A former City of Hope inventor has filed suit against his former employer to collect back royalties on technology that was the subject of a recent verdict for City of Hope against Genentech.

Robert Crea, the inventor at issue, filed suit in Los Angeles superior court in early August, following the resolution of the City of Hope’s dispute with Genentech.  The California Biotech Law Blog previously posted on this verdict, which was reached in April, 2008.

The Silicon Valley/ San Jose Business Journal reported on Crea’s suit against City of Hope as follows:

Crea worked in 1977 and 1978 as the lead synthetic chemist at the City of Hope DNA Chemistry Laboratory before moving on to Genentech, according to the lawsuit. . . .Crea is seeking approximately 5 percent of the royalties that went to City of Hope related to technology developed there, according to his attorney, Robert Yorio, a partner at Carr & Ferrell LLP, who is representing Crea. The Southern California medical center is collecting close to $5 million in damages and interest as a result of the suit.

“The City of Hope policy is a 15 percent (royalty) that is paid to inventors,” Yorio said. “And that 15 percentage would be shared. We are asking for his share.”

This case will be interesting to follow as it moves forward, given the fact that the suit seems to be based on the alleged failure by the City of Hope to fairly implement a royalty policy as opposed a breach of an existing written contract with the individual inventor.   I have not yet tracked down a copy of the complaint, but would be interested review the exact nature of the plaintiff’s allegations against City of Hope.

This case may very well serve as a warning for other institutions with similar royalty payment policies in place for their employees: perhaps such institutions need to take another look as to how these policies are dealt with upon an employee’s departure from the institution.  I doubt very many employers expect their former employees to sue them on such grounds after they have left the company for a new position elsewhere, but perhaps in today’s world where large verdicts on IP matters are commonplace,  they should be giving this issue further consideration.

The SBIR Reauthorization Insider has announced that the Small Business Administration ("SBA") is currently seeking comments on its plans to raise the SBIR award amounts from One Hundred Thousand ($100,000) in Phase One and Seven Hundred Fifty Thousand ($750,000) in Phase Two to One Hundred Fifty Thousand ($150,000) in Phase One and One Million Dollars ($1,000,000) in Phase Two.  The Federal Register states that comments must be received on or before September 15, 2008.

To submit a comment on this issue, the Federal Register instructs you to do the following:

You may submit comments, identified by RIN 3245-AF61 by any
of the following methods: (1) Federal Rulemaking Portal: http://
www.regulations.gov, follow the instructions for submitting comments;
(2) Mail: Office of Technology, 409 Third Street, SW., Washington, DC
20416; or (3) Hand Delivery/Courier: Edsel Brown, Assistant Director,
Office of Technology, 409 Third Street, SW., Washington, DC 20416.

Following up on our previous postings regarding California’s issuance of cease and desist letters to thirteen (13) genetic testing companies doing business in California, two DNA testing companies are now set to resume business in California, after having received new licenses to do business in the state.

According to The Mercury News, the California Department of Health has issued licenses to Navigenics of Redwood City and 23andMe of Mountain View, which will enable them to resume business operations.  Both companies had always argued that they were lawfully doing business in the state, and the fact that the state issued them both licenses seems to be a validation of their positions.

International Herald Tribune reported on the development as follows:

The companies had argued that they were not offering medical testing but rather personal genetic information services, and that consumers had a right to information from their own DNA. The companies also said they did not need a license because the actual testing of the DNA samples was being done by outside laboratories that did have licenses.

But the two companies do their own interpretation of the raw genetic data. Now, after reviewing the procedures used by the companies, the state is satisfied that the companies’ interpretation is based on the scientific literature. . . . the companies also satisfied the requirement for a doctor to be involved.

Navigenics already was paying a physician to review customer orders and now it appears that 23andMe might be doing something similar.

There is no word yet as to whether or not the other eleven (11) genetic testing companies, which also received cease and desist letters, will likewise receive licenses to resume operations in the state of California.  Today’s move should at the very least be viewed as encouraging by the similarly affected companies.  The action should also help to calm fears as to the state’s ulterior motives in attempting to regulate genetic testing companies.

Having said this, direct-to-consumer genetic testing has been virtually non-existent in the state of California for the past two months, and it is very likely that all of the genetic testing  companies have suffered at least some financial consequences as a result.  We have yet to see what the long-term impact of this incident will be on all of the affected businesses.

For now, however, concerned Californians can rest easy knowing that direct-to-consumer genetic testing will live to see another day in this state.

The Senate Committee on Small Business and Entrepreneurship ("SBE") recently passed a compromise Small Business Innovation Research ("SBIR") reauthorization bill that would allow small companies that are majority-owned by venture capital firms to be eligible for SBIR awards.

According to the SBIR Reauthorization Insider, the SBIR/STTR Reauthorization Act (S. 3362) is a  "completely new bill" that is "not related to H.R. 5819, the House’s SBIR/STTR Reauthorization Act passed in the House" back in April, 2008.  The complete draft of the bill is attached.

According to the SBIR Reauthorization Insider, some of the highlights of this bill are as follows:

1. Higher Award Amounts – The SBIR and STTR awards are increased to $150,000 in Phase One, $1 million in Phase Two, and are now able to exceed the guidelines by up to 50%.
2. Increase in the SBIR/STTR Cap– The SBIR cap will be increased from 2.5% to 3.5% at a rate of .1% over 10 years.  The one exception is the NIH, which will stay at 2.5%. The STTR cap will double from 0.3% to 0.6% over 6 years.
3. Venture Capital Eligibility-A "small business" that is majority owned and controlled by multiple VCs will be eligible to participate in the SBIR program under certain conditions. No single VC can own more than 49% of the small business entity; the VC must be a United States Venture Capital Company; the VC owned small business must register with the SBA when they submit an SBIR proposal. The NIH will be limited to awarding not more than 18% of their SBIR award funding to such VC owned small businesses, and the remaining 10 agencies are limited to 8%.
4. Length of Reauthorization – The new bill would be reauthorized for fourteen (14) years, resulting in new sunset dates of September 30, 2022, for SBIR and September 30, 2023, for STTR.
5. Crossover Between Agencies– The new bill would allow Phase One awards at one agency and Phase Two awards at another.
6. Crossover Between SBIR and STTR Programs-The new bill would allow Phase One awards through the SBIR and Phase Two awards through the STTR, or vice versa.
7. SBA Waivers Will Not Be Required–SBA waivers will not be required for partnering, subcontracting, or entering into a Cooperative Research and Development Agreement ("CRADA") with a  federal lab of a federally funded research and development center.
8. Reorganization of the SBA’s Office of Technology.  The bill will move the Office of Technology out from the contracts department and make the Office of Technology directly reportable to the SBA Administrator.  The aim is to restore some of the authority to this office, which was intentionally rendered ineffective in the past due to funding and staff cuts.

This bill obviously falls short of what the biotech industry was seeking in reauthorization legislation, as there is a cap on the percentage of awards that can be given to vc-backed businesses.  However, the industry should be pleased at the fact that a reauthorization bill is now likely to be passed, and some progress has been made toward opening  up awards to vc-backed businesses.  In all likelihood, the final legislation will no longer include a ban on awards to vc-backed companies, which is in itself a victory for the biotech industry.

Despite Genentech’s rejection of Roche’s $43.7 billion offer last week, coverage of the fallout from the "failed" bid continues as industry observers speculate on Roche’s next move. 

According to a report by the Silicon Valley Business Journal and San Francisco Business Times, Reuters has forecasted that the final purchase price of Genentech will be $53 billion or $107.50 per share.  According to The Pink Sheet Daily, such a high price could prove to be problematic for Roche, who may be forced to make operational cuts as a direct result of the deal.

Speculation is also growing as to whether or not Genentech is going to be able to keep its talent in anticipation of a potential acquisition by Roche.  SF Gate reported that, as anticipated by analysts, there already is a flurry of recruiter activity erupting at Genentech as a result of the initial Roche bid.  The Pink Sheet Daily noted that it will be difficult to retain Genentech’s current talent, as many of the senior-level people will have no financial incentive to stay.   Of course, it goes without saying that the general atmosphere of uncertainty and the anticipated change of culture will likely start driving employees out the doors of Genentech.  However, observers seem to agree that Roche has likely worked the loss of key Genentech employees into the equation in deciding to pursue a bid to acquire the company. 

The Genentech/Roche deal is viewed as just the first of  a new wave of big pharma acquisitions of biotech companies to come in the near future, as pharma companies continue to explore opportunities to replenish their pipelines.  Seeking Alpha explained as follows:

Big Pharma is feeling the need to find new products with blockbuster potential as several important drugs approach the expiration of their patent protection. . .  . Many large pharmaceuticals have lots of cash on their balance sheets, making acquisitions an affordable option. The weaker dollar has also made U.S. companies look more attractive to biotech and pharmaceutical firms abroad. Another major factor is the difficult process of receiving FDA approval. This lengthy and grueling process provides an additional incentive to buy companies that have already received FDA approval on their drugs, ensuring smooth pipeline production going forward.



Potential buyout targets to keep an eye on: Amylin Pharmaceuticals (AMLN), United Therapeutics (UTHR),  Alexion Pharmaceuticals (ALXN), Onyx Pharmaceuticals (ONXX), Vertex Pharmaceuticals (VRTX).

To date, there has been no word on Roche’s next move or when it is likely to take place.  How high will Roche go with the next offer?  The California Biotech Law Blog will keep you posted on any developments.

Following up on our July 24th posting about Roche’s bid to acquire Genentech, it is now official: Genentech has declined Roche’s $43.7 Billion Acquisition offer.

A Genentech press release explained the decision as follows:

The special committee of the Board of Directors of Genentech, Inc. announced that, after careful consideration, it has unanimously concluded that Roche’s proposal to acquire the shares of Genentech not owned by Roche for $89.00 per share substantially undervalues the company. Therefore, the special committee does not support the proposal. However, the special committee would consider a proposal that recognizes the value of the company and reflects the significant benefits that would accrue to Roche as a result of full ownership.

The Genentech press release further indicated that the special committee also approved the "implementation of a broad-based employee retention program to address any employee concerns created by the Roche proposal."

Will Roche increase its offer, now that its opening bid has been rejected? If so, what will it cost for Roche to close the deal? 

My expectation is that Roche will make another offer and that the next offer will be larger than the first.  However, it is an open question as to how much money Roche will have to pay to get the deal done.  According to Seeking Alpha, the final sale price is likely to be over $105 per share and could even be as high as $130 per share.   Either way, there is no question that Roche is going to have to come up with more money to get the deal done. 

The California Biotech Law Blog will continue to keep you posted as any new developments regarding the Roche-Genentech talks arise.

The buzz in the biotech world this week has been squarely focused on Roche’s surprising move to launch a $43.7 billion bid to acquire Genentech.

Of course, Roche already owns fifty-six percent (56%) of Genentech, so the acquisition would actually result in Roche owning the remaining forty-four percent (44%) of the company.  The offer would pay Eighty-Nine Dollars ($89.00) per share.

Steve Johnson for the Mercury News reported on the Roche bid as follows:

Although Genentech’s operations would remain in South San Francisco under the deal, it would cease to be a separate company, according to a Roche statement. The proposal will be reviewed by three Genentech board members who aren’t Roche employees, and must be approved by Genentech’s non-Roche shareholders.

If approved, the transaction would create the seventh-biggest drug-making entity in the United States in terms of stock value, according to Roche executives, who noted that Genentech now accounts for about 22 percent of Roche’s revenue.

By eliminating duplication, the combined companies could save up to $850 million a year, Roche executives said. The transaction also could eliminate current trade-secret roadblocks that now hinder their ability to share research data, they said.

According to the Mercury News, the deal is unlikely to close for the current offering price, and Roche may have to offer as much as One Hundred Dollars ($100.00) per share to finalize the deal.

As a member of the Bay Area biotech community, it is hard to envision South San Francisco without Genentech at the helm.   Many of the most successful players in the biotech world got their start at Genentech, and the company has had a very historic role in the growth of the biotech industry, both in the Bay Area and around the world.   That historic role, however, may soon be relegated to a new role in the history books–and we all may have to get used to a world without Genentech as we know it.

What will the entity formerly known as Genentech look like if Roche is successful with the acquisition?

Well, according to The In Vivo Blog, the acquired Genentech is likely to lose its culture, although it may or may not lose the majority of its talent–this will likely depend on whether CEO Art Levinson stays or goes.  For its part, The In Vivo Blog is prediciting that Levinson will make his departure, particularly given the manner in which this bid attempt was handled.  Certainly, there was no effort by Roche to preserve the collaborative spirit that had previously existed between the two companies.

Given this huge loss, will the Genentech acquisition really prove to be a good move for Roche?

Well, perhaps the acquisition will save Roche money.  This seems to be the overriding justification.

The In Vivo Blog reported as follows:

It’s likely Roche took a look at the price of its current Genentech relationship–with its manufacturing transfer prices, up-front fees and royalties, and most importantly no ability to leverage its investment in the US marketplace where the economics of oncology marketing look more and more like primary care–and figured those costs outweighed the innovation it would lose if Genentech’s world class talented departed as a result of a takeover. Just as no primary-care force can afford to sell a single product, Roche can’t afford a US oncology operation selling only Xeloda.

Moreover, Roche is clearly not convinced that Genentech’s productivity would have continued at the rates it has in the last decade. And there are plenty of people who agree. “We all know that Amgen is now a Big Pharma. We talked about it eight years ago. But I think Genentech has now sneaked over that line too,” says the CEO of one of Genentech’s peer Big Biotechs.

The East Bay Business Times agreed with this assessment:

The Basel-based drug maker said it expects to increase research productivity and cut costs by combining operations . . . .

“The transaction will also unlock synergies by leveraging the scale of the combined operations in the U.S. and improving operational efficiency,” said Roche chief executive Severin Schwan.

In the end, however, it seems likely that Roche will end up losing much of what is special about Genentech over the course of the transaction.  However, apparently this is a gamble that Roche is willing to take.

The California Biotech Blog will continue to follow the developments regarding this deal as they come to light.

The Baltimore Business Journal is reporting that life sciences companies spent a record amount on lobbying efforts in 2007–some 32 percent more in 2007 than in 2006.

The Baltimore Business Journal reported:

The industry unleashed a $168 million lobbying effort last year, the largest among all sectors and 90 percent of which was dominated by three biotech and pharmaceutical trade groups and 40 global companies. . . . Among top company spenders were British-based AstraZeneca PLC, which owns Gaithersburg-based MedImmune and tallied $4.1 million in lobbying efforts, and Israel-based Teva Pharmaceuticals, which owns Rockville-based CoGenesys and tallied $2.3 million. Amgen Inc., based in Thousand Oaks, Calif., topped the company list with a $16.3 million total contribution last year.

As the California Biotech Law Blog previously reported, BIO spent $6.6 million in lobbying efforts in 2007.

According to The Baltimore Business Journal, the industry’s investment seems to “have paid off.”

Was the investment really dollars well spent?  Well, clearly the industry has had some success with respect to delaying the passage of patent reform legislation, which was largely viewed as being more favorable to high tech companies than biotech companies.  Likewise, the lobbying efforts seem to have had some success in the SBIR area, as we previously reported in a recent blog posting.  So, the industry has definitely seen some success in Washington this past year, although that success has not been felt uniformly across the board.

There is no doubt that having a voice in Washington is taking on increasing importance for the life sciences industry, particularly in light of the lobbying efforts of the technology world.  It seems likely that the industry’s investment in lobbying will continue to grow in the near future, as the topic of health care reform continues to be a key political issue and the interests of technology and life sciences companies continue to diverge.  As I’ve suggested before, however, it is rather stunning to consider how much money that has to be invested these days in order to maintain a presence in Washington politics: $168 million is certainly not pocket change.

Wired.com is reporting that three DNA testing companies are pulling out of the California direct-to-consumer market, as a result of California’s recent action to send cease and desist letters to thirteen DNA genetics testing companies (See our recent  blog posting).

Alexis Madrigal for Wired.com reported yesterday that HairDx decided “on advice of legal counsel, to require California (and New York) residents to order their tests through a doctor.”  Then today, Madrigal reported that two additional genetics companies, Sciona and SeqWright, have decided to pull out of the California market.  According to Madrigal, SeqWright “ceased allowing tests from the state without even getting rapped by regulators.”

Will other DNA testing companies soon follow suit? It seems that the State of California’s actions may very well prove to have had a chiling effect over the whole DNA direct-to-consumer industry.  As Madrigal in his Wired.com column suggests, this may have very well been the intended result.

At least one company, however, may be prepared to take this fight to the next level.  Madrigal reported today that 23andMe seems to be standing its ground.  The company appears to be taking the position that it is in compliance with California law and is going to continue to sell in California at this time.  There is no word yet as to whether any other DNA testing companies are prepared to stand up to the state and challenge its regulatory actions.

It’s hard to see how these developments are good for the State of California.  One would have expected that a state as proactive as California with respect to promoting biotechnology and stem cell research would not have taken such a hard stance against direct-to-consumer DNA testing.  Will this incident ultimately prove to be the nail in the coffin for DNA testing services?  Certainly, California’s actions have the potential to initiate a wave of similar actions across the country, as other states may feel pressured to follow California’s lead.

The California Biotech Law Blog will continue to follow developments on this issue as they arise.

The fallout over California’s attempts to regulate genetic testing continued today as more facts over the California action came to light.

As the California Biotech Law Blog reported earlier this week , California’s Department of Health sent out cease and desist letters to thirteen genetic testing companies, including Navigenics, Inc. and 23andMe, Inc, demanding that these companies halt sales in the state until they can demonstrate that their laboratories are certified by the state and federal governments and that the tests have been ordered by a doctor as required by state law.

Wired.com is following the controversy, and has obtained copies of the letters that went out to at least two of the recipients.  Alleging that the companies violated California law, the letters cite eight statutory provisions of California’s Business and Professions Code in support of their allegations: Sections 1206(a)(4), 1220(d), 1241, 1246.5, 1265(a)(1), 1281, 1287(b)(3), 1288. 

These provisions state as follows:

• 1206(a)(4):"Clinical laboratory test or examination" means the detection,
  identification, measurement, evaluation, correlation, monitoring,
  and reporting of any particular analyte, entity, or substance within
  a biological specimen for the purpose of obtaining scientific data
  which may be used as an aid to ascertain the presence, progress, and
  source of a disease or physiological condition in a human being, or
  used as an aid in the prevention, prognosis, monitoring, or treatment
  of a physiological or pathological condition in a human being, or
  for the performance of nondiagnostic tests for assessing the health
  of an individual.

• 1220(d) (1) Each clinical laboratory shall perform all clinical
  laboratory tests or examinations classified as waived under CLIA in
  conformity with the manufacturer’s instructions.
     (2) Except for those clinical laboratories performing only tests
  or examinations classified as waived under CLIA, each clinical
  laboratory shall establish and maintain all of the following:
     (A) A patient test management system that meets the standards of
  CLIA in Subpart J (commencing with Section 493.1101) of Title 42 of
  the Code of Federal Regulations.
     (B) A quality control program that meets the requirements of CLIA
  in Subpart K (commencing with Section 493.1201) of Title 42 of the
  Code of Federal Regulations.
     (C) A comprehensive quality assurance program that meets the
  standards of CLIA in Subpart P (commencing with Section 493.1701) of
  Title 42 of the Code of Federal Regulations.

• 1241: This chapter applies to all clinical laboratories in
  California or receiving biological specimens originating in
  California for the purpose of performing a clinical laboratory test
  or examination, and to all persons performing clinical laboratory
  tests or examinations or engaging in clinical laboratory practice in
  California or on biological specimens originating in California,
  except as provided in subdivision (b).
     (b) This chapter shall not apply to any of the following clinical
  laboratories, or to persons performing clinical laboratory tests or
  examinations in any of the following clinical laboratories:
     (1) Those owned and operated by the United States of America, or
  any department, agency, or official thereof acting in his or her
  official capacity to the extent that the Secretary of the federal
  Department of Health and Human Services has modified the application
  of CLIA requirements to those laboratories.
     (2) Public health laboratories, as defined in Section 1206.
     (3) Those that perform clinical laboratory tests or examinations
  for forensic purposes only.
     (4) Those that perform clinical laboratory tests or examinations
  for research and teaching purposes only and do not report or use
  patient-specific results for the diagnosis, prevention, or treatment
  of any disease or impairment of, or for the assessment of the health
  of, an individual.
     (5) Those that perform clinical laboratory tests or examinations
  certified by the National Institutes on Drug Abuse only for those
  certified tests or examinations.  However, all other clinical
  laboratory tests or examinations conducted by the laboratory are
  subject to this chapter.
     (6) Those that register with the State Department of Health
  Services pursuant to subdivision (c) to perform blood glucose testing
  for the purposes of monitoring a minor child diagnosed with diabetes
    if the person performing the test has been entrusted with the care
  and control of the child by the child’s parent or legal guardian and
  provided that all of the following occur:
     (A) The blood glucose monitoring test is performed with a blood
  glucose monitoring instrument that has been approved by the federal
  Food and Drug Administration for sale over the counter to the public
  without a prescription.
     (B) The person has been provided written instructions by the child’
  s health care provider or an agent of the child’s health care
  provider in accordance with the manufacturer’s instructions on the
  proper use of the monitoring instrument and the handling of any
  lancets, test strips, cotton balls, or other items used during the
  process of conducting a blood glucose test.
     (C) The person, receiving written authorization from the minor’s
  parent or legal guardian, complies with written instructions from the
  child’s health care provider, or an agent of the child’s health care
  provider, regarding the performance of the test and the operation of
  the blood glucose monitoring instrument, including how to determine
  if the results are within the normal or therapeutic range for the
  child, and any restriction on activities or diet that may be
  necessary.
     (D) The person complies with specific written instructions from
  the child’s health care provider or an agent of the child’s health
  care provider regarding the identification of symptoms of
  hypoglycemia or hyperglycemia, and actions to be taken when results
  are not within the normal or therapeutic range for the child.  The
  instructions shall also contain the telephone number of the child’s
  health care provider and the telephone number of the child’s parent
  or legal guardian.
     (E) The person records the results of the blood glucose tests and
  provides them to the child’s parent or legal guardian on a daily
  basis.
     (F) The person complies with universal precautions when performing
  the testing and posts a list of the universal precautions in a
  prominent place within the proximity where the test is conducted.
     (7) Those individuals who perform clinical laboratory tests or
  examinations, approved by the federal Food and Drug Administration
  for  sale to the public without a prescription in the form of an
  over-the-counter test kit, on their own bodies or on their minor
  children or legal wards.
     (8) Those certified emergency medical technicians and licensed
  paramedics providing basic life support services or advanced life
  support services as defined in Section 1797.52 of the Health and
  Safety Code who perform only blood glucose tests that are classified
  as waived clinical laboratory tests under CLIA, if the provider of
  those services obtains a valid certificate of waiver and complies
  with all other requirements for the performance of waived clinical
  laboratory tests under applicable federal regulations.
     (c) Any place where blood glucose testing is performed pursuant to
  paragraph (6) of subdivision (b) shall register by notifying the
  State Department of Health Services in writing no later than 30 days
  after testing has commenced.  Registrants pursuant to this
  subdivision shall not be required to pay any registration or renewal
  fees nor shall they be subject to routine inspection by the State
  Department of Health Services.

• 1246.5: Notwithstanding any other provision of law, any person may
  request, and any licensed clinical laboratory or public health
  laboratory may perform, the laboratory tests specified in this
  section.  A registered clinical laboratory may perform the laboratory
  tests specified in this section if the test is subject to a
  certificate of waiver under CLIA and the laboratory has registered
  with the department under paragraph (2) of subdivision (a) of Section
  1265. A program for nondiagnostic general health assessment that
  includes a laboratory test specified in this section shall comply
  with the provisions of Section 1244.  The results from any test may
  be provided directly to the person requesting the test if the test is
  on or for his or her own body.  These test results shall be provided
  in a manner that presents clear information and that identifies
  results indicating the need for referral to a physician and surgeon.

     The tests that may be conducted pursuant to this section are:
  pregnancy, glucose level, cholesterol, occult blood, and any other
  test for which there is a test for a particular analyte approved by
  the federal Food and Drug Administration for sale to the public
  without a prescription in the form of an over-the-counter test kit.
  A test approved only as an over-the-counter collection device may not
  be conducted pursuant to this section.

• 1265(a)(1):A clinical laboratory performing clinical laboratory
  tests or examinations classified as of moderate or of high complexity
  under CLIA shall obtain a clinical laboratory license pursuant to
  this chapter.  The department shall issue a clinical laboratory
  license to any person who has applied for the license on forms
  provided by the department and who is found to be in compliance with
  this chapter and the regulations pertaining thereto.  No clinical
  laboratory license shall be issued by the department unless the
  clinical laboratory and its personnel meet the CLIA requirements for
  laboratories performing tests or examinations classified as of
  moderate or high complexity, or both.

• 1281:It is unlawful for any person to own, operate, maintain,
  direct, or engage in the business of operating a clinical laboratory,
  as defined in this chapter, unless he or she possesses a valid
  clinical laboratory license issued by the department.  In the event a
  health facility does not perform clinical laboratory services, but
  provides laboratory services to its patients under an agreement with
  another person or entity that holds and is operating under a valid
  clinical laboratory license, the health facility shall not be
  required to obtain a clinical laboratory license.

• 1287(b)(3):  The enforcement remedies provided under this section are not
  exclusive, and shall not preclude the use of any other criminal or
  civil remedy.  However, an act or omission punishable in different
  ways by this section and any other provision of law shall not be
  punished under more than one provision.  Under those circumstances,
  the penalty to be imposed shall be determined as set forth in Section
  654 of the Penal Code.

• 1288:Any person conducting or operating a clinical laboratory may
  accept assignments for tests only from and make reports only to
  persons licensed under the provisions of law relating to the healing
  arts or their representatives.  This section does not prohibit the
  acceptance of evaluation specimens for proficiency testing or
  referral of specimens or such assignment from one clinical laboratory
  to another clinical laboratory, either licensed or exempt under this
  chapter, providing the report indicates clearly the laboratory
  performing the test.  A report of results issuing from a clinical
  laboratory shall show clearly the name and address of the laboratory
  and the name of the director.

The letters demand that the party submit a plan before June 23, 2008 advising how the company will prevent further violation of the law.

It is impossible to determine from these letters whether or not these companies actually are in violation of the law;  however, assuming the allegations are in fact accurate, is this really the whole story?  Or is something else actually responsible for this "attack" on genetic testing companies?  What is prompting this interest in genetic testing?

I cannot help but wonder if the medical community is at the heart of this controversy.  But if this is in fact the case, what is the issue?  Is there a concern by doctors that they are going to be found guilty of malpractice simply as a result of something they either overlook or do not know how to respond to in the genetic testing report?  As we suggested in our previous blog posting, there is certainly some debate as to how accurate various genetic tests actually are and what, if anything, should be done in response to certain results.  On the other hand, is there a fear by the medical community that the public will not know how to handle the data in the report?  Or is there at the heart of this issue an entirely different matter entirely?

It is interestng that in the same week that this controversy has erupted, Newsweek ran a story about Dean Ornish’s new book, where he looks at how changing lifestyle can change genes.  The prospect of potentially changing your genetic predisposition by making lifestyle changes is perhaps the best argument for why the public should have direct access to these tests.  Thomas Goetz of Wired.com also makes a compelling argument for direct access, arguing that "Frankly, it’s insulting and a curtailment of my rights to put a gatekeeper between me and my DNA." 

To date, this controversy has erupted in only two states: New York and California.  There are forty-eight other states yet to take this issue up.  Those states will be looking to New York and California to see how they deal with the controversy.  Perhaps the California legislature should jump to the forefront of this issue and look at changing the law to ensure direct public access to genetic testing.  Such an action would undoubtedly set an important precedent for the other forty-nine states, which might very well follow in California’s footsteps.  California: will you rise to the challenge? 

The California Biotech Law Blog will continue following this controversy as it further unfolds.