There are two threats to using securitization to solve one of the primary problems in the bio-pharmaceutical field--funding research and development of new pharmaceuticals in the United States. Securitization may include using intellectual property for collateral for financing, or pooling intellectual property assets and issuing securities based on those assets. The first is the threat to bio-pharmaceutical patents through Inter Partes Review proceedings (IPRs) at the United States Patent and Trademark Office. The second is the potential for increased price regulation on pharmaceuticals in the United States.
The development of pharmaceuticals is hugely expensive. A recent study published by the Tufts Center for the Study of Drug Development estimates that the costs of developing a new pharmaceutical is approaching $3 billion. One way to raise capital for future research--including paying for translational research and clinical trials--is through the securitization of the intellectual property (or royalties) of a firm or university. This method for royalties has achieved some success by DRI Capital and Royalty Pharma (One problem with royalty securitization is that it encourages "evergreening" or "life cycle management," depending on your perspective, as discussed in an excellent article by Grace Sweeney, here).
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However, there are at least two issues which threaten the use of securitization of bio-pharmaceutical intellectual property to raise investment funds:
The first issue concerns the use of the America Invents Act Inter Partes Review proceedings (IPRs) against biotechnology and pharmaceutical patents. IPRs are proceedings before the Patent Trial and Appeal Board (PTAB) used to challenge issued patents, for example for obviousness. Notably, IPRs were likely not expected to be used substantially against biotechnology and pharmaceutical patents. Indeed, the biotechnology and pharmaceutical industries have attempted to pass exemptions for those patents from review by IPRs (Notably, IPRs can be used to challenge so-called evergreening.). IPRs were likely expected to primarily confront software patents.
Importantly, the PTAB standard used to review patents in IPRs is different from the standard used by District Courts and may result in more patents invalidated. The PTAB standard is the "broadest reasonable interpretation" of the claims, whereas the District Courts use a plain ordinary meaning standard. In Couzzo Speed Technologies v. Lee, the U.S. Supreme Court will determine which standard the PTAB should apply. Either the Supreme Court will decide that the PTAB should apply the same standard as the District Courts, the "plain ordinary meaning standard," or the Supreme Court will require application of the "broadest reasonable interpretation" standard.
Professor Ronald Mann recently reviewed the oral arguments before the Supreme Court, here. To provide some perspective as to the controversy concerning Congress' intent in creating IPRs, Professor Mann quotes Associate Justice Stephen Breyer:
"You could look at this new law as trying to build a little court proceeding. If I thought it was just doing that, I would say you were right [that the PTAB standard should be the same as the district court's standard]. But there is another way to look at it. And the other way to look at it ... is that there are these ... patent trolls, and that the Patent Office has been issuing billions of patents that shouldn't have been issued; I overstate, but only some. And what happens is some person in business gets this piece of paper and looks at it and says, 'Oh my God, I can't go ahead with my invention."
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Both of these issues undermine the potential use of widespread securitization of bio-pharmaceutical intellectual property to provide funding for further research and development. In the United States, we are coming to a critical policy choice soon concerning whether to continue to further regulate the price of pharmaceuticals or continue to allow bio-pharmaceutical companies to control pricing for the most part. The result of the upcoming presidential election may set the stage for substantial changes to the bio-pharmaceutical industry.