By: Lila Feisee
BIO's Director for Federal Government Relations and Intellectual Property
Consider this: We all know that Alexander Fleming discovered penicillin. Some of us know he did it in 1928. But how many people can tell you who Andrew J. Moyer is — and why penicillin didn't become commonly available until 1941?
Indiana-born Andrew J. Moyer was a microbiologist with the U.S. Department of Agriculture in Peoria, Ill. At the start of World War II, recognition that penicillin could treat wounded soldiers led to international cooperation in looking for a way to mass-produce the drug. In the United States, Moyer was handed the assignment. And he produced. He found that by culturing the Penicillium mold in a culture broth of corn steep liquor and lactose, penicillin yields rose dramatically. He also discovered that in this medium, continuous shaking further improved yields and the production rate. Andrew J. Moyer holds patent numbers 2,442,141 and 2,443,989. We'll come back to this story.
Who should own biotech inventions? The question is vital to the industry — the answers have spurred the growth of biotechnology and will determine its future. In answering this question, we'll focus today on two issues: the law covering patents and the function of technology transfer — specifically, how research paid for by the federal government is allowed to become commercialized.
Let's start from the legal beginning, with the Constitution. Article I, section 8, clause 8, gives the federal government the mandate "to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive right to their respective Writings and Discoveries."
A little later, the Patent Act of 1952 specified, among other criteria, that a composition of matter, or an improvement on the composition of matter, a process of making and a process of using the composition of matter make a discovery patentable. The law forbids products of nature, laws of nature and mathematical algorithms from being patented. However, nothing in the patent act precludes a patent from being issued on an extraction from nature when it has been formed into a useful composition of matter.
Patents and the Courts
The courts have upheld this. In 1979 the Court of Customs and Patent appeals ruled in In re Bergy, that a biologically pure bacterial culture was patentable and not a "product of nature," since the culture did not exist in nature in its pure form and could be produced only in a laboratory under carefully controlled conditions.
Then in 1980 the Supreme Court in Diamond v. Chakrobarty found that genetically engineered bacteria useful for cleaning up oil spills were patentable. In writing for the majority, Chief Justice Burger cited the congressional report accompanying the 1952 Patent Act that Congress intended statutory subject matter to include anything under the sun that is made by man.
The law is clear on who should own biotech inventions.
Interestingly, before 1980, only a handful of biotech companies, including Genentech and Cetus/Chiron, were around. After Diamond v. Chakrobarty, the biotech industry grew phenomenally. Coincidence? Probably not.
Government Sponsored Research
Another factor that spurred growth was legislation passed in 1980 reforming U.S. patent policy related to government-sponsored research.
A little background on this issue —
Since World War II, the U.S. government has made significant contributions to the world's science and technology base, both by supporting basic scientific research and by pursuing science and technology missions within federal agencies.
Two major beneficiaries of this federal spending have been universities and U.S.-based corporations. The universities benefited because the government was willing to underwrite basic research that may not lead to the creation of new and profitable products or services in the near term. The corporations benefited from the products and services they could develop for the government itself as well as from the "spin-off" process, whereby the results of government-sponsored research were used to develop products and services for the private sector.
Despite the perceived success of federal efforts to support R&D, by the late 1970s there was a growing dissatisfaction with federal policies on patenting the scientific knowledge resulting from the research. Many government officials, for example, believed that federal laboratories were keeping information away from those who could make use of it. There was also a concern that because the government had retained title to inventions, no one was bothering to advance the research. There was no incentive to do so. Further, with the maze of bureaucracy caused by lack of a uniform policy, made companies reluctant to deal with the government, even if they were interested in the research.
By the end of the 1970s, fewer than 5 percent of the 28,000 patents being held by federal agencies had been licensed. Almost all the research sat on the shelf, gathering dust, because no one had an incentive to do something with it.
In 1980, Congress addressed these concerns by enacting the Bayh-Dole Act (P.L. 96-517, Dec. 12, 1980). The act had two purposes: (1) to allow universities, not-for-profit corporations and small businesses to patent and commercialize their federally funded inventions and (2) to allow federal agencies to grant exclusive licenses for their technology to provide more incentive to businesses.
With the help of the Supreme Court decision of Diamond v. Chakrobarty and the Bayh-Dole Act, the biotech industry sky-rocketed. Today there are over 1,300 biotechnology companies in this country alone. These companies are developing effective new therapies and cures for myriad diseases, including our most intractable illnesses such as heart disease, all forms of cancer, Alzheimer's, Parkinson's, osteoporosis; almost every disease is under assault by biotechnology companies. Because of the rapid pace of this research, people born in the last decade of the 20th century have a good chance of seeing the dawn of the 22nd century — and be in good enough condition to enjoy it.
The U.S. biotech industry is the world's largest, by far, and most successful, employing more than 150,000 people; that's more than the toys and sporting goods industries. If you add in jobs generated indirectly by biotechnology, the industry was responsible for nearly a half million jobs last year and a total of nearly $50 billion in revenues.
As I indicated earlier the biotech industry is a little over two decades old and the genomics advances you hear so much about have occurred within the last 10 years. In that short time, the biotech industry has produced nearly 100 biotech drugs and vaccines that have helped more than 270 million people worldwide. Another 350 biotech medicines are in late-stage clinical trials.
It's a sunny day for biotechnology.
The situation will start to cloud over if anyone steps between biotech companies and the patents they can receive.
Because our industry is so research-intensive and because our companies rely on private investment to support that research, they and their investors on Wall Street are sensitive to public policy decisions made here in Washington. We saw evidence of this most recently with the joint statement by President Clinton and British Prime Minister Tony Blair on gene patents. A misinterpretation of that statement shook Wall Street's confidence in our companies. The dive in confidence was followed immediately by a dive in investment, which happily, we survived and recovered from.
The good news is that intellectual property, in this case gene patenting, is an issue where a little explanation can clear up a lot of questions. Patents are not granted on the raw DNA sequences of genes. A patent is awarded only if the applicant can describe a gene's role in human health or other commercial application. And a patent has no impact on academic researchers not engaged in commercial activity. Such researchers are free to work without getting a license.
But without patents, there would be no biotech industry and no innovative drug development. You should know that developing a drug is risky and challenging. On average, it takes hundreds of millions of dollars (specifically 500,000,000) and 10 or more years to develop a single drug or vaccine. And for every five drugs that enter clinical trials, only one is approved for patients.
Incentive to Discover
Patents enable companies to sell their new treatments and cures for a limited time free from competition. This gives them the opportunity to earn the money they need to stay in business, pay their employees and re-invest to develop more new drugs.
Indeed, we can argue that securing a patent spurs benefits to the public. Return with me to the case of penicillin, which is a perfect example of lost opportunity. Fleming discovered it, but didn't patent it. He had no idea what penicillin did. Because there was no patent, there was no incentive for any company to determine what penicillin did, and it lay undeveloped for many, many years. Eventually a company secured a patent on a method of manufacturing penicillin, and it was finally developed as a drug. It would have been perfectly appropriate to patent penicillin if a company could have isolated it, purified it, identified its structure, and determined its value to human health.
There are lots of compounds in nature that the biopharmaceutical industry has developed as drugs and biologics. Interferons, interleukins, and insulin are found in nature, but they are not found in a form that is usable as a drug or biologic. If a company extracts the compound from its natural setting, purifies it, identifies its structure, and determines how it affects human health — you have a patentable industrial invention.
The patent system does not just apply to completely man-made synthetic products. If it did, we'd ignore all the wonderful benefits we can find in what Mother Nature has created. It is true that one cannot patent an element found in its natural form; however, if you create a purified form of it that has industrial uses — say, neon — you can certainly secure a patent.
Remember: "Anything under the sun made by man."
The Success of Technology Transfer
Now, let's look at how at the matter of technology transfer. Some people might ask if ownership issues are different for innovations produced with federal funding. The short answer is "NO." Let me take you through the longer answer.
The United States leads the world in research and development of biotechnology products. A key reason for this is government support of basic research at universities through funding from the National Institutes of Health. Breakthroughs in basic research can lead to life-saving therapeutics through cooperative efforts of the public and the private sectors.
The NIH is the pre-eminent American basic medical research agency. For its contribution to the drug development process, in 2000, NIH was paid $52 million in royalty payments by the biopharmaceutical industry. Also in the year 2000, the NIH obtained 120 U.S. patents, filed 189 applications and executed 185 licenses and 109 cooperative research and development agreements (known as CRADAS) with the private sector.
In 1996, according to the Association of University Technology Managers Licensing Survey, FY 1997, of the $478.5 million in royalty payments universities received, 87 percent ($416 million) were from life science inventions, most of which grew out of federal research grants.
As a result of the transfer of technology from the public sector (NIH and its funded institutions) to the private sector, 23 new biotech drugs were approved for marketing in 2000. Much of the basic research that yields these life-saving therapeutics could not happen without NIH-funded research. But contrary to public opinion, NIH cannot create biotech therapies. It is not equipped to do so.
NIH and Biotech
The notion that NIH research has spawned the biotechnology revolution is a real one, though a bit oversimplified. In most cases, the government's role in bringing a new therapy to the market is far upstream from the high-risk, capital-intensive development and testing that biotech and pharma companies undertake. The biotech industry, which has more than doubled its revenues in the past six years, spends a greater percentage of those revenues on R&D than any other industry. In 1999, the industry spent $11 billion on R&D, more than 50 percent of its total $20 billion in revenues.
Government funds for basic research are a small portion of the total cost of translating a laboratory discovery into a life-saving medicine. Biotech companies spend many times more than the initial NIH funding to bring a new product into the marketplace.
Patent protection makes investment of time and money in biotechnology possible. Biotech companies could not risk the enormous investment required to develop products without the intellectual property protections provided by the licenses they negotiate with university patent holders. Without exclusive licenses to those patents, biotech companies could not raise the hundreds of millions of dollars in capital required to create new medicines. As I've already mentioned, the biotech industry spends more per employee on research and development than any other industry.
Some people are calling for what amounts to price control on drugs that are developed from federally funded basic research. Senator Wyden of Oregon noted that Bristol-Myers Squibb's revenue from the cancer drug TAXOL in 1999 was $1.5 billion. He said that "this was not a drug that came about through the genius of the private sector; it was a drug developed at the National Institutes of Health by dedicated scientists who worked hard and were pushing with every ounce of their strength to come up with new products to help women."
But consider this: To develop TAXOL, Bristol-Myers Squibb invested approximately $1 billion (not including expenditures for marketing, advertising or sales promotion) while NIH spent only $32 million (and both spent an estimated $65 million to $114 million in a CRADA).
To give you more evidence of how Bristol-Myers Squibb conducted the majority of the research, and spent the vast majority of the money to develop TAXOL, I offer the fact that the company's employees devoted more than 205 staff-years to develop TAXOL in 1991 and 1992. This compares with the 125 staff-years put in by NIH-funded researchers, as estimated in the CRADA.
These statistics in no way discredit efforts put in by NIH-sponsored scientists. But it is clear that the US system provides the best vehicle to commercialization of basic research and eventually into patients who need them. In the case of TAXOL, the cooperative efforts of the public and private sector developed and brought to the market a life saving therapeutic. The lives saved due to this cooperative effort more than make up the return on the NIH investment.
Not surprisingly, companies are more willing to engage in similar efforts that will benefit all of us when they are not threatened with price control.
In 1995 NIH stopped reviewing the prices set by companies that licensed government-funded basic research discoveries. NIH Director Harold Varmus was quoted in the April 11, 1995, edition of NIH News as saying that "NIH's primary programmatic mission, legislative mandate, and expertise is in biomedical research, not in product pricing." Since the repeal of this price review policy, there has been a fourfold increase in NIH cooperative research and development agreements with biotechnology and pharmaceutical companies. The more research there is, the greater the probability that good will come of it.
In December 1999 the NIH released "principles and guidelines" about NIH funding with respect to transferring research materials and tools. The research tools are very broadly defined to include monoclonal antibodies, cell lines, animal models, reagents, combinatorial chemistry libraries, clones and cloning tools like the polymerase chain reaction, databases and computer software to the extent these are used as a unique research tool. The guidelines require that these research tools be widely accessible to all. This in essence forces a non-exclusive licensing provision on these materials. Public Law 106-104, enacted last year, essentially gives the guidelines the force of law.
The impact of these guidelines on product development has yet to be determined, but it is well known that many start-up biotech companies get their root from exclusive licenses to some forms of research tools and platform technologies discovered under NIH funding.
In addressing the question of who should own biotech innovations, other questions occur.
How should private industry interact with university biotech researchers?
The answer is intuitive-As they would with any prospective partner. Universities hold the wealth of knowledge and information and businesses hold the wealth of opportunity and capital. The two need not be mutually exclusive. Contrary to the media's representation-business is not bad. It is the backbone of this country.
How can universities foster tech transfer?
Interact with the private sector. Listen to business leaders. Look for ways that will benefit both the university and the company involved. Tech transfer should be a win-win situation.
And, closer to home for you in northeast Ohio, how can a fledgling biotech community jump-start its growth?
My advice is to keep pursuing basic research and keep communications open with the private sector. Provide your scientists with the incentives to gain from their hard work. Work with your legislators to create a business friendly environment, in the area of tax incentives and research incentives. Make technology transfer an easy process. I was in the small town of Aurora Colorado a couple of months ago and they are doing something that other states are slowly taking up. They are building incubators and renting out short-term lab space. This allows scientists with ideas to start up their own small labs or start up company. With a promising discovery they can patent their ideas and begin to gather venture capital. Many of these small companies will go out of business. But that is OK. There will be others that will take up the slack and even hit the jackpot. With these incubators the only thing lost-- is some time. But nothing ventured- nothing gained.
To sum up:
Should there be limits on private ownership?
Does this answer change if the innovations are produced with federal funding?
What is the proper role of government funding and regulatory institutions in regulating biotech R&D by the private sector?
The government should fund biotech R&D and not impose price controls.
The intellectual property system in this country is unrivaled. The government has created an environment that is ripe for innovation and competition. University licensing activities have contributed $24.8 billion to the U.S. economy, and 1,300 companies have created 150,000 jobs. By not limiting ownership to biotech inventions, the United States has given rise to a biotechnology industry that has given the world more than 100 drugs to ease human suffering with 350 more on the way.
The rest of the world seeks to conform their laws to match ours. Some countries have spent countless dollars for basic research, yet they have been less successful than the U.S. in bringing the research from the bench to the bedside. We have found the near-perfect balance and cooperation between the private and public interests. Following the guidelines that patents can be issued on anything under the sun that is made by man, the future for biotech is bright. Since the system isn't broken, let's not fix it.