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Originally Published May 2000

Technology Roundtable:
Intellectual properties in the molecular age

Is gene patenting a threat to the commercial development of molecular diagnostics? To find out, IVD Technology turns to a panel of experts in the field.

Last March, biotech companies were sent scrambling to explain the meaning of a joint announcement by the U.S. and UK governments calling for free and unencumbered access to all data on the human genome. More appeal than requirement, the joint announcement confounded investors, triggering a sell-off of biotech shares and sending the biotech-heavy Nasdaq composite into a short-lived 200-point dive.

Biotech companies were quick to respond. Hyseq (Sunnyvale, CA), an innnovator in DNA-chip technologies, sought to sooth investor jitters with assurance that the announcement "will not have a significant impact on its business." In a press release from the company, Hyseq president and CEO Lewis S. Gruber noted that "the more information that becomes freely available, the easier our task becomes, since we can use that information to enhance our knowledge of gene-based products that form the basis of our core business."

In a similar release, Aptagen (Herndon, VA) reminded "the biotechnology industry and its analysts that President Clinton and Prime Minister Blair were only referring to the raw genomic data, not the resulting products, when they stated that the work of the Human Genome Project must be made available to the public." The company further recommended that "all genomic products be optimized before going to production, maximizing their chances at patent protection and superior profitability in spite of changes that may occur in genomic patent law."

Underlying these events—and influencing the timing of the joint announcement—was the collapse of talks between the internationally funded Human Genome Project (HGP) and Celera Genomics (Rockville, MD), a biotech subsidiary of PE Biosystems (Norwalk, CT) that has recently taken the lead in work to sequence the entire human genome. The talks had been aimed at getting Celera to pool its sequencing data with those of the HGP and, by implication, to end speculation that the company would try to lock up all of its discoveries in gene patents that could garner research-killing licensing fees.

For IVD manufacturers involved in the development of molecular technologies, the implications of these and other related events are far ranging. To find out more about the effects of gene patenting on manufacturers and their customers, IVD Technology convened a panel of experts for a special roundtable discussion of the topic (see sidebar, below). Excerpts from this telephone conversation, which took place at the end of March, are published below.

A Broken System?

IVDT: Are the current systems for patents and trademarks in the United States and abroad appropriate for handling intellectual properties in the realm of genetics?

Peter R. Shearer: I think the U.S. system will be adequate to address these issues, but it may take some time. In the United States, we issue a single patent for the entire country and we have a single appellate court—the Court of Appeals for the Federal Circuit [CAFC]. This court is the equivalent of the Supreme Court for patents: it sets down all the standards for what is patentable and what the appropriate scope of patents should be, and the Patent and Trademark Office is bound by its decisions.

Ultimately a lot of the issues that we're hearing about now, particularly with regard to human genome research, will find their way up to the CAFC. And the CAFC will establish some fairly uniform standards.

In Europe, the situation is a little different because what companies get, really, is not one patent but a bundle of national patents that have to be enforced and interpreted separately in each country. There's no single appellate court that harmonizes all of those interpretations, and companies can get different results in different countries. So in Europe there may be a longer period of uncertainty and there may be different results in different countries. Interpretations of the law and its applications in the genetic field may be somewhat more subject to political influence because there isn't a single reviewing court that dictates the rules.

Daniel H. Farkas: Given the way that you've outlined it, how long do you think it might take the U.S. system to respond? I think that's one of the potential weaknesses with the system.

Shearer: I don't know the answer to that question, and I agree that is one of the problem areas. And not only does it take a long time to develop a set of uniform standards that people can rely upon, but it's very expensive. It's extremely expensive to do this through litigation.

Farkas: That's why I think there are problems with letting the current system handle these crucial matters. Is the current system appropriate? Obviously, certain companies that have been successful at patenting specific mutations would consider the system appropriate. But for the greater good of human healthcare and, specifically, diagnostic medicine, I don't think that the current system is appropriate.

That's not to say that there's an easy fix. Patents are entirely legal and appropriate according to our Constitution. But advances in technology beyond what the Founding Fathers could possibly have conceived of are forcing us to consider some balance, I think, between two difficult positions.

Debra G. B. Leonard: I think the current system for patenting genetic information is not functioning for the public good. What patent holders are doing is perfectly legal, but it's quite unethical to be restraining access to medical testing because a particular gene sequence and the mutations related to a disease are patented. And that is exactly what certain patent holders are doing.

Enforcing Patents

IVDT: In the case of molecular diagnostics, is there an important distinction to be made between the terms testing—meaning the procedure of conducting a medical examination—and test—meaning a commercial product that one would use to carry out testing?

Leonard: Yes. I do distinguish between in-house–developed tests and test performance as opposed to commercial development and production of diagnostic test kits that can then be sold to the clinical laboratorians who do the genetic testing.

I don't mind patents being enforced for commercial development of genetic patents. But when I develop and validate a genetic test in my laboratory, usually it's because there is not a commercial diagnostic test kit available for that testing.

Most genetic testing, at this point, does not have the volume to warrant commercial development of diagnostic test kits. And yet we're being prevented from providing services for specific genetic diseases because of gene patents.

Shearer: My experience has always been that it is not in the interest of a commercial company to enforce patents against people who are their potential customers. Are you actually being approached by companies saying you can't do this?

Leonard: I have a stack of cease and desist letters or various other versions of patent enforcement letters. And, yes, I have been stopped from performing apolipoprotein E genotyping for Alzheimer's disease and Charcot-Marie-Tooth Type 1a testing. I have letters relating to spinocerebellar ataxia and hereditary hemochromatosis. I've been unable to negotiate a reasonable license for Canavan testing, so I've had to stop performing that testing. So yes, I am being prevented from doing testing that I was once offering.

IVDT: How active are IVD companies in this kind of enforcement?

Leonard: As Pete suggests, it would be surprising if a company developing a commercial test kit would enforce its patent against clinicians who might eventually buy and use that kit. However, that is not the current scenario.

In the past, most genetic discoveries have been made by investigators at academic institutions or at the National Institutes of Health—but not by those in companies. Often, the researchers who made the discovery have then become inundated with requests for diagnostic testing that have prevented them from moving their research forward. So, for ease of administration, academic institutions exclusively license the gene patent to a reference laboratory that can provide the genetic testing service.

It's the reference laboratory that obtains the exclusive license that wants to capture all the business. Athena Diagnostics (Worcester, MA) has done this for several neurological diseases, and Myriad (Salt Lake City) has done this with BRCA1 (although Myriad holds the BRCA1 patent). So it's not the companies that are developing diagnostic test kits that are shutting down physicians and clinical laboratorians from doing testing; rather, it's the commercial reference laboratories that see diagnostic testing services as a business. If they can be the sole provider of a testing service, it is financially advantageous to them.

Investment Support

IVDT: Is the current patent environment preventing companies from getting the investment funding necessary to move molecular diagnostics into the marketplace?

Shearer: In my experience, investors get excited about technologies and products first. That is what attracts investment. However, investors are very much aware of the importance of intellectual property. Once they are interested in the technology or the product, they will then look at the intellectual property situation to determine whether there are any obvious hurdles or roadblocks.

When it is another company that is investing, if there are potential patent roadblocks, they will very often invest with all sorts of caveats. They will do corporate partnering deals, for example, but will build provisions into those agreements which may reduce the amount of money that the developing company receives if there are serious patent problems down the road.

Farkas: I tend to agree. Issues relating to royalties and expenses associated with bringing a test to market will get worked out because if there's a market, rationality and capitalism will prevail.

In the context of this conversation, however, I worry that the fees associated with intellectual property and licensing might further exacerbate the high costs of those systems.

IVDT: Is this a situation that is likely to lead to further consolidation in the industry? Will large companies without a significant presence in molecular technologies seek to become major players by acquiring companies with intellectual properties in the field?

Farkas: It may happen simply because Wall Street says it's going to happen. The prices of most biotech companies have swung wildly in the first quarter of this year. The marketplace may provide the answer to that question.

IVDT: Does the potential—or threat—of being acquired make the system better or worse for start-up companies?

Farkas: Certainly, acquisition is an exit strategy for new companies and I'm sure that there will be consolidation within this field. There are just too many companies offering too many different kinds of technologies.

On the other hand, the diagnostics industry is something of a dinosaur, in that it is dominated by closed platforms. A laboratory might have systems for three or four different in vitro nucleic acid amplification technologies. Wouldn't it make a lot more sense to have the kind of open-architecture system that allows software writers to write software for Intel-powered, Windows-running PCs?

Leonard: Eventually, high-density arrays with the potential of a complete screen of expressed genes will be used by researchers to discover which genes are important for a particular system. The particular system could be a specific disease or a therapeutic response to a toxic effect.

The selected set of predictive genes will then be placed on a diagnostic array and used in the clinical diagnostic laboratory. These selected gene sets will likely contain 5 to 20 genes, which will simplify testing and lower costs compared to using high-density array technology as a diagnostic tool.

Product Development

IVDT: In addition to the economic hurdles, are there still significant technological challenges to the working out of some kind of array-based system?

Farkas: In short, yes. There are very few systems that are ready to be placed in the clinical laboratory from the point of view of technology, content, price, and practicality. No physician wants to know 100 or 200 or 1000 pieces of information about a particular specimen. They're interested in a small handful of pieces of data, for example a range of 2 to 20 genetic tests.

Leonard: The inability to test for one gene because of patent issues can also take away a lab's ability to do other genetic tests. An example is spinocerebellar ataxia, which can be caused by about five or six different genetic loci that we currently test for. Each gene can cause the same disease with a similar clinical phenotype. Athena Diagnostics has the exclusive license for a patent on one of these genes, which basically means that it has captured the market for all testing. Clinicians will not send testing to a lab that can't test for all of the relevant loci, so Athena gets everything and other clinical laboratories lose out—even though there's technically only one gene that's tied up.

As an example of cost, the only gene patent that I'm aware of where there is a defined cost per test is Canavan disease. Miami's Children's Hospital, as patent holder, charges a royalty of $12.50 per test. So imagine there are 10 genes for a multigenic disease test and each gene has a royalty of $12.50. Before a test kit is even designed, the product costs $125. So one of the problems with the current system is the potential to significantly raise healthcare costs.

Shearer: It is very difficult to determine now what effect such patents may have in the future. Because so many of these patents are still pending, patent concerns may be having a stimulatory effect now because everybody wants to be there first and stake out their IP claim. But when these patents start issuing, the question will be whether they will have some inhibitory effect in the future. That's going to depend a lot on how the courts interpret these claims and the scope of the claims. And I think that is something that we have yet to see.

IVDT: Does the current patent situation inhibit the creation of open-platform, automated systems for molecular diagnostics?

Farkas: I don't think it's the patent system that is inhibitory to the creation of open platforms. I think it's the sort of siege mentality of the diagnostics industry that just causes closed platforms to proliferate. The siege mentality is also associated with the low margins that are available in every facet of this industry with the possible exception of molecular diagnostics. It's not like the pharmaceutical industry. I don't know that IP and the patent issue over genes has much to do with that notion.

IVDT: From the clinician's point of view are those sorts of platforms desirable, or are they unsupportable because the volume of testing is so low?

Leonard: I hope that higher-volume molecular diagnostic testing will eventually be performed on instrumentation similar to current clinical chemistry analyzers and hematology instruments—closed, black-box systems. The field has to move in that direction, and the company that is the first to create and market such a system for molecular testing will be welcomed by the molecular diagnostics community—as long as the system works. Designing and producing such a black-box system will be a complex task, but I think it will happen.

Shearer: The types of products you're discussing may require so many different patents that it becomes a problem to get all the necessary rights. One possible model for resolving that problem is the electronics industry—and particularly the Japanese electronics industry. In that field, a product that is commercially viable and technologically up-to-date may require access not just to one or two patents but to many different patents. And this has fostered a system where patents are used not so much to gain market exclusivity but as tickets to be punched to get into the business. In other words, there is a great deal of cross-licensing which is necessary in order to develop products that are commercially viable.

Patentable, or Not?

Leonard: The real question is whether genes should be patentable. I think the Patent and Trademark Office made a mistake when they allowed the first patent on a genetic sequence. Genes are products of nature that should not be patentable.

Shearer: I have to take issue somewhat with that. Products of nature have never been considered patentable. What is considered patentable is an isolated chemical entity that does not exist as such in nature, or practical methods of using those chemical entities. So under the patent system as it exists, as it is set forth in the statutes, the issue is whether this is a statutorily patentable subject matter. And I think the answer is yes, depending on what you're talking about.

But beyond that, what you're really talking about is a policy issue as to whether or not we want to change the patent laws. And before we do that, I think we have to think very seriously about what effect that will have on the incentive to do commercial research.

One immediate effect would be to discourage the publication of information—which in itself inhibits research, even academic research. The U.S. patent system is set up such that the inventor of a statutorily patentable subject matter (that is, compositions of matter or methods of doing things) is offered a quid pro quo. If the inventor makes a full disclosure of the invention—what it is, how to make it, and how to use it—then he is granted a limited monopoly.

But if that incentive of a limited monopoly is not there, then people are going to keep the results of their research as much as possible as trade secrets. And that will have an inhibitory effect on research as a whole.

Leonard: I disagree. I think that physicians and researchers have an ethical obligation to publish scientific information. If companies are going to discover the relationship between gene mutations or polymorphisms and disease, they will need access to patients. So they still have to have access through physicians at academic medical centers and elsewhere to the patients and patient specimens necessary for those discoveries. And that access carries with it the ethical obligation to publish the information, just as a physician or academic researcher would do.

Shearer: I certainly wouldn't take issue with what you're saying about ethical responsibilities. But from an investment point of view, I have to wonder what the effect will be on investment in commercial research.

I agree with you that research will not come to a halt. If we did away with the patent system tomorrow, research would go on. But it would go on, I think, in a very different way. The fuel of commercial interest drives a lot of creative fire—and the government can't do everything.

Leonard: I agree that companies are pushing the limits of the rate of genetic discovery and doing it much faster than publicly funded researchers. I'm not sure, though, that the end result will be in the public good if this information is tied up and not easily accessible to academic investigators and others who want to develop the information medically and commercially. And we have not even considered what gene patents may do in pharmaceutical development.

Future Steps

IVDT: What steps would you recommend to resolve the issues we've discussed? For instance, is there a need for researchers and others in the field to lobby for congressional action to change the law and if so, how?

Leonard: Absolutely. There's a working group of representatives from different professional organizations that is drafting a position statement to be delivered to legislators along with scientific and lay-press articles on gene patenting [see sidebar, below]. The goal is to have a bill introduced that will protect the use of patented genetic information for diagnostic testing performed in our own laboratories.

The working group feels that what clinicians do in the laboratory to develop, validate, and perform genetic tests is very much like a medical procedure. We do not feel this is true when we use a commercial test kit. If enforcement of patents needs to remain for the use of diagnostic test kits, so be it. But preventing physicians from performing their medical practice—and this is my medical practice—is not in the public interest. A bill needs to be introduced and enacted into law—that will likewise protect clinical laboratorians from obstruction of their medical practice.

IVDT: If you provide an exemption for clinicians to conduct testing, however limited that testing may be, does that then provide a disincentive for industry to develop further products? And is that a desirable outcome?

Leonard: It may. If the cost of gene patents makes the price of commercially developed test kits so high that I can do a test less expensively using an in-house–developed assay, then I will continue doing the test with my in-house—developed assay.

However, when automated systems become available that can perform many different kinds of testing, I think they will overtake any in-house—developed assays that I could do. Such a system will save tremendously on technologists' time, which is one of the more expensive components of in-house developed testing.

IVDT: In the lobbying effort that you described, where is industry's voice? Is there a role for manufacturers specifically to get involved in this process? And where would you see industry's view coming from?

Leonard: Among the representatives on the working group, the members from AACC and Roche represent industry. However, most of the members are from professional organizations that are concerned about maintaining the medical benefits of patented genetic information.

Industry has to form its own position about what should be done with the current patent system to prevent some of the problems that companies are encountering. Does industry want changes in the gene patent system or not? Are companies willing to deal with all the cross-licensing or royalty stacking issues and other consequences of the current patent system?

Shearer: I have some faith in the forces of the marketplace. We can't sell products if they are too expensive. And if we can't sell them, then the people who possess the patent rights can't make any money.

From an industry perspective, the most critical thing is that patents be awarded to a proper scope of invention. One of the problems we sometimes see is that patents get awarded too broadly—that the claims of the patents are broader than what someone has actually invented.

Our concern, I think, is more that patents are awarded for valid inventions and that the scope of the claims is not overly broad. It's up to the patent office and the courts to ensure that that happens, and I think it's going to take some time before the CAFC sets down uniform rules as to what is patentable and what's the appropriate scope of patents. I'd like to see it happen sooner rather than later.

Final Answers?

IVDT: Conversations such as this one seem destined to go on in a lot of circles for a long time. What final thoughts do you have at this point?

Shearer: I think the current patent system should be given an opportunity to work. Let's find out what kind of patents are actually going to be awarded and upheld in the courts and how industry is going to approach the licensing of these patents, and then see if the marketplace does not, in fact, produce the best result for everyone. That has yet to be seen.

Leonard: I think the current system is already having a significantly negative impact on clinical diagnostics. Fighting it out in the courts will not work for academic medical centers where most of these laboratories are located because academic medical centers are generally struggling economically and are not willing to take on the costs of setting a precedent in the courts. In addition, there's nothing to take to the courts since what is being done is legal under the current patent laws.

So I think what is needed is a change in the laws in order to protect medical practice and the translation of genetic information into clinical tests. Such a law should allow clinical laboratorians to continue their medical practices by allowing them to develop tests, translating genetic information into diagnostic tests that can be used by patients.

Farkas: I think the legislative and judicial branches of our government need to look at this issue today. I'm very uncomfortable with the notion of letting the marketplace and the current system work out these problems, because I just see that process as taking many years, while this is a problem that is manifesting itself today in diagnostic medicine and in the IVD industry. Maybe compromises can be reached, but I do think that changes need to occur. We need to investigate ways to implement changes now.