Supporters for California’s Stem Cell Research Program won a victory this week when a state appeals court upheld a lower court’s decision that the program does not violate laws concerning state spending, the structure of ballot initiatives, or rules regarding conflicts of interest.

The New York Times reported that Robert N. Klein, chairman of the board overseeing the stem cell program, hailed the court’s decision as “one huge step for California,” and also stated that:

Mr. Klein said the decision was so strong that he thought the California Supreme Court would decline to hear the case if the ruling were to be appealed. If the Supreme Court turned away the case, he said, the state could begin issuing bonds as soon as 120 days from now.

According to The New York Times, a lawyer representing opponents of the program indicated that they would likely appeal, but that no definitive decision had been made on the issue.

In case you missed it, Matthew Herper and Robert Langreth wrote in a recent Forbes.com article about an interesting new trend in the biotech industry–applying the open source model to the biotech world.

Herper and Langreth reported as follows:

Novartis. . . the Basel, Switzerland, drug giant, has helped uncover which of the 20,000 genes identified by the Human Genome Project are likely to be associated with diabetes. But rather than hoard this information, as drug firms have traditionally done, it is making it available for free on the World Wide Web. . . .Researchers at Novartis partnered with Sweden’s Lund University and the Cambridge, Mass.-based Broad Institute, a joint venture between the Massachusetts Institute of Technology and Harvard that is funded by billionaire Eli Broad. This international team compared the genomes of 1,500 people who had diabetes with 1,500 who were disease-free. All the patients were from Sweden. To do this quickly, the scientists used gene chips from biotech Affymetrix. . . that allowed them to track 500,000 places in the genetic code where past experience has shown that there are likely to be differences.

The result: a library of genetic differences that are likely to increase a patient’s risk of diabetes. Researchers don’t know what most of these errant genes do, or exactly why diabetics are more likely to have these genes. That is exactly the puzzle a world’s worth of scientists are needed to unravel. . . .

It is inevitable that the biotech world would begin to test the open source model, which has become so popular in the software industry, but it raises some interesting questions about how best to adapt the model from software to biotechnology.  What should such a license look like? Will the biotech community embrace such a model the same way that the software engineering world has?  Is biotech likely to run into the same problems with an open source model that the software world has?

It will be interesting to watch this new trend to see if it takes off, and if so, what it ends up meaning for the industry.

Biotechnology and the Law

The United States Patent and Trademark Office ("PTO") has rejected Genentech’s patent covering methods for making monoclonal antibiodies, which patent also was the subject of the recent Supreme Court Decision in MedImmune, Inc. v. Genentech, Inc., No. 05-608, slip op., (U.S. January 9, 2007) (Thomas, J., dissenting), which decided in favor of MedImmune. The PTO’s action is certain to be viewed as yet another MedImmune victory.

The suit to invalidate the patent was brought in 2003 by MedImmune, which had entered into a license agreement with Genentech in 1997 agreeing to pay  royalties to Genentech in order to manufacture, use, or sell its monoclonal antibody therapy Synagis.  Synagis is a pediatric treatment for a specific type of respiratory virus.  The San Francisco Business Journal reported that the patent is projected to generate $120 million in revenue in 2007, up from $105 million in 2006, and that it is set to expire in 2018.  

Genentech, of course, plans to respond to the PTO’s action.  The patent will remain valid and enforceable during the appeals process, which could take several years to complete.

As previously stated, the PTO’s decision follows the recent Supreme Court Decision in MedImmune, Inc. v. Genentech, Inc., which has been described by many as a victory for licensees that will alter the balance of power between licensors and licensees.  That Decision decided two separate issues.  First, the Court held that petitioners raised and preserved a contract claim pertaining to the license agreement negotiated between the parties that, because of patent invalidity, unenforceability, and noninfringement, no royalties are owed.  Second, the Court held that the Federal Circuit erred in affirming the dismissal of the declaratory judgment action on the royalty issue for lack of subject matter jurisdiction.

It remains to be seen what will be the long-term impact of the MedImmune decision.  Certainly, it grants a licensee the ability to pay a royalty under a patent and to subsequently claim that the patent is invalid, but will the impact go beyond this?

According to attorneys Charles S. Barquist and Jason A. Crotty, the answer is yes.   Barquist and Crotty wrote as follows:

The MedImmune decision will likely have significant ramifications for licensee/licensor relationships, the number of patent suits and the terms found in license agreements. MedImmune may cause licensors to demand higher royalties because the incentive to compromise is reduced if the licensor knows that the license is not a final resolution, but rather that the licensee can simply turn around and file a declaratory judgment action challenging the validity of the patent or whether it is used, or infringed, at all.

On the other hand, licensees may be more willing to enter into patent licenses, since doing so will not limit their ability to challenge a licensed patent. Licensees may view licenses as a kind of insurance policy, giving them downside protection by limiting the scope of their liability if they unsuccessfully challenge a licensed patent. . . . The decision may also increase the number of declaratory judgment actions challenging the validity of patents, particularly in areas such as biotechnology where patents may be particularly vulnerable to written description and enablement challenges under 35 U.S.C. §112. Indeed, the patent at issue in MedImmune is a biotechnology patent.

Regardless of how these longer term issues unfold, there is little doubt that MedImmune has scored two clear victories against Genentech.  Genentech can now only hope for a better outcome in Round 3 with its appeal of the PTO action.

On February 14, 2007, Representatives Henry Waxman, Jo Ann Emerson, and Frank Pallone, Jr.,  and Senators Charles E. Schumer and Hillary Rodham Clinton introduced HR 1038, the "Access to Life-Saving Medicine Act".  The purpose of the bill is to establish a process by which the FDA can approve lower cost copies of biotech drugs.  It goes without saying that this bill is going to be the subject of some serious debate. 

The Washington Post reported that a study conducted by Express Scripts, Inc. showed that patients and health insurance providers could save at least $71 billion over 10 years if there was a regulatory mechanism that allowed for the marketing of generic biotech medicines. 

Of course, on the other side of this debate will no doubt be the biotech industry and its supporters.  If this Act were to become law, it would have a huge financial impact on the industry. 

A letter posted on the BIO website written by Stephen E. Lawton, Vice President and General Counsel in July, 2001 gives a glimpse of what the official position by the industry organization may look like:

[W}e believe that such an approach would raise substantial constitutional and administrative law questions, including the unlawful taking of proprietary data and trade secrets held by the biotechnology industry. . . . A change in regulatory status (from biological product to new drug) to allow for the approval of generics would, in effect, retroactively undo the reasonable expectations of the biotechnology industry.

Indeed, there is no doubt that the passage of such a bill into law would deal a huge blow to the industry.  While a generic biologics law would inevitably create a new market for generic biologics, it would also dramatically reduce the profits that the industry would otherwise earn.  Why would insurance providers cover regular-priced biologics when a generic is available for a significantly lower cost? 

Given the economic reality of what it costs to bring a new drug to market, we should all be concerned at what passing a bill like this would do to an industry that today presents so much promise for the future.  Could this stifle the innovation that is creating all these new biologics in the first place?  Sadly, by legislating that these biologics shall be more affordable to health care providers and the public, we stand to lose many new biologics, which will never be brought to market at all. 

A new victory was scored today for Stem Cell Research, when California awarded $45 million in new research grants to labs and universities statewide.

The Los Angeles Times reported:

The grants were a bonanza for the UC system, with UC San Francisco receiving eight; UCLA seven; UC San Diego and UC Irvine six each; UC Riverside, UC Santa Cruz, UC Davis and UC Berkeley receiving two each. Even the new UC Merced got one. The biggest winner was Stanford University, which took home 12 grants. USC received four. The private nonprofit Burnham Institute for Medical Research in La Jolla received eight.

The state’s action comes despite the fact that the funding for the California Institute of Regenerative Medicine remains tied up in ongoing litigation.  

The message is clear: the state of California intends to support stem cell research, regardless of any roadblocks that may stand in its way.