Intellectual Property Does It Matter

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Thinking about Life Sciences http://blog.aesisgroup.com Tuesday, June 13, 2006 Intellectual Property: Does it Matter?

I admit that’s quite a line to start with especially for a biotechnology and medical technology audience in which business success would seem to live or die based on a company’s patent position. I fully admit that it’s also a dangerous line to start out with as I’m sure such a position could engender a feeding frenzy of comment from many intellectual property lawyers who are well trained in the art and science of argument. My real aim is to encourage some discussion on these issues, and should that happen (even if some of these points go down in flames), these efforts can be considered a success. Let the debates begin! Freedom-to-Operate is Key Intellectual property protection has two parts. One is patent protection, which is the ability to exclude competitors from the market place, and the other is freedom to operate (FTO), which is the corollary situation in which a company is free of third-party patents. While most of the emphasis has traditionally been on patent protection, increasingly the trend has been on establishing FTO. One example is with drug-eluting stents (DES). A company can own a patent on a very unique drug component to the DES yet be constrained by virtue of which actual stent it is using. Another example is with a technology used to screen for drug targets. The anti-aging target screening that Sirtris Pharmaceuticals is pursuing is an example. Here, the intellectual property position is less on patenting specific molecules (as these have not yet been identified) but rather in ensuring FTO in screening different compounds. Reasons for the “decline” of intellectual property In this sense then, intellectual property in terms of patent protection per se would seem to matter less now. I say this as I await the legal onslaught soon to come. Moreover believe that intellectual property, in general, has become less important and there are several important reasons why. In an idealized world, patent protection is indeed the core element of intellectual property. Medical technology (and much of technology in general) lives in the real world, though, which is different from an idealized situation in two ways: 1. Technology develops so rapidly that patent protection can in fact be obsolete even before it expires. Ever-increasing technology innovation will further accelerate this trend. 2. Medical technology increasingly is based on combinations of individual technologies. These technologies are often called convergent (or combination) medical technologies (CMT). In this case, the innovation that a company brings to the market may be only one (or a few) of the components of a device that utilizes inventions from a number of sources. This trend is increasing as drug-eluting stents are only one example of drug-device combinations and other convergent technologies. A third reason, which is arguably less important than the first two, is the “Asian factor”. This is the well-known difficulties in enforcing intellectual property in some of the emerging Asian economies. In this case, the underlying move away from patent protection is not for theoretical or intellectual reasons but

11/17/2008 12:54 AM

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simply because it just doesn’t matter as much in practical and legal terms. Implications for Building Business Value: Accelerate Development and Partner to Innovate These two trends – rapid technology development and the rise of combination products – have two implications for building value in the medical technology industries. The first is that the ability to rapidly bring products to market is increasingly important. This is a combination of many capabilities including research efficiency, development expertise and engaged regulatory oversight. Ultimately all of these relate to the effectiveness of management and we see the increasing trend for investment groups to emphasize the strength of management over specific patent portfolios. By corollary, services and technologies that accelerate biotech and medical technology development will become increasingly valuable. One of the great promises of genomics was the ability to accelerate drug discovery and drug development. Unfortunately, that hasn’t really panned out and the mantle is now on the shoulders of yet another “omic” – or proteomics – to provide that catalytic role. The word is not yet out as to whether this constitutes the Holy Grail. The ability to productively partner with other companies will also be a key competence for generating value in biotech and medical technology. For many of the combination medical technologies of the future, no company (even the big ones) will be able to provide, protect and sustain the innovation required. Those companies that remain insulated from others – relying on patent protection from a declining stable of inventions – will likely suffer in value. The relative isolation of Big Pharma and the emphasis on individual compound patent protection in the hopes of achieving a blockbuster product is one reason for the relative malaise of that sector. Consider the case of Microsoft, for example, which is no big player on the patent scene. The Case of Microsoft Particularly in the early days of its development, Microsoft’s major strength was the ability to partner with much larger companies (such as IBM). It was through these intelligent partnerships that Microsoft was able to attain its immensely strong market position - I won’t use the word “monopoly” - rather than any specific patent protection rights. On a related note, I had a letter published in the Wall Street Journal on April 17 on the eBay vs. MercExchange Supreme Court case. In that letter, I pointed out that the rise of combination medical technology products means that automatic permanent injunctions could very well keep life-saving treatments away from the public. I added: “Lives – and not just fingers tapping on BlackBerries – are at stake.” The Supreme Court rendered its decision on May 15 and came down with a mixed verdict. This perhaps reflects this evolving debate over the position of intellectual property in encouraging and protecting economic and social value. Justice Kennedy’s opinion seems to point at these future directions: “When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest.” While I don’t know if Kennedy read my Wall Street Journal note, clearly the era of combination technologies is upon us and it affects all aspects of life. Ogan Gurel, MD MPhil [email protected] http://blog.aesisgroup.com/ Convergent Medical Technology Innovation Patent Reform Act Intellectual Property Proteomics Partnerships ombination Medical Products Aesis Research Group Ogan Gurel MD

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