Editors Note: Jose Cortina is a member of the Research Triangle Park law firm of Daniels Daniels & Verdonik, P.A.The state of North Carolina has focused significant attention toward development of the biotech industry within its borders. According to the recently released “Resurgence: The Americas Perspective–Global Biotechnology Report 2004”, by Ernst & Young, this effort appears to be paying off, with North Carolina moving from having the fourth to the third largest biotechnology industry in the United States. Locally, the Triangle is the third most significant biotechnology area among all metropolitan areas in the country (after San Diego and Boston), according to the recent Milken Institute study: “America’s Biotech and Life Science Clusters.”

As the biotech industry grows in the State and the RTP region, it takes on an increasingly greater importance to the overall economic health of each. While growth of the biotech industry in North Carolina has been robust, there are some troubling trends developing that could affect this growth and the economic success of the industry, with a consequent negative effect on the state and regional economy.

As a starting point, consider the high cost of bringing a drug to market, and that the costs of development and approval have been increasing dramatically. Further, only a limited percentage of drugs in development actually become commercially viable and successful.

Return on investment

As a result, it is essential for pharmaceutical companies to be able to sell the new drugs at a price sufficiently high to recover these high costs, and the ability or inability to do so has become an increasingly important issue to companies in the biotech industry. On the surface, it appears the problem of cost recovery is primarily related to the resistance by institutional and government purchasers to the high cost of prescription drugs. But this is not the only problem.

A key consideration in a biotech company’s ability to maintain an adequate price for its products (in order to both recover its investment, including the cost of product development, and to return a profit to it and its shareholders), is the company’s ability to maintain an exclusive position in the relevant market. Although for most companies the United States is a significant market, because of the increasingly high costs to develop products, companies must often take a global view in order to shorten the time required to recover their investment in a product and to begin returning a profit.

Patents are a useful tool to use in achieving this goal because they allow a company to establish an exclusive position with respect to its products. The exclusivity provided by patents restricts competition thereby allowing for higher prices, leading to a faster recovery of costs and profitability.

If the United States is the primary market for a biotech company, and global markets are not a concern, then the United States patent laws often work well to assist a company in establishing an exclusive position. More specifically, in the United States no broad field of technology is excluded from patent protection, except for atomic weapons. On the other hand, if global markets are of primary importance then, depending on which countries make up a company’s primary potential market, a company may or may not be able to rely on patents to assist it in establishing an exclusive market position. Biotech companies must asses the patent situation, on a country by country basis, if worldwide patent protection is critical to their sales plan.

A very different legal landscape

In some countries patent protection for compositions of matter, including pharmaceutical products, and for methods of manufacturing pharmaceuticals (as well as foods or other like materials) may be denied as being against the public interest. The granting of a patent is viewed as a privilege, and in some countries the current governments believe that protection for these types of inventions is contrary to the goals of those countries for their people, as it will make it more difficult for its citizens to obtain these “life-critical” products.

Less restrictive countries may not allow the patenting of pharmaceuticals, but will allow the patenting of methods of making pharmaceuticals. Yet others allow the patenting of pharmaceuticals, but require compulsory licensing at a “reasonable” royalty, which could establish competition and bring prices down.

In most countries (excluding primarily the United States, Belgium and South Africa) patent protection is generally not available for medical treatments and surgical treatments of man.

The good news is that there are currently international efforts to harmonize patent protection throughout the world, including attempts to harmonize what types of inventions are protectable. Recently Germany and Japan amended their patent laws to permit protection of compositions of matter (such as pharmaceuticals), where previously only methods of making compositions were permitted. If efforts to harmonize the laws continue to be successful, the issue of what types of inventions are protectable in the various countries may no longer be of such significant concern to biotech companies, including those in North Carolina. In the meantime, biotech companies must closely scrutinize the patent laws of countries projected to be major markets as they develop their business plans and strategy.

A. José Cortina is a registered patent attorney with the law firm of Daniels, Daniels & Verdonik. He focuses his practice on the intellectual property needs of small to large technology companies, including providing patent, trademark, copyright, counseling, licensing, conflict resolution and transactional services. He is experienced in a broad range of technologies, including electronics, communications, computer hardware and software, biomedical, materials, and selected chemical and chemical engineering technologies.