Bio-irony: Biotech Turns a Profit in 2008

    By Kevin E. Noonan --

In an ironic twist, the worst economic downturn in over seventy years seems to have coincided with an economic first:  according to G. Steven Burrill (at right), CEO of Burrill & Co., in 2008, the biotechnology industry became profitable for the first time in its forty-year history (see FierceBiotech report).

In "Biotech 2009: Life Sciences: Navigating the Sea Change," Mr. Burrill reports that two companies, Amgen and Genentech, account for "a big reason" why the sector was profitable.  And most of the companies in the sector remain "works in progress" that need the "umbilical cord" of investment to remain viable.  This has now become a challenge, of course, since the days of "relatively easy access to cheap capital" are over, at least for now.  And this has resulted in many biotech companies being on "life support," with "limited cash resources."

This is the same message reporters heard from James Greenwood (at right), President and CEO of the Biotechnology Industry Organization, during a press conference earlier today (see "BIO Meets the Press").  In a statistical report released today, Mr. Greenwood revealed research indicating that, in addition to many biotech companies having only between 6 and 12 months of working capital, investment has also declined.  Money raised in initial public offerings (IPOs) declined 97% in 2008 compared with 2007, and total capital raised by the industry fell by 55%.  These numbers translated to 32 life science IPOs in 2006 raising $1.7 billion, compared with 41 life science IPOs raising $1.9 billion in 2007, falling to one IPO in 2008 that raised $5.8 million.  In addition, 19 biotech companies withdrew IPOs in 2008, and 6 companies went bankrupt.

Similar bleak economic news is in the Burrill report.  Of the 370 biotech companies analyzed for the report, "almost 60% saw their market capitalization fall below $100 million."  One hundred companies announced "corporate restructuring" involving cutting staff and reducing support for projects; the BIO report showed that 34 biotech companies laid off 10% or more of their workforce since September and that at least 24 companies had "shelved" drug development programs for diseases including Alzheimer's disease, diabetes, multiple sclerosis, and various cancers.  This constituted a "clear pattern" that developed in the 4th quarter of 2008, according to Burrill.  "Blue chip" biotech companies who have "product revenue streams, strong pipelines and big pharma partners" have not been as negatively affected.  Accordingly, investors consider these companies to be "safe havens"; in another irony, the evidence for this confidence is that the Burrill Biotech Select Index fell only 10% compared with a 35% drop in the Dow Jones Industrial Average and a 42% drop in the NASDAQ.

The BIO report reflects these realities.  Almost all (87%) of U.S. biotech companies lost stock value in 2008.  The median stock performance for all biotech stocks declined 61%; small biotech companies had a 64% decline, while large biotechs (with more than $1 billion in market cap) declined only 30%.  Breaking these numbers down further, the BIO report showed that 91/350 biotech companies with under $1 billion in market cap are trading below their cash value, a 3-fold increase over 2007.

The Burrill report contains some recommendations for dealing with the new economic realities.  These include advice that companies and their executives get into "survival mode" and stop expecting "the good old days" to return.  Companies should also realize that they will need cash, so they cannot be concerned about diluting their stock value.  The report also recommends a shift in focus, from treating illness to promoting wellness, a paradigm shift that echoes Mr. Greenwood's call for treating chronic diseases.  The Burrill report also recommends "BioGreenTech" and biomarker research for drug development (Mr. Burrill does not seem to share the concerns of many that biomarker patent protection may be weakening in the wake of the Classen Immunotherapies decision by the Federal Circuit).

Despite all the relative "gloom and doom" of portions of the report, Mr. Burrill rates the buying opportunities in the sector as the "best ever."

The report became available in PDF version on February 24, and will be available in paper form on March 20.

For additional information regarding this and other related topics, please see:
• "NVCA Study Shows Decline in 2008 Investment; BIO Study Predicts Biotech Rebound in 2009," February 16, 2009
• "NVCA Predicts Another Slow Year for Venture-backed Businesses in 2009," December 18, 2008
• "Predictions Dire for U.S. Pharmaceutical Industry," August 6, 2008
• "Docs at BIO: Steve Burrill's State of the Biotechnology Industry Report 2008," June 19, 2008
• "Rough Times Ahead for Biotech Industry?" May 20, 2008

Comments

[I HEART BURRILL]

"Mr. Burrill does not seem to share the concerns of many that biomarker patent protection may be weakening in the wake of the Classen Immunotherapies decision by the Federal Circuit."

Classen isn't a biomarker patent. It's just a terribly drafted application and nobody should be particularly worried why it is invalidated.

A better question is: why would the biotech industry benefit from the issuance of Classen's claims? I can think of nothing worse for biotech patenting than a finding by the PTO or any court that Classen's claims are valid.

Do biotech prosecutors want to become the next laughing stock of the patent bar?

[Kevin E. Noonan]

Dear Heart:

Since many biomarkers will be unpatentable as being disclosed in Human Genome Project databases, there may only be method claims available. I was using the Classen case/claims as a shorthand for claims "correlating" an observation with a biological consequence. Those types of claims seems to be at risk under the Bilski/Labcorp dissent analysis.

Since you expressed the "laughingstock" opinion, I put it to you: assuming the composition of matter/kit claims are not available, and you have a method of detecting some change in a biomarker that correlates with a disease state, how would you write a "better" (i.e., patentable) claim? Enlighten us.

Thanks for the comment.

[I HEART BURRILL]

For starters, one might include a step of reporting the result to a third party, or a step of treating a certain subclass of the tested subjects.

You know the drill, Kevin.

My laughingstock comment was directly at Classen's claims specifically. The fact is that the PTO continues to issue "detect then correlate" claims that are based on actual discoveries. While some of these claims may have LabCorp issues, it is misleading to lump them in with Classen which is, quite simply, one of the most ridiculously awful biotech claims most practitioners have ever seen.

By the way, did you see this?

http://holmansbiotechipblog.blogspot.com/2008/12/classen-v-biogen-federal-circuit.html?showComment=1231941900000#c1038170547513588229

"We are counsel to Classen Immunotherapies in the recent 12-19-08 CAFC decision on section 101 post Bilski. We filed our Petition for rehearing yesterday and are seeking amicus briefing. We are only seeking to reverse that part of the opinion that states that immunization is not a transformation."

Huh. I don't remember the opinion saying that "immunization is not a transformation." I also don't recall that Classen's invention transformed anything. Classen invention was a method for "determining" something. Other than that allegedly new determination, nothing else was required (in spite of what the claim recited -- anybody can drop a "transforming" step into their claim but if it's just a preceding event that is old in the art, then it's smoke that it is perfectly fair to ignore).

[Kevin E. Noonan]

Dear Heart:

More later, but one of the problems with the treatment step is that it may raise a Muni Auction problem, i.e. require joint tortfeasors to infringe without either being under the direction or control of the other.

There are also suggestions to include a display limitation and other machine tying steps. All of which limit the claim in ways that I think are easy to practice without infringing.

Thanks for the comment.

[I HEART BURRILL]

Well, I was asked to address the patentability issue.

The concerns you raise in your last comment address something much more political than legal, i.e., when a person identifies a relationship between (1) a chemical or its levels in a human body and (2) a previously identified condition in humans, should that person be granted exclusive rights to all substantial uses of that relationship?

If you believe the answer is yes, the question is: why? The freshman answer is that without that incentive, people will stop looking for relationships or the rate at which such relationships are identified will slow.

I think that answer bears as much consideration as arguments that companies need to pay their CEOs tens of millions of dollars a year or else the companies won't be able to compete, i.e., it's a self-serving myth.

[Kevin E. Noonan]

Dear Heart:

I don't think an inventor should have rights to ALL substantial uses of the relationship.

The Labcorp case illustrates the point. There, elevated homocysteine levels were correlated with a vitamin deficiency, and that was the claimed method. We also know that elevated homocysteine levels are correlated with increased risk of heart disease, but that isn't covered by the Metabolite claim. It is analogous to the use of the Arrhenius equation is the claim in Diamond v. Diehr, which was recited in the claim for a specific use in curing rubber but did not preclude the use of the Arrhenous equation in other applications.

A claim reading "A method of diagnosing a disease or disorder in a human comprising the step of detecting an elevated level of homocysteine in a blood sample from the human" would be more like the claim you describe, and may very well be unpatentable. I don't think the situation is as clear with the claim in the Labcorp case.

Thanks for the comment.

[Kevin E. Noonan]

Dear Heart:

One more thing. I don't think that people will stop researching the correlations between biological phenomena and disease. I think there will be less incentive to translate this knowledge into useful diagnostic tests if we decide that diagnostic method claims (which have existed for quite some time) are not patentable.

The Supreme Court in Festo said that courts should be careful not to "disrupt the settled expectations of the inventing community" by changing the rules. One of the GSK arguments against the new continuation/claims rules was that GSK had made a decision - disclosure - in reliance on the rules as they were when they filed their applications, and that it would constitute an unconstitutional taking to impose the proposed limitations at this point. And I think that disclosure and encouraging disclosure is more important than the short-term profit that diagnostics companies may make in bringing these diagnostic methods to market.

Thanks for the comment.