforts in 2007–some 32 percent more in 2007 than in 2006.

The Baltimore Business Journal reported:

The industry unleashed a $168 million lobbying effort last year, the largest among all sectors and 90 percent of which was dominated by three biotech and pharmaceutical trade groups and 40 global companies. . . . Among top company spenders were British-based AstraZeneca PLC, which owns Gaithersburg-based MedImmune and tallied $4.1 million in lobbying efforts, and Israel-based Teva Pharmaceuticals, which owns Rockville-based CoGenesys and tallied $2.3 million. Amgen Inc., based in Thousand Oaks, Calif., topped the company list with a $16.3 million total contribution last year.

As the California Biotech Law Blog previously reported, BIO spent $6.6 million in lobbying efforts in 2007.

According to The Baltimore Business Journal, the industry’s investment seems to “have paid off.”

Was the investment really dollars well spent?  Well, clearly the industry has had some success with respect to delaying the passage of patent reform legislation, which was largely viewed as being more favorable to high tech companies than biotech companies.  Likewise, the lobbying efforts seem to have had some success in the SBIR area, as we previously reported in a recent blog posting.  So, the industry has definitely seen some success in Washington this past year, although that success has not been felt uniformly across the board.

There is no doubt that having a voice in Washington is taking on increasing importance for the life sciences industry, particularly in light of the lobbying efforts of the technology world.  It seems likely that the industry’s investment in lobbying will continue to grow in the near future, as the topic of health care reform continues to be a key political issue and the interests of technology and life sciences companies continue to diverge.  As I’ve suggested before, however, it is rather stunning to consider how much money that has to be invested these days in order to maintain a presence in Washington politics: $168 million is certainly not pocket change.

Members of the biotech industry can now breathe a sigh of relief: the patent reform bill has been stalled in the Senate. 

According to Biotech Transfer Week, the Senate reached the current impasse over a section of the bill dealing with the assessment of damages in patent infringement cases.  The concerns were raised by Senator Arlen Specter (R-Pa.).  Biotech Transfer Week reported Senator Specter’s remarks as follows:

“The Chairman and I differ on a number of aspects of the proposed patent reform legislation. .. . The principal sticking point is the issue of how to assess damages in patent infringement lawsuits. We thought we had reached an agreement on this matter, but the language continued to shift, so we do not yet have a deal on the package. . . .  I am hopeful that we can reach an agreement, but more work has to be done to get it right."

“Our view is that [we disagree with] those who are saying this is dead, or there is no time to do it now and that they missed that window,” Tom DiLenge, vice president and general counsel for BIO, told BTW this week. “There has always been time to do a consensus patent reform bill – but does the other side want to stick to its guns and get 100 percent of everything they wanted? In that case, I think it could be dead. . . .Or, are they willing to compromise and get a bill that has about 98 percent of what they wanted, and is acceptable to the rest of the patent-holding community. . . .”

"The idea that Senator Specter, or BIO, or anyone would accept really harmful damages language just because some other part of the bill is the way that they want it, is just not accurate,” DiLenge said. “The other side in this debate needs to recognize that they’re not going to be able to get the kind of harmful damages language that they were seeking. Once they recognize that and admit it, we can come to the table and get this bill done fairly quickly.”

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?

A new bill introduced this week would reduce the compliance burdens faced by biotech companies under Sarbanes-Oxley.

IndustryWeek reported on the bill as follows:

A provision in the HOME Act directs the Securities and Exchange Commission to provide a threshold definition for smaller public companies thereby providing an objective standard as to who is eligible for a scaled audit under the newly adopted Auditing Standard No. 5 (AS-5) and Section 404 of the Sarbanes-Oxley Act of 2003. . . .

The bill enables companies without federal tax liability to increase their capital investments by claiming some portion of their unused R&D and Alternative Minimum Tax (AMT) credits. Under this provision, companies would elect to accelerate R&D and AMT credits in lieu of bonus depreciation. Allowing companies to accelerate the recovery of some portion of unused R&D and AMT credits through new capital investments will help maintain economic growth by encouraging business investments and job creation. The bill also provides for a two-year R&D tax credit extension which expired at the end of 2007

The Biotechnology Industry Organization ("BIO") issued a press release praising the bill, in which BIO President and CEO Jim Greenwood stated as follows:

"Biotechnology researchers are creating innovative technologies that provide hope to patients worldwide.  But most biotech companies are small start-ups, years away from having products on the market.  So with little to no product revenue, and an undefined definition of a smaller public company, these companies have been absorbing outsized audit and compliance costs – revenue that could otherwise go to developing life-saving therapies."

To check out the full text of the BIO press release, click here.

California biotech companies are rallying behind proposed new state legislation, which would extend the time period that biotech companies have for claiming a tax deduction based on net operating losses.

The Mercury News reports:

The business leaders say their companies often labor for 15 years or more at a cost of hundreds of millions of dollars before they can get a drug approved for sale and generate enough revenue to climb out of the red. Yet under California law, they typically have only 10 years to claim a tax deduction based on their net operating losses.

Consequently, by the time they earn enough to pay state income taxes, many of them have lost the opportunity to claim the deduction. .  . .

That’s why [Assemblywoman Sally] Lieber has introduced a bill to double that deduction period, mirroring federal law. The measure, AB1370, which specifically gives biopharmaceutical businesses 20 years to claim their tax credits, was unanimously approved by the Assembly on June 6.

If it becomes law, it could give the biotech industry a big boost, according to Matthew Gardner, president of BayBio, an industry trade group based in South San Francisco.

While similar measures have failed twice before, supporters claim that this time is different, as there is more biotech support within assembly than existed in the past.  Three states–Florida, Illinois, and New York–already have a law on the books similar to this one being considered.

According to The Mercury News, this bills is not  the only way in which states are attempting to establish tax breaks for biotech companies:

Some[states] – including New Jersey and Hawaii – allow the firms to sell or trade their net operating loss credits to other businesses.

The article raises an interesting issue regarding tax deductions.  Is the bill a good idea for California’s taxpayers, or does it mean that we just have to bear more of the state’s tax burdens?