California Stem Cell Report provided more enlightening coverage today on how funds are being disbursed at the California Stem Cell Agency.

California Stem Cell Report reported as follows:

About ninety percent of the $209 million handed out so far by the California stem cell agency has gone to institutions that have “representatives” on the board that approves the funding. . . .

The group that approves the money is the 29-member Oversight Committee. Fourteen members of that committee have close links to the institutions that have received about $190 million in grants.

None of this is illegal but it illuminates the nature of the built-in conflicts of interest on the board. Prop. 71 created the situation. Nearly all the institutions in California that could be suitable recipients of stem cell research have some sort of representation on the decision-making board. The measure spelled out, for example, that five executive officers from University of California medical schools have seats on the board. It also stipulated that four executive officers from California research institutions sit on the Oversight Committee. . . .

Isn’t it comforting to know that millions of California’s taxpayer dollars have been entrusted to an entity, which is plagued by so many conflicts of interests?   Did voters unknowingly create just another bloated bureaucracy when they voted in favor of Proposition 71?  It is difficult not to think that this is exactly what has happened when you read these reports.

The National Law Journal ran an article yesterday, which examined the strategy that patent holders are using to delay the entrance of generics on the market.

The article focuses on the controversial use of  “citizen petitions” brought before the Food and Drug Administration (“FDA”) to temporarily delay the approval of a generic drug as a patent is about to expire while the FDA investigates safety challenges raised in the petitions.

The National Law Journal reports:

“For a relatively small amount of money, a company can inflict substantial harm on a competitor,” said David Balto, a Washington attorney and former assistant director in the Federal Trade Commission’s Bureau of Competition.

“It becomes attractive to keep rivals off the market and there is no better example than the citizen-petition process,” Balto said. . . .

It is clear the objective of many petitions is delay for financial advantage. The petitions arrive for FDA review as the brand-company drug expires, and they are based on information available much earlier, according to Balto.

While the new legislation proposed last week specifically addresses the issue of curbing these delaying tactics, The National Law Journal suggests that this will not necessarily provide a real solution to the issue, and may in fact just generate litigation, which could have the effect of generating even more delays than what are currently being caused by the petitions.

The National Law Journal explains as follows:

The U.S. Senate last week inserted petition reforms in a major FDA overhaul bill. The measure would not allow a petition to delay FDA approval of a generic unless delay is necessary to protect public health. As a check on competitors, petitioners must verify who is making the challenge and whether they expect to be paid for filing the petition. Congress must get annual reports on delays to generics based on the petitions.

[Scott Lassman, senior assistant general counsel for Pharmaceutical Research and Manufacturers of America (“PhRMA”)] said  PhRMA opposes the citizen-petition reforms and predicted that, if the measure becomes law, it may produce even more litigation. “These new requirements are so onerous, companies may decide to go to court to seek whatever they are seeking currently in petitions,” he said.

As I have indicated in prior blogposts, there are no easy answers to the tug of war between generics and brand-name drugs.  While there certainly is a push by the insurance industry and certain members of the left to make generics more available faster, there is very real tension on the part of biotech and pharmaceutical companies to prevent this from happening, so that they have an opportunity to fully realize the value in their investment.   The National Law Journal article highlights one specific aspect of this generics-brand name controversy, particularly with respect to how both sides are using  legal maneuvering to promote their cause.

However, what I think we should take away from this article, is the idea that the new legislation, which purports to end the legal maneuvering may actually result in only creating more problems for both sides of the dispute.   Is that really what is intended?  It is ironic to think that at a time when Congress is busy debating patent reform, which is in part intended to curb patent litigation, the same legislative body is simultaneously considering legislation that could have the effect of generating even more patent-related litigation.  What is wrong with this picture?

To follow up on a post we ran in February 2006 on Biotech Valuations, I wanted to alert you to a recent series of postings on biotech valuations on sizz’s biotech blog. 

Sizz’s biotech blog says that in making valuations of biotech companies, a good valuation method is risk-adjusted net present value, which is described as follows:

Risk-adjusted net present value (rNPV) attempts to value a company by taking into account not only the future cash flows, but also the probabilities that those cash flows will even take place. This is especially useful for small biotechs that have not yet obtained FDA approval for a product. In using rNPV, we are able to find a company’s value while taking into account significant events that could affect the stock price (like moving from Phase II to Phase III trials).

NPV is the same as a discounted cash flow analysis. It finds the present value of a firm’s future cash flows. rNPV is similar. It is the present value of future cash flows, but those cash flows are adjusted by the probability of effect.

In a follow-up posting, sizz’s biotech blog states:

Risk-adjusted net present value is most useful for biotechs because it can place a value on an individual drug. This helps us out for small biotechs because most of these firms’ value is derived from drugs in their pipelines. With rNPV, we can find the value of each drug in a company’s pipeline, add them up, and get a value for the whole company. This could also be applied to larger biotechs, but rNPV really only values the pipeline, so we would also have to find a value for the drugs that are already marketed using a traditional discounted cash flow method.

Sizz’s biotech blog also provides in subsequent postings a specific example of how this valuation can be put into practice using GenVec, Inc.  In GenVec: Profile, sizz’s biotech blog profiles the company, discussing its risk factors and drugs.In GenVec: Potential Markets and Financials, Sizz’s biotech blog examines the potential markets for GenVec, which are the foundation for the valuation.

This series of postings provides a very informative overview to the art of biotech valuations, along with specific examples to show how the formulas can be applied in practice.   All in all, these entries are definitely worth checking out.

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?

In case you missed it, The New York Times ran an interesting story yesterday: "A Challenge to Gene Theory, A Tougher Look At Biotech."

The New York Times article stated:

Last month, a consortium of scientists published findings that challenge the traditional view of how genes function. The exhaustive four-year effort was organized by the United States National Human Genome Research Institute and carried out by 35 groups from 80 organizations around the world. To their surprise, researchers found that the human genome might not be a “tidy collection of independent genes” after all, with each sequence of DNA linked to a single function, such as a predisposition to diabetes or heart disease.

Instead, genes appear to operate in a complex network, and interact and overlap with one another and with other components in ways not yet fully understood. According to the institute, these findings will challenge scientists “to rethink some long-held views about what genes are and what they do” . . . .

With that link now in place, the report is likely to have repercussions far beyond the laboratory. The presumption that genes operate independently has been institutionalized since 1976, when the first biotech company was founded. In fact, it is the economic and regulatory foundation on which the entire biotechnology industry is built.

The article goes on to state the following:

Evidence of a networked genome shatters the scientific basis for virtually every official risk assessment of today’s commercial biotech products, from genetically engineered crops to pharmaceuticals.

“The real worry for us has always been that the commercial agenda for biotech may be premature, based on what we have long known was an incomplete understanding of genetics,” said Professor Heinemann, who writes and teaches extensively on biosafety issues.

“Because gene patents and the genetic engineering process itself are both defined in terms of genes acting independently,” he said, “regulators may be unaware of the potential impacts arising from these network effects.”

Needless to say, the article was provocative.  Does this new finding that scientists don’t know quite as much as they thought they did really shake the foundations of biotechnology?  Does this now mean that biotech commercialization is actually putting the public at risk?

With all due respect to The New York Times, I can’t help but thing that this is "much ado about nothing."  The biotech industry may have some new challenges to face, but I hardly think that news of this research is going to have a significant impact on the industry.  So, scientists decide that they didn’t know as much as they thought they did–how does that change all the discoveries and innovation that have already come out of the industry?  Do these new findings really erase those achievements?  Of course not.

The New York Times pointed to a possible effect on previously granted gene patents as one possible effect of these findings.  While it is plausible to think that gene patents could be affected by this new research, I think it is a stretch to extend the reach of those findings much further.  But apparently everyone does not share that view–certainly not The New York Times.  It will be interesting to watch and see how this story unfolds in the future.

The California Stem Cell Report reported on the plan released by the California Institute for Regenerative Medicine ("CIRM") on how to distribute the $85 million in research money to twenty-five researchers. 

According to author David Jensen of the California Stem Cell Report, the plan "shed some light on issues related to have and have-not institutions, quality of grant recipients and spreading the CIRM wealth geographically around the state."  Jensen writes:

Under the plan, the awards would go to persons who hold fulltime, faculty-level positions at academic or non-profit institutions in California and who are "young," meaning in the early stages of their careers. Academic institutions with a medical school could submit four applications in support of new Ph.D.’s and two new physician-scientist faculty members. Institutions without a medical school would be limited to two applications. The grants would go for research, salaries and possibly educational loans. They are akin to Pioneer grants awarded by the National Institute of Health. . . .

The discussion of the faculty award program reflected some of the questions recently rippling through CIRM. Do the big, well-established programs continue to receive generous grants? How much should go to institutions without the reputations and facilities that UC San Francisco and Stanford have? Should the location of institutions be a consideration? Does spreading the money around mean that unworthy science is being funded?

These are questions that we as taxpayers should all be considering: how should the CIRM be dividing up all that research money?  Did Californians intend that young researchers should get the money and build their careers in part on this research money?  Or did taxpayers envision something different taking place?

I have mixed feelings on the issue myself. 

As a young attorney myself in my early thirties, I tend to believe that young professionals are in large part hungrier for opportunities than are more established professionals.  I am a hard worker, but let’s be honest–I really don’t aspire to be putting in the kind of hours I have been working the last three or so years in getting my business off the ground twenty years from now.  If I am still working that hard, it may have the effect of cutting my own life short.  In truth, I already feel like it has, and it has only been a little over three years–not twenty.   While there are late bloomers, i.e. professionals who really "bloom" as experts in their fields later in life, I think that by and large it is a fair statement to think that younger professionals will be more driven in the early years of their careers.

On the other hand, there is a good argument that the money should be distributed to those researchers who are already experts in the field so that they can do more research on the areas they built their life’s research on.  If you go back to the analogy of me as a young attorney, there is no doubt that in twenty years I will be much more expert in my field than I am today.  In fact, my expertise grows little by little each year. 

So, what’s more important: the "young drive" and "hunger" for success?  Or the years of establishing a career and developing expertise?  That seems to be the question grappled with in every field.  But should we be grappling with it here in distributing all of this taxpayer money?  Well, the decision seems to have already been made.  Now, it’s up to us as taxpayers to decide whether or not our tax dollars have been put to good use.

The blogosphere is buzzing today about Freeman Dyson’s article in The New York Review of Books titled, "Our Biotech Future."  In this column, Dyson describes a world where biotechnology predominates every aspect of life.

Among Dyson’s predictions are as follows:

Will the domestication of high technology, which we have seen marching from triumph to triumph with the advent of personal computers and GPS receivers and digital cameras, soon be extended from physical technology to biotechnology? I believe that the answer to this question is yes. Here I am bold enough to make a definite prediction. I predict that the domestication of biotechnology will dominate our lives during the next fifty years at least as much as the domestication of computers has dominated our lives during the previous fifty years.

Dyson further states:

I see a bright future for the biotechnology industry when it follows the path of the computer industry. . . . .Every orchid or rose or lizard or snake is the work of a dedicated and skilled breeder. There are thousands of people, amateurs and professionals, who devote their lives to this business. Now imagine what will happen when the tools of genetic engineering become accessible to these people. There will be do-it-yourself kits for gardeners who will use genetic engineering to breed new varieties of roses and orchids. Also kits for lovers of pigeons and parrots and lizards and snakes to breed new varieties of pets. Breeders of dogs and cats will have their kits too.

Domesticated biotechnology, once it gets into the hands of housewives and children, will give us an explosion of diversity of new living creatures, rather than the monoculture crops that the big corporations prefer. New lineages will proliferate to replace those that monoculture farming and deforestation have destroyed. Designing genomes will be a personal thing, a new art form as creative as painting or sculpture.

Few of the new creations will be masterpieces, but a great many will bring joy to their creators and variety to our fauna and flora. The final step in the domestication of biotechnology will be biotech games, designed like computer games for children down to kindergarten age but played with real eggs and seeds rather than with images on a screen. Playing such games, kids will acquire an intimate feeling for the organisms that they are growing. The winner could be the kid whose seed grows the prickliest cactus, or the kid whose egg hatches the cutest dinosaur. These games will be messy and possibly dangerous. Rules and regulations will be needed to make sure that our kids do not endanger themselves and others. The dangers of biotechnology are real and serious.

Dyson makes some interesting predictions in his article.  While many of them are very likely uses of biotechnology, others seem to take science a bit too far.  However, he does pose an interesting question for us all: what should be the future of biotechnology?  Where should we go with the science?  Should biotechnology be as integrated in our lives as high technology now is? 

These questions are, of course, far from new, but perhaps the reason they are getting so much discussion today on the blogosphere is the timing of them being posed again to us.  So much of what was envisioned previously in high technology has become a reality to us all in today’s world.  It’s a fair question to ask again: where will all of these novel biotech developments take us?  And, more importantly, do we as a society really want to go there?

As many of you are likely aware, I have had a number of recent interviews and speaking engagements.  The most recent interview was with Sky Radio’s Dennis Michaels.

I sat down with Dennis to discuss some of the recent developments facing the biotech industry, including the MedImmune v. Genentech decision, the generics legislation introduced earlier this year (this was taped prior to the introduction of the new legislation), and the increase in biotech outsourcing.  Dennis provided me a copy of the audio recording of the interview, which I wanted to share with blog readers.  Please click here to listen.

Big-cap biotech stocks are no longer exceeding expectations on Wall Street, according to a report by Asx300.blogspot.com.

That report states as follows:

Shares of Genentech (DNA) the world’s biggest biotech by market cap, have declined 15% since reaching a 52-week high on Jan. 22. The stock fell 5% in June, even after a two-day surge last week. Amgen (AMGN) is down 19% for 2007 and 16% the last two months.Celgene (CELG) has dipped 13% since reaching an all-time high on May 22.  Financial returns aren’t the problem. Those three firms along with peers like Gilead Sciences (GILD), Biogen Idec (BIIB) and Genzyme (GENZ) regularly have double-digit sales and profit growth. Most are expected to continue doing so over the near term. Genentech has grown sales and earnings at least 36% in each of the last 10 quarters, but analysts expect growth to decelerate in each of the next four.

What is to blame for this change?

The report points to new challenges facing the industry such as the Food and Drug Administration requiring more data and causing more delays in drug approvals, and also to the new fears of generic competition, which traditionally were only an issue that big pharma had to contend with. 

These statistics provide a first glimpse at how biotech may be impacted by the newly proposed generics bill as well as some of the other issues currently facing the industry.  While factors other than these issues are likely affecting the stocks too, there is certainly reason for the industry to take note of how issues in the news may already be affecting sales of stock. 

The Biologics Price Competition and Innovation Act of 2007 (Senate bill S 623) was approved on Wednesday by the Senate Health, Education, Labor and Pensions ("HELP") Committee. 

According to a press release issued by Senator Orrin Hatch, the key provisions of the bill are as follows:

• Creates an abbreviated pathway the FDA will use to approve “safe, pure, and potent” biosimilar products, the legal standard for biological approvals.
• Gives incentives for innovators to continue developing new breakthroughs in biologics. The incentive is crucial because currently those incentives only lie in patent law. And because the low-cost versions will be only similar, but not identical, it was unclear if all of the innovator’s patents would be protected.
• Creates a mechanism to resolve legal challenges to the follow-on products. It allows innovators, generics, and the universities that partner with them in developing biologics, to adjudicate expeditiously whether or not follow-on products are violating an innovator’s intellectual property rights.
• Allows FDA to determine if a biosimilar product is interchangeable, meaning that it could be substituted at the pharmacy level under state law. Under the law, FDA can designate a product as interchangeable if it is biosimilar in composition and action in the body and if the patient is not harmed by switching from one product to another.
• Bases its guidance on scientific standards that FDA has always relied on, giving tremendous deference to FDA in developing and administering the new program. 

DrugResearcher.com reported:

[The draft bill] finally reaches a compromise between warring factions within the US senate over three main bones of contention regarding the new legislation, first proposed in February, which would be an amendment to the Public Health Service Act. .  . .

So firstly, under the proposed compromise bill, all follow-on biologics will be required to undergo appropriate animal studies along with one clinical trial in humans in order to demonstrate adequate comparability with the innovator drug, although the FDA will retain the discretionary power to deal with companies on an individual basis on the extent of testing actually required.

Secondly, on the thorny issue of whether or not to give the green light to interchangeability between a branded biologic and its follow-on counterpart, the bill will allow for this in certain cases where the FDA deems it appropriate.

Thirdly, in order to placate the industry who are fuming over the lack of incentive to innovation that allowing follow-on biologics may cause, the length of time a branded biologic would be protected under patent has been guaranteed at 12 years under the proposed compromise bill.

The Patent Baristas provided the following explanation on the bill:

The Act amends section 351 of the Public Health Service Act to provide for an approval pathway for safe biosimilar and interchangeable biological products (relying in part on the previous approval of a brand product) while preserving the incentives that have fueled the development of these life-saving medicines. . . .

The legislation allows, but does not require the FDA to issue guidance documents to inform with the public of the standards and criteria the agency will use in approving biosimilar and interchangeable products. Development of these guidance documents will require public input. Applications can be filed in the absence of guidance documents. . . .

The Act provides incentives for the development of both new life-saving biological products and interchangeable biosimilar products: 12 years of data exclusivity for the brand company during which a biosimilar product may not be approved, and 1 year of exclusivity for the first interchangeable biological product.

How is the biotech industry going to receive this proposed bill, in light of the concerns that the industry has had about biogenerics?

A press release issued by the Biotechnology Industry Organization ("BIO") gives an initial glimpse into the biotech response, stating as follows:

“Senators Kennedy, Enzi, Clinton and Hatch deserve credit for their hard work in crafting this complex legislation, and for the bipartisan support they have achieved for the bill.  Biotechnology innovators share the goal of ensuring all patients have access to life-enhancing and life-saving biologics.  We support the development of a pathway for the approval of follow-on biologics,” said BIO President and CEO Jim Greenwood.  “Toward that goal, we will continue to work with Congress to make certain the legislation is improved to ensure it supports the principles we have outlined for a pathway to follow-on products, namely providing better protections for patient safety and the patient-doctor relationship. 

“In addition, the patent litigation rules included in the bill must be revised to improve protections for the intellectual property rights of innovators, ensure timely resolution of all patent disputes and maintain incentives to develop future medical breakthroughs,” Greenwood stated.

It will be interesting to see how the introduction of this new legislation unfolds.  I suspect that it definitely will not be embraced by the industry, but I still don’t have a sense of how strong the opposition will be.  Is this legislation something that biotech companies can work with as the BIO press release suggests, or is this something that will be fiercely opposed?  Only time will tell.

We will be following this issue as this legislation is introduced outside of the committee, and we will keep you posted.