British firm stokes innovation by polishing diamonds in the rough

August 28, 2002

BTG enhances intellectual property by developing novel ideasThe undercurrent and foundation of medical imaging is intellectual property (IP). It propels the development of products that won't take final form for a decade, while

BTG enhances intellectual property by developing novel ideas

The undercurrent and foundation of medical imaging is intellectual property (IP). It propels the development of products that won't take final form for a decade, while protecting investments by companies in current and near-term offerings.

No company knows the ins and outs of IP better than BTG. The London-based firm, founded in 1949, struck IP gold in the 1980s with a portfolio containing several fundamental patents pertaining to MRI. Licensing this package of key patents to all MRI manufacturers helped lay the groundwork for the commercialization of this modality and the global growth of BTG. In the fiscal year ending March 31, 2002, the publicly traded company earned total revenues of $48.5 million.

But BTG, like intellectual property, is at a crossroads. Initially, the company focused on British universities. It has since begun courting academic institutions around the world, including independent research labs, and more recently has turned its attention to small- and medium-sized companies.

Harvesting ideas from small companies is appealing because the available ideas tend to be in later stages of development and, therefore, easier to license to major corporations, said James V. Roberts, BTG vice president and global director of technology acquisitions. Major universities, however, remain BTG's preferred source of new ideas.

"If you can capture intellectual property at an early stage from academic centers, you can add even more value, and you can carve out a more fundamental and enabling position from which to go forward," he said. "It just takes a lot longer to develop."

It's also getting harder to capture those ideas. Major corporations are partnering with universities, which themselves are accelerating efforts to transfer technologies to spin-off corporations. Also, major companies have begun working directly with each other. Siemens, for example, is allied with Philips in the codevelopment of certain CT technologies, with Toshiba in ultrasound, and Hologic in digital mammography. Behind the scenes, cross licensing of patents has become routine. Through such arrangements, companies avoid lengthy and potentially debilitating court battles. But technology sharing has also narrowed the differences among products.

Mergers and acquisitions have also had an effect. The industry has gone through a major consolidation period. High-profile moves include Siemens' acquisition of Shared Medical Services and Acuson, Philips' acquisition of Agilent's ultrasound assets, and GE's purchase of Diasonics. Smaller companies have also been snared, most notably by GE, to fill product niches. This consolidation has increased the value of BTG, according to Joseph B. Chera, BTG vice president of technology acquisition.

"Because we don't make products, we're not competitive with these companies," he said. "We can license technologies to several firms or we can serve as an agent acting anonymously on behalf of a large company that wants to license a technology to others."

M&A mania and cross-licensing have helped homogenize products. Medison, Philips, and GE, for example, all now sell ultrasound scanners based on the same core 4D technology. The technology, developed by Kretztechnik, has come to these companies through licensing or corporate acquisition.

The imaging industry remains highly competitive, but marketing is playing an increasingly important role compared with technology development in giving companies an edge. A few years ago, marketing campaigns were built around product performance. Now more and more they are built around claims peppered with language designed to generate an emotional response.

"Companies have diluted the words 'new,' 'revolutionary,' and 'breakthrough,'" Chera said.

These recent developments have forged a double-edged sword for BTG. Arguably, the increasing emphasis on marketing has reduced the importance of new IP because cross-licensing reduces the impact of IP as a means to differentiate products. New intellectual property, however, improves the bargaining power of companies that might want to sell one license for another, or trade a license for access to the distribution channels or marketing muscle of another company.

"It's still a great opportunity for BTG, if we can bring something that really does differentiate a product," Chera said.

BTG generates revenue mostly through licenses awarded to corporations. These agreements typically call for down payments at the time licenses are signed, milestone payments for progress made toward the development of commercial technologies, and royalties on marketed products. Revenues are shared with the owners of the patents.

Gaining the rights to these patents, however, has become increasingly difficult, as companies have more aggressively sought licenses through means other than a third-party agent. This has led BTG to refine its approach to the market. Rather than being just a broker of intellectual property, it now is a broker of risk.

After acquiring rights to a patent, BTG protects the idea by ensuring that the legal paperwork necessary to protect its standing, not just in the U.S. but around the world, is done. The company further invests in the idea, developing consequent technology and carrying it in some cases to the prototype stage or beyond.

"In the early days of MR, when companies needed licenses or they couldn't legally produce an MR image, all you had to do was wave a patent under a company's nose and they would jump for it. Those days are gone," said Ruth Sutherland, manager of BTG's medical technology sector. "Today you need some proof of concept. You need a working prototype or a clinical champion to get companies interested. It has become a much harder job to do."

BTG licensing efforts cover the U.S. as well as other parts of the world. Its global reach and its willingness to invest in the development of ideas makes BTG appealing to universities and small companies that have neither the funds nor the resources to do so on their own, according to Anthony V. Lando, executive vice president and COO for BTG's North American operations.

"We globalize patents by building strategic umbrellas in the U.S. and other parts of the world," he said.

In the last fiscal year, BTG acquired 58 new technologies, boosting its technology portfolio to more than 300. These are protected by some 5000 patents and patent applications. The company has issued about 290 licenses and made equity investments in 15 companies charged with the development of these ideas.

One idea with extraordinary potential involves technology well outside the medical imaging realm: a varicose vein treatment called Varisolve, which is being taken through clinical trails by BTG's wholly owned subsidiary, Provensis. The company is no stranger to therapy, having ushered a treatment for chronic lymphocytic leukemia from licensing to commercialization as an FDA-approved drug.

BTG has other major portfolios, many outside medicine, including photonics, semiconductors, nanotechnology, and wireless communications. Typically, these areas advance rapidly and, consequently, might provide opportunities in medical technology, Roberts said. Similarly, BTG is prepared to help major vendors realize opportunities for IP they already hold outside of medical imaging. The firm has been authorized to shop some of medical imaging's "crown jewels" outside the core businesses of two major vendors.

"We're looking at noninvasive testing and different areas of communications," Roberts said.

Meanwhile, BTG has IP efforts under way in MRI, ultrasound, nuclear medicine, and x-ray-based imaging, as well as in medical informatics including PACS and the electronic medical record. Intellectual property of the greatest value to BTG involves ideas in their earliest stage of development. Through these fundamentally novel ideas, the company gains its greatest leverage. But to find them, BTG executives must look at how medicine will be practiced in the future, not as it is practiced today. Sutherland notes that the imaging industry has already begun to shift toward disease management.

"The ability to look at disease at a molecular level and see what is causing cells to go haywire has huge potential for reducing future healthcare costs," she said. "And certainly the cost of healthcare is one of the biggest problems the developed world faces."

Molecular imaging is one of the key technology areas now on BTG's radar. MR as well as nuclear medicine, particularly PET, are major considerations.

"We are spending a lot of time learning about the requirements for these products and who the players will be," she said. "What might become commercializable products in 10 years' time is being thought about now."