Archive for October, 2010

Licensing and the Pharma Patent Cliff

Friday, October 22nd, 2010


Photo courtesy Dennis Barnes Photography

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 2.0 Generic License.

Peering over the edge of a “patent cliff” that threatens to cut deeply into its profits, Big Pharma is considering modifying its current business model of in-house development of all-or-nothing blockbuster drugs towards a business model of in-licensing from biotech startups and university researchers.

The time and cost of developing new drugs from scratch is enormous– typically $2 billion per successful drug and 10 to 15 years from initial research to final regulatory approval.

But during the next five years, many top-selling blockbuster drugs will come off patent, and face severe price competition from generic versions, including: Pfizer’s Lipitor; Astra-Zeneca’s Seroquel; and Sanofi-Aventis’ and Bristol-Myers Squib’s Plavix. Between 2011 and 2014, four of Eli Lilly’s top five sellers will fall off the patent cliff: Zyprexa, Symbalta, Gemzar, and Evista. Estimates peg the total revenue loss to Big Pharma as high as $140 billion through 2016.

In response, analysts at Morgan Stanley are advocating a move away from the go-for-broke nature of the blockbuster business model, towards a Pharma 2.0 model of in-licensing from biotechs and academic researchers, who do all early-stage research and testing, and assume most of the risk. According to their analysis, the return on investment of in-licensed drugs is three times higher than drugs developed in-house.

And it appears that some of Big Pharma is listening. According to thepharmaletter.com, in 2009 the top 10 pharmaceutical companies entered into 12% more health-care focused licensing deals than the year before. Andrew Baum of Morgan Stanley estimates that large European pharmas will cut research spending by 40% in the next two years, and focus on licensing and acquisitions of promising drugs in development.

But for other pharmaceutical companies, the “Not Invented Here” syndrome still rules the day. Eli Lilly, which faces probably the most severe patent cliff among the major pharmas (above), has announced that it will meet the challenge mainly through cost cuts, job cuts, and modifications of existing product lines, rather than major new licensing or acquisition initiatives. It argues that slashing in-house research and development to boost return on investment is a short-term fix that would undermine Lilly’s long-term mission.

As we have argued in other contexts, while licensing may not always be appropriate as a complete replacement for in-house research and development, it is almost always appropriate as a complementary business model. When you are looking over the side of a cliff, Not Invented Here goeth before the fall.

Witches, and Bozos, and IP, Oh My

Wednesday, October 13th, 2010

Trick or Tea!

Is she a witch?

And was her father a Bozo?

In observance of the upcoming Halloween and Election Day holidays, and in the spirit of fun, we take a look at the intellectual property issues raised by the candidacy of Christine O’Donnell, the Republican and Tea Party candidate for U.S. Senate from Delaware.

Almost as soon as Ms. O’Donnell upset the party favored candidate in the Republican primary on September 14, video surfaced of her on the “Politically Incorrect” television show confessing that as a young woman, she had “dabbled into witchcraft,” and had had a date on a satanic altar. Her confession made her the punch line of a thousand late night one-liners– and the subject of her very own witch action figure. Internet toy seller herobuilders.com has capitalized on the publicity by offering a 12 inch Christine O’Donnell witch action figure for $39.95, featuring a smiling likeness of Ms. O’Donnell dressed in sorceress basic black flowing cape and pointy hat (sorry, no broomstick).

Can they do that?

Rights of publicity laws in many states prohibit commercial usage of the name, image, signature, or other indicia of the identity of a person without her consent. However, rights of publicity can be superseded by the First Amendment rights of the speaker, for example if the identity is used in news reporting, political commentary, parody, or (at least in California) if significant original transformative content has been added.

At first glance, the O’Donnell action figure seems to qualify under the commentary and parody exceptions.

But even when it is a much closer call — for example, an action figure that is an outright copy of a political figure solely in order to free-ride on his/her popularity — politicians usually decide it is bad publicity to sue. Herobuilders.com also sells action figures and bobbleheads of President Obama, Sarah Palin, Nancy Pelosi, Dick Cheney, and others. A notable exception to the “no sue” rule was California Governor Arnold Schwarzenegger, who sued an online seller of Schwarzenegger bobblehead dolls in 2004, but later agreed to a settlement in which the company could sell the dolls after a few modifications, such as removing the Governator’s toy assault weapon.

IP issues seem to run in Ms. O’Donnell’s family. According to this hilarious clip from MSNBC’s “Countdown,” Ms. O’Donnell’s father was the “fill-in Bozo the Clown” for a Philadelphia television station. He could not be the “official” Bozo because he did not attend the official Bozo training school in Texas.

Indeed, “Bozo” is a registered trademark of Larry Harmon Pictures Corporation (“LHPC”) for “Entertainment Services In The Nature Of A Children’s Television Program; Entertainment Services In The Nature Of Live Performances By A Clown Character.” So as licensor of this trademark, LHPC had a duty to maintain Bozo quality standards, for example by requiring CBE (Continuing Bozo Education) of all those licensees who represented themselves as Bozos to the public. Licensing without such quality controls would have been a naked license– in effect, a naked Bozo license. And that is a thought even more scary than a witch in the Senate.