icm thesis - hertler & rudback - göteborgs universitet · claim intellectual property ......

Graduate School Master of Science in

Intellectual Capital Management Master Degree Project No.2010:122

Supervisor: Boo Edgar and Ulf Petrusson

Personalized Medicine

-a viable option for a biotech company

Magnus Hertler and Thomas Rudback

i

Executivesummary

Thisthesisinvestigatesandanalyzesthepotentialforabiotechstart‐upcompanytouse

personalized medicine based on MSCs. The thesis focuses on four subjects – (1) the

current IP landscape, (2) thepathtomarket, (3) thepossibility togenerateprotection

around the personalized part of the medicine and (4) the commercialization of the

product.

ThepatentlandscapearoundMSCsshowedastablepatentingtrendinthefield,withto

someextentwidepatents.Theanalysis showed, in linewithother investigations, that

theindustryconsistsofseveralsmallactors.Thisindicateslowbarrierstoenterfroma

patentperspective.Theanalysisofthepatentclaimsshowednohomogenoustrendsfor

thefieldaswhole.Sometrendswerehoweveridentifiedwhenbreakingdownthefield

intofurthersubcategories,e.g.procedures.

The path tomarket analyzed different possibilities to solve the scenario of a blocking

paten, e.g. invalidate or invent around. This chapter also addresses different tools to

reachthemarket‐licenses,collaborationsandexemptions.

The third section analyzed different manners to protect an algorithm. The algorithm

represents a good solution to isolate the personal features. The analysis showed that

patentingofferedthebestoptionsforgeneratingprotection,whichinturnrequiredan

investigation of the legal opportunities to protect an algorithm. The legal analysis

showedthattherewheregoodpossibilitiesinboththeUSandEurope.

The last section, commercialization, showed the benefits and challenges of the field

basedonaPorter’sfiveforces.Theanalysisshowedseveralstrengthsandweaknesses

within the chosen field, e.g. several of the input products are commonly used in the

pharmaceuticalindustryandhencearerelativelyeasytogainaccessto.Thechapteralso

addressesbenefitsandchallengesinrelationtoparameterssuchas“smallbiotechstart‐

upvs.bigpharmaceuticalcompany”anddifferentpricingstrategies.

The conclusion that can be drawn is that personalized medicine offers great

opportunitiesforastart‐upbiotechcompany.

ii

TableofContents

Executivesummary................................................................................................. i

Abbreviations ........................................................................................................ v

1.Introduction ....................................................................................................... 11.1Aimofpaper.................................................................................................................................................. 21.2Hypothesis ..................................................................................................................................................... 21.3Researchquestions .................................................................................................................................... 21.4Delimitations ................................................................................................................................................ 21.5Method ............................................................................................................................................................ 31.6Disposition..................................................................................................................................................... 41.7TargetAudience .......................................................................................................................................... 52.Background ........................................................................................................ 62.1PersonalizedMedicine ............................................................................................................................. 62.1.1BenefitsofPersonalizedMedicine ....................................................................................................62.1.2ChallengesofPersonalizedMedicine ..............................................................................................8

2.2Mesenchymalstemcelltherapy ........................................................................................................... 92.2.1Stemcells .....................................................................................................................................................92.2.2Mesenchymalstemcells .....................................................................................................................102.2.3Treatment.................................................................................................................................................122.2.4AdvantagesofMSCs .............................................................................................................................132.2.5Allogeneicvs.AutologousMSCs ......................................................................................................14

3.ThepatentarenaoftheMSC’s ......................................................................... 163.1Thearenas .................................................................................................................................................. 163.1.1Administrativearena ..........................................................................................................................163.1.2Judicialarena..........................................................................................................................................163.1.3Businessarena........................................................................................................................................173.1.4Thethreearenas....................................................................................................................................17

3.2Thepatentlandscape ............................................................................................................................. 173.2.1Previousinvestigationsofthepatentlandscape.....................................................................183.2.2Thecurrentpatentlandscape .........................................................................................................193.2.3Referencepatents..................................................................................................................................203.2.4Claimspace ..............................................................................................................................................20

4.Possiblesolutionstoreachthemarket ............................................................. 224.1Possibilitiesandhinders ...................................................................................................................... 224.1.1Researchoutcome.................................................................................................................................234.1.2Product ......................................................................................................................................................234.1.3Patents .......................................................................................................................................................234.1.4Risks ............................................................................................................................................................234.1.5Blockingpatents....................................................................................................................................23

4.2Licensing...................................................................................................................................................... 254.2.1Inlicensing ..............................................................................................................................................254.2.2Outlicensing ...........................................................................................................................................254.2.3Exclusivelicense ....................................................................................................................................264.2.4Nonexclusivelicense...........................................................................................................................26

iii

4.2.5Solelicense ...............................................................................................................................................264.2.6Crosslicense ............................................................................................................................................264.2.7Compulsorylicense...............................................................................................................................26

4.3Collaboration ............................................................................................................................................. 274.4Exemption................................................................................................................................................... 274.4.1ExtemporaneousExemption ............................................................................................................28

5.Possibilitiestoprotectthepersonalizedaspect ................................................ 315.1Thebestmannertoprotectsoftware ............................................................................................. 315.1.1Patent .........................................................................................................................................................315.1.2TradeSecret ............................................................................................................................................335.1.3Disclosingtheinformation................................................................................................................345.1.4Patentsoffersthelargestbenefits .................................................................................................35

5.2Thepossibilitytopatentanalgorithm ........................................................................................... 355.2.1Thediscussionaroundsoftwarepatent ......................................................................................355.2.2ThelegalstatusinEurope.................................................................................................................365.2.3ThelegalstatusintheUS ..................................................................................................................39

5.3Thebestwaytoconstructanalgorithmprotection ................................................................. 405.3.1Theshortterm .......................................................................................................................................415.3.2Thelongterm.........................................................................................................................................41

6.Thecommercializationofpersonalizedmedicine ............................................. 436.1TheIntellectualvaluestar ................................................................................................................... 436.1.1Claimintellectualproperty...............................................................................................................446.1.2Managehumanresourcesandcultures ......................................................................................446.1.3Shapetheinnovation...........................................................................................................................446.1.4Shapethemarket ..................................................................................................................................446.1.5Shapetheventure .................................................................................................................................456.1.6Createfinancialvaluefromintellectualvalue .........................................................................45

6.2Competitiveadvantage.......................................................................................................................... 456.2.1Porter’sfiveforces ................................................................................................................................456.2.2Advantagesanddisadvantagesofasmallbiotechcompany ............................................47

6.3Pricingstrategy......................................................................................................................................... 496.3.1Totakeoutahigherpriceforpersonalizedmedicinethanfortraditionalmedicine..................................................................................................................................................................................50

7.Conclusion ....................................................................................................... 537.1Background ................................................................................................................................................ 537.2Outcomeofstudy..................................................................................................................................... 547.2.1IPlandscape ............................................................................................................................................547.2.2Possiblesolutionstoreachthemarket........................................................................................557.2.3Possibilitiestoprotectthepersonalizedmedicine .................................................................557.2.4Thecommercializationofpersonalizedmedicine..................................................................56

7.3Thecombinedoutcome......................................................................................................................... 567.3.1Theadministrativearena..................................................................................................................567.3.2Thelegalarena ......................................................................................................................................567.3.3Thebusinessarena ...............................................................................................................................57

7.4Finalreflections........................................................................................................................................ 57

iv

References ........................................................................................................... 58Literature............................................................................................................................................................ 58Articles................................................................................................................................................................. 58Report................................................................................................................................................................... 60Internet................................................................................................................................................................ 61Databases............................................................................................................................................................ 62Legislation .......................................................................................................................................................... 62Caselaw............................................................................................................................................................... 63

AppendixA .......................................................................................................... 64PatentsrelatingtoMSC ................................................................................................................................ 64Patentsrelatingtotreatment..................................................................................................................... 64Patentsrelatingtoprocedures.................................................................................................................. 65AppendixB .......................................................................................................... 66Actorsinthestemcellfield......................................................................................................................... 66

v

Abbreviations

BM–BoneMarrow

CCE–CounterflowCentrifugalElutriation

DNA–DeoxyribonucleicAcid

EPC–EuropeanPatentCouncil

EPO–EuropeanPatentOrganization

ESC–EmbryonicStemCell

IHD–IschemicHeartDisease

IP–IntellectualProperty

IPSC–InducedPluripotentStemCell

IPR–IntellectualPropertyRight

GMO–GeneticallyModifiedOrganism

LV–LeftVentricular

MI–MyocardialInfarction

mRNA–messengerRiboNucleicAcid

MSC–MesenchymalStemCell

PCT–PatentCooperationTreaty

PTO–PatentandTrademarkOffice

SME–SmallandMediumEnterprises

TBA–TechnicalBoardofAppeal

TRIP–TradeRelatedAspectsofIntellectualPropertyRights

UC–UmbilicalCord

USPTO–UnitedStatesPatentandTrademarkOffice

VC–VentureCapital

WARF–WisconsinAlumniResearchFoundation

1

1.IntroductionThe biotech industry is experiencing an interesting time with rapid technical

development, theconvergenceofseveral industriesandchangingof legal frameworks.

There are new innovative steps about stem cell development presented on an almost

dailybasis,where thenext isevenmorespectacular than theprevious,e.g. thecloned

sheepDollythatwasannouncedin19971andthepossibilitytocreatelifeinacellfrom

20102.Thisshowsthepotentialinthefield,andhowfarresearchalreadyhascome.

There is a convergence from several industries, e.g. the agricultural‐, chemical‐ and

pharmaceutical sector, into the life science field. Thismeans that the field stands the

possibilitytobecomethelargestindustryintheworldifthetransactioncontinues.The

movement is motivated by the increasing importance of genetic engineering and the

impactitisexpectedtohaveontheworld,e.g.GMOsandtherapies.3

Thestemcellresearchhasexperiencedregulatorychangesduringthelastyearsinboth

theUS and Europe. The largest change has been in theUS,where GeorgeW. Bush in

2001decidedtore‐regulatethepoliciesapplyingtostemcellresearchanditsfunding.

He decided that US federal dollars were only to be spent on research using existing

approved lines of embryonic stem cells. The law has beenmodified since 2009when

Barack Obama loosened the regulations. A second hindrance in the US and to some

extent for the whole research development has been twoWARF patens covering the

preparationsofprimateandembryonicstemcellsinawidemanner.4TheWARFpatents

havebeen rejected in a recentdecision fromUSPTO5,which shouldopenup the field.

The WARF patents have not been granted in Europe due to a different view on

embryonicstemcells,buttheyhavestillhadaneffectinEuropeduetotheimportance

oftheUSmarket.

In this thesis we have decided to take a closer look on the biotech field and the

developmentsthatareongoingtherein.Inordertonarrowthescopeofourresearchwe

havefocusedonMSCresearchandthedevelopmentofpersonalizedmedicine.

1ScienceMuseum,Internet2Stengård,M(2010),Internet3Enriquez,Jetal.(2000),p.97ff4Bergman,Ketal.(2007),p.1ff5ThemedicalNews(2010),Internet

2

1.1AimofpaperThis paper aims to show the potential and challenges with personalizedmedicine in

relation to stem cells for start‐upbiotech companies. The goal is to clarify interesting

areas inrelationtothechosenfieldtogiveanintroductionintotheindustry.Thedual

educational background of the authors allows the thesis to address a wide scope of

subjectsthatcoverslegal,technicalandcommercialelements.

1.2HypothesisThepreamblehas introduced thecurrentenvironmentofabiotechstart‐upcompany.

Wethinkthatpersonalizedmedicineoffersinterestingpossibilitiestoreachthemarket

for a biotech start‐up and have formulated a hypothesis that we hope to verify or

dismisswiththisthesis.

PersonalizedMSCmedicine offers great opportunities for start‐up biotech companies

basedinEuropetosucceedonthemarket.

1.3ResearchquestionsWehaveindentifiedfourquestionstoallowustoverifyordismissourhypothesis.

• WhatisthecurrentpatentlandscapearoundMSCs?

• Whatisthebestmannertoreachthemarket?

• What is the best manner for a small biotech company to protect the unique

aspectinpersonalizedmedicine?

• What would be the main competitive advantages and benefits for a biotech

companyutilizingpersonalizedmedicine?

• Inwhatwaydoespersonalizedmedicinecreateadvantagesandpossibilitiesof

pricesettingforbiotechcompanies?

1.4DelimitationsThebiotech industry covers severaldifferent application fields, e.g. therapyandGMO.

Theintendedfocusonpersonalizedmedicinemeansthatwewillprimarilyanalyzethe

questionsfromapharmaceutical‐andgenomeindustryperspectiveevenifsomeofthe

materialcanbeusedforthebiotechindustryasawhole.

Thechosenfieldcoversseveralinterestingareas,whichinturnallowforawidevariety

of questions. We have chosen five research questions that are central for the

personalized aspects from a business‐ and IP perspective. Thismeans that the result

mighthavebeendifferentifusinganotherperspective.

3

WehavechosentolimitouranalysistotheEUandtheUS,whichcoveramajorityofkey

countries of development and commercialization. This means that we only have

includedpatentsissuedbyEPOandUSPTO,andregulationsandpraxisfromtheUSand

Europe. There are other important countries, e.g. Japan, China and India that are

relevant, but the limited space in relation to the wide scope did not allow for more

nationstobeincluded.

ThequalitativeanalysisofpatentshasonlyincludedpatentsissuedinEuropetoprove

ordismissthehypothesis.Thismighttosomeextentgiveaninaccuratepicturedueto

thedominanceofUSpatents.However, all solutionsof commercial value shouldhave

beenissuedinEuropeaswellastheUS,andhenceshowifthereareanycentralpatents.

ThereareseveralIPRsthatareinterestingforabiotechcompany,butwehavedecided

toonlyaddressprotectionaround the inventions.One interestingdimension that falls

outside but is relevant for the commercialization of the personalized aspect is for

instancebranding,

Therearedifferentformsofstemcells,butwehaveprimarilyfocusedonmesenchymal

stemcells.Thereasonforthisisdual–(1)MSCshaveseveralpositivetraitsthatmake

theminterestingforfuturedevelopment.(2)Themajorityofthepresentarticlesinthe

fieldfocusonembryonicstemcells.ThisindicatesalowerresearchlevelofMSCs,which

offersagreaterchallengetoexplorethesubject.

1.5Method

Thegoalofthethesisistogiveamultifacetedpictureofpersonalizedmedicineandthe

biotech industry.Thishasresulted inthe inclusionofseveralareasthathavedifferent

requirements and hence resulted in a need for differentmethods. The usedmethods

includeliteratureandarticleanalysis,acasestudyofabiotechstart‐upanddiscussions

withpersonsactiveinthefield,patentsearchesandanalysis,andlegalanalysis.

Wehaveusedliteratureandarticlestoprovideuswithaninsightandunderstandingof

thesubjects.Therelativelyfastdevelopmentinthefieldmeansthatarticleshavebeena

keysourceofinformationforthecurrentstatusinthefield.Thearticleswereidentified

through searches using both proprietary and non‐proprietary search tools, aswell as

directedsearchesof recognizedmagazines in the field.Themainnon‐proprietarywas

Google,whileproprietarydatabasessuchasWebofScienceandSCOPUSwereusedto

gain access to qualitative sources. We also conducted directed searches in Nature,

NatureBiotechnologyandHarvardBusinessReviewtoidentifyrelevantarticlesthatthe

4

searches had missed. The books were identified through searches in Gothenburg

University’slibrarysearchtoolGUNDA,andviareferencesinrelevantarticles.

Wefollowedabiotechcompanyduringthespring,whichhasallowedustogaininsight

intotherealityofthecurrentindustry.Thishasalsoallowedustogainaccesstopersons

with insight into different areas of the industry ranging from scientists, business

developers topatent lawyers,whichhaspermittedus to test someof our theorieson

persons active in the field. The interactions have included the possibility to sit in on

meetingsandtopartakeindiscussions.

The patent searches have been done using non‐proprietary databases Free Patent

OnlineandEspasnet.ThesearchesincludedtheUSandEuropetoallowagoodcoverage

of themajor patent regions. Initial searcheswere performed by using general search

phrasestoallowtheidentificationofrelevantpatents.Thisallowedforthegenerationof

newkeywordsandmorespecifiedsearchstrings.Weconductedabriefreviewoftitles

andabstractswhentheindividualsearchstringgavelessthan100hitstoallowforthe

identificationof relevantpatenscoveringkeyareas.Wehaveusedaclassification tool

byRobertR.Sachsthatplacesthepatentsinamatrixbyanalyzingtheclaims,inorderto

identifythepatentingtrendsinthefield6.

Wehaveusedlegalmethodwhenrelevanttodeterminethejudicialsituation.Thelegal

method included studies of regulations, praxis and doctrines to allow for a good

understandingofthechosenareas.Whensuitable,theproprietarydatabaseKarnovwas

used.

1.6DispositionThewidescopeofthethesisalsomakestheinvestigatedareasseveral.Thismeansthat

thefocusofthechaptersvariesanddoesnotalwaysmatchinsequence.Thelogiccanbe

foundinthehypothesisandtheresearchquestions.Theflowandconnectionsbetween

the different parts can best be described as in Figure 1, where the conclusion shall

supporthypothesis.

6Sachs(N/A),p1f

5

Figure1theflowchartofthethesisandtheconnectionbetweenthedifferentparts.Thenumbersintheboxcorrespondwiththechapternumber.

Chapter 2, Background, will serve as an introduction to the two central underlying

subjects,personalizedmedicineandmesenchymalstemcelltherapy.

Chapter 3 will show the current patent landscape for MSCs and analyze reference

patentsinthefield.

Chapter4showsthedifferentoptionstotakeanintellectualpropertythelaststeptothe

market,whichisdoneprimarilybyhighlightingbenefitsandchallenges.

Chapter 5 addresses the best manner of protecting the personalized aspect of the

medicine.Thiswillprimarilybedonefromtheperspectiveofanalgorithmencapsulated

insoftware.

Chapter 6 analyzes the commercial benefits and challenges of personalized medicine

whenusedincombinationwithMSCsforabiotechstart‐upcompany.

Chapter7willcombinethepreviouspartstobeabletoshowthatpersonalizedmedicine

offersagreatopportunityforabiotechcompany.

1.7TargetAudienceThe intended audience of this paper are persons that have an understanding of

intellectual property and the structure of the biotech industry. The individual is

interested in the development of personalized medicine in relation to IP and its

commercialization.

6

2.BackgroundTheintentofthischapteristogiveanunderstandingofthetwounderlyingsubjectsof

thethesis,personalizedmedicineandMSCs.Thebroadscopeofthesubjectsmeansthat

only key features will be included, which to some extent will result in a simplified

presentation.

2.1PersonalizedMedicinePersonalizedmedicinehas thepotential of becoming thenext step in the evolutionof

therapies.There isnosingledefinitionofpersonalizedmedicine,andtheutilizationof

the concept varies from the sole use of diagnostic tools to the encompassing of the

wholeprocessasshowninFigure2below.Wehavedecidedtouseadefinitionfromthe

USpresident’sCouncilofAdvisoryonScienceandTechnologyfrom2008,whichcovers

thewholeprocess.

“Personalizedmedicine refers to the tailoring ofmedical treatment to the individual

characteristic of each patient. It does not literary mean the creation of drugs or

medical devices that are unique to a patient but rather the ability to classify

individualsintosubpopulationsthatdifferintheirsusceptibilitytoaparticulardisease

ortheirresponsetoaspecifictreatment.Preventionortherapeuticinterventioncanbe

concentratedonthosewhowillbenefit,sparingexpensesandsideeffectsforthosewho

willnot.”7

Personalizedmedicineemphasisamoreholisticapproachtoaddressingdiseasesanda

more proactive approach to treatment. This should be compared to the traditional

approachofreactive trialanderror that iscurrentlypracticed.Thenewparadigmcan

bestbedescribedasseeninFigure2.

Figure2ParadigmofPersonalizedMedicine8

2.1.1BenefitsofPersonalizedMedicineThere are several benefits with personalized medicine, but the three main can be

defined as – (1) better diagnosis and earlier intervention, (2) more efficient drug

developmentand(3)therapies.

7President’sCouncilofAdvisorsonScienceandTechnology(2008),p.138PersonalizedMedicineCoalition(2010:1),Internet

7

(1) The improvement in diagnosis allows for earlier and with a higher precision the

identificationofadisease.Thisinturnallowsforappropriatemeasurestobetakenwith

potentially lessdiscomfort for thepatient.Togiveanexample,apatient inahigh‐risk

segmentofcontractingadiseasecomes in foratest.Dependingontheresult, thiswill

allowthephysiciantoaddresstheproblemprior toanysymptomshavesurfaced.The

resultwouldbelessdiscomfortandsafertreatmentforthepatient,andlowercostsfor

themedicalsystembyallowingalessinvasiveresponse.9

(2) The current paradigm of treatment development has prevailed over many of the

diseasesthathaveaffectedmankind.However,severalofthediseasesthatremainhave

agreatercomplexity–e.g.diabetes,cancerandAlzheimer’sdisease–whichmeansthat

anewapproachisneededtotacklethechallenges.Themorecomplexdiseasesarenota

resultofasinglegeneorevent,butinsteadacombinationofgeneticsandenvironmental

factors. This means that the individual response to a treatment varies more, which

requiresseveralparameters,

e.g. genetic variations, to be

addressed during the

development to allow for an

efficient treatment. The

current paradigm of

developing medicines

accordingtotheone‐size‐fit‐

allconcepthasnotbeenable

to address the complexity

neededasshowninFigure3.

Thiswillbeakeyareaforthe

personalizedmedicineparadigmwheretheindividualparameterscanbeaddressed.10

(3)With the more efficient diagnostic the physician would be able to identify which

formofthediseaseapatienthas,andsubsequentlywhichmedicineandoptimaldosing

thatwouldgive thebest result for thepatientathand.Thiswouldhave thebenefitof

less adverse events for the patient. The new approach should be compared to the

currentmethod of trial and error with different treatments until the best solution is

9Aspinall,M.G.etal.(2007),p1ff10PersonalizedMedicineCoalition(2009),p4ff

Figure3Thereceptivenesstotraditionalmedicine9

8

found.Thisincreasestheriskforcomplicationsduetoe.g.negativesideeffectsfromthe

medication,andmorediscomfortforthepatient.11

2.1.2ChallengesofPersonalizedMedicineThere are challengeswith the implementation of personalizedmedicine, and the five

maincanbedefinedas–(1)scientificchallenges,(2)economicalparameters,(3)public

opinion,(4)ethicaldimensionand(5)regulatoryissues.

(1)Theideaofpersonalizedmedicineisnotanewconcept,buttheabilitytounderstand

the underlying reasons for diseases have taken a big leap with the development of

technologies that allow for a greater understanding ofmRNA, DNA and proteins. The

current understanding and technical development has allowed for the current

generationofpersonalizedmedicinetoprevail,but therearesomeissuesthatneedto

be addressed to enable a big breakthrough, e.g. further understanding of the

relationshipbetweendifferentgenesandhigherthroughput.12

(2)Theeconomicalchallengesaretodeterminethe“timeaspect”andmotivatethecost

of development. The time aspect is to some extent dependent on the structure of the

medicalsystem,i.e.ifitispaidviathepublicsectororwithprivateinsurances.Aprivate

fundedmedicalsystemisbasedonthenotionoftreatingacurrentdiseasewithahigh

mobility of the customers between different insurance providers. The current system

goes against the preventive approach of personalized medicine, which raises the

question of who shall carry the costs for the treatment of a disease that has not

presenteditself,andpotentiallyneverwill.Thiswillrequireareformationofthesystem

toallowforabreakthroughofpersonalizedmedicine.13

The possibility to derive value for a pharmaceutical company is currently limited in

relation to the costs associated with development. This is a result of the current

compensationsystemsthatpremierthetreatment,whichmakes ithardtoreclaimthe

costsofdevelopmentandlaunchofe.g.diagnostictools.14

(3)Thepublic opinion is currently focusedon the risk for accidents and abuseof the

genome material, and not the possibilities that the treatments can offer. This is

prevalentonallmarkets,butmoreso inEuropewhere theaccidentshaveeroded the

confidentintheindustry.Theresponsibilitycantoalargeextentbeputontheindustry,

11PersonalizedMedicineCoalition(2010:2),Internet12Meyer,J.M.etal.(2002),p434ff13Davis,Jetal.(2010),p2ff14Davis,Jetal.(2010),p2ff

9

which has not addressed the concerns of the public and downplayed critics. This is

howeverbeingaddressedbytheindustrybyemphasizingthebenefitsofthetreatments

andeducatingkeyactors,whichhopefullywillsolvetheproblem.15

(4) The social dimension revolves around the selection of diseases to treat and the

increasedcostsofthetreatments.Thereisariskthattheselectionoftreatmentswillbe

tailoredtofitthepopulationsinthedevelopedworldthatcancarryahighercostatthe

expense of the developing countries. The one‐size‐fit‐all paradigm that currently

prevailsallowsthedevelopmentofmedicinesthatcanhelpeverybodytosomeextent.

Thismightnotbethecasewiththepersonalizedapproachwherethemedicinewillbe

directed towardsa specificgroup.Thecostof thenewproductshaveusuallyahigher

costpertreatment,whichraisestheconcernofwhowillhaveaccess,i.e.ifitwillbecome

aproductfortherich.16

(5) The personalized medicine falls under the legislations of pharmaceutical‐ and

geneticproducts.Thismeansthatthecontrolandrequirementsareextensive,whichput

largedemandsontheindustry.

2.2Mesenchymalstemcelltherapy

Researchandpublishingofreportsaroundstemcellshasgrownenormouslyduringthe

lastdecade.Stemcellresearchhasbecomeoneofthepromisingareasforpersonalized

medicineandthetreatmentofvariousformsofdiseaseandtraumaofthehumanbody.

The knowledge about stem cells is constantly expanding but there are still many

unsolvedissuesregardingtheirstructureanddifferentinfluencesonthehumanbody.

2.2.1Stemcells

Cellsarethebasisofalllife.Stemcellsareonesubcategorythereofandarethefirstcells

formed in thedevelopmentofahumanbeing.17Stemcellsareunspecializedcells that

havethepotentialtoreplicateintoidenticalcellsorgiverisetodifferentiatedcells.The

differentiated cells form themore than200other further specified cellsof thehuman

bodysuchasmuscle‐,redblood‐orbraincells.Aslongasthehost‐bodyisalive,these

cells often serve as a kindof repair system,primarilydividing and replenishingother

cells.18Mammalianstemcellsaredivided into twobroadtypes ‐embryonicstemcells

15Enriquez,R.etal.(2000)p102ff16Smart,A.etal.(2004),p334ff17EversP.,2009,p.1618StemCellInformation(N/A),Internet

10

(ESCs)andnon‐embryonic(somatic/adult)stemcells.ESCsarefoundintheearlystage

ofembryonicdevelopmentwhereasadultstemcellscanbefoundintissuesoftheadult

organism.19 The differentiation capacity of stem cells is divided into their degree of

potency. ESCs are pluripotent and can differentiate into all three germ layers of the

developingembryo,i.e.themesoderm,ectodermandendoderm.Pluripotentadultstem

cellsarerare.Mostadultstemcellsaremultipotentandcandifferentiateintoavariety

ofcells,butwhichhastobeacloselyrelatedfamilyofcells.20

2.2.2Mesenchymalstemcells

Figure4Structureofcellfocus21

Mesenchymalstemcells(MSCs)areapopulationofmultipotentadultstemcells.MSCs

areusuallyextractedfrompatients’bonemarrow(BM)orothertissuesofmesodermal

origin such as fat, joint synovium, dental pulp etc.22, and they can formmultiple cells

suchascartilage,bone,tendonandligaments,fat‐,muscle‐,skin‐andnerve‐cells.MSCs

aresuitableforclinicalapplicationsastheycanbeobtainedinsufficientlargequantities,

theymaintaintheircapacityoveralongtimeduringcultureperiodsaswellastheycan

befrozendownforpreservationwithoutloosingtheirfunction.Amajorobjectofstem

19EversP.,2009,p.1920EversP.,2009,p.2021Bergman,K.etal.(2007),p.1422EversP.,2009,p.28

11

cellresearchistodevelopthemeanstousethemastherawmaterialfortissuesthatare

lackinginthebodyduetodisease.

2.2.2.1Occurrence

Besides theoccurrenceofMSCs inBM,blood and thebrain,23 it

hasrecentlybeensuggestedthatMSCscanbederivedfromother

tissuessuchashumanumbilicalcord(UC),thatcouldbeusedas

an alternative to BM‐derived MSCs.24 MSCs have been isolated

from the Amnion, Placenta, UC blood, periosteum, skeletal

muscles, Synovium and BM. This versatile availability makes

them great candidates for different cell based strategies for e.g.

the regeneration of bone and cartilage damage.25 Animal trials

indicate great potential for the use of MSCs for reconstitution of

humandamagedtissuesuchascartilage,bone,muscleandtendon.26

2.2.2.2MSCFeaturesMSCshavedistinctiveproliferation capacity andmultipledifferentiationpotential and

are therefore suitable for the regeneration of complex impairments. The immune

suppressive and environment modulating characters also enable the control of

inflammation‐ and degradation processes.27MSCs have the ability to home to sites of

tissue damage or inflammation, which has been demonstrated in settings of bone

fracture,cerebralischemiaandtheinfarctedheart.28OneofthekeyfeaturesofMSCsis

theirmigrationandengraftmentpotential,whichhasbeenshownwiththeexampleof

MSCs being able to stay in the BM after a transfer or whereMSCs evenmove to the

affectedarea.29

2.2.2.3SubstitutesCellswithsimilarcharacteristicsasMSCscanbeextractedfromallpost‐natalandextra‐

embryonic tissues such as amniotic membrane and placenta.30 These findings are

thoughttohavepotentialforapplicationintheareaofregenerativemedicine.31

23Kadereit,S.(2005),Internet24MajoreI.etal.,2009,p.125DehneT.etal.200926Kadereit,S.(2005),Internet27DehneT.etal.(2009)28PittingerM.F.,(2004)29DehneT.etal.(2009)30MajoreI.etal.,2009,p.231MajoreI.etal.,2009,p.6

Figure 5 MSCs arrangethemselves aftertransfer to treat theaffacted(green)area

12

Theuseofembryonicstemcellsisoftenethicallyunacceptedduetothedestructionof

fertilized embryos. Induced pluripotent stem cells (IPSCs) are artificially produced

pluripotentstemcellsthatderivefrominducinganexpressionofcertaingenesintonon‐

pluripotentstemcells(oftenadultstemcells).Thesecellsarebelievedtohavethesame

features as ESCs but they still pose significant risk for use in humans due to the

undevelopedresearchstate. Ifsuccessful, thistechnologycouldhavegreatsignificance

forthedevelopmentofregenerativemedicine.32

2.2.3Treatment

2.2.3.1StemcellsResearchwithin this field has had itsmain focus on exploring the possibilities to use

stemcells inregenerativemedicine inorder toreplacebydiseaseor traumadamaged

cells and tissues.33 Treatment and R&D with stem cells has potential in the fields

presented in Figure 6. Bonemarrow transplantswith adult stem cell treatment have

successfully been used for many years to treat leukemia and related bone/blood

cancers.34

Figure6StemcelltreatmentopportunitiesandR&D35

2.2.3.2MSCsMSCs have the capability to differentiate into various cell types and could be an

attractivetherapeuticcelltypetotreatpatientswithforinstanceischemicheartdisease

(IHD). Animal studies and initial clinical trials have shown positive effects on the left

32EversP.,2009,p.3033EversP.,2009,p.3834EversP.,2009,p.3535EversP.,2009,p.40

13

ventricular(LV)function.3615daysafterthemyocardialinfarction,thetransplantation

of MSCs showed positive effects on the infarct size and systolic and diastolic LV

function.37

Incontrasttomanytraditionalmedicaltreatmentsthatonlyaredes‐inflammatoryand

stopthedisease,MSCtreatmentisanti‐inflammatorybutisalsoabletoreproducetissue

andorgansandimprovesrecovery,whichreducesrecurringdiseases.

TheclinicaluseofMSCshasbegunforvariousdiseasessuchasforinstancecancerand

MI.MSCshaveeitherbeenadministeredintravenouslyinorderforthecellstofindtheir

waytothetargetedareaordirectlyinjectedintotheconcernedarea.Someoftheareas

where MSC treatment could be relevant are MI, cancer, brittle‐bone disease and

glycogenstoragedisease.Someofthesefieldsdonothavemanytherapeuticoptions.

In1999,thefirstuseofBMcellsforcardiomyoplastyinmicewasreported.Autologous

BMcellswereimplantedintheLV3weeksaftercryoinjury.38

2.2.4AdvantagesofMSCs

Many diseases or physical injuries that are treated in the traditional way only

experience improvements in formofpainrelief, reductionofdestructive inflammation

orthestoppageofthecatabolizingeffect.MSCstreatmentontheotherhandoffersthe

same features as before but also repairs the affected areas and rebuilds the tissue,

cartilage and bone. This is done by secreting anti‐inflammatory signal molecules to

surroundingcells,andtherewithreducingtheimmunereaction.

Figure7Wayoftreatment

Asalreadymentioned,cellscanbeextractedfromBM,blood,orUC.Aswefocusonadult

MSCsthisleavesuswiththetwofirst.BMcontainsagreateramountofMSCscompared

toblood,whichmakesiteasiertoexpandthecellstotheamountneededfortreatment.

Ontheotherhand,BMneedstobeextractedsurgicallywithagaugeneedle,whichisa

36GraussR.W.etal.,2008,p.108837GraussR.W.etal.,2008,p.109038PittingerM.F.,2004

14

painful process, whereas blood is easy to get. The Isolation ofMSCs can bemanaged

throughthecounterflowcentrifugalelutriation(CCE).39Thepatient’ssamplecontainsa

mixture of tissue and different cells, out of which RMS distinguishes MSCs through

manual Ficoll separation.Manual Ficoll is a sterile and ready to use density gradient

medium forpurifying lymphocytes40.Thenext step is to expand the isolated cells and

getthemtogrowtotherequiredquantitybeforetheycanbeusedforthetreatmentof

thepatient.

2.2.5Allogeneicvs.AutologousMSCs

There are two options for treating patients with MSCs, either with allogeneic or

autologouscells.Bothoftheoptionshaveadvantageswhereasautologouscellsseemto

bethebetteralternativeintheend,aslongascertainprocesses,suchastheexpansion

ratecanbeimproved.

Thetreatmentwithinashort timeperiod iscrucial fortherecoveryof thepatientand

shouldbewithin5to10daysafteroccurrence,atleastinthecaseofbonemarrowused

forMItreatmentasitshowedbesteffectininfarctsizereductionintheleftventricular.

Thereisstillaneedtofindoutmoreaboutoptimaltreatmenttimeandwhattheeffects

wouldbeifthecellswereinjected14daysafterMIastherearestillissuestobesolved

regardingfasttreatmentpossibilitiesafterinfarctoccurrence41.

2.2.5.1AllogeneicAllogeneicmeansthatthecellsareextractedfromonepersonandinjectedintoanother

person.Thishastheadvantagethatthedonorcanbeselectedinadvanceandthesample

can be tested for geneticmatch and different diseases in order to be available when

neededbyapatient42.Therestillisariskofsideeffectsandcell‐cellreactions,immune

reactions that make the transplant being rejected. Even if allogeneic cells can be

extractedinadvance,thereisstillgreateffortinvolvedastherehastobemadesurethat

thecellswillmatchinordertoavoidanimmunereaction43.

2.2.5.2AutologousTheautologoustreatmentmeansthatcellsareextractedandre‐injectedintothesame

person.Thisremovestheriskofrejectionandincreasestheprobabilityofasuccessful

recovery of the patient. The disadvantage of this process is that the cells have to be

39MajoreI.etal.,2009,p.140AmershamBiosciences(N/A),p.541DunckerD.Jetal(2007),p.142PittingerM.F(2004)43EversP.(2009),p.71

15

takenfromthepatientwhenthedamagealreadyhasoccurred,whichgiveslesstimefor

cell expansion.Neither does it seem clear if the patients produce the right amount of

stem cells of required potency at the time needed.44 Another possibility that would

requirealotofeffortwouldbetoextractcellsinadvanceandstorethemforfutureuse.

Itisdifficulttosaywhichofthetwooptionswouldbethebettersolutionintheend.If

the researchers manage to advance the expansion process of MSCs, the autologous

solution is definitely the first choice. In some caseswhere the disease is treatable by

transplant,autologouscordbloodstemcellscouldnotcurethediseaseasthecellshave

thesamedefect,andthereforeallogeneicstemcellswouldbebetter45.

44PittingerM.F.(2004)45EversP.(2009),p.72

16

3.ThepatentarenaoftheMSCsThischapterhasthepurposeofclarifyingtheenvironmentthatthestart‐upisoperating

infromanIPperspective.Thiswillbedoneinatwostepprocess,thefirstistosetthe

hypothesis in context with the assistance of a theoretical base developed by Ulf

Petrussonandthesecondwillshowthepatentsthatsurroundthecompany.

3.1ThearenasActorswithinthebiotechnology fieldexperiencegreatvalueand importanceof IPand

IPRs for their establishment on themarket. Ulf Petrusson has developed a structural

platform including three arenas, the administrative‐, judicial‐ and business arena that

canbeusedfortheconstructionofIntellectualProperties(IP)andIntellectualProperty

Rights(IPRs).

Figure8:Structuralplatforms

Start‐up companies/entrepreneurs, not depending on which field of work they are

active in,haveto learnhowtodivideandmonitorIPascommunicativeactionswithin

thesethreeinteractingarenas.

3.1.1AdministrativearenaThisarenaisastructurallyorganizedarena,coveringregulationsandpoliciestoinstruct

actors,aswellasstructuralactorssuchaspatentofficesandcourtsofappeal,andalso

including the patent examiner and patent attorney roles. The infrastructure of patent

information that isused in theadministrativeprocedure isan important factor in this

arena.

3.1.2JudicialarenaThe judicial arena is where the law is applied, and is in many ways the structural

fundamentofstates.Thisarenaisofgreatimportancewhenitcomestotheconstruction

of IPRs as legal tools and the use thereof. Therefore judges, prosecutors and defense

lawyersplayasignificantrole in thisarena.Thepracticalapplication forcompanies is

17

thedocumentationoflegislationandearliercourtcases,whichformthecommunicative

basisforfutureproceduresandsourceofinformation.

3.1.3BusinessarenaThebusinessarenaisprobablythemostimportantofthesethreearenaswhenlookedat

from an entrepreneurial perspective. It is the underlying conglomerated platform of

markets, innovation systems, firms and commercial relations,which are sophisticated

entrepreneurialchallengesforstart‐upbusinessestodesign,constructandreconstruct.

3.1.4ThethreearenasEntrepreneurs are dependent on existing business as a structural platform, which is

superjacent to the supporting administrative and judicial platforms. Both the

administrativeandjudicialarenasareimportantfortheintegrationofthecompanyinto

the legal systems. These often have national focuswhereas the business arena in the

knowledge‐oriented sphere often is internationally oriented. Companies often want

their business to be internationally recognized, whereas the supporting arenas and

people involved thereinsuchaspatent lawyersandattorneysoftenarespecializedon

the national arena. Legal professionals often lack insight and communication skills to

apply in the business arena, which makes it important for entrepreneurs to select

experts. The governing of the communication with patent attorneys, patent lawyers,

patent examiners and judges for the handling of IP and IPRs in the business arena is

crucialfortheentrepreneurialprocessandsuccess.46

3.2ThepatentlandscapeThere has been a discussion about if there is a patent thicket47, also known as anti‐

commons, covering the stem cell field. This in a field that many argue to be very

susceptible to the problem as patent offices previously allowed patents containing

broadclaimsonearlyinventions.

The fourmain challengeswith a patent thicket are – (1) the possibility to hinder the

pathtothemarketduetoblockingpatents,(2)hinderingfreedomtooperateduringthe

development‐ and commercialization phases due to several overlapping patents, (3)

limiting available capital for financingdue to thehigh risk in relation to thepotential

profits,and(4)thehighcostsofgainingaccesstoprotectedsolutionsduetocompiling

46PetrussonU.(2004),p.104ff47Apatentthickethasbeendefinedasa“densewebofoverlappingintellectualpropertyrightsthatacompanymusthackitswaythroughinordertoactuallycommercializenewtechnology.

18

royalty payments and the related transaction costs. This has the potential risk of

slowingdown,orevenhindering,thedevelopmentofthefield.48,49

Bessenetal.arguethatthereisaproblemwith“fuzzy”claims,i.e.theclaimsarevague,

inthebiotechsphere.Thefuzzyclaimsarearesultofthepatentoffices,andinthenext

stepthecourts,allowingpatentingofprematureinventions.Thisresultsinproblemsfor

theactorsinthefieldtodeterminethescopeofthepatent,andhenceiftheyareatrisk

ofinfringingontheprotection.Theconsequenceofthismightbethatinvestorsbecome

reluctanttoinvestduetothehighrisksofinfringing.50

3.2.1PreviousinvestigationsofthepatentlandscapeThereareanumberof investigationsof thestemcellpatent landscapes intheUS.The

investigations,e.g.Bergmanetal.51,Rohrbaugh52andKonskietal53,havecoveredstem

cells in general and/or directed towards ESC, using both quantitative and qualitative

methods.Thethreereportsshowanextensivepatentlandscape,butthattherestillare

possibilitiestofindnewareastodevelopandexplore.

The studies found to some extent similar results, e.g. they all touched upon the

importance ofWARF’s ESC patents and its influence on themarket. Rohrbaugh had a

qualitative approach to the landscape analysis, and reached the conclusion that the

WARF patents did not hinder the development of stem cells but could hinder the

commercialphase.

BothBergmanetal.andKonskietal.usedquantitativemethods toanalyze thepatent

landscape around stem cells. Both investigations showed the equal division of key

patentsbetweenthepublic‐andprivatesector,andtheimportanceofWARF.Bergman

et al presented a more complete picture in relation to the other two. Bergman et al

presentedthatthemajorityofthestemcellpatentswhereissuedbyUSPTO,PCT,orEPO

in 2007. This they argued, did not necessarymean that the allocation of researchers,

companiesand innovationshad thesamedispersion,butmight instead imply that the

inventors and owners of the patented innovations considered these markets to be

centraltoprotectthetechnology.54Bergmanetalshowedfurtherthattheownershipof

theUSpatentswasdividedbetweenseveral actors, andnosingle companyaccounted

48Bergman,K.etal.(2007),p.41949Clark,D.J.(2008),p.969f50Golin,M.(2008),p.16451Bermang,K.(2007)52Rorbaugh,M.L.(2006)53Konski,A.F.(2009)54Bergman,K.etal.(2007),p.420

19

formore than3%ownership. Theholders of thepatentswere often small companies

withspecializationwithinstemcellresearch.55

3.2.2ThecurrentpatentlandscapeThe quantitative analysis of the patent landscape around MSCs showed a field

containing a complex structure. The analysis presented, to some extent, patents

containing wide and general claims. This, depending on the intended focus of the

personalized medicine,

might cause challenges by

covering key elements for

the start‐up. The patent

search56showed3357issued

patents in the US and 1581

patents for Europe, which

shows the dominating

position of the US. The

investigation did not reveal

anydominantpatentsinline

with the WARF patents for

ESCintheMSCfield.

The timeline allows for a

good overview of the development in the field and shows the commercial novelty in

1990and1991.TheEuropeanpatentactivityhasasshownastable trendsince1998,

whichindicatesthatthereisstillagoodpossibilityinthefield.

The timeline for theUSshowsabigspike in2001.This isa resultofUSPTOchanging

their publication standard to coincide with the majority of the world, i.e. to publish

patentapplicationswithin18monthsof filling.Thisaffectedallpatents filedasof the

29thNovember2000andhenceexplainstheabnormalresultinthetimeline.57

55Bergman,K.etal.(2007),p.42156Thesearchwasconductedwithawidestringtocatchallrelevantpatents–mesenchym*ANDstem*ANDcell*(May2010)57USPTO(2000),Internet

Figure9thegraphpresenttheMSCpatentsinEuropeandUSAduring the period of 1990 to 2009. The search gave 4131, ofwhich2805stemfromUSAand1325inEuropean.

20

3.2.3ReferencepatentsThereferencepatents58havebeenselectedduetobeingrepresentativefortheMSCfield

byclaimingkeyelements.ThepatentsareallissuedinEuropetoshowthepresentstate

intheregion,whichtosomeextentdiffersfromtheAmerican.Thisduetoadifferencein

theviewonthescopeofstemcellrelatedpatents.

Theuseofnon‐proprietarypatentdatabasesmeansthatthelevelofobjectivityhasbeen

lowercomparedtoiftheselectionhadbeendoneusinge.g.citationsand/orclustering.

However,itdoesserveasagoodinsightintotheMSCfieldandallowsforananalysisof

theclaimspacethatcanshowthepatentingstrategyinthefield.Thereferencepatens

can be found in Appendix A where they have been divided into classes – MSCs,

treatmentandprocedures–togiveaneasieroverviewofthedevelopment.

The conclusions that can be drawn from the patent analysis is the strong position of

Osiris in the field, but it is in no manner dominant. This coincides with other

investigations,e.g.Bergmanetal,whichshowsOsirisasastrongactorinotherstemcell

areas. Several of the reference patents have a relatively fresh publication date. This

indicatesthatthesectorisstillverymuchinadevelopmentstage.Thereisadominance

of company owning of the reference patents. Universities are only involved in two of

them.Thiscanofcoursebearesultofuniversityspinoffs,buttheresults indicatethe

maturityofthesector.

3.2.4ClaimspaceThe analysis of the

patent claims, the

placement in the

matrix and the

implication thereof

arebasedonamethod

byRobertSachs59.The

analysis did not show

any homogenous

trendsintheMSCfield

as a whole. However,

58 The patents have been indentified in during the quantitative analysis as described in themethod.59Sachs,R(N/A)

Figure10Claimspaceshowingthethreefields–stemcells,diseasesandprocedures

21

sometrendswereidentifiedwhenbreakingdownthefiledintosubcategories.Theclaim

matrix,Figure10,showsthepositioningofthereferencepatentsusingthesamedivision

asabovein3.2.2.

Allofthestemcellpatentscanbefoundinfield“B”,whichmeansthattheyhavenarrow

functionality. This indicates, according to the theory that the inventions are

improvements of existing technology and allow the holder to have a relatively strong

position. The construction of the claims allows out‐licensing to complementary

companies by having a wide scope, which is positive if there is a need to access the

protectedtechnologies.

Thetheoryregardingastrongpositionneedtobesetinrelationtotheexistenceofearly

andfuzzyclaims,whichmeansthatthisconclusionisnotfullyapplicableonthebiotech

industry.

Theothertwoclasseshavealesshomogenouspattern,whichmakesithardertodraw

anyconclusions.Themajorityofthepatentsthatarefocusedonaddressingdiseasescan

be found in field “C”. This shows that they are constructed to be in line with the

companies intended use, and hence leave little opportunity to license‐in at an early

stage.This isalsonormallyapatent format that isobtainedearly inadevelopment to

give the holder a defendable position. The tool patents aremainly found in field “B”,

whichhasbeenexplainedinrelationtothestemcellpatents.

Theresultrelatingtothediseasepatentswasexpectedduetothenatureofthecategory

oftreatingillness.However,itdoesindicateamoredefensivestrategyinthefield,which

canshowaninclinationtoenforcepatents.

22

4.PossiblesolutionstoreachthemarketAsforallcompaniestherearedifferentpossibilitiesofreachingthemarketforaBiotech

companyfocusingonMSCresearchandthedevelopmentofmedicaltherapies.Thebest

strategy for reaching the market depends on the company’s business plan and

intentions of how to commercialize the company’s assets and underlying resources,

such as the innovativeness of the product, patents, market size, production capacity,

competitors, the legal regulations etc. If the companies do not possess the requiring

investment possibilities to set up their own R&D, an option is to acquire knowledge

contractually. This could be in the form of acquiring technology through for instance

licensing agreements, buying companies or establishing alliances such as joint

ventures.60

For any of the alternatives, if it is to commercialize research outcome, manufacture

products, sell patents or to license the IP, a lot of external factors need to be

incorporated. These factors can to some extent vary between different regions, e.g.

Europe and the US, and range from market demand of different cultures and their

certainpreferencesandregionalregulationstoalreadyexistingcompetitors.

The development and competition on the market and the future developmental

potentialleadtothequestionofwhichwouldbethebeststrategytoreachthemarket.

Whatarethecommercializationoptionsandwhichpathwouldbethemostprofitable?

These decisions are dependent on if blocking patents exist, on the novelty of the

inventionandonthepossibilitytogenerateIPR’s.Forstart‐upcompaniesthisprocessis

morecrucialthanforanyothercompany,asthiswillbeoneofthefoundationsfortheir

futurebusiness.This is tosomeextentalso true for largerandestablishedcompanies,

buttheymighthavethepossibilitytofallbackonpreviousbusinessesorcouldstandup

againstpotentiallawsuits,whichmakesthemlesssensitive.

4.1PossibilitiesandhindersThissectionwillpresentaselectionofstepsfromthedevelopmenttocommercialization

ofaproduct that theactorneeds to thinkaboutwhenapproaching themarket,and in

the next stage the possibilities to maximize the opportunities via using the tools of

licensing,collaborationsandexemptions.

60Granstrand,O(2000),s.119f.

23

4.1.1ResearchoutcomeThe company can decide to only focus on research and leave the development of

productstootheractors.Thiswouldmeanthattheresearchissold,orlicensed,toother

development actors engaged inproduct development andmanufacturing. In this case,

theaimwouldprobablybetokeeptherighttousetheprocessforfurtherresearch.This

would be a good alternative for companies not interested, or lack the resources, to

developthewholemanufacturing.

4.1.2ProductAcommonalternativeistouseresearchtodevelopaproductandsellitonthemarket.

Thetimefromresearchtoproductlaunchcanbeverylongdependingoniftheproduct

is classified as a medical product and needs to go through tests and verification

processesbeforebeingallowedtobesoldonthemarketor ifaproduct launchcanbe

carriedoutwithoutfurtherapproval.

4.1.3PatentsIfaBiotechstart‐uphaspatenteda technologyorprocess theywillnotneed for their

productdevelopmentandthattheydonotintendtouseinthefuture,theycoulde.g.sell

thepatent,giventhatthepatentcannotbeusedagainstthem.Forsecurityreasonsthe

patent can be sold with reservation to being allowed to use the patented solution

themselves.Thisisagoodwayofcreatingincomewithresearchoutcomethatcannotbe

usedforproperdevelopmentandotherwisewouldbeleftbehind.

4.1.4RisksTherisksrelatedtothemarketapproachareseveral,bothforaproduct launchorthe

commercialization of the generated IP. There might be no demand for the kind of

product/IP that the biotech company offers; unnecessary product features, a too high

price or that substitute products exist that offer satisfying features can be reasons

therefore.Another risk is blockingpatents that couldhinder the commercializationof

theproduct.

4.1.5BlockingpatentsIfthemarketandcompetitoranalysisshowsexistingblockingpatentsthereisnoneed

to give up, but tomake awell thought through decision onwhich is the bestway to

circumventblockingpatentsandhowtousethemforownprofits?

4.1.5.1InvalidateIncasethatthepatent is toobroadformulatedorthepatentexaminersmissedouton

already existing innovations or informationwas disclosed before patenting, there is a

24

possibilityofinvalidatinganalreadyapprovedpatent.

4.1.5.2InventaroundInventing around can be relevant if R&Dwill not be too resource demanding and the

benefitthereofoutrangescosts.

4.1.5.3Bargaining‐acquisition,license,crosslicenseTheacquisitionofblockingpatentsprovidedbyotheractorscouldbeapossibleoption

for a small biotech company, whereas larger actors even might acquire whole

companiestogetaccesstotheirIP.Thismightbeanexpensiveoptionforakeypatent

andhencenot aviableoption for a start‐up,butmightbe theonly alternative togain

access.To licensespecific IPfortheuse inownproductionortocross‐licensearealso

viableoptionsthatwillbeaddressedbelow.

4.1.5.4Ignore/infringeThese options stand in close relation to the development stage of the invention. A

companywith a finished productmight bewilling to take higher risks than others. A

quiteradicalalternativeistoignoreexistingpatentsandinfringeagainstthem,butthis

willalsocarryahigher liability if theownerenforces theright.Thisstrategymightbe

choseniftheIPisnotverycloserelatedandaninfringementmightnotbediscovered.

Another possibility, which might not be relevant for a small biotech company, is to

intentionally infringeagainstpatentsofsmallactors.Thesemightbeafraidofgoingto

courtagainstbigactorsandcouldprobablynotaffordtopayexpensivelegalfees.This

optionmightberelevant foractors thatarenot interested in investingmore timeand

moneyoninventingaroundthepatentedtechnology.

4.1.5.5WaitThelastandverypassiveoptionistowaitouttheexpirationdateofthepatent,whichin

somecasescouldbeverytimeintensiveandgiveotheractorsaheadstarttomarket.

4.1.5.6RecommendedpathThe most relevant option for small biotech start‐ups to get around blocking patents

seems to be the acquisition, licensing‐in, cross‐licensing or inventing around the said

patents, or to collaboratewithother actors.Acquisitionwouldbe relevant in the case

thattheownerofthepatentseesnovalueinthepatentandcannotmakeuseofitand

the patent therefore could be acquired to a goodprice. Inventing around could be an

optionifitisnecessaryinalimitedaspectandneededresourcesarereasonable.

25

Thecreationof IPandespeciallypatentsplaysagreatrole for thesemarketapproach

alternatives.ItisimportanttohaveawellthoughtthroughIPstrategythatgoesinline

withthecompany’sbusinessplan.It isalsocrucialtomakeeverybodyinthecompany

understand the importance of IP and that company internal information or research

outcomecannotbedisclosedinordertosecurethenoveltyaspect.

ThinkabouttheIPstrategyandhowtoprotecttheinventionsbeforegoingintomarket!

4.2LicensingIt is in theory possible to gain access to all patented technology, but this would be

problematic in termsof timeandmoney.Theoption is to license thekeypatent.This

wouldbechallengingdue to the fuzzy‐andoverlappingclaims.Thecostof licensinga

patentisrelativelylow,inaverage1percentorlessofproductrevenue,buttheproblem

couldbetheneedtoaccessseveralpatentstoallowfreedomtooperate.61

4.2.1In‐licensingLicensing‐inisoftenusedwhencompaniesneedaccesstocomplementarytechnologies

orproductionmethodstodeveloptheirownproducts.Theymighthaveaccesstosome

butnotallnecessarytechnologiesortheyhaveinventedacertaindevicethatgoeswith

already existing technologies. In‐licensing is a goodway to save in onR&Dcosts. The

advantage with this alternative is that companies do not have to develop the whole

research process and they can bargain the prices and the period of licensing. When

licensing, there is no/less need of own research spending and therefore reduces big

investmentrequirement.62Problemscanarisewhentheotheractorisnotwillingtoout‐

license. This couldmake the construction of the intended product impossible or very

difficult/costintensive.Thealternativetointentionallyinfringeagainstthepatentcould

alsobemoreriskyasattentionalreadyisaimedatthem.

4.2.2Out‐licensingLicensing‐outIPcanbedoneindifferentways,e.g.withanexclusive,non‐exclusiveor

solelicense.Thechosenoptiondependsonthestrengthoftheparticipatingparties,the

intended use and of course the business model of the proprietor. The process of

licensing‐outcanoccurwhentheproprietoroftheIPdoesnotneedtheexclusiveright

to use the patent and/or he sees licensing as a part to create more income for the

company.Licensingcancreateincomefrombothinitialpaymentandroyalties.Risksare

61Jaffe,Aetal.(2007),p6462Granstrand,O(2000),s.81

26

reducedbycontractualregulations.Ifthefocusofthecompanyisinanotherfieldthan

the licensee’s, respectable income can be generated from amarket that never would

havebeenconsideredotherwise.

4.2.3ExclusivelicenseExclusive licenses give the licensor the right to use thepatented technology for alone

usage. The advantage therewith is the possibility to be the only actor using the

invention,butthereforealsothepricecouldbethereafter.

4.2.4Non‐exclusivelicenseAnon‐exclusivelicensemeansthatotherscouldlicensethesamepatentandbothwould

beallowedtomakeuseofit.Thisisagoodalternativeifthepatentedtechnologydoes

notconstituteacrucialandinnovativepartofthenewinventionorifthethirdpartyis

activeinanotherfieldofinterest.

4.2.5SolelicenseA sole license gives the original patent holder the right to use the invention, but not

exclusively, andhe is not allowed todeed licenses to other companies.This is a good

alternativeinordertostillbeabletousethepatentedsolutionbutkeepcompetitionon

a lowlevel. Incomegeneratedfromthissolutionisrelatively lowerthanitwouldhave

beenforanexclusivelicense.

4.2.6Cross‐licenseCross‐licensecanbeusedindifferentforms,e.g.patentand/orknow‐how,toexchange

access to technologies between two or several actors. The extent of the use of cross‐

licenses in the biotech industry differs between sources. Gozzo argues that cross‐

licensing is especially common in the medical and chemical industry63. However,

according to Jaffe et al. this is not commonly used in the biotech industry, which he

thinks is strange considering the set‐up of the industry64. Cross‐licensing is a good

option to gain access to technologywhenother resources are scares and allows for a

fasterdevelopment.

4.2.7CompulsorylicenseIf theproprietorofapatenthasnotmadereasonableuseof thepatentwithin3years

afterpatentgrantingor4yearsafterfilingofthepatent,otheractorscangettherightto

getacompulsory license forareasonableprice. Ifanactorwants touse the invention

commerciallyhemayget a compulsory license if it is ofparticular importance for the

63Gozzo,G(1998),p10964Jaffe,Betal.(2007),p67

27

public.These licensesareonlygiventhoseactorsthatarethoughttohavepotentialof

makingacceptableuseof the inventionandcanbeassignedbyauthorizedauthorities

dependingonnationalregulations.65

4.3CollaborationCollaborations are a necessary mean for a lot o start‐up companies and so also for

biotech companies. Collaborations do not necessarily have to be in relation to the

exchangeofIPorresearch,butcanalsobeinformofcomplimentaryknowledgesuchas

marketingcompetenceifthisdoesnotexistinthecompanyitself.66Duetothesmallsize

ofmanycompanies,theymaynothavetheneededresourcesofpossibilitieswithinthe

company to handle all issues by themselves. In such cases it can be of great value to

collaboratewithdifferentkindsofactorstoexchangeknowhowinthedifferentfields.

Anothertypeofcollaborationcanbefoundinsocalledpatentpools,wheretwoormore

patent owners agree to license their patents to each other or third parties. The

advantageforbiotechcompaniesisthesharingofknowledgeandtheincreasedeffecton

research.Therisksrelatedtothesecollaborationsandsharingofresearchprogressare

the loss of potential competitive advantage and being guided into certain

market/research fields and loosing creativity. The main cause for the existence of

strategic alliances seems to be the possibility to share risks because certain research

failsandwouldcausehighcostsforasingleactor.Anotherreasonisthecomplimentary

effectthatpushesdevelopment,evenifcompanyproperstrategiesarerestrained.67

Thereareseveralbigpharmaceuticalcompaniesthathavestartedtocollaborateinearly

statedevelopment,suchasforinstanceGSK,AstraZenecaandRoche,whoseintentionis

to co‐develop stem cell‐derived hepatocytes for use in ADMET68 studies. Another

collaborationhasbeen identifiedbetweenPfizer andCellartis forvalidationofhuman

EScell‐basedmodelsforreproductivetoxicologyscreens.69

4.4ExemptionThetwofirstoptionsrequirea levelof interactionwiththecounterpart,whilethe last

option, patent exemption, can be used as a sole solution to allow access to patented

technologies.ThisisprimarilyanoptionthatcanbeusedinEurope,astheintroduction

belowwillshow,duetotherestrictiveapproachintheUS.

65LevinL.etal.(2006),p.7966Terao,J(2005),p.5367Terao,J(2005),p.5368ADMET=Adsorption,Distribution,Metabolism,ExcretionandToxicity69EversP.,2009,p.60

28

TheUShasaveryrestrictiveapproachtotheuseofpatentexemptions,witha limited

experimentaluseastheonlyoption.Thepossibilitytousetheexperimentalexemption

wasfirstestablishedinWhittemorevs.Cutter70 inarelativelyrestrictivemanner.This

was furthermore limited in Madey vs. Duke71 to the level of practically non‐existing.

However,theUSSupremeCourtexpandedtheconceptoftheexperimentalexemptionin

Merek vs. Integra72 to allow the use of patented solutions as a part of pre‐clinical

experiments.73 The conclusion that can be made is that it is not possible to use the

exemptionasanoptiontoreachthemarketintheUS.

TheuseofexemptionsismoreextensiveinEurope,anditistoalargeextentcodifiedin

thelegalacts.Thereisa largeconfirmativeintheformulationofthepatentexemption

onthekeymarketsinEurope(pleaseseetheselectedmarketbelowinFigure11),with

the exception of Austria and Switzerland that do not have the same set‐up. The

conformitiesdotosomeextentallowforgeneralconclusiontobeanalogizedfromone

markettoanother.

The exemptions have the benefit of enabling access to protected solutions in a legal

manner,buthaveatthesametimelargerestrictionsonwhatisallowed.Theresearch‐

andextemporaneousexemptionsarethetwooptionsthatofferpossiblesolutionsfora

biotech company to utilize patented solutions. The first option allows for research

experiments on a patented solution, and might offer an opportunity during the

developmentofthenewproducts.However,thescopemeansthatitcannotbeusedfor

commercialization andhence a leverage tool. The secondoption, the extemporaneous

exemption,offerssomeinterestingoptionsaswillbepresentedinthenextsection.

4.4.1ExtemporaneousExemptionTheextemporaneousexemption74offersaninterestingoptionforabiotechcompanyto

allow the legaluseofpatentedmedical solutionsbyadjusting theirbusinessmodel to

fall under the clause. The extemporaneous clause was constructed prior to the

introduction of cell therapy with a different intended use, as presented below. The

investigationdidnotidentifyanypraxiswiththesuggestedusethatcouldhaveguided

the analysis. The limited use of the clause also means that the available doctrine is

70Whittemorevs.Cutter,29Fed.Cas.1120(C.C.D.Mass1813)71Madeyvs.DukeUniversity,307F.3d1351,1362(Fed.Cir.2002)72MereckKGaAvs.IntegraLifesciencesI,Ltd,545U.S.1993(2005)73Palombi(2006),p2ff74Theexemptionhasdifferenttitlesinthejurisdictions,butwehavechosentousethetitleintheUnitedKingdomsinceitallowsforagoodexplanation.

29

restricted,andtheliteraturethatisavailablehastoalargedegreeadifferentemphasis

thanthesuggesteduse.

The extemporaneous clause – Preparations in a pharmacy of

medicinesunderadoctor'sprescriptioninindividualcasesoractions

withdrugsthathavebeentreatedinsuchcases.75

Theextemporaneous clausehas a similar formulation in the investigated jurisdictions

(selectedcountriesareshowninFigure11),whichallowsthepresentationofonetoact

asthetemplatefortheothercountries.

Theclausewascreatedtoprotectthepharmacies’personalfromtheriskofcommitting

patent infringementwhiledoing theirwork.The extemporaneous clause allows for a

pharmaceuticaltobepreparedaccordingtoanindividualprescription.Thismeansthat

itisnotallowedtopreparetheproductinadvanceandkeepitinstockandinthenext

stepsellthemedicine.76,77

The extemporaneous

clause can be found in

most of the European

countries, as shown in

Figure 11. This provides

the possibility to make

use of the exemption on

severalmarkets.

The exemption allows a

biotechcompanytoshape

the business model in a

manner where the MSCs

are prepared as a

personalized medicine in

accordance with the

physician’s instruction,

andthroughthiscircumventthepatentprotectionthatmightexistforthelaststepof

75ThepresentedclauseistakenfromSweden,whichhasthebenefitofbeingbasedoncivillawandhenceallowforaneasyinsight.SwedishPatentAct–1967:837‐§3Sec3(5)76SwedishgovernmentBill–1977/78:177Jacobsson,M.etal(1980),p114f

Figure 11 The countries in Europe that have theextemporaneousexemption.

30

theprocess.Theprocesscanbeseenintwodifferentmanners.Thefirstisthatallthe

stepsofpreparing theproductshouldbeviewedasoneprocess, i.e. fromisolationto

preparation. This would mean that the exemption is not applicable, due to only

covering the last step. The second option is to view the process as individual steps,

which would mean that the exemption is applicable. This argument is stronger

consideringthestructureoftheproductionwheretheindividualstepsareaprocessin

itself,andhenceshouldnotbeconsideredasone.Thefinalstepcouldbeconsideredan

infringement depending on the patent protection, but this should fall under the

exemption,undertheconditionthatitfulfillstheprerequisite.

There is a discussion in thedoctrine if it shouldbepossible to circumvent thepatent

protectionwith the exemptionwhen the intent is commercialization. This theymean

goesagainst the intentof theclauseandshouldhencenotbeallowed.The intent is to

protect action that is sporadic, improvised and medical need, and hence not

commercialization.78

Theunclear legal statusof the clausemeans that itwouldbea risk touse it as a sole

meantoreachthemarket.Thismeansthatitwouldbebetterusedasaleveragetoolfor

alicenseorcollaboration,andonlyusedifthenegotiationdoesnothasapositiveresult.

The concept of adjusting the businessmodel wouldmost likelymean that the action

wouldfallundertheprerequisiteoftheclause,butthequestionisifitisinlinewiththe

intent.Thefactthatitdoesnotgoagainsttheformulationoftheclauseshouldgivesome

guidance,butthisneedstobeaddressedbythecourtstogiveadefiniteanswer.

78Domeij,B(2000),p228

31

5.PossibilitiestoprotectthepersonalizedaspectThe question that will be addressed in this chapter is the possibility to patent the

personalizedfeatureofthemedicine.Thisfeatureisofcourseaproductoftheintended

technical solution, e.g. abiologicalmarkeroranalgorithm79.Thebiomarkerhas some

interesting opportunities, but the algorithm offers more possibilities to generate

protectionbyhavingamoregeneraluse.Thismeansthatthepatentingofanalgorithm

poses amore interesting question. An algorithm as such is normally encapsulated in

software, and the software will hence be the focus of this chapter. The choice of

patenting software presents some challenges when it comes to generate protection

aroundtheintellectualpropertybutitalsooffersomeinterestingopportunities,aswill

beshownbelow.

5.1ThebestmannertoprotectsoftwareThebestmannertoprotectsoftwareisaproductofseveralparameters–e.g.durationof

protection,cost,geographicalcoverandresourcedemands.Thehypothesismeansthat

thecostandtheresourcedemandsaretheinitialkeyfactors,butofcourse,thisdoesnot

maketheotherfactorsirrelevantinacomparison.Thismeanse.g.thatthescopeofthe

protectionneedstobebalancedagainstthecost.

Theprotectionalsoneedstoreflectthecompany’sinternalcapabilities,e.g.competence

aboutIPRs,andexternalfactorse.g.otherIPRs,andtheintendeduse.Thepresumption

inthischapteristhatIPRknowledgeislowandtheresourcesarelimitedduetobeinga

start‐up.Theexternal factors isnormally lessclear forastart‐upsince theremightbe

severalprotections inthepipe‐lineandthebestuse isnotclarifiedduetoacontinues

development.

The three options that will be addressed are (1) patent, (2) trade secret and (3)

disclosingofinformation80.IPRshavealimitedutilitytofunctionasasingleentity,and

needs to be supportedby thebusinessmodel. The intellectual property rightswill be

addressedinanisolatedwaytogiveaneasierunderstanding.

5.1.1PatentThepossibilitytopatentsoftwareofferssomeinterestingopportunitiesandchallenges.

The respect forpatentsdiffersbetweendifferent industries,whichhave an impact on

79Analgorithmisasystematicprocedurethatproduces,inafinitenumberofsteps,theanswertoaquestionorthesolutionofaproblem.80Disclosingdoesnotgenerateanydirectprotection,butallowstheuseofcopyright.This isofcourseundertheconditionthattheobjectisusedoutsideofthecompany

32

the value for the protection. The respect for patent is low in the software‐ and

computing industry due to the normal use of the rights as a defensive weapon.

Meanwhile, as the right has a central role in thehigh‐tech industries, e.g. biotech and

medicaldevice,whichresultinahigherrespectfortheprotection.Thisisaresultofthe

highercostofproductdevelopmentandhencethevalueofthepatent,whichresultina

higherpropensitytoenforcetheright.81

The central role of patents for the biotech industry means that there should be no

reasontosuspectthatthiswillbelessforpatentsrelatingtosoftware.Thiswilltosome

extentbedependentifwhichindustrythatwillleadthedevelopmentoftheproducts,i.e.

thebiotechorsoftware. Theunlikelyscenario that thesoftwareclaims thespacewill

mostlikelyresultinalowervalueforthepatents.

5.1.1.1BenefitswithpatentingThekeybenefitswithapatent,orapendingpatent,are:(1)apatentallowsforadefined

technicalsolutionthatcanbedisplayedforaventurecapitalisttoattractcapital82.(2)A

patent,at least intheory,grantexclusiveright fortheuse.This,aspresentedabove, is

dependentonhow the industryhandles the softwarepatents. (3)There canalsobea

marketing value due to the credence the public has in the patent system. (4) The

possibilitytogenerateroyaltiesinthescenarioofalicenseopportunity.(5)Thepatent

systemallowsforahigh flexibilitybyallowinganapplicationtobewithdrawnand/or

modifiedtofitthedevelopmentofthecompany.

(6) One patent might have a limited value but a patent portfolio can be used as a

defensivetooltobalanceotheractorsaswellasgainingaccess,orcreate,apatentpool.

5.1.1.2ChallengeswithpatentingThekeychallengeswithpatentingsoftwarecanbesummarizedasfollow.(1)Patenting

processtakesalongtime;onaveragethreeyearbutitisnotuncommonwithcloserto

fiveyearsformorecomplexpatents.(2)Itmightbehardtodefinethekeyfeaturesinan

early stage in the development and hence what is central to protect. (3) A patent

requires information to be disclosed, which opens for the possibility of somebody

reengineerthesolution.

(4)Thecostofpatentsisrelativelyhigh,rangingfromUS$50.000to100.000overthe

lifetimeofthepatentsintheUS.Thismightsumsthatarehardforacompanytocarry.83

81Myhrvold,N(2010),p4582Blonder,G(2005),p383Blonder,G(2005),p1

33

TheapplicationcostforcoveringallEPOcountriescanreachUS$30.000fora30‐page

patent.Thisamountcanbeloweredbyonlyfocusingonprotectionforthekeymarkets,

whichwouldputlessconstraintonthestart‐up.84

(5) Few venture‐capital‐backed companies have the resources necessary to defend a

patent in the scenario of infringement. This is due to the high cost, e.g. a casewith a

compensation for damage of 1 million cost on average $US 300.000 to 750.000 to

litigate85. (6)Thepatentapplicationrequiresa resourcedemandingprocess, e.g.prior

artinvestigationsanddrafting.

5.1.1.3TheuseofPatentTherearechallengesconnectedwithpatenting,evenifitispossibletomitigateseveral

of them. The cost can be reduced in the initial phase by a good patent strategy that

allowsforthepostponingofexpenses.However,thisrequirethecompanytoprioritize

whatsolutionstoprotect,andonwhichmarketstoapplyfor,toenablethebestuseof

theavailableresources.Thepossibilitytousetheprioritydatesfromanationalpatent

means that the major costs can be delayed for some time, which allows a better

understandingoftheneedsandacquiringmorecapital.

Thelongprocessingtimecanbespeededupinsomecountries,e.g.UnitedKingdom,but

itstilltakesalongertimecomparedtotheoptions.Thefasteroptiononlyrequiresthat

applicantcanmotivatewhythereisaneedtoohurrytheprocess.

Thereisadevelopingmarketforpatent litigationinsurance,whichtosomeextentcan

increase the possibility for a start‐up to enforce a patent. However, this option is

currently limited in geographical scope, come at a relatively high cost, and with a

numberadisclosures86.

5.1.2TradeSecretTradesecretcanbeusedaspossiblemannertoprotectthesoftware,butitwillrequire

thattheprogramislocatedonacontrolledservertofulfilltherequirementsofthelaw

orinaccessibleinsomeothersimilarmanner.

5.1.2.1BenefitswithtradesecretThekeybenefitswithusingtradesecretareseveral.(1)Tradesecrethasnolimitintime

orgeographical area. (2)Therearenocostsof acquire theprotection. (3)There isno

requirementtodiscloseanyoftheinformation,andhencemakesitharderforotherto

84Bassett,R(2000),p57785JaffaA.etal.(2007),p6886Simensky,Metal.(1999),sec22:4

34

reproducetheresults.(4)Theonlyrequirementontheprotectedinformationisthatit

hasacommercialvalue.(5)Thereisapossibilitytocommercializetheinformatione.g.

vialicense.ThisisaccordingtoBernitzcommonlydoneinseveralindustries.87

5.1.2.2ChallengeswithtradesecretThekeychallengeswithusing tradesecret for softwarecanbe summarizedas follow.

(1) Itdoesnotawardanexclusiveright,whichmightbeproblematic ifsomebodyelse

inventthesamefunctionandpatentit.Thiswouldmeanthattheoriginaluserfallunder

theprioruseright88,whichcontainsseverallimitations.(2)Tradesecretofferalimited

protectionduetorequiringacriminal‐ornegligentacthasbeencommittedtocomeinto

force.(3)Itrequirestechnicalsolutionstoprotectthesoftwaretofallinsidethescopeof

theprotection,i.e.theinformationneedstobecontrolled.(4)Theinformationishardto

control,evenifthistosomeextentcanbemitigatedthroughcontractualmeans.89

5.1.2.3TheuseofTradesecretTradesecretoffers,ingeneral,agoodpossibilityforastart‐upduetothelowcostand

requirements on other resources. However, it is hard o protect a software when the

intentistodistributethematerial,whichmakesitunsuitable.Itmighthoweverstillbe

interestingiftheintendeduseistoplacethesoftwareonacontrolledserver.

5.1.3DisclosingtheinformationThethirdviableoptionistodisclosetheinformationtodestroythenovelty.Thiscanbe

doneintwomanners–(1)eitherviausingtheinvention,whichprotectthesoftwareby

meansofcopyright,or(2)todisclosetheinformationinamannerthatdestroynovelty

but does not spread the information. The second option allows some interesting

possibilities,butbasicallyhasthesametechnicalchallengesastradesecretinrelationto

software when it comes to commercialization. This means that only option 1 will be

takenintoconsideration.

5.1.3.1BenefitswithdisclosingtheinformationThekeybenefitswithdisclosingtheinformationareseveral.(1)Ithasthesamebenefits

oftradesecretsinrelationtogeographicalarea,timeandresources.(2)Thedisclosure

destroysthenoveltyandhencethepatentability forothers. (3)Theoptionsallows for

thecommercialuseoftheproductundertheprotectionofcopyright.

87Bernitz,Uetal(2007),p317ff88Prioruseright–theusediffersbetweendifferentcountries,butcanbesummarizedasameanofmitigatingtheeffectoffirsttofilesystem.89Bernitz,Uetal(2007),p317ff

35

5.1.2.2ChallengeswithdisclosingtheinformationThe two key challenges can be summarized as. (1) The main mean of protection is

copyright, which are associated with several limitations. (2) There is no manner of

controllingtheinformationbeyondthesourcecode.

5.1.4PatentsoffersthelargestbenefitsThere are benefits with all the option, and the choice needs to reflect the business

model.The technical challenges in relationwith softwaremeans that trade secretwill

notbeaviableoptionduetotherequirementtoprotecttheinformation.Disclosingthe

information allows for similar benefits as trade secret, and also allows for the

distributionofthesoftwarebutstillofferalimitedprotection.Thepatentoffersthebest

prospect by allowing the best protection and opportunities. However, there are legal

limitations with patenting software that needs to be investigated prior to making a

conclusiverecommendation.

5.2ThepossibilitytopatentanalgorithmThepossibilitytopatentsoftwareisnotaneasyquestion.Therearesoftwarepatentsin

Europe even if this goes against EPC due to an extensive interpretation by EPO. The

possibilityhaspreviouslybeenclearinUSA,buthasrecentlybeenlimitedasaresultof

newpraxis.

5.2.1ThediscussionaroundsoftwarepatentIt is not possible to discus the legal framework around softwarepatentswithout first

havingashort introductiontothecurrentdebateonthesubject.Theproargumentbe

summarized as that there are no different between hardware‐ and software patents

since they both protect an idea.Meanwhile, themain con arguments are that patents

hinder economical development in the software industry and that it is an intangible

concept.

Theprosidearguesthatthereisnodifferencebetweenprotectinganideathatrelatesto

hardwareorsoftwarewhenitcomestopatent.Theunderlyingreasonwiththesystem

istocreateaneconomicincentiveanddispersionofknowledgeandthereshouldhence

be no obstacles against software patents. The pro side also holds that the current

problem in the field is not due to the patents but instead the inability of the patent

officestounderstandtothetechnicalfield.Thishasresultedinthegrantingofpatents

thatdoesnotfulfillthecriteria’sofnoveltyandnon‐obviousness90.

90Graham,P(2006),Internet

36

The economical argument of the con side is based on the structure of the software

industry,whichconsiststoalargedegreeofSME,especiallyinEurope.Thismeansthat

the costs of patenting will put an additional economical constraint on the individual

company with limited additional protection and hence slow the development. The

patent trend in the industrywill also further increase the patent inflation,whichwill

decrease the freedom to operate and further decrease the value of an individual

patent.91

5.2.2ThelegalstatusinEuropeThe legal situation in Europe is currently not clear regarding software. There is an

explicit ban92 against patenting in EPC, but this has not stopped EPO from allowing

patentswith software as the key feature. EPO does not allow patents on software or

sourcecodedirectly,buttheyhaveinsteadcloakeditinan“apparatus”thatimplementa

claimedmethod, i.e.analgorithm. It isnot thealgorithmassuchthatcanbepatented,

butinsteadtheeffectthatthesoftware/algorithmgenerates.

There is a difference to the scope of patentability at the different regional actors in

Europe.Theparliamenthasthemostrestrictiveviewanddoesnotwanttoallowforany

softwarepatents.Boththecommissionandcouncilarepositivetosoftwarepatents,but

todifferentdegrees,asshowninFigure12.93

Therearearguments forbothpositions.EPO ‘sposition isbasedonarticle2794 in the

TRIP agreement95, which states that that all technical fields should be available for

patenting.Thecounterargument,whichtheEuropeanparliamentused,isthatsoftware

isnota technical fieldbutrathershouldbeconsideredan intellectualproperty.There

arenorightandwronginthismatter,whichshouldleavesituptothepolicymakersto

decide.96EPOTBAhasaddressedtheissueonanumberofoccasions,andaselectionwill

bepresentedbelow.

91Pellegrinin,F(N/A),p1092EuropeanPatentConventionArt52(2)–Thefollowinginparticularshallnotberegardedasinventions within the meaning of paragraph 1: […] (c) schemes, rules and methods forperformingmentalacts,playinggamesordoingbusiness,andprogramsforcomputers;93Pellegrini(N/A),p10f94Art27(1)Subject to theprovisionsofparagraphs2and3,patentsshallbeavailable foranyinventions,whetherproductsorprocesses,inallfieldsoftechnology,providedthattheyarenew,involveaninventivestepandarecapableofindustrialapplication.[…]95TheTRIPSAgreementisAnnex1CoftheMarrakeshAgreementEstablishingtheWorldTradeOrganization,signedinMarrakesh,Moroccoon15April1994.96Pellegrinin,F(N/A),p5

37

5.2.2.1CasesfromEPOVICOM97 – created the foundation for patentability of software‐based inventions. The

caseconcluded threeaspects. (1)Thecentralaspect isnot if theunderlying invention

relates toamathematicalprocessas such,but if theclaimsaredirected toa technical

process.(2)Aknowncomputerrunninganewprogramcannotbeconsideredthestate

of the art. (3) A technical process that is carried out under the control of a program

shouldnotberegardedasacomputerprogram.Theconclusionthatcanbedrawisthat

thetechnicalprocessisthecentralaspectwhendeterminingpatentability.

Koch and Sterlez X‐ray Apparatus98 – concluded that a mix of technical and non‐

technicalfeaturescouldbepatented.Thecasealsoconcludedthatitwasnotcentralto

considerthetechnicalandnon‐technicalforpatentability,thekeywasthattheinvention

relatedtoatechnicalsolution.

IBM Computer Program99 and IBM Program Product100 – stated that a computer

programthatitisabletogenerateatechnicaleffectthatgoesbeyondthenormalresult

duringtheinteractionbetweenhardwareandsoftwareispatentable.

AuctionMethod/Hitachi101–theboardconcludedthatamethod,e.g.software,involving

technicalmeansshouldbeconsideredaninvention.Thecasealsostatedthatamethod

97T208/8498T26/8699T1173/97100T935/97101T258/03

Figure12thereadifferenceinthescopeofpatentabilitybetweentheEuropeanactors.

38

intended to circumvent a technical problem instead of solving it by a technicalmean

doesnotcontributetotechnicalcharacterandishencetopatentable.

David Bainbridge summarized the current position from EPO regarding software

patentsas:

“(1) Determine the technical problem which the invention seeks to

overcome. (2) Look at the solution to that problem encapsulated in the

invention.(3)Ifitsolvestheproblembyatechnicalmanesitispatentableif

thosemeansarenew,inventiveandcapableofindustrialapplication.(4)If

itdoesnot solve theproblemby technicalmeans that it isnotpatentable.

For example, itmayuseormodifymatter excludedunder52(2), beingno

morethananautomationofnontechnicalactivity.However,theuseofsuch

matter designed to be particular suitable for computerimplementation

may, arguably, posses a technical character and, if so, the other

requirementsforpatentabilityshouldbetested.”102

There are good opportunities to patent software in Europe as the praxis and the

existenceofpatentsshow.Thecentralissuetodeterminepatentabilityisifthesolution

producesatechnicaleffect.

5.2.2.2ThegeneralEuropeanlegalsituationThe final decision regarding the software patents in Europe iswith the EC court, and

national courtsof themembercountries103.Therehasbeennocase in theECcourt to

guide the subject, but there are on the national level. One example is a case104 from

SwedenwheretheCourtupheldapatentthatcombinedsoftwareandhardware inline

withEPO’sdecision.

TherehasalsobeenacasefromUnitedKingdomthatmightgiveanindicationofwhere

Europeisheading,oratleastthecurrentstateonanationallevel.TheUnitedKingdom

hadpreviouslyrequiredsoftwaretoeitherproduceanewaffectoutsidethecomputer

or solve a problem in the operational issue of the computer to allow patentability105.

This was changed in the Symbian case106 where the court rejected the previous

102Bainbridge,D(2007),p.413103ECcourtand thenational courtsare innomannerboundbe thedecisionsoriginating fromEPO.However,itisnotuncommonthatEPOhasanindicativerolefortheotherauthorities.104RÅ1990ref84105Cole,Paul(2008),p1106EWCACiv1066–SymbianLimitedandComptrollergeneralofpatents

39

approach, and argued that the correct way was to look if there where a technical

contribution,e.g.anincreaseinreliabilityorspeed,todeterminepatentability.

5.2.2.3PatentabilityinEuropeThe insight that can be drawn from the current situation is that there are good

possibility to patent software in Europe, as shown from EPO, UK and Sweden. It is

possible to patent the software, however, the safest path would be to patent it in

combinationwithhardware.Thiscombinationseemstobeacceptedtoalargerdegree,

whichshouldallowformoresecurityinthescenarioofahigherlevelofrestrictiveness

towardsoftwarepatensinthefuture.

It can of course be discussedwhether it is right that EPO goes against thewill of the

people's representative in the European parliament. However, EPO is not directly

subordinated EU and hence has the freedom to operate within there sphere of

responsibility.Thequestionwhetheritisrightorwrongputaside,itisanavailabletool

thatshouldbeusedwhenitoffersthebestsolution.

5.2.3ThelegalstatusintheUSThepossibilitytopatenthasastrongerlegalfoundationintheUScomparedtoEurope,

but there is a movement toward a more restrictive approach. There is no explicit

exemption in conformitywith the European; the right is instead derived from theUS

patent act that has a relative wide scope107. The possibility to patent software was

establishedinthepatent‐eligibilitytrilogy108thatestablishedthescopeofpatentability.

Thiswasfollowedbyahandfulofcasesthatexpandedthescopeofpatentabilityuntilit

reachedthewidestscopewithStateStreetcase,asdescribedbelow.Thishaslatelybeen

limited in In re Bilski toward a stance closer to the one established by the patent

eligibilitytrilogy.

ThereisthepossibilitytofileforaprovisionalpatentinUSA,whichallowsforanearly

prioritydatebutwithoutimitatingtheapplicationprocess.Theprovisionalapplication

never becomes public, and is automatically abandoned one year after filling, which

meansthattherealapplicationneedstobyfilledwithinthistimetoallowfortheearly

prioritydate.

107 35 U.S.C. 101 Inventions patentable. ‐ Whoever invents or discovers any new and usefulprocess,machine,manufacture,or compositionofmatter,oranynewanduseful improvementthereof,mayobtainapatenttherefore,subjecttotheconditionsandrequirementsofthistitle.108ThetrilogyincludesGottschalkvs.Benson,O’Reillyvs.MorseandParkervs.Flook

40

5.2.3.1RelevantlegalcasesinUSAState Street vs. Signature Financial Group109 expanded the opportunity to patent an

algorithm.Thecaseestablishedthatinventionsthatinvolvedapracticalapplicationthat

produced a useful concrete and tangible result could be patentable. This wide scope

meantthateventheresultofanalgorithmcouldbepatented.

InInreBilski110theUSSupremeCourtoverturnedthewidescopeestablishedinState

Street case and returned to the machine‐or‐transformation test that had been

articulatedinthepatent‐eligibilitytrilogy.Thetestcanbepresentedasconsistingoftwo

partstodeterminepatentability–(1)istiedtoaparticularmachineorapparatus,or(2)

transformaparticulararticleintoadifferentstateorthing.

TheimpactofreBilskionthepatentability isnotclarifiedatthistime,andthere isan

uncertainty on the impact that itwill have on existing and future software patents. A

possible benefit of the court returning to a previous patentability test, machine‐or‐

transformation,mightbethattheopportunitytouseoldpraxistoclarifyuncertainties.

However, this isnotcertainbasedon the interpretations in theBilskicase111.There is

also additional material to assist in the interpretation of the case. USPTO’s board of

PatentAppealsand Interferencehasspecified thatageneral‐purposecomputerasnot

being a particular machine, and hence not possible to patent in combination with a

software112.Thishasnotbeentriedorreferredtoinacourtatthistime,butcanprovide

someguidancewhendeterminingthepatentabilityscope.

5.2.3.2PatentabilityinUSAThe movement toward a more restrictive approach regarding patentability in USA

meansthataprecautiousapproach isrecommendable.Thisshouldmeanthat thebest

pathtopatentinUSAwouldbeincombinationwithaspecifichardwareandusetheunit

hasanadd‐ontoallotherfunctionsthatcanariseduringthedevelopment.

5.3ThebestwaytoconstructanalgorithmprotectionThebestpathistopatentthesoftware,i.e.thealgorithm,intheshort‐term.Meanwhile,

thelong‐termbenefitsarehardertoomenaboutduethelegaluncertainty.Thesoftware

canbepatentedincombinationwithhardwaretocoveragainstchangesandtoallowfor

the possibility to retain protection on several markets. This could be complemented

withapatentthatincludesa“generic”hardware,notageneral‐purposecomputer,and

109149F.3d1368110545F.3d943,88U.S.P.Q.2d1385(Fed.Cir2008)111Hulse,R(2009),p2112USPTOBoardofPatentsAppealanInterference–Appeal2008‐1495/6

41

thesoftware.Thesecondapproachwouldhaveahigherriskexposureduetothe legal

situation, but would have larger benefits due to cover a larger scope that allow the

possibilitytobeusedasbothadefensivetoolandbetterpositiontogenerateroyalties.

Thechoiceofpatentapproachisdependentontheintendeduse.Thefirstoptionisthe

better solution if it is only intended to be used in combination with proprietary

technology in a defined field, and royalties is secondary. Thiswould allow a stronger

positionandonlycontrolthefieldoffocus.Thesecondoptionhasawiderscopewhich

wouldbebeneficial ifthecompanyhasactivatesinseveralfieldand/orhasabusiness

model of licensing out the technology. This would also enable the possibility of

divisionalpatents.

Therecommendedinitialcountrytoapplyinisdependentonthedevelopmentstageof

the technology and the perceived maturity level in the industry. The provisional

application in theUSoffers a goodpossibility to generate anearlyprotection, but the

nature of the inventions normally means that the scope is known at the time of the

neededprotection.ThismeanthatUnitedKingdomwouldbeagoodoptiondueto–(1)

thewidescopeofpatentabilityforsoftware,(2)requiretheapplicationtobewrittenin

EnglishwhicheasetheexpansionoftheprotectiontoothercountriesinEurope,and(3)

theyhavearelativelyefficientsystemthatallowsforaspeedierprocessifneeded.

5.3.1Theshort‐termThe short‐term benefits are severalwith the options to patent the software. The key

benefitsaretheincreasedflexibilityandtheclearlydefinedscopeoftheinventions.The

flexibility relates to the possibility to keep all possibilities open, i.e. the option to

withdraw the application during the first 18 months and to change the scope of the

patent. This allows the modification of the patent to reflect the current need of the

company and legal situation. The defined scope of the patents allows to possibility to

attractVCcapital.

The current changing situation makes it more important to use competent personal

whenwriting thepatentapplicationdueto the increasingcomplexity in the field.This

alsoallowsforanincreasedoffreedomtooperateinalaterstagewhenthecompany’s

needsarebetterdefined,duetothemoreproficientapplicationfromaprofessional.

5.3.2Thelong‐termThe long‐term benefits relate less to the single patent, andmore to the capability to

createaportfolio.Alargevaluecreatedbyasinglepatentwouldrequirethescenarioof

a key patent, which would but no bet very likely considering the problem to create

42

generic patents in the field. The benefits of a portfolio, as introduces above, are the

possibilitytouseitasadefensivetoolandallowingtoaccessproprietarytechnologies

withcross‐licensing.

Thelaststepistotakethetheoryintoactionandformulatethepatent,butthisisonly

thefirstphaseinthelifeoftheIPofupholding,protectingandmonitoring.

43

6.ThecommercializationofpersonalizedmedicineInthissection,thehypothesissaying:“thepricesettingopportunitiesforasmallbiotech

companyfocusingonpersonalizedmedicine,aremuchgreatercomparedtotraditional

biotechcompanies”,willbeanalyzed.

Themainfocusonthispartwillbeonthepossibilityforasmallbiotechactoroffering

personalizedmedicinetostandupagainstthebigpharmaceuticalcompaniesandtobe

able to setaproductprice thatexceedsmarketpricesof traditionalproductsandstill

getthemarketsharetheyaimfor.

6.1TheIntellectualvaluestar

Figure13TheIntellectualValueStar113

In his book “Intellectual Property and Entrepreneurship” Petrusson describes the

intellectualvaluestaranditsinfluenceonmakingthefirmbecomeastructuralplatform

for the creation of material value, artistic value and moral value from which then

financialcapitalcanbeextracted.114Thestarsymbolizestheactivitiesforvaluecreation

andshowsthattheincludedprocessesareparallel,interactiveandinterdependent.The

starisdividedintosixcategories,whichwillbetheunderlyingbasisforthefirstpartof

thecommercialanalysis.Thestepssymbolizedby thesix categoriesare important for

113PetrussonU.(2004),p.249114PetrussonU.(2004),p.250

44

thecreationofasuccessfulintellectualfirmstructureinordertocontinueandmoveon

withthemarketapproach.

6.1.1ClaimintellectualpropertyThebasisofbiotechcompaniesandtheirinnovativeapproachistodevelopinventions

and to commercialize them in the best manner. Their success is dependent on their

abilitytocontroltheinventionandtheunderlyingIP.Thereforeitiscrucialforthefirm

to claim intellectual property and to set up assisting structures and strategies. For

biotechcompaniesitisofgreatimportancetohaveIPprotection,astheirresearchand

productdevelopmentoftenareverycostintensivebutreverseengineeringcanbedone

quiteeasily.ThecompanyshouldtrytoclaimtheIPinthewaythatit isvaluableeven

forfutureuseinbothinternalprojectsaswellasforexternaluse.

6.1.2ManagehumanresourcesandculturesItisimportanttotakeadvantageoftheresourcesandculturesthatareavailablewithin

thecompany.Anyhow,itisnecessarytohavestructuresandguidelinesinordertomake

the IP development within the firm successful and to allow for development of the

company.Itiscrucialthateverybodyinthecompanyknowsabouthowtoapproachand

handle business secrets and innovative information so as not to disclose valuable

information that couldmake control over assetsdisappear.Another aspectwithin the

company is tomanage internal intellectualcapital. Theemploymentandcaringabout

employees is of great importance as this creates good working spirit and the

innovativeness of biotech firms and the employment of skilled people is of great

importance.

6.1.3ShapetheinnovationContinuingonthefirsttwoaspects,thefirm’sinnovationhastobeshapedinordertofit

intothemarketandsatisfycustomers’demands.Averyimportantfactoristoadjustand

constructinnovationsinawaythattheycanbeprotectedbythecompanies’IPanddo

notobstructorinfringeagainstotherproducts.

6.1.4ShapethemarketAnother important step in the development and commercialization process of

companies is the creation of product demand, product recognition, brand awareness,

marketingstrategiesandstructuresonhow toapproach themarketandhow tosolve

issuessuchaschoiceofmarketandlogistics.Thesesaspectscanbevaluabletolookinto

ataveryearlystagetobeabletoprepareandreactoncertainsituations.Hurdlessuch

asfinancialdistress,prolongationofexpectedtimetoproductlaunch,uncertaintieswith

retailers,etc.canalwaysoccur.

45

6.1.5Shapetheventure

Within the company there is also great potential of intellectual value creation. The

designing of incentive structures that nurture the creation of innovative ideas and

productsisanimportantvariableforthegenerationofIPandsuccessfulproducts.

6.1.6CreatefinancialvaluefromintellectualvalueWith the creation of these structures and the platform‐like firm, there will be high

potential in creating and extracting financial value from the whole process. The

developmentofarecognizedandwell‐brandedfirmandtheproductappreciationonthe

marketwillleadthecompanytosuccessandincreasefinancialincome.Theincreasein

intellectualvaluewillalsoleadtoincreasedfinancialvalue.

OneaspectthatPetrussonalsotalksabout inhisbookis thatwehaveto learnhowto

put value to intellectual property in order to use IP for loans and credit, as

securitization,etc.115.Asbynow,IPisnotusedforaccountingpurposesortocalculate

thebookvalueofcompanies.IPisonlyincludedwhendeterminingthemarketvalueofa

companywhenlookingatitscommercialpotentialanditsvalueincomparisontoother

actors. This is likely to change in the future as companies as for instance RPX

CorporationandAlliedSecurityTrusthavebuiltuptheirbusinessaroundIPanddonot

havemanyphysicalbelongingsthatareofactualvalue.

6.2Competitiveadvantage“Competitiveadvantagegrowsoutofvalueafirmisabletocreatefor itsbuyers

thatexceedsthefirm'scostofcreatingit.Valueiswhatbuyersarewillingtopay,

and superior value stems from offering lower prices than competitors for

equivalent benefits or providing unique benefits thatmore than offset a higher

price. There are two basic types of competitive advantage: cost leadership and

differentiation.”116

6.2.1Porter’sfiveforcesThe model constructed by Michael Porter is often described as too static in an

increasingly fast changingworld. Themodel consists of Porter’smain ideas regarding

competitiveadvantage.117Anyway,thePorter’sFiveForcesmodelservesasagoodbasis

for the analysis of a company’s potential on the market and as a checklist of what

115PetrussonU.(2004),p.251116Porter,M(1985),p.3117StanfordUniversity(N/A),p.2

46

hurdles there canbe.The industry’s attractiveness isdeterminedby the sophisticated

understandingandrulesofcompetitioncreatethecompetitivestrategy118.

Figure14Porter'sFiveForces119120,121,

Competitive advantage can be seen as to being created through new and innovative

ideas/productsthatarebroughttothemarketinordertocompeteintheindustry.The

competitive advantages shifts at times where competitors are unwilling or unable to

respond or just fail to respond to the changing circumstances122. In industries were

economiesof scaleplayagreat roleandbigactorsare involved inmarketperception,

firstmover advantage can be of great importance in order to get a head start and to

distinguishfromtherest.

Someofthemosttypicalcausesofshiftincompetitiveadvantageare:

118StanfordUniversity(N/A),p.2119EversP.,(2009)120Businessballs(N/A),Internet121QuickMBA(N/A),Internet122StanfordUniversity(N/A),p.3

47

‐ Newtechnologies

‐ Neworshiftingbuyerneeds

‐ Theemergenceofanewindustrysegment

‐ Shiftinginputcostsoravailability

‐ Changesingovernmentregulations123

Inthelifescienceindustryaswellasonthebiotechmarketforstemcellresearchand

products,competition isgreatandit isdifficult foracompanytogeneratecompetitive

advantage within this cluster of innovative and competent industry actors. In the

followingpart, an analysis of a small biotech company ismade that is doing research

andcommercializingresultswithinMSCsandpersonalizedmedicine.

6.2.2Advantagesanddisadvantagesofasmallbiotechcompany

This sectionwill based on Porters five forces address the pro’s and con’s for a small

biotechcompanythatisactivewithinMSCtreatmentandpersonalizedmedicine.

6.2.2.1Smallbiotechstart‐upvs.BigpharmaceuticalcompanyAdvantages:

‐ Flexibilityandabilitytomakequickchangesandtoadapttomarketneeds

‐ Fasterhandlingtimeswithinthecompanyduetolessdecisionsteps

‐ Evenasmallnichemarketcanbeprofitableandworthanapproach

‐ Easiertomakeunnoticedmovessuchastogeneratefirstmoveradvantage

‐ Smallcompaniescanoftenmovetheirresearchfocusfasterastheydonotneed

togothroughthesameamountofentitiesandswitchingcostsarenotashighas

forbig companies.Big actors canon theotherhandoften realizeprojects at a

higher pace when actually started due to increased investment potential and

resources.

‐ Lessfixedcosts

Disadvantages:

‐ Notlikelytohaveeconomiesofscale

‐ Dependentonsuccessoffirstproductlaunch

‐ Productorcompanybrandingisnotverydeveloped

‐ Aunknowncompanyhastobuildtrust

‐ Marketanddistributionstructuresarepoordevelopedornon‐existing

123StanfordUniversity(N/A),p.3

48

‐ Small companies can have difficulties in being spontaneous as they often are

dependentononeproject.Bigpharmaceuticalcompaniescanontheotherside

beriskaverseduetohighcompetitiononthemarketandthehighcostsrelated

toresearch.

‐ DifficultiesinsecuringIPfrombigactors,asitishardtogenerateenoughmoney

forbiglawsuits.

6.2.2.2PersonalizedMSCmedicinevs.TraditionalmedicineAdvantages:

‐ Quality;Improveslifeexpectancy

‐ Impact; Restoring tissue and re‐building the body to regain usual capacity

insteadofonlytreatingsymptoms,reductionofrelapserisk

‐ Patients; Safe treatment, comfort of having especially adaptedmedicine to the

individual’sconditions

‐ Healthsystem;Lessrelapse,noproductionlossdueto illordeadpeople,often

shortertreatmenttime

‐ Production:Thereisnoneedtokeepstockoffinalizedproductsaseverysingle

product ismanufacturedondemand,whereas traditionalmedicinesarestored

inshopstobeavailableofshelf.

‐ Opportunity costs: Are lower due to regenerative features and decreased

relapsingrisk.

Disadvantages

‐ Ethics:Somepeoplestillhaveethicalissueswithstemcellresearch,

‐ Costs:higherinitialtreatmentcosts,butduetoitsregenerativefeaturesthetotal

costsmaybecomelesscomparedtotraditionalmedicinethatmightbeneededover

alongperiodoftime.

6.2.2.3AutologousMSCsvs.AllogeneicMSCsAdvantages:

‐ Safe,noside‐effectslikeallergiesorrejections

‐ Psychologicaladvantagesforpatientstogettheirowncellsback

‐ Cheaper,duetoensuringofmatchingofcellstoavoidimmunereaction124

Disadvantages:

124EvansP(2009),page71

49

‐ Longertimetilltreatmentduetoexpansionprocess

‐ Riskofpatientnotdevelopingenoughcellsatthetimeneeded

"Itisincrediblyarrogantforacompanytobelievethatitcandeliverthesamesort

of product/service that its rivals do and actually do better for very long. It is

extremelydangeroustobetontheincompetenceofyourcompetitors"125

Porter’s saying above should be kept inmindwhen thinking about the importance to

createcompetitiveadvantageforthecompanyanditsproducts.

Abiotechcompanythatcandeploymostofthefeaturesdescribedabovecouldgenerate

great competitive advantage on the market. A company that is able to combine the

advantages of each category, such as being agile on themarket andmake use of first

mover advantage could have great impact on the market. The first mover advantage

couldhavegreateffectswhenenteringamarket/nichemarketandattractingabigpart

ofthepotentialcustomers/patients.Ifthecompanysucceedstotieenoughcustomersto

its product before competitors get the chance to enter the market, there will be no

incentivestodosoasthebarriersofentrywillbetohighandthepotentialgainingtoo

low. Besides the firstmover advantage, a company that commercializes personalized

medicine that is adjusting the treatment uniquely to the patient with help of an

algorithmandatthesametimeprotectstheIPoftheinnovationhasgreatpotentialto

succeedon themarket.Of course there are other factorswithin the company such as

management,marketing and other business related issues that also have to be taken

into consideration but having such a great product facilitates success. If the company

hassucceededtoprotectoneofitsinventionswithinthepersonalizedmedicinemarket,

thereisgreatpotentialof furthersuccessduetocorrelationofmethodsandprocesses

usedwithinthemedicalfield.

6.3Pricingstrategy

Whenapproachingthemarketwithanewproductthereisalwaysthedecisiontomake,

whichpricetoset.Therearedifferentpricingstrategiesthatcanhelptosetapricethat

will maximize income but there are only a few that might be of relevancy for a

innovativecompanygoingintothebiotechmarket.Someofthesestrategiesare:

125About.com:HomeBusiness(N/A),Internet

50

‐ Premiumpricing uses ahighpricewhen there exist a significant competitive

advantageandtheproductisreallyuniqueonthemarket.

‐ Penetration pricing is used to gain market share and therefore the price is

initiallyverylowbutincreaseswhentheaimedmarketshareisreached.

‐ Priceskimming startsoutwithahighprice inorder to lower thepricewhen

moreactorsapproachthemarketandthereducedpriceisneedtokeepmarket

share.

‐ Product line pricing is used where there are several products and a

combinationofthemwouldleadtoareducedpackageprice.126

‐ QALYpricesettingisanoptionthatputsthepriceofthetreatmentinrelation

to life expectancy and increased quality of life due to the treatment, which is

describedin6.3.1.127

Thenthereisthequestionofhowtogettheprice.Alsohereexistdifferentpossibilities.

Theserangefromsettingthepriceasamultiplicationofapercentageoftheproduction

costs,adjust thepricetocompetitorspricesortoset thepriceaccordingtocustomers

payment possibilities and demand. Customer’s demand and payment possibilities of

course has to be taken into consideration for all pricingmodels but theremight be a

possibilityofapproachingdifferentmarketsegmentswithdifferentcapacities.

6.3.1TotakeoutahigherpriceforpersonalizedmedicinethanfortraditionalmedicineFor a young and small biotech company that offers innovative and unique medical

products,manyofthevariablesdescribedaboveareofgreatimportanceandneedtobe

considered when deciding about how to go forward when setting a price on the

products.

Another aspect thatmightbe interesting to include in thepricing strategy is “quality‐

adjustedlifeyear”(QALY).QALYisamethodthattakesthequantityandqualityof life

generatedbyhealthcare interventions intoaccountandevaluates thebenefits that the

patientexperiencesinformofhealth‐relatedqualityoflifeandsurvival.Thisisdoneby

considering the variablesmobility, pain/discomfort, self‐care, anxiety/depression and

usualactivities,andassigningeachofthemascorethatindicatestheperceivedvaluefor

oneyear.1QALY,whichisthehighest,indicatesonyearofperfectlife.Oisequivalentof

being dead,whereas somehealth states are considered beingworse than being dead.

126MarketingTeachers(N/A),Internet127PhillipsC.(2009),p.5

51

Thereareevendiscussionsaboutsettingthepriceoftreatmentsinrelationtoperceived

QALY.128

In this casewe assume the product to be a personalizedmedicine based on autologous

MSCsandadjustedtoeachpatientspersonalspecificationswiththehelpofanalgorithm.A

product for the treatmentof thisdiseaseor injury is highlydemandedand thepotential

marketisgreat.ThereisclaimedIPforthenovelpartsoftheproductanditsdevelopment.

TheadvantagesofapersonalizedMSCproductcomparedtoexistingproducts:

‐ MSCbasedproductsdonotonlytreatsymptomsbutalsorestoredamagedtissue

inordertoregainpreviousfunctionality

‐ Thereislowriskofsideeffectsrelatedtotheautologousaspect

‐ Theriskofrelapseisverysmall

‐ IncreasedQALY

‐ The product is freshly produced and adjusted to the patient’s needs and not

manufactureasaofftheshelfproduct

Evenifthemarketisquitebigandtherearemanycompaniesfightingformarketshares,

the owning of IPRs for the product and the underlying productionmethodswill be a

barrierforotheractorstocircumvent,especiallyconcerningpatentsortheinventingof

totally different products. Also if current studies have developed cells out of only

chemical products which is claimed to have the potential of being used for medical

treatmentinthefutureastheresearcherCraigVenterandhiscolleagueshavemanaged

tobuildanexact copyof a cellsDNA,which is supposed tohaveexpectedphenotypic

propertiesandiscapableofcontinuousself‐replication129.

ThecombinationofproductfeaturesthatareprotectedbyIPRsandbeingtheonlyactor

on themarket offering this kindofproduct theprice settingoptions are great.As the

demandforthiskindofproductishighandthevolumeofpeoplehavinginterestinthis

kind of treatment exceeds a start‐up’s capacity due to limited manufacturing and

distribution facilities in the starting period, the initial market approach could be

focusingonanichemarketwithpeoplehavinghigh income.Theywouldbewilling to

pay a bit higher price than common in order to experience the great increase in

treatment outcomeand gainedquality of life. Therefore thepremiumpricing strategy

couldbeappliedforthepricesettingofthisproduct.

128PhillipsC.(2009),p.5129GibsonD.G.etal.(2010),p.1

52

For a future setting, where competitors might have the possibility to offer similar

treatments, there isstillapossibility tomoveoverto thepriceskimmingstrategyand

adjustthepricetocompetitorsinordertokeepmarketshare.

Anadditionalpricingpossibilitywouldbetoadjustthepriceaccordingtotheamountof

expansionsthatisneededtogetenoughcellsforthepricetobeadjustedtoeachpatient

inthewaythetreatmentis.

53

7.ConclusionTheaimofthethesishasbeentopresentandclarifythebenefitsandchallengesofusing

personalized medicine for a start‐up company in the biotech sector. The scope was

delimited to the genetic sector in general, andMSC in particular, due to the growing

importancepersonalizedmedicineinthisarea.

Thehypothesisthathasbeentheguidinglightinthethesis:

Personalized medicine offers great opportunities for start‐up biotech

companiesbasedinEuropetosucceedonthemarket.

Thehypothesisallowsforawideselectionofsubjectstoinvestigate,butthescopewas

limited to the relation between IP and its current landscape, protection and

commercialization.Thisresultedinfourquestionsthathavebeenansweredduringthe

thesis.

• WhatisthecurrentpatentlandscapearoundMSCs?

• Whatisthebestmannerofreachingthemarket?

• Whatisthebestmannertoprotecttheuniqueaspectinpersonalizedmedicine

forasmallbiotechcompany?

• What would be the main competitive advantage and benefits for a biotech

companyutilizingpersonalizedmedicine?

• Inwhatwaydoespersonalizedmedicinecreateadvantagesandpossibilitiesof

pricesettingforbiotechcompanies?

The conclusionwill recap thekeyouttakes from thedifferent chapters chosen for the

structureof thethesis, inordertobeabletoshowtheaggregatedbenefitsthatcanbe

gained from personalized MSC treatment. The theory and analysis together with the

conclusion drawn thereof allows for interesting insight in the biotech field but also

opensupforfurtherresearchandpossibleinvestigationareas.

7.1Background

ThepresentedbackgroundshowsthepotentialofpersonalizedmedicineandMSCsand

actsasafoundationtobuildthethesison.

The holistic approach of personalizedmedicine offers several benefits for the patient

andthebiotech industry.Thepersonalizedaspectoffersearlierdiagnosispossibilities,

more proficient therapies and efficient development of new treatments. The two first

54

parametersofferabetterproduct to thepatients,while the lastallowsthe industry to

have a higher success rate and addressmore advanced diseases. There are of course

alsochallengesthatneedtobeaddressed.Thefourkeyfactorsare;scientificchallenges,

economical parameters, public opinion and the ethical dimension. The scientific and

economicalchallengesarebecominglessprominentastheacceptanceanddevelopment

progress.

Stemcelltreatmenthasshowntohavegreatpotentialforregenerativetherapyandthe

treatmentof for instanceParkinson’sorheartdisease.Researchwithindifferent fields

andapplicationareashasalreadybeenongoing for some timeandknowledgearound

stemcellsandtheirpotentialisgrowingfast.SoisalsoR&Daroundpotentialtreatments

withMSCsandadultstemcellswithembryonicstemcellfeatures.Asbynow,itseems

as if autologous MSC treatment could have great potential on the market for

regenerativetherapiesasitshowsthatadultstemcellshaveregenerativefeatures,but

incontrasttosomeotheralternativecells,withoutbeingrejectedorriskofsideeffects.

A successful treatment with autologous MSCs presumes that it will be possible to

expandMSCsinasufficientpacetotreatpatientswithinthenecessarytimeperiod.

7.2Outcomeofstudy

7.2.1IPlandscape

The three arenas that open the chapter allow understanding of the context that the

start‐upoperates in, andshow that thekeyarena for the start‐up, in this stage, is the

commercial arena. The commercial arena often has an international focus in the

knowledge sphere,whichmeans that there are special requirements on the company

andthemultinationalscopeofinvestigationsthatneedtobeconductedinthefollowing

sections.

The patent landscape around stem cells is susceptible to patent tickets due to the

existence of patents that are broad, fuzzy and approved at an early stage. The

quantitative and qualitative investigation into the patent landscape around MSCs

showedthatthereisastablepatenttrendinthefieldandthattherestill isfreedomto

operate.Thisinvestigationtogetherwithotherinvestigationsshowedthattheindustry

consistsofseveralsmallactors,whichindicateparametersoflowbarrierstoenter.

Theanalysisoftheclaimsintheanalysisdidnotshowanyhomogenoustrendsforthe

field as a whole, but it was possible to identify trends when breaking it down into

smallersections.

55

7.2.2Possiblesolutionstoreachthemarket

The possibilities for a small biotech company to set its foot onto the market are

combinedwithanumberoffactorsandbaseontheintentionsofthecompanythatcan

be put in connection to the company’s business plan.When focusing on personalized

autologousMSCtreatment,ownresearchwillprobablybethebasisoftheproductbut

can also be combined with in‐licensed technologies or collaborations. Preferably the

companyhascreatedIParoundtheproductinordertoreducetheriskscombinedwith

aproductlaunch.

Ifnotallaspectshavebeenpossibletoprotectandothercompanieskeeptherightsto

needed IP, the opportunitymay exist tomake use of an exemption in the patent law,

stating that preparations of medicines in a pharmacy that are conducted under a

doctor’s prescription are allowed and therewith give a possibility to circumvent the

blockingpatents.Ifthereisapossibilityofintroducingtheproductasamedicalproduct

and hence avoiding to be stuck in years of test processes for receiving allowance to

enterthemarketitshouldbeinvestigated.Analternativemarketapproachthatcanbe

used in combination with a product launch is the out‐licensing of the IP to bigger

pharmaceuticalactorsthathavemoreandfasterpossibilitiestoreachthebigmarket.

7.2.3Possibilitiestoprotectthepersonalizedmedicine

Thischapteraddressesthepossibilitytoprotectthepersonalizedaspectofthemedicine

in the form of an algorithm encapsulated in software. All the available options, i.e.

patents,tradesecretsanddisclosingtheinformation,offerinterestingalternatives,but

patents showed to havemost benefits. This motivated an investigation into the legal

requirementsforpatentsinEuropeandtheUS.

The two investigated areas offered the possibility to patent software and hence the

algorithm. The legal situation in both regions is in transition. The patenting trend in

Europe tends towards being quite liberal, but the legal situation is unclear due to

differences in opinions of the decision‐making authorities regarding the extent of the

patentability.ThesituationintheUSistheotherwayroundasthetrendismovingfrom

averyliberalpositiontowardsamorerestrictiveposition.

The best patent strategywould be to patent the software in combinationwith a non‐

generichardware toallowasafeposition in thecase that thesituationbecomesmore

restrict. Inadditionit isworthcomplementingthisnon‐generichardwarewithamore

generichardwarepatentsincethiswouldhavelargerbenefits,butmightnotbeupheld

56

if the situation becomes more restrict. This of course needs to be adapted to the

intendedusetothecompany.

7.2.4Thecommercializationofpersonalizedmedicine

The commercialization of personalized medicine is dependent on the company’s

strategy,itsstructure,andthecompetitiveadvantagesoftheproduct.Duringthewhole

innovation process the company needs to have the claiming of IP together with its

innovative ideas in focus. A unique product offering personalized treatment with the

patient’sownMSCs thatgives them thepossibility to regain lostmedical functionality

andatthesametimebeingasaferalternativetoexistingproducts,willincombination

with the IPRs connected to the innovation create great opportunities for a biotech

company. If all necessary features of the aimed product are in place and relevant

substitutestotheirproductarenotavailable,thecompanyhasthepossibilitytoreacha

market and use a premium pricing strategy. People will be willing to pay for the

increased value they experience from this kind of treatment. The focus of the initial

phase of the product launch may need to be reduced to a niche markets as a small

biotechcompanydoesnothavetheresourcesorcapacitiestoservethewholemarket.

7.3Thecombinedoutcome

Thebackgroundshowedgoodpotentialinthesector,whichstrengthensthehypothesis

andmotivatedthecontinuationoftheinvestigationandtheconnectedanalysis.

7.3.1Theadministrativearena

The administrative arena showed the current patent landscape, which indicated for

good opportunities in the chosen field. It also showed that there are possibilities to

patentthepersonalizedaspectintheformofsoftware.Thismeansthatthereisagood

opportunitytogenerateprotection,whichisofgreatimportanceinthebiotechindustry.

There are large regulative demands on a biotech company in general, and genome in

particular.Thishasbeeninvestigatedinothercontexts,andshowednolargerobstacles

thatwouldcreateanyhinders.

7.3.2Thelegalarena

The legalarenahasnotpresentedanything thatwouldbeanobstacle forprovingour

hypothesis.

57

7.3.3Thebusinessarena

Thebusinessarenahasshowedseveralpositive traits.Severalof themaregeneral for

thewholesector,buttheanalysisalsoshowedsometraitsthataremorespecificforthe

chosensectorandhencestrengthenthehypothesis.Thegoodpossibilitiestogeneratea

control position via the patent allow for a good starting position, which in turn is

strengthenedbythepossibilitiestoreachthemarket.Thenichemarketsincombination

withfirstmover’sadvantageandalackofdominatingactorsallowforagoodpositionto

enterthemarketandgivesagoodpositiontoclaimtheneededspace.Theabilitytooffer

acompetitiveproductdirectedtowardsaproblemthatisnotsufficientlyaddressedwill

allowaovercomingoftheproblemfacingthegenomeandpersonalizedmedicine.This

will inturnalsoallowforcoveringthedevelopmentcostsbypermittingtheextraction

ofahigherprice.

7.4Finalreflections

ThehypothesishasbeenproventoupholdfromanIPperspectiveasshowninthemain

body and highlighted in the thesis. All the chosen areas of focus have shown

opportunitiesandobstacles,butnonethatcannotbeovercome.

WerecommendabiotechcompanyintheMSCfieldtoaimforthepersonalizedfielddue

tothepossibilitiesthatcanbegainedinthecommercializationaspect,whicharehigher

in comparison to a traditional path. The IPR’s are to a large extent the same, but

personalizedmedicineoffersanadditionallevelwiththepersonalizationaspect.

There are some areas that would be interesting to investigate in order to make a

comprehensive recommendation. The first would be to look into the scientific

perspectivetoindentifyinwhichmedicalapplicationthattheconcept,i.e.personalized

medicine based on MSCs, would have the largest potential from a commercial and

scientificaspect.Thesecondperspectivewouldbetoanalyzethepricestrategy,i.e.the

level of premium price and if the concept offers additional benefits as for instance

personalized pricing. The third perspective thatwould be interesting to investigate is

thecommercial landscapetogiveamoreholisticperspectiveofthepotential.Afourth

interesting field to do further investigation in would be to analyze how the different

countriesrelatetopersonalizedmedicineandthepaymentthereof,e.g.insurancesand

socialwelfare.

58

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AppendixA

PatentsrelatingtoMSC

1 EP0592521 MonoclonalAntibodiesSpecificforMarrow‐DerivedMesenchymalCells

OsirisTherapeuticsInc

Apr23,1992

2 EP1028737 HumanMesenchymalstemcellsfromperipheralblood

OsirisTherapeutics

Jun1,1998

3 EP1082410 HumanCD45+and/orFibroblast+MesenchymalStemCells

OsirisTherapeuticsInc

Dec2,1999

4 WO2006037649 IdentificationandInsolationofMultipotentcellsfromnon‐osteochondralmesenchymaltissue

Cellerix Apr13,2006

5 EP1361267 Mesenchymalstemcellsandtheiruse

Caplan&Haynesmith

Nov12,2003

6 EP1812558 IdentificationandIsolationofMultipotentCellsFromNon‐OsteochondralMesencymalTissue

CellerixS.L Aug1,2007

7 EP1970446 NuclearReprogrammingFactor KyotoUniversity

Apr7,2010

Patentsrelatingtotreatment

1 EP2105138 Regenerationandaugmentationofboneusingmesenchymalstemcells

OsirisTherapeutics,Inc.

Apr17,1997

2 EP1059929 Isolatedstromalcellsfosuseinthetreatmentofdiseasesofthecentralnervoussystem

MCPHahnemannUniversityPhiladelphia

Feb24,1999

3 EP1572071 JointRepairusingMesenchymalStemCells

MacroporeBiosurgeryINC

Nov1,2001

4 WO2005093044 Mesenchymalstemcellsandusestherefor


Oct6,2005

5 EP1978977 MesenchymalStemCellIsolationandTransplantationMethodandSystemtobeusedinaClinicalSetting

ChristopherCenteno

Aug2,2007

65

6 EP2110431 Cartilageregenerationusinghumanmesenchymalstemcells

OsirisTherapeuticsInc&CaseWesternUniversity

Oct21,2009

7 EP2123747 Mesenchymalstemcellsforuseintreatingapulmonarydiseaseorinreducingscartissue


Nov25,2009

Patentsrelatingtoprocedures

1 EP0874991 Methodofselectingapopulationorsubpopulationofasampleutilizingparticleandgravitysedimentation

CoulterInternationalCorp

May11,1996

2 EP0869838 MagneticSeparationApparatus MiltenyiBiotechInc

Jun4,1996

3 EP1144026 Bloodseparationsystemparticularlyforconcentratinghematopieticstemcells

Biosafe Dec24,1996

4 EP1893253 Integratedsystemforcollecting,processingandtransplantingcellsubsets,includingadultstemcells,forregenerativemedicine

Biosafe Mar26,2003

5 EP1745125 CellCultureEnvironmentsfortheserum‐freeExpansionofMesenchymalStemCells

Becton,DickinsonandCompany

Jan24,2007

6 WO2009142770 Compositionsandmethodsforgeneratingmusculosketaltissue

TheRegentsoftheUniofCali

May22,2009

7 WO2009072003 Sampleprocesssingsystemsandmethods

MiltenyiBiotecGMBH

Jun11,2009

66

AppendixB

Actorsinthestemcellfield

Table1Actorsinthestemcellfield

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