March 10, 2003 | From time to time, an opinion strikes a chord with readers. A good example: The Dodge Retort e-mail newsletter and online column urging big pharmaceutical companies to consider the prevailing stance the IT industry has on intellectual property ("In Patents, IT Shows the Way"). John Dodge, Bio·IT World's executive editor for IT, wrote: "Broad cross-licensing would mean that many companies instead of just one could produce important drugs ... In theory, cross-licensing would increase competition and drive down prices."
No doubt, intellectual property protections are the lifeblood of the drug industry in its ceaseless quest to profit from blockbuster medicines. The IT industry operates on a completely different model. Knowing that rivals could easily come up with a similar invention, IT innovators tend to cross-license each other for past inventions as well as those that have not happened yet. That way, multiple IT vendors enjoy advances made in, say, semiconductor or storage technologies.
Conversely, drug companies use patents to make sure only they can exploit their property.
One correspondent, who asked us not to publish his letter, argued that as profits and cash flow rise, so does R&D, which benefits the current "armamentarium of medicines." That would argue in favor of patents as blocking mechanisms.
We welcome more letters on the topic. Find the column at www.bio-itworld.com/archive/retort/011603.html.
IT Patents Have Less Value
So what would be the advantage to Pfizer, which owns the title to Lipitor and makes close to $7 billion selling it at an average of $2 per pill? You say that Lipitor would win larger market share, which is definitely true, but would Pfizer win larger profits as a result? I doubt it.
Patents have never had as much value for IT. IT protects products primarily through branding and trade secrets, not through patents. Though patents give the perception of protection in IT, companies can easily develop knock-off technology that perfectly mimics the patented technology. Consider the "look and feel" case that Apple pursued against Microsoft and lost. Microsoft clearly stole much of the windowing technology from Apple (and Apple took it from Xerox's Palo Alto Research Center). What good were patents for Apple? What wins in IT is the quality of the offering, not the protection of the technology.
However, in pharmaceuticals the patent is king. Without the patent, who would invest in the hundreds of millions of dollars to get a product through the FDA? Who would invest the money to convince physicians to use the minor improvements these drugs offer over previous versions? The entire pharmaceutical industry, including the large investments in research and the huge returns on investment, are driven by the proprietary nature of drugs during their patent life.
It's a Different Business Model
Thomas P. Caruso, Ph.D., M.B.A.
Manager, Program Development
You make excellent points in the comparisons between the way intellectual property is managed in biopharma and IT companies, and I think fundamentally this comes down to the way the business models for these industries are different.
The increasing democratization in IT has been fueled by less expensive hardware and higher global connectivity. It's hard to envision a similar change in landscape for biopharma, just as hard as it would be to envision an equivalent to the FDA for IT companies.
There is also the difference in the time component biopharma uses to measure success in the drug pipeline, which is about 10 years from concept to market, and then perhaps a few years of exclusivity before the generics take over. IT companies sprout, bloom, wither, and die in the time it takes a single drug to go from Phase I to Phase II clinicals. Not to mention the costs and failure rates of most drugs. Necessarily, [these factors] foster differing strategies for the larger companies.
But Why License a Blockbuster?
Andrew S. Peek, Ph.D.
Manager of Bioinformatics
Integrated DNA Technologies Inc.
Pharma companies are not obsessively opposed to out-licensing — they do whatever they think will make them the most money. Many less significant patents (process patents, etc.) are often licensed. Patent rights in markets where the innovator does not have a major presence (Japan, Scandinavia) are frequently licensed out to local companies. It is fairly unusual to license broad rights to a blockbuster like Lipitor, however. This is kind of a mega-version of biotech companies developing their products to a certain point, then licensing them to Big Pharma to make the big layouts for Phase III and launch. Of course, the big partner gets the lion's share, but the jackal's share may still be plenty. It is better to have a small slice of a big, successful product than all of a failure. Pfizer has all the marketing muscle it needs and will devote whatever it takes to maximize its return on Lipitor. I do not expect that the company will ever license it. A wild card would be the development of government price controls. With lower prices, it is conceivable that out-licensing strategies would be more rewarding. It would be interesting to know if there is more out-licensing of major products in a country like Japan, which has strong price controls. I can tell you that Japanese companies take their patents very seriously indeed.
The Pharmacogenomic Factor
James G. Christenson, Ph.D.
Comparative Biosciences Inc.
Cross-licensing in pharma is an interesting idea; however, I doubt that were Pfizer to cross-license Lipitor, for example, it would likely drive other statins from the market. This is largely because of pharmacogenomics — differences in individual reactions to drugs, including known side effects. Also, different statins work better for different people, so switching (at least in some cases) is not without unwanted consequences.
Cartels vs. Freedom
In my humble opinion, you are comparing apples and oranges. Open source, in its true form — the GNU General Public License (GPL) — is radically different from cross-licensing. GPL is about freedom. Cross-licensing is about setting up the cartel, so it's about sharing profits.
Anybody is free to use a GPLed program — even a new programmer who has nothing to give in return right now. What a new programmer gives in return is: All his additions to the program will contribute to the freedom of others. So, it's fine to talk about cross-licensing (sharing profits), but please do not compare it with open source (sharing freedom). I am not sure results of basic research could (and should) be GPLed. Sharing as promoted by GPL could possibly work only on commodity technology.
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