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Posted: Oct 12, 2007
Nanotechnology patents and the future of the pharma industry
(Nanowerk Spotlight) Medicine is big business. The big pharma companies have traditionally enjoyed enormous profits that would make the eyes of other companies' CEOs water (apart from big oil companies, of course). The combined annual net income for the top 10 pharma companies (ranked by market capitalization) currently is about $73 billion. Pfizer alone has a net income of approximately $19 billion.
The recipe for success? Patent protection and intellectual property rights (IPRs). The core of Big Pharma's business model relies on patent protection for their blockbuster drugs, which allows them to sell these drugs at extraordinarily high profit margins that they wouldn't be able to generate in a competitive market. Point in case: Lipitor, the cholesterol-lowering drug that accounts for nearly $13 billion of Pfizer's revenues and over 40% of its profits. Another key part of the pharma business model is heavy spending on sales and marketing. Novartis, for instance, is spending around 33% of sales on promotion, compared with about 19% on R&D, although the cost of bringing a new drug to market could well exceed $1 billion (and that is also the argument pharma companies use to justify their profits).
However, pharmaceutical companies are faced with the expiration of the patent protection on their main profit generators, they have relatively few new products in the pipeline, and they need to come to terms with the emerging nanomedicine landscape. While nanomedicine potentially offers promising new value propositions and revenue streams, for instance in diagnostics, it also could completely displace certain classes of drugs such as current chemotherapy agents with novel nanoparticle reformulations. In what looks like more of the same though, it seems that the future of nanomedicine business will also depend on patents and IPRs, potentially even more so than today.
"Commercial nanomedicine is at a nascent stage of development and the full potential of nanomedicine is years or decades away" Dr. Raj Bawa tells Nanowerk. "However, make no mistake, recent advances in nanotechnology-related drug delivery, diagnosis and drug development are beginning to alter the landscape of medicine. Drug delivery is one area that will produce significant results here. For example, site-specific targeted drug-delivery systems, with their potential to address unmet medical needs (made possible by the availability of unique nanomaterial delivery platforms, such as dendrimers, nanoshells, nanoparticles and nanoliposomes) and personalized medicine (a result of advances in pharmacogenetics and pharmacogenomics) are on the horizon."
Bawa has published a special report in a recent issue of Nanomedicine ("Patents and nanomedicine") where he argues that only a robust patent system will stimulate the development of commercially viable nanomedicine products that can drastically improve a patient's quality of life and reduce healthcare costs.
Bawa says that early forecasts for nanomedicine commercialization are encouraging but there are formidable challenges as well. These include legal, environmental, safety, ethical and regulatory questions as well as emerging thickets of overlapping patent claims. At the moment it is not entirely clear when nanomedicine-related advances in the labs will result in viable commercial products and whether certain bottlenecks could delay their introduction to the marketplace. Especially issues involving current patent law and the patent granting process could result in delays.
"Patents are critical to the nanomedicine ‘revolution’" says Bawa. "When investors in nanomedicine or drug companies consider the merits of their investment, patent issues are one of the most important items they review. There is also ample evidence that companies, start-ups and universities are ascribing ever greater value and importance to patents. Increasingly, they are willing to risk a larger part of their budgets to acquire and defend patents."
Not unlike the current development of traditional drugs, the process of converting basic research in nanomedicine into commercially viable products is proving to be long and difficult. And analogous to traditional drug development, the development of nanomedicine-related technologies is extremely research intensive and, Bawa argues, that without the market exclusivity offered by a patent, development of these products and their commercial viability in the marketplace would be significantly hampered.
So are we in for more of the same from the Big Pharma companies, i.e. will we see some blockbuster nanomedicine applications developed, or their patents secured, by the pharma industry and then see them milk these few products for all they are worth during the patent protection period? Yes and no, probably. Yes in a sense that for them a drug is a drug and if that happens to involve nanomedicine, then all the better. It's hard to see how the largest pharma firms with their entrenched business model that so depends on a few blockbuster drugs are willing or even able to change their way of doing business. In the same way that oil companies have been (successfully) fighting for the status quo in energy policy, pharma companies will want to make sure that nanomedicine applications are developed and brought to market in a way that fits their business model.
On the other hand, one thing that is different now is that the research drive towards nanomedicine is very broad and to a large degree happens outside the pharma companies' labs (although they do sponsor and fund university research). Every university with decent medical and pharmaceutical research labs, many private research institutions, and not to forget some sizeable government funded initiatives, mostly in the U.S. and Europe, conduct research in many different areas of nanomedicine.
The problem, though, is that each and every breakthrough that is patentable will be patented. And chances are that it will be the big companies that can afford to pay the license for a patent and then commercialize and market the product, rather similar to what happens today. And chances are that many smaller companies will rather want to collect license fees for the patents they possess than embark on the risky and expensive process of introducing a new drug or medical application into the market. In addition, in the case of overlapping or overly broad patents, smaller companies will have a difficult time fighting larger companies with deep pockets in court over conflicting claims.
Unfortunately, today's Big Pharma business model produces drugs that are immensely profitable to their makers – and required as a result of our unhealthy lifestyle in the West – but not necessarily the drugs that are needed in large quantities in developing countries. This model fails miserably in the developing world, where few patients can afford to pay patented prices for drugs. Due to the current economic pharma model, for instance only about 1% of newly developed drugs are for tropical diseases, such as African sleeping sickness or dengue fever. There is the risk that the same will happen with nanotechnology developments in medicine. Although nanomedicine promises fantastic applications for diagnostics and therapy, just because a drug or medical application is technically feasible doesn't mean it will make it into production and be deployed where needed.
An interesting thought experiment would be to explore if something like the Open Source Software movement could be possible for the pharma business. The Tropical Disease Initiative (TDA) is trying to do exactly that – an open source approach to drug development. Going beyond the "virtual pharma" model – where charities create nonprofit venture-capital firms which look for promising drug candidates and then push drug development through contracts with corporate partners – TDI envisages a decentralized, Web-based, community-wide effort where scientists from laboratories, universities, institutes, and corporations can work together for a common cause. Resulting breakthroughs would then be licensed similar to software GPL (General Public License) or other licensing models. This is a model that could become very promising if applied to nanomedicine applications that don't make it in Big Pharma's business model. It certainly is a thought that is worth exploring further.