San Diego Union Tribune

April 21, 2005

Biotech patents an issue for court
Justices hear arguments involving S.D. entities

By Toby Eckert

WASHINGTON – The Supreme Court heard arguments yesterday in a patent dispute that pits major players in San Diego's burgeoning biotech sector against one another and holds broad implications for researchers, drug companies and patients nationwide.

The case involves the question of when it is permissible for drug researchers to use a breakthrough that has been patented by someone else.

Some of the justices seemed skeptical of arguments by a New Jersey company that its patent for biological molecules, originally discovered at the La Jolla-based Burnham Institute, should have the kind of broad protection granted by lower courts.

A scientist at the Scripps Research Institute, also in La Jolla, had used the same type of molecules in studies for the German pharmaceutical company Merck KgaA, prompting the court case.

If the court recognizes a fairly broad right to use patented technologies in research, patents developed by biotech companies could lose value and significantly crimp the $26 billion research industry, legal experts said.

A ruling strictly protecting the patents could discourage research into new drugs or halt it in some cases, pharmaceutical companies argue.

"The fallout is going to be highly dependent on exactly what the court does," said John Van Amsterdam, an attorney in Boston who specializes in biotechnology and pharmaceutical patents and is not involved in the case.

The Bush administration and AARP, the nation's largest senior citizens organization, intervened in the case on Merck's side, expressing concerns about the potential impact on drug development and pharmaceutical prices.

The dispute arose from studies done at Scripps, under a contract with Merck, into ways to block the development of blood vessels that feed tumors. The research involved biological molecules known as peptides, which affect how cells attach to surfaces.

The peptides' role had been discovered earlier by researchers at the Burnham Institute, which patented the peptide sequence and ways to use it. Those patents were subsequently acquired by Integra LifeSciences, a New Jersey company.

After learning of the research at Scripps, Integra asked Merck – which is unrelated to the U.S. drug maker of the same name – to pay for a license for the patents. When the two companies couldn't reach an agreement, Integra sued for patent infringement.

A federal court jury in San Diego ruled in favor of Integra, rejecting Merck's argument that the research was allowed under a federal law that protects researchers from infringement charges if their work is "reasonably related to the development and submission of information" to the Food and Drug Administration. The jury awarded Integra damages of $15 million, later reduced to $6.4 million.

The decision was upheld by a federal appeals court, which ruled that the law cited by Merck was intended to hasten the development of generic drugs while patented versions are still on the market. The studies sponsored by Merck involved identifying "new pharmaceutical compounds" and was not solely meant to produce information for the FDA, the court concluded in a 2-1 decision.

E. Joshua Rosenkranz, an attorney for Merck, told the Supreme Court that the lower court rulings "defy the plain language of the statute the Congress passed," which doesn't specifically mention generic drugs.

Merck argued that the lower courts' interpretation would inhibit research and innovation since the infringement exemption would only apply to drugs in clinical trials. But the FDA requires earlier research, such as animal studies, before allowing clinical trials.

"The statute provides a safe harbor for experiments that are related to information sought by the FDA," Rosenkranz said. "No rational drug innovator ever proceeds to clinical trials without conducting that research."

Some justices seemed to be swayed by that argument.

"They are going to want to know before they allow clinical trials whether the drug has some application to cancer rather than the common cold," Justice David Souter said.

The Bush administration took Merck's side, with Assistant Solicitor General Daryl Joseffer arguing that the lower court erred on several legal issues. "The statute is not limited to generic drugs," he said.

But Mauricio A. Flores, an attorney for Integra, argued that there was no error in the lower courts' interpretation of the law.

"The program carried out at Scripps was not reasonably related to the FDA," he told the justices.

The type of research that would have been presented to the FDA before a clinical trail was carried out by Merck in Germany, he said. The work done at Scripps was more experimental.

Some of the justices indicated they were inclined to try to clarify the meaning of the federal law and then return the case to a lower court.

"What we have to focus on is whether the court of appeals was in error in interpreting the scope of the exemption," Justice Sandra Day O'Connor said. "It is open to us to correct that and send it back."

Justice Stephen Breyer called the appeals court decision "pretty foggy."

But Justice David Souter questioned why Merck had agreed to jury instructions concerning the law's interpretation.

Several pharmaceutical and biotech companies filed legal briefs in the case. Biogen Idec, which has a research and manufacturing campus in San Diego County, argued in support of Merck.

"We believe preclinical testing generates information that is essential to the FDA approval process," Biogen Idec spokesman Jose Juves said. "We support a generous and practical reading of the statutory exemption from patent liability in the testing and evaluation of new drugs."

Carlsbad-based Isis Pharmaceuticals Inc. and Invitrogen Corp. sided with Integra. Many of San Diego County's 400 or so biotech and medical device companies have drugs or technologies in early development and remain unprofitable, so revenue from the licensing of intellectual property can be a crucial source of cash, biotech executives argue.

Isis, an unprofitable biotech with over 1,500 patents issued on its novel antisense drugs and technology, has generated $70 million from licensing activities. And that revenue gets ploughed back into research on about a dozen experimental drugs that Isis is developing.

"The essence of Merck's argument is that biotech companies could block drug development, but in fact it is the opposite," said Laura Handley, vice president for patents at Isis. "Biotech companies as a whole generate a substantial amount in licensing deals, and for early-stage innovators that revenue stream is critical for drug development."

Van Amsterdam said he believes the economic stakes of the case are higher for biotech companies, universities and nonprofit research groups that rely on patents to generate revenue.

"In terms of a life or death thing, it's definitely bigger for the small biotechs," he said. "Some of them may find some significant difficulties if the case goes the wrong way. Whereas for big (pharmaceutical companies), they'd have to pay a little more for using a particular patented discovery.

"If you compare the amount of money that it would cost them to fair-and-square pay for the use of certain things, it's probably a very, very small amount compared to the rest of the drug development process."

The court is expected to rule by July.
Staff writer Penni Crabtree contributed to this report.

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