Random Ramblings about stuff I see going on in biotech, internet and the stuff I read.

Thursday, September 29, 2005

BioTech Patents

There are always discussion on Groklaw and Slashdot about the use of patents to protect inventions, with the general feeling of the people who post comments that patents are evil and should be outlawed. There is rarely any discussion of what you would put in it's place, but I just want to put a few notes out here about projects moving through the system, the process, the time, and the money. I work for a large tools/reagent company, so this mirrors the process of that kind of company. There are some simplifications here, but the outline covers it all.

Start :
  • I get lucky and the most brilliant idea in the world comes in from either internally or externally.
  • We check the IP and we don't have to license. (1 week)
  • Marketing puts together a forecast and makes comments on whether or not we could sell the eventual product (2 weeks)
  • R+D gets to work (6 months to 3 years)
  • R+D complete -> Pass to scale up group and QC
  • QC / Scale up (6-9 months)
    • keep in mind you have to do stability studies if you are selling a protein, and those take time (6 months) so you try and get those started.
    • You have to make sure you can make a protein Cheaply and in high volume
      • labor = money
      • buy size from your suppliers = money
      • change over of equipment = money
  • Manufacturing batches and final QC (1 month)
  • Launch
So you can see the total here, and this is for something we didn't have to license, is as quick as 1 year and as long as 3 years. Licensing on the front end can take from 1 - 5 months depending on all kinds of flexibility/vacations of anyone in the process/motivation of both sides.

If you assign some FTE's to that, which in San Diego bill out between $150K and $400K depending on which step you are at and who they are, and you see that you can pretty rapidly get a lot of cost in there. You spend a lot of that money before you know if your product works. You spend the rest of this money before you know if it sells.

Why do you spend that money? You expect to make money back. You expect to make a multiple of that initial money back. The bigger the multiple the better, but a first pass of a Net Present Value better be positive at the least. Otherwise, just put the money in a savings account as you will do better.

So - how do you protect that investment? Patents. No other way. Otherwise I will just copy what everyone else is doing without having to spend the R+D time. I won't have to worry about marketing, as I am just copying things that I know will sell. There is no risk to me. I would never take a risk as there is, in fact, no reason to. By taking the risk I will spend more than my competitors and will soon go out of business. They will release to the market second, but they will not have the same cost structure I do. A great example of how this works is Dell. They have the lowest cost structure as they, essentially, don't do R+D. A typical tools company is spending 10-20% on R+D. For Pharma and Biotechs, it is higher. If you get rid of those line items, you see that you can charge much lower prices for your products, and will quickly be able to dominate an industry.

We make me-too's of OLD products that either were never covered by patents or have come off patents (Taq being a great example here), and they are cheap. The margins have been totally beaten out of them, but there is still something there so you might as well have it. Helps you have a more complete catalog and be a more complete solution to your customers, but there is no way you can do R+D on those things.

So, I hate the patent world, as we end up in court, and as my previous post talks about there is nothing good about that.... On the other hand, it allows us to make margins that support the R+D and allow us to drive forward.

No comments: