In Part 1 of this three-part report, Signals explores an issue of growing concern to researchers, biotech companies and large pharmaceutical companies today: As more and more research tools, such as cell lines, receptors, vectors, specialized mice and genomic markers, such as "single nucleotide polymorphisms" (SNPs), are patented, these patents are tying up what was once a much freer exchange of materials among scientists doing basic research in university and government labs. It's not the patents per se to which the scientists are objecting, but rather the increasingly invasive licensing terms, such as so-called "reach-through" agreements. In Part II, we'll look at the Cre-Lox controversy involving Du Pont and the National Institutes of Health, which has sparked considerable irritation among academics. In Part III, we'll discuss some alternatives and provide analysis of an NIH report that is being delivered -- and going live on the Web -- today, June 4, in Washington. That report is the result of a panel of academics, government and industry people looking at the issue of patenting research tools.

When researchers at the National Institute of Allergy and Infectious Diseases heard recently about an intriguing new drosophilia gene expression kit, they asked Mark Rohrbaugh, director of NIAID's office of technology development, to look into obtaining it. But after the manufacturer, Invitrogen Corp. of Carlsbad, Calif., sent over a copy of its license agreement, Rohrbaugh had to tell his researchers that the kits were off-limits. That's because the kits came with a condition: To use the kit, NIAID researchers would have to grant SmithKline Beecham -- patent holder on the fruit-fly technology -- the first rights to negotiate a license for any new "inventions or discoveries arising from [the] use of the Kit."

Such conditions are called "reach-through" agreements, and they're cropping up more and more frequently among universities, non-profit R&D groups and companies. Academics complain the agreements are tying them in knots, slowing research by adding to their already hefty paperwork load with "material transfer agreements" that spell out the conditions, and demanding rights that extend unreasonably into the future. Rohrbaugh, for example, says that neither NIAID nor any of the National Institutes of Health will sign such agreements because by law government agencies cannot purchase a product (like the drosophila kit) and also give rights to future inventions. "Companies that in the past would give us research tools are more often asking for rights to future inventions," Rohrbaugh says. Universities, he adds, are starting to ask for royalties on commercial products that may not appear for a decade or more after the tool was actually used and then never be used again in the actual making of the product. "They want to own things no one has made yet," he complains.

When you absolutely need it overnight -- you're out of luck

Gerald M. Rubin, professor of genetics at UC Berkeley, told a recent meeting in Berkeley on "Intellectual Property and the New California Economy," that the increased paperwork associated with material transfer agreements, or MTAs, today, is changing the way labs interact. A scientist needing a clone from another lab used to call and say "Here's my FedEx number, can you send it by tomorrow? Now, I have to say, 'Well, I have to send you a form you have to sign and then your technology transfer office has to sign it, then I have to sign it and my tech transfer office has to sign it. So, you're not getting your clone tomorrow."

Rubin, like many academics, doesn't fundamentally disagree that research tools should be patentable. "If these patents weren't available, there would be no genome or biotech industry today," he notes. But previous methods for patenting tools, such as one-time licenses with no "reach-through" or an additional cost built into a product like PCR kits to amplify DNA to help recoup the license fee, are a fairer and simpler way to handle the enforcement of those patents, he believes. "I'd rather pay (a company) up front, and then that's it, rather than take this and if anything comes of it, then have to pay 20% later."

Rubin's appreciation for patents in general would not necessarily have been widely shared just a decade ago. But he, like many academic scientists today, lives in a world where the potential commerciability of his research is always on his mind, and tying up any line of research with reach-through agreements signed when a technology is in its infancy, is a scary proposition. He, for example, is the scientific founder of one company, and a scientific advisory board member of three others.

John Barton, a Stanford law professor and member of an NIH working group on this issue, says he believes this area is becoming problematic for universities in a number of ways -- and holding up research. "Everywhere you look there is a lawyer in the way," he says. While universities are empowered and encouraged by federal law to transfer technology to the public and reap some of the rewards in the bargain, the complexity of the different research tools needed to do cutting edge work have sparked something of a free-for-all: "Everybody is filing as many patents as possible so they have a bargaining chip against being held up by someone else," he notes.

On the other side of the bench

But just as universities and non-profits find themselves on both sides of this issue -- burdened by material transfer agreements on one hand, and demanding them for their own property on the other -- so are companies on both sides. Players such as SIBIA Neurosciences Inc. in La Jolla, Calif., which makes functional assays to test potential neuroscience drugs, is "anxious to get these assays into the hands of people who know how to use them" -- namely academics, says Chief Executive Officer William Comers. And for that he makes no bones about following what's becoming a common approach among "tool companies:" giving away the tool up front, but demanding a "piece of the action, namely royalties," if there's a pay-off down the line.

On the flip side, however, companies who need to acquire rights to research tools increasingly find themselves bucking the so-called "stacking royalties" problem. In other words, the accrual of too many royalty slices diminishes potential profit to the point that the company shouldering the early research and development costs may decide the drug is not worth the cost of development. (See recent Signals story on stacking royalties).

At Millennium Pharmaceuticals, Inc. in Cambridge, Mass., Chief Business Officer Steven Holtzman says that "We often find ourselves walking away from licensing-in tissue samples or other tools because the university OTL officer is insisting that if we ever develop a drug using the tool we have to pay a royalty." These royalties usually amount to between .5 percent and 3 percent for such tools as tissue samples, receptors and vectors. Holtzman, who is the one biotech participant in the seven-member NIH Working Group, figures that his company might assemble five or more tools in running differential gene expression studies and drug development. When promising compounds are identified, they are usually handed off to a pharmaceutical company in exchange for a 5 percent to 15 percent royalty. As the tool royalties stack up, the biotech player could be paying out some 25 percent to 50 percent of what they receive in royalties from drug companies. "We're going through the swing of the pendulum," says Holtzman, "there will have to be equilibrium. It may get to the point where everyone starts saying 'we won't sign these darn things.' "

The situation could be even more dire when a drug is the opposite of a blockbuster. The NIH gets involved in compassionate drug development for diseases like tuberculosis or malaria that affect destitute populations. Orphan drugs for rare diseases are also their purview. "We have trouble getting companies interested in developing TB or malaria drugs," says Rohrbaugh. "You add stacking royalties onto that and who gets hurt is the public."

The NIH has been sponsoring a Director's Forum on the Web on this issue, and the report of the NIH Working Group on the matter is being presented in Washington today. For more background and links to the Director's Forum, click here.

Next in this series: The Cre-lox controversy that brought this issue to the forefront

Part III: Proposals and alternatives going forward.