It is no secret: today’s pharmaceutical marketplace is alive with innovative products, drug delivery systems, new drug substances and modifications to existing APIs. Improved drug product formulations and delivery technologies1-3 are addressing everything from consumer preferences to financially competitive positions and improved bioavailability. Simultaneously, therapeutic specific APIs are arising from genomic/proteomic investigations4—both large and small molecules—that hold immense promise for treating diseases without complicated side effects. Additionally, modifications to existing APIs have led to direct improvements in efficacy or allowed for more user-friendly applications. The potential financial rewards emanating from these activities are enormous and two major questions plague executives managing these innovations: 1) How soon can intellectual property be established to protect the investment, and 2) How soon can the innovation be commercially implemented to generate revenues?

Clearly, the above questions contain a time-component that drives many management decisions within the innovating firm. And of course, the time between the answers to the two questions represents the often-substantial investment and commitment to accomplishing all the development and regulatory tasks. The ambiguity associated with these tasks, coupled with the project’s negative cash flow are often sufficient to send the chief financial officer to the funny farm. The known variables in the commercialization process are many; the unknown factors that will arise are too great to ponder. Therefore, management mechanisms that couple innovation activities to commercial revenues add value to the firm since the time-value-of-money is a dominating factor for an innovation’s financial success.

This article will address some of the top-level issues in assuring innovation is implemented with the highest probability of commercial returns. The competitive business environment, intellectual property considerations, project management, stakeholder dynamics, time-to-market and business objectives, and a host of other factors contribute to a firm’s IP implementation and ultimately to its financial success. At the front end, the innovative advancement has to be legally established (patents) and the back-end revenues must justify the investment including the cost of capital. Everything in between is just business as usual!

The Market and Competition
We all know the attention drug product pricing receives in the marketplace and through legislative action. Often blinded by rhetoric and political maneuvering, many forget that the average new drug product containing a new chemical entity requires about a 10-year commitment and an $800 million investment before product launch. Do the calculation any way you want, but that amounts to a lot of money for which investors expect a reasonable return. It’s little wonder that product time-to-market considerations influence many boards’ decisions; their desire to advance human health may have to take a backseat to financial realities. Similarly, the battle over FDA’s Orange Book patent listings and exploitation of Hatch-Waxman legislation will continue to make headlines in the judicial system. Add in the rights granted by patent ownership (i.e. a monopoly grant) versus the discussions5 between the Federal Trade Commission and the Department of Justice regarding intellectual property and antitrust laws (i.e. unrestricted competition), and a product manager needs a map to negotiate the minefield! Obviously, the scientific and technical challenges to innovation take on a whole new dimension when the business strategy must account for these legislative, judicial and politically motivated factors. Hopefully, no one forgets the important objectives of helping people and earning a living.

Competition arises in numerous forms. The most discouraging and detrimental effects on our nation arise from an un-level playing field. While we argue over minutiae, offshore competition, primarily from India and China6-8, erode our standard of living and disseminate proprietary information. These countries are notorious for violating patented technology, thereby shortcutting the innovation expense (remember: our capitalistic system and our industry depends upon the time-value of money). Further, few facilities have comparable U.S. environmental restrictions9 imposed on their manufacturing processes; FDA resources are stretched to the max to audit and investigate overseas plants, and labor and wage rates are below U.S. standards. What a paradox: the market justifies investment into R&D, and the human need for pharmaceutical innovation is certainly apparent, but if U.S. legislative and regulatory issues don’t sink you, you stand a good chance drowning in the swamp created by the biased international competition.

Well, so much for being wrapped in self-righteous indignation. “Necessity is the mother of invention,” and indeed it’s little wonder that innovative companies are practicing techniques that enhance, even maximize, their opportunity for protecting and exploiting their innovations. Why is it that pharmaceutical firms are taking heat over their marketing expenditures? The answer is: you have to make the return off the R&D investment. And not to lose sight of the two questions posed in my introduction, essentially any technique that reduces the time-to-market for a new product both protects and contributes to the firm’s financial well-being. This is to say, the time component to a project’s management is the best weapon employed in a manager’s toolbox. Being first in the market is not always best, but as a rule, it usually is and allows for significant market share gain. This is accomplished by an aggressive marketing component and the budget dollars to support it. For R&D, time is also of the essence. Patents and intellectual property are still important and, the world’s recognition and respect for patented technology is improving (albeit slowly). Therefore, discoveries and innovations supporting the business goals should be protected quickly: file early and often.

Other market factors, as well as their influence on how long an innovation can be protected and how long the firm can enjoy its associated revenue stream, are less “artificial” than the previous arguments. There are real needs that, if met, provide substantial opportunities. Again the time component can make the difference between success and failure; it is imperative that small, innovative companies separate themselves from the excitement associated with technology invention and perform a detailed market- and financial-driven assessment of the innovation. Most assuredly, the time component plays a major role in the firm’s financial success, for in the current environment, a product life cycle—even with product line extensions—can be short. Rapid innovation with patent protection and aggressive marketing provide the best probability for profitable business.

Collecting this discussion in the context of the questions in my introduction, patent protection can be easier to obtain in “uncrowded” technology areas, but the firm has a responsibility and liability to its investors to achieve protection quickly. The pressures are immense on the R&D staff to rapidly scope out the technology’s breadth and depth. Narrower protection may be obtained for less dramatic inventions, and the burden will fall more to the marketing department for creating demand, value and customer interest.

Innovation
What constitutes innovation? Well, that may depend on if you’re using your money or someone else’s in the commercialization process! Seriously, inventions are made everyday; some are serendipitous, others by design, and, as said before, by necessity. But to be useful, they must have a reasonable return on investment for the enterprise. One philosophy maintains that successful innovations are the ones having the smallest step from an existing embodiment. Product line extensions are a good example of this type of innovation. There are low barriers to implementing such an innovation and the returns can be substantial. Additional patent coverage is possible and further extends the product’s life cycle.

Innovations surrounding an entire field (e.g., biotechnology) or investigations into a new chemical entity require a very different approach. Open-ended investigations are the delight of all scientists but are the bane of any business manager. Harmoniously bringing the two parties together can be a tortuous but rewarding adventure. Sometimes the sheer mass of technical data overwhelms any possibility of identifying a promising innovation. Clear, focused research with tangible objectives bounded by business realities (time and money) often creates the most productive environment for responsible innovation. Invention for the sake of invention is not the goal. In contrast, without innovation, a company’s future is at serious risk.

The expense associated with filing and maintaining a patent is increasing, but innovations that create new product lines, protect existing products, define a technology, or simply provide a “picket-fence” around a technology platform are well worth the investment. Perhaps it is worth commenting here what the legal requirements are for obtaining a patent. An invention is eligible for patenting if it is novel, non-obvious and has utility. Further, the inventor is obligated to describe the invention in a manner that allows someone skilled in the art to practice the invention; in patent lingo, this is the enablement requirement. For biotechnology-related patent applications10-12, the utility or usefulness requirement, along with an enablement description, is receiving close scrutiny by the USPTO. These requirements will place an additional burden on the R&D function for acquiring patent protection and hence a greater expense (and time component) to the firm.

It is often easier to assess upfront the value of innovation in defined markets or market segments. And clearly, it’s always easier to edit than to create. However, this is an injustice to clever advancements or the “design around” of existing patents. Described in a recent series of articles printed in Chemical &Engineering News13, 14, the financial opportunity awaiting generic pharmaceuticals is a unique event in history. While appealing, simply providing a generic alternative may not satisfy many businesses’ plans and may not offer the level of financial returns desired. Further, the prospect of patent coverage is, by definition, a non-issue. However the discovery and use of new delivery mechanisms, or improved bioavailability through formulation or API modification (e.g., a different polymorph) are possible routes to obtaining intellectual property protection. Patents in these areas can be the technical basis to very sound and profitable businesses if the market potential is sufficient to justify the investment. Also, individually or combinations of delivery devices, engineered excipients, preferred API salts, active metabolites of approved APIs, and unexpected results from API mixtures, all possess characteristics suitable for submitting patent applications. In such circumstances, an entire patent “family” should be outlined and a strategy devised for protecting the subsequent revenue stream. An added benefit to this approach is the friendlier regulatory environment for gaining FDA approval, (e.g., ANDA or 505(b)2 submissions15). On the marketing side of the equation, this approach provides a firm with branded products for which a customer preference (and hence market share) advantage can be obtained.

Returning to the two questions posed in my introduction, innovation supporting a business objective should be evaluated carefully and a patent filing strategy clearly defined. One should avoid a situation where one’s own patents or public disclosures are cited as prior art against a submitted patent application. It may be advantageous to submit several patent applications simultaneously whereby each application may contain a full technology description (known as the patent specification) but each submission contain a different set of claims. Many possibilities exist, but to answer the question of how soon: A) file early and often, B) remember a patent’s life is now 20 years (with exceptions), and C) on average, it takes about 18 months to complete any office actions required by the USPTO and for the patent to be granted. For companies founded upon technology, there is no replacement for good patent counsel. The second question—how soon can the innovation be implemented—may depend upon the business strategy which is discussed in the next section.

Strategy
Any business strategy is likely based upon a SWOT analysis—Strengths, Weaknesses, Opportunities and Threats. For the entrepreneurial firm with an idea or actually possessing technology reduced to practice, confidentiality is paramount. It is essential any discussions or disclosures outside the firm be conducted under a confidentiality or non-disclosure agreement. In context of this discussion, the reason is to protect the firm from the on-sale bar16, 17 relating to the firm receiving patent protection for its technology. If a firm offers its invention for sale, a one-year deadline is set for filing the patent application. Further, filings in other parts of the world may be jeopardized since they often rely on absolute novelty18 (i.e. non-disclosure). The firm can retain flexibility by assuring good non-disclosure agreements are in-place before any discussions commence. Sometimes the scientific group, flushed with the excitement of a breakthrough, presents talks, papers or even press releases that can initiate the on-sale bar. Be careful!

Obviously, management is continually balancing risk and reward. The firm may have allowable patent applications, but how broad are they? Do they cover all we want to do commercially? Are they dominated by previous issuances assigned to others? What is the probability of infringement (back to the Orange Book!)? The value of intellectual property is the ability to gain market share and some companies even set goals like: “We want 50% of our sales coming from patented products.” Admirable.

With the patent strategy established and confidentiality instruments executed (where needed), the integration of the technical assets with the marketing plan is well grounded. Many scenarios may arise for generating revenues and range from a total in-house implementation, to licensing, partnering, or even totally outsourcing the development and marketing functions. With many smaller, entrepreneurial firms, one tendency is to advance the product through Phase II or III19 with hopes of attracting a large pharma buyer for the technology package. The package may contain substantial New Drug Application components or a Drug Master File, issued patents, etc.—all excellent markers that risk has been reduced and the probability of commercial success higher.

Closing the Gap: Parallel Paths
As every chief financial officer knows, every day of delay or extended absence in the market can have devastating consequences. In managing the development of new technology to a commercial embodiment, significant attention has to be placed on securing “beachheads” as demonstrated by tangible indicators. Often, the advance becomes bogged down by “analysis paralysis,” a desire to remain infinitely flexible, fear of the unknown, or just plain insufficient funding. Enlightened entrepreneurial management knows that a focus on the end game pays big dividends. For instance, the time component cannot be underrated and a firm waiting to build a manufacturing facility is already behind in the market. Technology is not static; it has a life cycle just like the products that arise from it. Therefore, time is the firm’s worst enemy in obtaining a return on R&D investment. A parallel path for many of the development activities is the only rational approach to shorten the time to market.

To elaborate on this point, most firms know the steps required to develop a drug product from the bench, through regulatory approval, distribution and marketing. They may be an “expert” in one area and rely on outsourcing to gain additional leverage. Let’s face it: there are many twists and turns, but all development projects essentially have the same components that need to be executed well.

For purposes of discussion here: given that the technology is protected, how fast can the product be launched? One answer is to engage in as many parallel paths of the project’s development as possible. With smaller firms that possess limited resources, caution is usually the operative word. For them, the clock is ticking and they will lose on the time-value-of money analysis. In these cases, meeting the decision criteria to pull out the stops is often approached tangentially—no one really wants to deliver bad news, and the human desire to maintain the status quo dominates. Good management recognizes this tendency, steps in and orchestrates pathways to the hard decisions. If a project or technology is going to fail, it’s better to kill it quickly than to allow for a long, drawn-out, slow death. On the positive side, if the project holds promise, establish clear and decisive checkpoints, then enable the organization to move forward rapidly.

Once the decision is made to initiate parallel paths, the cash burn rate may fit the chief financial officer for a straitjacket. However, the talented managers are reassured in their financial analysis, which accounts for the outgo of cash and the associated cost of capital. Time and again, the payback on the back end is usually superb, and he who hesitates is lost.

Two questions were posed for discussion concerning the time components to protecting and implementing new technologies. Clearly, there is no single answer. However, several recommendations can be offered to help close the gap between the innovative activities and commercial revenues. The first is: file early and often. Establishing intellectual property ownership through the patent process adds value to the enterprise. The patents represent tangible markers in securing the advance along the development pathway. Next, perform the key experiments to determine if the innovation has commercial potential; it’s better to kill the project quickly than to linger in ambiguity. If the technology remains promising, initiate parallel paths of development—take the linearity out of the development process to reduce the time to market. Outsource the activities that are not core to the firm and focus the firm’s infrastructure on what it does best. The payback to the company’s financial well-being will be well worth the challenge.

References

1. “Drug Delivery: Oral Delivery of Macromolecules and Continued Movement Shape the Drug Delivery Industry,” Sarah W. Madley, Contract Pharma, April/May 2002, p. 36.

2. “Developing Custom Adhesive Systems for Transdermal Drug Delivery Products,” Melinda S. Hopp, Pharmaceutical Technology, March 2002, p. 30.

3. “Special Delivery: Alternative Methods for Delivering Drugs Improve Performance, Convenience and Patient Compliance,” Celia M. Henry, Chemical and Engineering News, September 18, 2000, p. 49.

4. “Protecting Genomic and Proteomic Inventions,” Alpha Dlubac Indraccolo, Current Drug Discovery, August 2002, p. 30.

5. “FTC and DOJ Examine Intersection Between IP and Antitrust Laws,” W. Scott Petty, Intellectual Property Today, June 2002, p. 23.

6. “API Manufacturing: How Will Changes in India and China Affect the Outsourcing of APIs?” George Karris, Contract Pharma, September 2002, p. 32.

7. “API Producers Face Tougher Asian Opponents,” Sean Milmo, Chemical Market Reporter, May 1, 2000, p.6.

8. “China’s Thriving Trade in Fake Drugs Killing Thousands Every Year,” Martin Fackler (Assoc. Press), Asheville Citizens Times, July 29, 2002.

9. “Letter from India: Where Chemical Producers Have Been Accused of Paying Little Attention to Environmental Concerns,” Jean-Francois Tremblay, Chemical and Engineering News, May 15, 2000, p. 27.

10. “Enabling Your Biotech Disclosure for a United States Patent Application,” Debra Z. Anderson, Intellectual Property Today, April 2002, p. 18.

11. “Biotechnology Patent Holders Beware,” Edward R. Ergenzinger, Jr. and W. Murray Spruill, BioPharm, June 2002, p. 58.

12. “The Written Description Requirement for Biotechnology Invention in the Federal Circuit,” Irving N. Feit, Intellectual Property Today, July 2002, p. 16.

13. “Generic Drugs,” Michael McCoy, Chemical and Engineering News, April 1, 2002, p.23.

14. “Generic Tide is Rising,” A. Maureen Rouhi, Chemical and Engineering News, September 23, 2002, p. 37.

15. “Attorney Review: Use of the 505(b)(2) Mechanism for FDA Approval of a New Drug Formulation,” Natasha Leskovsek, Drug Delivery Technology, January/February 2002, Vol.2, No. 1, p. 30.

16. “2001 An On-Sale Odyssey: Recent Changes to the On-Sale Bar to Patentability,” J. Randall Beckers and David E. Weslow, Intellectual Property Today, January 2002, p. 32.

17. “Sale of Your Product Can Prevent Patenting: How to Avoid the On-Sale Bar,” Tom Brody, BioPharm, February 2002, p. 38.

18. “Pursuing Overseas Patents: Avoid Missing the Boat With Respect to Absolute Novelty and Expenses,” James E. Ruland, Modern Drug Discovery, October 2002, p. 41.

19. “Clinical Trials 101: Monitoring Drug Development Between Laboratory and Pharmacy,” Mark S. Lesney, Modern Drug Discovery, May 2000, p. 31.