VentureBeat

I’ve been generally unsympathetic to laments that biotech and medical-device companies will suffer if U.S. patent law is reformed, and that has a lot to do with some of the grotesque but legal patent abuses biopharma companies have perpetrated over the years in order to lock out competition for as long as possible. While Big Pharma has almost certainly been the biggest offender along these lines, Big Biotech has plenty to answer for as well.

Which is why the news that Genentech’s “Cabilly” patent, which lays claim to some fundamental techniques for making bioengineered antibodies, has just been rejected for a fourth time — although it’s still not dead — strikes me as a perfect occasion for Schadenfreude. Cabilly, which continues to bring Genentech more than $100 million in royalties every year well after it should have expired, offers a terrific illustration of the the lengths companies will go to artificially extend patent terms. These zombie patents cost the healthcare system — which, of course, ultimately pays the price in inflated product costs — billions of dollars, all the while stifling innovation and enriching those who have figured out how best to game the system.

The history of Cabilly is long and convoluted — anyone interested should take a look at this Legal Times piece (PDF link), tellingly titled “It Lives for 29 Years?” — so I’ll limit myself to the high points. In 1989, Genentech found its newly issued Cabilly patent in conflict with another, issued the very same day, owned by Celltech, a U.K. biotech that also claimed ownership of basic antibody technology. The companies clashed for years, first in the U.S. Patent and Trademark Office, then in the courts, before finally agreeing to settle the case.

Their 2001 agreement remains confidential, but the aftermath was clear. The court ruled in Genentech’s favor, voided the Celltech patent and, remarkably, issued Genentech a brand-new patent — “Cabilly II” — that covered exactly the same invention as Cabilly I. Genentech also agreed to pay Celltech the same royalties it would have received from its now-worthless patent until the date it would have expired in 2006. In other words, Celltech got paid as if it had won the case, while valuable antibody technology that would have entered the public domain two years ago remains locked up by Genentech’s new patent for another decade — until 2018, in fact. It’s a win-win for the two companies and their shareholders, but a major loss for everyone else.

The Cabilly patent, which earned Genentech $133 million last year, has come under sharp attack over the past several years. In 2005, MedImmune — now a unit of AstraZeneca — sued to invalidate Cabilly II on the grounds that it resulted from an illegal, anti-competitive agreement between Genentech and Celltech. That MedImmune case won’t actually be tried until June, as it was tied up for years in a procedural argument that went all the way to the Supreme Court. In the meantime, however, the patent office has also reexamined the patent and found it wanting on several occasions — most recently just two days ago.

Like the zombie it is, however, Cabilly keeps springing back to life every time someone thinks it might finally be down. Genentech has the right to appeal the latest decision within the patent office and in the courts, and of course it has every incentive to run out the clock as long as it can. Unless, that is, MedImmune can put a bullet in Cabilly’s head first.

(Photo by Flickr user Scott Beale/Laughing Squid, used under Creative Commons license.)

Now that AstraZeneca has made the bold — or impulsive — decision to snap up MedImmune for $15.6 billion in cash, one big question is whether the U.K. pharmaceutical giant has kicked Big Pharma’s appetite for biotech acquisitions into high gear.

The green-eyeshade types are generally still scratching their heads over the rich price, which amounted to a 21 percent premium over MedImmune’s close on Friday. The biotech was known primarily for Synagis, an antibody-based drug that prevents a common respiratory infection in babies, and FluMist, a so-far underperforming influenza vaccine that’s delivered via a nasal spray instead of injection. MedImmune has next-generation versions of both drugs in development, but neither seems likely to set the world on fire. The company also reportedly has more than 40 other experimental drugs in its pipeline, but of course it’s far from certain that any of them will ever even make it to market, much less become the blockbusters that AstraZeneca is presumably looking for.

In fact, odds are good that AstraZeneca fell victim to the “winner’s curse,” the well-known tendency of bidders to overpay, sometimes dramatically, in competitive auctions. The WSJ reports that at least four large companies, including Eli Lilly, had been involved in the MedImmune bidding — a classic blueprint for overheated competition. Somewhere, Carl Icahn is smiling.

So, of course, are other biotech investors, who have to be hoping that whatever fever AstraZeneca came down with continues to spread. The WSJ story notes that the deal is “sure to push up valuations for similarly sized companies,” and indeed the Amex biotechnology index bumped up almost two percent on the news. Other blogs are now rife with speculation over which companies might now be in play — the WSJ Health Blog thinks Biogen Idec, Medarex and some specialty pharma companies could be next, while over at Pharmalot, Ed Silverman tosses ImClone Systems, Xoma, PDL BioPharma and Telik into the mix.

Should the expected free-for-all materialize, it will obviously have major implications for venture investors, who are already plunging more deeply into the sector. At the same time, I’d also expect to see more blood on the floor on the pharma side, as it’s far from clear to me that buyers like AstraZeneca really understand what they’re getting into. I suspect that many biotech acquisitions by pharma don’t end well — the cultures are very different, and it’s very easy for even a substantial biotech like MedImmune to get lost inside the vast structure of a $26 billion behemoth like AstraZeneca.

That, at least, was generally the logic behind the rage for pharma-biotech partnerships, in which drug companies could trade cash for future rights to experimental drugs without all the messiness that acquisitions entail. But it seems the desperation of Big Pharma knows no bounds these days.

One additional point: Little noted in all the hoopla is the fact that the acquisition takes out the last North American maker of flu vaccines, following last year’s purchase of Chiron by Novartis and that of Canada’s ID Biomedical by GlaxoSmithKline the year before. So far, the concentration of vaccine production in the hands of European pharmas hasn’t seemed to concern U.S. regulators much. And it probably won’t, either — at least until the next avian-flu scare, that is.