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.

The USPTO has upheld a key WARF stem cell patent, which as the California Biotech Law Blog reported in April 2007, is considered one of the most significant patents on stem cells.

According to Bill Novak, reporter for Madison.com:

The patent for the primate and human embryonic stem cell known as 913 was one of three under review by the patent office, following challenges brought by the New York-based Public Patent Foundation and the California-based Foundation for Taxpayer and Consumer Rights.

The 913 decision was the first in the review process, with the patent office also re-examining the patents by WARF for stem cells 780 and 806.

Novak reports that decisions are still pending on the two remaining patents under review: the 780 and 606 patents.  We will keep you posted on the status of those patents as we hear of any new developments.

Stem cell biotech companies are looking forward to the next presidential administration, reports CNN Money.  All three of the leading presidential candidates–Senator John McCain, Senator Barack Obama, and Senator Hillary Clinton–have expressed a more tolerant view toward stem cell research than has the current President Bush. 

CNN Money reported:

Bush has twice vetoed legislative attempts to expand the funding, including those backed by McCain, Clinton and Obama. In reference to Bush’s policies, Obama has said, "Stymieing embryonic stem cell research is a step in the wrong direction." Clinton has called for funding for "additional cell lines in order to pursue the promising avenues for research." McCain has said "stem cell research has the potential to give us a better understanding of deadly diseases and spinal cord injuries affecting millions of Americans."

Following his second veto in 2007, Bush said the legislation "would compel American taxpayers – for the first time in our history – to support the deliberate destruction of human embryos." Instead, the president touted the therapeutic potential of stem cells taken from adult tissue.

Given the support by President Bush of the concept of taking taking stem cells from adult tissue and umbilical cords, the companies that have utilized this methodology such as Aastrom, Cytori Therapeutics , Stemcell, and Osiris Therapeutics have been somewhat shielded by the ongoing controversy, reported CNN Money. In contrast, the companies using the methodology of deriving stem cells from human embryos such as Geron, Advanced Cell Technology, Novocell and Neuralstem have found themselves right in the middle.

CNN Money predicts, however, that the new administration will benefit all of these companies, regardless of the methodology used, since investors will have a more positive view about the political climate for these companies and the funding is likely to be made available to them. 

The Washington Post ran a column today by Jon Leibowitz of the Federal Trade Commission, which addresses a suit recently filed by the agency against Cephalon, Inc., which will test the legality of the practice of entering into “pay for delay” settlements.

Liebowitz describes the  “pay for delay” settlement controversy at the root of this case as follows:

When these troubling deals first came to light in the late 1990s, the FTC fought them — and stopped them cold. Between 2000 and 2004, no brand and generic companies entered pay-for-delay deals; in other words, companies resolved patent disputes without anticompetitive payoffs.

Unfortunately, that success is under siege. Two federal appeals courts — in rulings that conflict with the analysis of a third appellate court — have found that a brand-name drug company facing a patent challenge is free to pay any amount to keep a generic producer from entering the market until the patent expires. These rulings depart from the spirit of Hatch-Waxman and our nation’s antitrust laws, and they harm consumers by subverting the competition at the heart of our free-market system.

Courts that have sided with pharmaceutical companies believe, in essence, that even an infirm patent gives its owner the right to pay competitors not to compete. . . .Not surprisingly, after two courts blessed such payoffs, the frequency of these settlements has increased sharply. In fiscal 2006, fully half of all pharmaceutical patent settlements (14 of 28) contained such payments. Brand-name manufacturers, seeing the potential to continue reaping monopoly profits, have taken advantage of this apparent judicial leniency. . . .

This dispute clearly puts Hatch-Waxman to the test: should a patent owner have the right to pay to keep a competitor out of the market until the patent expires?

Clearly, insurers and the public would say yes.  According to Liebowitz, Cephalon made an additional $4 billion dollars as a direct result form entering into this “pay for delay” settlement–this is money that came directly out of the pockets of insurers and patients.  As a member of the public who lost my health insurance following the collapse of my former law firm just over four years ago, when my former employer terminated COBRA at the six month mark, leaving me in the position of having to pay full price for prescription medications, I know all too well how expensive it can get to pay for prescription medications, when no generic is available.   There is definitely an impact on the public at large, insurers, and individuals when they have to foot the bill for a more expensive medication.

On the other hand, as an IP lawyer, I can’t help but scratch my head a bit over this case: the FTC is effectively taking issue over a patent owner trying to protect its exclusivity until the patent expires.  Isn’t that the patent owner’s right?

Not according to the FTC.  The FTC’s position is that patent owners do not have the right to enter into these types of settlements–that such deals violate the spirit of Hatch-Waxman and antitrust law.

It makes perfect sense to me why certain courts have sided against the FTC on this particular issue, and also why the FTC anticipates this case going to the Supreme Court.   According to Liebowitz, however, a bill is also making its way through Congress that would prohibit such agreements.  The FTC, of course, supports this legislation.

The California Biotech Law Blog will keep you posted as this battle unfolds.

The Boston Business Journal ran a story this past week on the increasing number of contract research organizations in the Boston area and around the nation.

The article profiled Blue Stream Laboratories, a Woburn contract research organization with eight employees that launched the summer of 2006, reporting that Blue Stream Laboratories President Michael Kouchakdjian had indicated that “his client base is growing as biotechnology companies and contract pharmaceutical manufacturers try to save money by farming out development work to companies like his.”

The Boston Business Journal article provides further evidence that  outsourcing is on the rise in the biotech and pharmaceutical industries–a trend we have been following at the California Biotech Law Blog since last year (see our blog postings from May 23, 2007 and April 2, 2007).  As we have indicated previously, it is almost inevitable that outsourcing will continue to play an increasing role in the biotech and pharmaceutical industries, given the success that the high tech industry has had with offshore outsourcing in recent years. If companies can dramatically cut their costs by outsourcing work, why wouldn’t they pursue that option in order to become more profitable?  I think it is difficult to deny the clear business case for utilizing outsourcing to the extent possible.  I expect that we will continue to see more stories on outsourcing in the life sciences industry over the next few years.

Following up on our posting yesterday regarding the Boston Globe’s critique of stem cell research in California, Governor Schwarzenegger made some remarks yesterday on California’s experiences with stem cell research in the context of a short speech on the state of the California biotech industry generally, and he presented a very different perspective on the issue.     Unlike the Boston Globe which viewed California’s experiences as providing a "lesson for Massachusetts," Governor Schwarzenegger applauded California for providing a shining example for the rest of the country to follow and for investing in the state’s future.  Clearly, the Governor has a very different view of the state’s stem cell research program, and perceives it already as being a success.  While there is no doubt that as the Governor, he may at times view the program through rose-colored glasses, as a member of the biotech community, I think many of us in the industry and in the state generally share that same vision and perspective on our state’s stem cell accomplishments. 

To view the video of the Governor’s remarks, click here.

Bioworld Today is reporting that the FDA and Congress will be joining forces to develop follow-on biologics legislation.

According to Bioworld Today, the Bush Administration indicated in the 2009 federal budget package released last week that “it would seek regulatory authority for the FDA to approve follow-on biologics, also called biosimilars or biogenerics, which would be financed through user fees. Currently, no such approval pathway exists for follow-on biologics.” Both the House and Senate had introduced follow-on biologics legislation last year, and planned to move the legislation forward in 2008.

What is the FDA’s current vision for the legislation?

Bioworld Today reported:

In a document titled “Other Legislative Items” that is part of the White House fiscal year 2009 budget, the administration said the follow-on biologic legislative proposal would include a “predictable and public guidance process for licensing follow-on protein products” under the Public Health Service Act.

“The proposal will prescribe the type of data required for FDA to review applications for follow-on protein products and will require labeling for the safety concerns related to the interchangeability of these products,” the Bush administration said.

The proposal also will include “adequate intellectual property protections to preserve continued robust research into new and innovative life-saving medications,” the document stated.

The news was viewed as a promising development  by both Sen. Charles Shumer (D-N.Y.) and Department of Health and Human Services Secretary Michael O. Leavitt, both of which were interviewed by Bioworld Today.  Similarly, Jim Greenwood, CEO of the BIO industry organization indicated his support for the FDA approach, as well as Kathleen Jaeger, CEO of the Generic Pharmaceutical Association (GPhA), who also expressed her approval for the development.  Having said this, the Bio Job Blog took issue with the FDA’s decision, stating:

I don’t think that Congress’s involvement is a good idea given the political wrangling, deal-making and concessions that must be made in order to get legislation passed.

Is the Bio Job Blog right to express concern about how this new joint effort will pan out?

Well, there is no doubt that the legislative process is time-consuming and is inevitably intertwined with politics and political compromises.  However, it is also true that a collaborative effort can greatly speed up the process, and having the administration on board means that any agreed-upon legislation is unlikely to end up with the words “vetoed” stamped on its front.  I would have to say that on the whole the development is a positive one, and suggests that we are one step closer to voting into law follow-on biologics legislation, which even Bio Job Blog concedes is likely, stating:

It looks as though follow-on biologics may become a reality in the US. . .  . I don’t think Americans will see follow-on biologics on the market before 2010 or 2011. That said, it gives us Americans something to look forward to!

The California Stem Cell Report reported on a story run in today’s Boston Globe, in which the paper characterized the “$3 billion stem cell research effort in the Golden State” as a “lesson” and a “reality check” for Massachusetts.

According to the Boston Globe:

The slow rate of progress serves as a reality check for Massachusetts and other states that have followed California’s lead by placing big bets on medical research. Texas voters approved a $3 billion commitment to cancer research in November. New York has set aside $600 million for stem cell work. And later this month, Massachusetts lawmakers are expected to vote on Governor Deval Patrick’s $1 billion life sciences initiative, which is primarily targeted for research.

The Boston Globe next compares and contrasts the proposed Massachusetts bill with the California initiative:

Patrick’s proposal differs in some key ways from California’s. For instance, it sets aside $250 million in tax incentives to encourage companies to expand, something that could yield immediate results. It also allocates money for workforce training. And unlike California, the Massachusetts research funding is not restricted to stem cell research. . . .

[A]s in other states, the bulk of the bill is related to life sciences research, which typically takes time to generate results. Specifically, $250 million is reserved for grants for research, fellowships, or workforce training. Another $500 million would support public research and education facilities, including a stem cell bank to be housed at the University of Massachusetts Medical School in Worcester and a research center focused on RNA interference, an area pioneered by UMass researcher Craig Mello.

Unlike the Massachusetts proposal, California’s stem cell plan didn’t come from politicians. It was the brainchild of Robert Klein, a well-connected California lawyer and low-income housing developer. Klein said he got involved as a patient advocate: His son has diabetes, and his mother has Alzheimer’s disease. When federal officials decided to limit funding for embryonic research, Klein thought California could help fill the gap. Embryonic stem cell research holds immense promise because stem cells can potentially morph into any other kind of cell, making it possible for them to replace other cells that have been damaged.  Instead of going through the Legislature, Klein organized a ballot initiative, taking the proposal directly to voters. . . .  In the end, 59 percent of voters approved the measure.

The Boston Globe article goes on to describe the controversies surrounding the California initiative and to explain that the the initiative to date has had little–if any–real impact.

The California Stem Cell Report responded to the Boston Globe article, stating:

The Boston piece downplayed the impact of CIRM’s efforts, perhaps a reflection of a parochial East Coast perspective. Pumping money into stem cell research at the rate of $20,000-plus an hour, however, is no small achievement, even though it does not measure up to the perceptions created by the campaign rhetoric surrounding Prop. 71 more than three years ago.

There is little doubt that the Boston Globe’s perspective is a cautionary one on the value of investing public funds into stem cell research.  At the very least the Boston Globe has emphasized the fact that the value of the investment will be realized in the long-term rather than the short-term, which is certainly a fair point to make.  At worst, the Boston Globe may in fact be as the California Stem Cell Report stated exhibiting a certain degree of  “East Coast parochialism.”

In truth, I think that this article is a reflection of all of the above.  As a relocated Southerner from the real South–not Southern California–I have to say that it was no great surprise that California would be the pioneer in this area.  Not only is the state very progressive in a variety of ways and historically very supportive of life sciences, but it is also more inclined than many states to allocate taxpayer dollars to fund politically-correct projects.  Is this at heart a reflection of the fundamental difference between East Coast and West Coast perspectives?  Of course it is.  But which view is correct?  It depends.  Utlimately, isn’t the measure of success going to be what the CIRM does for California and what kind of results in the field the CIRM achieves? Thus, I would argue that everyone is correct here.

Having said this, did anyone honestly think that the CIRM would have achieved any tangible results by now? Does anyone really need cautionary words of wisdom on how rapidly stem cell  research results are likely to be achieved?  I suspect that even most elementary school students would have expected it to take a while for the CIRM to achieve any measurable results.  Is it possible that the Boston Globe is truly concerned that its readers will get ahead of themselves, expecting the results to be literally evident overnight?  I somehow doubt it.

Given the impending expiration of the SBIR Program this October, 2008, the future of the SBIR Program is once again being re-visited.

As The California Biotech Law Blog reported last October, the biotech industry has been actively lobbying for the Small Business Administration ("SBA") to reverse its decision of January, 2001 to make venture-backed companies ineligible for SBIR grants.  This issue, by far, has received the most press in recent years, and of course, is the issue receiving the most attention as the expiration date nears.  The rule excludes many if not most biotech companies from being able to take advantage of SBIR funding, which of course is a serious concern to the industry as a whole. 

Interestingly enough, even the more established pharmaceutical industry has been very vocal on this issue.  While at first glance, this concern seems a bit misplaced, on further consideration, it makes perfect sense that pharma would support biotech’s efforts to change the SBA’s policy.  It is a well-known fact that pharma is looking to biotech companies to supply new products to fill its drug pipeline, which is increasingly becoming depleted.  The more money these companies can access at the early stages, the more likely it will be that enough biotech companies will survive to fill that pharma need.

So, while the issue of excluding venture-backed companies from SBIR grants is taking center stage to the renewal debate, I would argue that Congress should look beyond that stage at some more fundamental problems with the program as it debates SBIR’s future.

What are those problems?

First and foremost, there has never been a good clarification of the SBIR Program’s priorities. 

The SBIR Program falls under the umbrella of the SBA, which according to its website, has a mission based on the following principles:

The Supreme Court declined yesterday to review a ruling by the U.S. Court of Appeals for the Federal Circuit that there is no constitutional right to access experimental drugs, reported the Associated Press. 

The California Biotech Law Blog reported on this case back in August 2007:

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. . . .

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.

The California Biotech Law Blog accurately predicted that the Court would decline to read a new right into the Constitution.  While the Court did not provide any explanation of its decision not to hear the case, it can be assumed that the Court agreed with the Federal Circuit’s decision: that no right to experimental drugs exists, even when the patient is terminally ill.

So where does the Court’s decision leave this issue?

Clearly, a ruling on the issue in one federal appellate court does not preclude other appellate courts from hearing cases on similar facts and ruling differently on the same issue.   Thus, the possibility exists that another appellate court will revisit the issue down the road.

Having said this, in my opinion, a more likely scenario is that Congress decides to take up the issue at some point in the future.  This issue raises some valid public policy issues, and Congress is arguably the most appropriate forum to address them. 

I continue to take the position that there should be some mechanism by which the terminally ill can access experimental medications that offer a real promise to treating the terminal illness.  While I agree that perhaps the moral arguments in favor of making experimental medications available to the terminally ill do not rise to the level of a Constitutional right, I still think those arguments are compelling.  Doesn’t this issue merit some additional debate?