Oscillating Obviousness

PatentlyO writes on obviousness in Allergan v Sandoz (Fed. Cir. 2013) (see here).  The relevant claim is:

A composition comprising about 0.2% timolol by weight and about 0.5% brimonidine by weight as the sole active agents, in a single composition.

The District Court found this to be nonobvious.  On appeal the Federal Circuit reversed this finding.  Timolol and brimonidine were sold at the claimed concentrations and a prior art reference taught serial administration of the two substances.  The District Court focused on unpredictability and reasonable expectation of success and the factors the FDA took into account for approval decisions.  The Federal Circuit disagreed with this emphasis.

However a claim which referred to administration twice a day was found to be nonobvious by the Federal Circuit (over administering three times a day) based on the fact there was no loss in efficacy.  However there was a dissenting opinion where Judge Dyk felt this was a newly-discovered property of an obvious method.

I found this interesting because it shows the interplay between the prior art, reasonable expectation of success and resultant properties is complex, making obviousness (inventive step) difficult to predict.

Innovation in Biotech?

This article consists of observations on Life Sci VC’s recent article (see here) on the way that the Venture Capital firm Atlas invest in biotech.

Life Sci VC sets out certain principles that guide how they invest in early stage biotech companies. This article focusses on the fifth principle, using a seed-led model and funding real innovation. It is striking that Life Sci VC focuses on innovation without elucidating in detail what that really means. Instead a description is given of innovation unlocking new areas of biology and providing new modalities and approaches. Life Sci VC is the most informative and sophisticated blogger I have seen on the subject of biotech investing, and so his writing represents the cutting edge of ‘biotech investment theory’ as it were. That means most people in the biotech sector are no appreciative of the need to find real innovation in the companies they invest in.

Life Sci VC’s comments are consistent with my own experience as a patent attorney where little real analysis occurs in choosing the technology to invest in. Of course, research companies will have graphs showing projected sales figures of whatever they are developing, but it rarely gets more sophisticated than that. What we lack is a clear view of where the true breakthrough points of biotech are, i.e. an understanding of which areas need to be stepped into to provide radical new ways of doing things. Once that’s known it needs to filter down to tech transfer departments and the those who form startups.

Early Stage Biotech Venture Investing

Life Sci VC (see here) provides a list of the lessons learned from early stage biotech investing. Investing in early stage biotech is complex, unpredictable and very risky. However the field is filled with investors and people running research companies who are naïve to this reality, especially here in the UK.  One of the purposes of this article is remind our clients of issues they need to think about in an investment sector which is presently getting more difficult.  Life Sci VC’s lessons are summarised below:

1. Management is a key part of success. It needs to change as a biotech company goes through different stages. It needs the right relationship with the Board. It needs to be changed quickly when things go wrong, and resumes for the management team need to be read very critically.

2. Ensure you have the right co-investors.  Don’t have too many, and those you do have need to possess the same vision.

3. Technical diligence is key. Do your own.

4. Pick the right investment model. In general go in early, tranche around milestones, don’t assume late stage is less risky, don’t believe stories of imminent success, remember that diversification can destroy value and that lean virtual models have their disadvantages.

5. The legal aspects are important. Take care with IP diligence, reading the deal contracts and don’t expect deals with pharma to happen quickly.

 

European Biotech Gives Lower Returns At Exit

The Life Sci VC blog has provided an analysis of venture-backed biotech M&A figures for 2012.  It notes 3 main trends:

- median investor return multiples have risen from 2.5x in 2011 to 3.5x in 2012.

- European biotech exits have a far lower invested capital to return multiple. In 2012 it was 1.3x for Europe and 3.5x for the US.

- time from founding to trade sale has increased from 5 years in 2005 to 9 years in 2012.

Pondering on the lower returns for European exits, it’s not too surprising.  I know that in the UK at least, there is far less money in the system and that must lead to companies being bought out more cheaply. It’s more difficult to be optimistic about the future when financing is hard to get.  However I would also propose from personal experience that UK biotech is more insular than US biotech, at both the academic and research company levels, and that means it is less responsive and less influenced by commercial considerations.  I would imagine fewer UK companies know their market as well as US companies, to the extent for example where they would have analysed the likelihood of their product outcompeting existing products.  That means European companies are at risk of developing technologies which may be excellent, but which are going to make less money than technologies chosen and developed with an eye on the commercial considerations.

What Do You Need to Know About Biotech?

This article aims to provide a brief introduction to the commercial aspects of biotech in the field of healthcare for those working within it or for investors. In the course of providing patent services in the biotech and pharma sectors we have interacted with tech transfer organisations, research companies and investors, and participated in discussions concerning strategy. The contents of the article are based on that experience, and we hope will be of assistance in formulating a commercial strategy, as well as in formulating patent strategy. Our experience mostly comes from working with European organisations and so the specific information given in the article reflects the present picture in Europe, and to some extent the US.

The Characteristics of the Biotech Sector

Biotech has many sectors each with their own commercial characteristics. This article only relates to the healthcare aspects of biotech, and therefore does not, for example, discuss agricultural or industrial biotech. The healthcare sector can be broadly divided into therapy and diagnostics, both of which overlap with medical devices. Commercial strategy will differ in these two sectors and investors will need to be aware of the different risk profiles and the different time frames for product development and regulatory approval. The most lucrative area of biotech is drug development. However this is associated with very high risk. Figures of 85% failure rates for research companies in this area are quoted, and it is clear that even seasoned industry experts are unable to predict which companies will succeed. Further it can take 10 to 15 years to develop a drug which is a timeframe that is unacceptable for many investors.

In the eyes of many people biotech is a sector which has failed to deliver on its promises, with the development of new products being much more complicated than envisaged. However the world’s top-selling drug, humira, is now a biologic and there are still many unmet clinical needs waiting for biotech solutions.

Key Organisations

The key players in the biotech ecosystem are academic researchers, biotech research companies and large pharmaceutical companies (big pharma), with venture capitalists being an important source of funding for early stage biotech companies. Essentially many biotech companies have the strategy of getting product development to the point where big pharma will either acquire them or at least fund them. Therefore the expectations and behaviour of big pharma is a key consideration when formulating strategy in the sector.

Trends

It is important to know what the trends are in biotech and the present thinking of the different players. Big pharma is presently looking to externalise its research and it sees biotech companies as a source of innovative research that it can tap into. However big pharma is now much more cautious and will want to minimise risk in the way they interact with biotech companies. That means they are more likely to be sceptical, and if they are interested they will proceed by collaborating rather than acquiring. Biotech companies cannot now expect easy or quick exits, and will need to ensure that they can ‘go long’ if needed.  Venture capital funding is presently also difficult to get, and in the UK that is particularly the case. This means that at the moment the environment is pretty challenging for early stage biotech companies. However there seems to be a new optimism emerging in the US biotech sector which could also spread to Europe.

Different Models of Investing

It must be appreciated that there are many ways of investing in biotech. At the moment experiments with crowdfunding seem to be having some success, but this is probably not an appropriate way of investing in something as complex and risky as biotech. Venture capital investment is usually at an early stage, often investing in small biotech companies. However it can also be at pre-startup, where an academic may be funded to carry out initial experiments and file patent application.

The Sums and the Hard Reality

Whilst investing in the biotech sector is risky and there are many unknowns, investors should still be aware of the available statistics. In the US where the company is successful one can expect an investment of $20-30 million to give a return of around $140-150 million. Unfortunately the returns in Europe seem to be lower. What seems clear is that investing more than $20-30 million in the company will often not give a higher return. It is also clear from recent performance in the sector that few companies will give astronomical returns, and it is close to impossible to predict which ones those might be.

Past Examples

Whilst the biotech sector is littered with examples of companies which failed, there have also been success stories. The small UK biotech company Circassia has been able to raise tens of millions of pounds in several funding rounds in recent years. Thus investors are prepared to put large amounts of money into small European biotech companies.

Patents

Patents are of course a key aspect of commercialising biotech research, and often represent a substantial part of the value of a biotech company. Companies need to ensure that their patent strategy is in alignment with their commercial strategy. Thus all the relevant parts of the company need to contribute to the decision-making on the patent portfolio, and not just the patent attorneys.

Summary of Ernest & Young’s Report ‘Closing the Gap? Big pharma’s growth challenge and implications for deals’

1. In recent years big pharma have undertaken various measures to drive shareholder value, including repurchasing stock and increasing dividends. However the measures are not sustainable and big pharma needs revenue growth to sustain shareholder value.
2. Prior to 2010 big pharma kept pace with the global drug market. However in 2011 the drug market grew faster than big pharma, by about $20bn. The gap is expected to be $50bn for 2012 and $100bn for 2015, primarily due to the patent cliff.
3. Big pharma will find it difficult to close the gap by M&A deals since its ‘firepower’ is decreasing.  ‘Firepower’ is determined by a company’s available cash and debt, and decreased by 23% between 2006 and 2012 for big pharma, whilst increasing by 61% for big biotech and 20% for speciality pharma.
4. Competition from big biotech, speciality pharma and generics will make the deal environment more competitive and complex.  US companies are more likely to do deals offshore, and big pharma will probably be doing more deals in emerging markets.

Summary of Steven Burrill’s Predictions for Life Sciences in 2013

1. Fundraising will continue to be difficult for biotech companies. Venture investors will continue to move away from startups, and so angel and corporate venture organisations will need to fill that gap.  Investors from the emerging markets will become more prominent.
2. M&A activity fell in 2012. However an increase is now expected, and perhaps a big pharma or big biotech merger will happen in 2013.  Deals targeting companies that reach into Latin America, the Middle East and Southeast Asia will also be important.
3. The trend for pharma to externalise research will continue.  They will also continue to share risk with partners, for example using a milestone based system for payments.
4. Comparative effectiveness will become a reality for drugmakers as they will be required to demonstrate value and justifying pricing.
5. Diagnostics will become more important with drugmakers under pressure to define the subpopulation of patients that respond to the therapy.
6. Digital health technologies will become more common.