Information Systems for Biotechnology/NBIAP News Report

SPECIAL ISSUE ON INTELLECTUAL PROPERTY RIGHTS
May, 1995

This special issue of the NBIAP News Report looks at how patents and intellectual property rights affect agricultural biotechnology research and product development. Even when the science is straightforward, the path to commercialization of an agbiotech product frequently entails financial and legal arrangements between many players. Contributed articles by outside writers provide a glimpse into some of these interactions between companies, and between the academic research community and the private sector. Articles by regular News Report writers examine some of the background issues that are moving to the forefront of the debate over biotech patents. Our usual coverage of research news will return next month.

Pat Traynor

NEWS FROM WASHINGTON

BATTLE OVER REGULATORY REFORM REJOINED IN THE SENATE
The Senate and House of Representatives have been on recess since the week before Easter. The Senate reconvened on April 24th and the House will resume business on May 1st. Regulatory reform has been high on the list of actions to be taken by the Republican dominated 104th Congress and, prior to the Easter recess, the House had passed a tough regulatory reform package which would mandate stringent risk assessment and cost-benefit analysis for all new and existing regulations that would impose a $25 million cost on the economy.

In the Senate, regulatory reform centered on two opposing bills. One bill, S-343, proposed by Senate Majority Leader Robert Dole, closely mirrored the House reform bill except that the trigger for risk assessment and cost-benefit analysis would be a $50 million hit on the economy. The other bill, S-291, offered by Senator William Roth, was deemed to be somewhat more moderate in that it placed greater emphasis on risk assessment while Congressional review of new regulations would be limited to those imposing a $100 million or more cost on the economy. Senator Dole's bill was being processed by the Senate Judiciary Committee while the Roth bill was unanimously cleared by the Governmental Affairs Committee. The Dole bill was opposed by Judiciary Committee democrats, while the Roth bill enjoyed bipartisan support.

Unlike the Roth bill, the Dole bill would give business and industry ample opportunity to mount judicial challenges against cost-benefit analysis conducted by federal agencies. And federal agencies may not exclude from review panels persons who have a financial stake in the regulation's outcome. Indeed, charges have been raised that portions of the Dole bill were drafted by law firms representing utilities, food processing and other companies affected by the bill. The Dole bill also revokes the contentious Delaney clause, a provision of the 1958 Food, Drug and Cosmetic Act, that allows only additives deemed to have zero risk of causing cancer to be used on processed foods.

During the Congressional recess, Republican and Democrat staff members of the Judiciary Committee worked to amend the Dole bill to try to give it a better chance of winning bipartisan support. However, following a rancorous, partisan session on April 27, the Judiciary Committee chairman, using an unusual parliamentary maneuver, forwarded the original bill, minus any amendments, to the full Senate. The Dole and Roth bills will now be combined into a single bill which is expected to be taken up by the full Senate in June. Democrats are sure to propose numerous amendments to any regulatory reform measure proposed by the Republican majority.

Administration spokesmen have criticized the House Regulatory reform bill and the Dole bill as attempts to undermine the nation's key environmental laws and have indicated that the President will not be party to a roll back of environmental regulations.

Jay Blowers

ADMINISTRATION OPPOSES DEPARTMENT OF SCIENCE At the recent Annual Science Budget Forum sponsored by the American Association for the Advancement of Science, Dr. John Gibbons, the White House Science and Technology Advisor, stated that the Administration is unequivocally opposed to the creation of a Department of Science as proposed by the Chairman of the House Science Committee, Robert Walker. Under the Walker proposal, the research programs of a number of federal agencies would be combined into a new Department of Science. Dr. Gibbons said that U.S. science relied upon a pluralism of support to ensure that good ideas are funded and that the Department of Science proposal would divorce science from the agencies it is designed to support.

J.B.

SHOULD REGULATION OF BIOTECHNOLOGY PRODUCTS BE REDUCED?
In the April 13 issue of "Biotechnology" Russ Hoyle wrote an article entitled "Biotech needs and industry/government initiative," in which he states that the administration's best hope for staving off the 104th Congress's draconian reform of all regulations, including those governing biotechnology, is to "come up with an aggressive program of regulatory reform that will give the biotech industry a level playing field and expedient clearcut procedures for commercialization." He urges the biotech industry to make common cause with the Administration in the effort to iron out problems in the regulation of biotechnology.

Hoyle points out that the Administration hasn't faced the question publicly of whether the use of genetic engineering presents "significant enough dangers to the environment and public health to justify special regulatory attention." According to Hoyle, the agencies most involved in genetic engineering issues have repeatedly hedged about the safety of the technology, "preferring to put out scientifically inconsistent rules that not only contradict the best scientific thinking on the subject, but also place time-consuming and expensive hurdles in the paths of promising genetically engineered products." As a case in point, Hoyle argues that the EPA and FDA pre-market notification proposals for genetically engineered products should be scuttled to encourage more innovation and cooperative undertakings with industry to streamline the research and commercialization process.

J.B.

CALGENE BATTLING ON TWO FRONTS
According to the Wall Street Journal, Calgene Inc., of Davis, California, is experiencing serious and costly packing and shipping problems with its much heralded genetically engineered FLAVR SAVR (Tm) tomato. The tomatoes haven't been able to take the pounding incurred by Calgene's system for picking, packing and shipping, and they are being bruised and battered on their way to market. As a consequence, Calgene has had to do a costly overhaul of its packing methods, setting back the timetable for delivery of the tomatoes and causing a cash drain. Calgene maintains that FLAVR SAVR tomatoes will be in 2,500 stores by June. Meanwhile, DNA Plant Technology Corp. of Oakland, California, has demonstrated that its engineered Endless Summer (Tm) tomatoes require no special handling. They are being test marketed in Rochester, NY for rollout in the fall.

On the legal front, Calgene is engaged in a patent infringement suit with Enzo Biochem Inc. of New York over which company owns the rights to the "anti-sense" gene modification process used to produce the FLAVR SAVR. Enzo has alleged that Calgene infringes on its patent for altering genes, while Calgene claims that Enzo's patent is invalid on the grounds that a Calgene researcher was the first to demonstrate how the process works. The validating experiments were performed in 1983 at the Fred Hutchinson Cancer Research Center in Seattle. The Hutchinson Center sold Calgene a license to the process, for which the patent application is pending.

A leading biotechnology expert has testified that the Hutchinson Center research upon which Calgene's technique is based was fraudulent. If Calgene loses the case, it can appeal or pay a royalty to use Enzo's patent. In either event, a loss of the patent case could delay even further its planned nationwide distribution of the FLAVR SAVR tomato this summer.

J.B.

RUNNING TOTALS FROM APHIS
From 1987 to mid-April 1995, the Animal and Plant Health Inspection Service (APHIS) has issued 689 permits to introduce genetically modified plants. Following the 1993 institution of a simplified notification process for certain types of introductions, APHIS has acknowledged 1739 notifications. The term "introduction" includes not only field tests, but importation into the U.S. and interstate movement, as well.

Combined data for permits and notifications shows that the most frequent genetically engineered phenotypes are herbicide tolerance (785), insect resistance (668), product quality (558), viral resistance (264) and fungal resistance (77). A total of 52 different organisms have been introduced, including engineered trees, flowers, fungi and bacteria. Genetically modified corn is the most used plant (894), followed by tomato (344), soybean (306), potato (262), cotton (230), and tobacco (147).

Two Internet sites provide databases of information on field test permits and notifications. NBIAP's BioMonitoring Database contains up-to-date records that may be searched by multiple criteria, with search output written to a downloadable file. Environmental Assessment documents are also available for viewing or downloading. Access information is listed at the end of this News Report. The APHIS server at ftp.aphis.ag.gov carries permit and notification records updated daily.

PATENTS AND BIOTECHNOLOGY

Introduction
No single issue confronting the biotechnology industry may provoke as much passion and/or confusion as the subject of patenting. It is the complex mix of legal, ethical, political, financial, scientific and other issues that makes biological patenting the perplexing topic it is today.

Broad Patents
One area which has recently received much attention relates to the broad nature of some of the patents awarded to biotechnology firms. The issuance of these broad patents is partially a function of the newness of the industry for which little historical case precedence exists, forcing new patents to be evaluated based primarily on case law from the pharmaceutical and chemical industries. Two of the largest sectors of the biotechnology industry, biopharmaceuticals and plant agriculture, currently have companies involved in controversies related to the issuance of broad patents.

In late March, the biopharmaceutical firm Genetic Therapy Inc. (Gaithersburg, MD) was granted an exclusive license to a sweeping patent issued to the National Institutes of Health. The patent covers gene therapy techniques, with claims supported for all methods of ex vivo human gene therapy with human cells that have been genetically engineered in vitro to express a therapeutic protein or marker. This appears to be a coup for Genetic Therapy, given that over three-quarters of the gene therapies approved for clinical trial to date involve ex vivo therapies. The actual long-term benefit to the firm is still in question for a variety of reasons, one of which being the almost certain litigation that will likely arise from competing companies.

In the agricultural realm there are also a number of patents that have been issued over the last few years that have been considered by many to be exceedingly broad in their scope. In October 1992, Agracetus (Middleton, WI), a subsidiary of W.R. Grace & Co., was issued a patent covering virtually any type of genetically engineered cotton produced in the United States. This represented the first patent covering all transgenic forms of a single crop. Agracetus has also been granted a broad patent by the European Patent Office (EPO) covering genetically engineered soybean. A soybean patent is also believed to have been filed in the United States and Canada. Another U.S. company, Mycogen Corporation (San Diego, CA), was issued a seemingly broad patent covering a method for making plants resistant to certain insects using genes from the soil bacteria Bacillus thuringiensis (Bt). The patent broadly covers any method of modifying Bt gene sequences to make them resemble plant genes.

The Issues
Whether or not these broad patents should be issued, and their impact on research (both industrial and academic) and society in general, is a matter of debate. From the industrial side, strategies employed by patent attorneys are not unlike those of any other industry in terms of seeking the broadest patent coverage possible. The argument is relatively simple and is often used in the justification of not only patents, but pricing as well: firms that invest the R&D dollars necessary to uncover a patentable discovery should be able to generate an appropriate return on investment, and without patent protection, this is difficult if not impossible. If claims can be supported, regardless of the breadth of the claim, and they are validated through issuance of a patent, companies will seek to leverage their protection through mechanisms including licensing. In essence, as noted by one industry spokesman, "just because a patent is broad doesn't mean it's bad... If somebody invented broadly, they deserve broad coverage". But the issuance of a patent that is considered broad in its scope is sure to bring with it a number of adversaries and a list of fairly generic arguments in opposition.

The Agracetus cotton patent is a fitting example of the path other broad biotechnology-based patents may wander down in the future. Following its issuance in 1992, numerous critics of the patent surfaced, with a few, including the USDA, requesting a re-examination of the patent. Criticisms included the potential negative impact the broad patent would have on research and the fact that the work of Agracetus depended on "prior art," or breakthrough research conducted previously by others. It was this concept of prior art that lead the patent office to consider and undertake re-examination of the patent, and to revoke their prior decision of approval in December of 1994. The patent has also since been revoked in India. Opponents felt vindicated at the patents revocation, while industry expressed concern over the fear that the patent process could become compromised if patents were to be taken back simply because they were controversial. Although revoked, the cotton patent is still in effect today as Grace and Agracetus have an opportunity to appeal the reversal, with the ultimate outcome as yet uncertain.

The impact of this reversal on industry and its ability to garner broad based patents in the future is also unclear. The European Patent Office (EPO) is currently considering a request for re- examination of the Agracetus soybean patent. In this case, an unusual cadre of bedfellows from farmer advocacy groups and industry have come together in opposing the patent, although their reasons differ. Organizations opposing the patent include the Rural Advancement Foundation International, Ciba-Geigy, Monsanto, and Pioneer Hybrid.

Although it seems clear from these recent events that patent agencies are willing to consider and reconsider claims related to broadly defined biotechnology-based patents, it is unlikely that companies will change their strategies of seeking the broadest patent coverage possible. What also seems certain is that opposition to broad agricultural biotechnology patents is solid and will remain undeterred in its efforts, given the potential long term impact that these patents may have on research and the supply of new crops and related technologies worldwide.

The Biotech Patent Climate in Europe
Two recent events in Europe exemplify the controversy that surrounds the issue of biotechnology patents worldwide. Since 1988, there has been an effort to draw up a harmonized biotechnology patent system for member states of the European Union (EU). As recently as December 1994, the European Council and the European Parliament failed to agree on compromised draft legislation, but in January of this year, a compromise had seemingly been reached. But in early March, the European Parliament rejected the directive, throwing the prospect for some kind of harmonized legislation out the window for the near future.

It appears that special interest ultimately lead to the demise of the legislation. Opponents, including anti-technology "Green" activists have labeled the defeat a huge victory and are continuing with plans to challenge biotechnology-based patents that have been issued by the European Patent Office (EPO), one of the existing patenting mechanisms currently in place in Europe.

Although on the surface it would appear that this is a blow to the biotechnology industry, this is not necessarily the case. Many within the industry, although in favor of a more clearly defined patent system in Europe, felt that this directive had become watered down as a result of multiple compromises. Individuals within European biotechnology firms generally expressed the fact that they would prefer to work within the current system of EPO case law than to have worked under the guidelines of the failed directive. What is detrimental to European biotechnology firms is the negative political message this parliamentary vote sends potential investors in European biotechnology. Some feel that this vote has dealt a blow to European biotechnology, lending another competitive advantage to firms in the United States and Japan.

For now, those seeking patents will continue to file through the EPO or with individual national patent agencies. The outcomes for those filing agricultural biotechnology patents seems a bit unclear, as is much of this process. The EPO recently, for the first time, changed its interpretation of what constitutes a plant, versus a plant variety. The highest appeals board of the EPO ruled that a patent granted to Plant Genetic Systems (Ghent, Belgium) and Biogen (Cambridge, MA) for producing herbicide resistant plants through genetic engineering cannot cover plants and seeds resulting from the patented process. Although plant varieties are excluded from patentability under the terms of the European Patent Convention of 1973, this represents the first time that the EPO has restricted protection for a specified plant.

Although it is possible that this decision will impact a number of patents already issued by the EPO on other genetically engineered plants, PGS has expressed little concern stating that the decision will not in practice reduce its protection. It is thought that the reason for the ruling might be a reinterpretation of the term "plant," which by definition, could incorporate plant varieties and thus be unpatentable.

The failed EU biotechnology directive would have made it difficult for the EPO to not allow plants to be patented, according to some familiar with the draft legislation. Its failure to pass may open the door for opposition groups to more actively and successfully challenge the breadth of some of these biotechnology-based agricultural patents. Stay tuned!

William O. Bullock
Institute for Biotechnology Information
Research Triangle Park, NC

PUTTING TOGETHER THE PATENT PUZZLE -- THE KEY TO COMPETITIVE POSITION AND PROFITS
Over the next few years, the application of biotechnology to agricultural and food products will be moving broadly from the realm of science into the marketplace. Many people in the financial community are skeptical over the commercial potential of the technology; however, we believe "Main Street" is well ahead of "Wall Street" in terms of recognizing the real world potential of agricultural biotechnology. While the first genetically engineered agriculture and food products are here today, there is a pipeline full of new value-added products waiting to come to market over the next few years.

Consumers are asking produce managers where they can buy the new generation of genetically engineered tomatoes, such as Calgene's FLAVR SAVR (Tm) tomato and DNA Plant Technology's Endless Summer (Tm) tomato, both of which have more consistent year-round taste. Unbeknown to many people, a transgenic version of the enzyme chymosin is now used to make most of the cheese in the U.S. The American dairy farmer is rapidly accepting Monsanto's Posilac (Tm) recombinant Bovine Somatotropin (BST), which is increasing milk production and lowering costs. In response to the anticipated beneficial impact on the production economics for the major row crops, farmers are expected to stand in line in 1996 to buy Ciba Seeds' (Ciba-Geigy) and Mycogen Plant Sciences' (Mycogen) insect resistant seed corn; Stoneville's (Calgene) herbicide tolerant cottonseed; Delta and Pine Land's insect resistant cottonseed; and Asgrow's herbicide tolerant soybeans. These products will reduce farmers' costs and create premium value-added characteristics for the farmer, the agribusiness and food distribution chain, and the consumer.

While many companies are preparing to commercialize new ag-biotech products, their ability to do so depends on whether they have strategically developed the "freedom to operate", based on legal access to all technologies. The devil is always in the detail. What is not widely recognized is that the ability of a company to commercialize a genetically engineered product is limited by a number of factors: (1) a large number of technologies are used in developing a single product; (2) technologies are subject to proprietary intellectual property rights, many of which have been patented. A patent gives the holder the ability to exclude others from using and selling products which utilize these technologies; (3) the ownership of many technologies is uncertain, given the number of patent applications which are pending, as well as overlapping claims. Even after patents are issued, they are subject to interference claims and litigation; and (4) patented technologies may or may not be available on a licensing basis, based on different degrees of exclusivity.

The purpose of this article is not to deal with the complexity of the intellectual property and patent issues surrounding the technologies used in agricultural biotechnology. Patent law, as applied to agricultural biotechnology, is new and evolving. Rather, it is to focus on the real world issues and practical examples as to how companies are strategically creating the "freedom to operate" to commercialize products, which is the key to competitive position and profits. We will deal with three areas of discussion: (1) the key technology pieces which are typically required to genetically engineer a specific trait into a plant; (2) how companies are creating the "freedom to operate"; and (3) examples of how two companies, DNA Plant Technology and Mycogen, are solving their own "patent puzzles".

One Product Requires a Number of Key Technologies
The application of biotechnology to plants represents a broad spectrum of technologies, including recombinant DNA, which allows the direct transfer of a specific gene into a plant. An individual company's competitive position reflects: (1) the identification and isolation of genes that determine specific characteristics; (2) the development of efficient transformation systems, which include a large number of technologies, to create transgenic plants; and (3) the development of broad technologies that can create a pre-emptive competitive position. The ability to genetically engineer a specific trait, and most importantly, the "freedom to operate" from a commercial standpoint, requires legal access to a number of pieces of intellectual property, the most important of which are:

Negotiating the "Freedom to Operate"
Given the number of technologies, proprietary patent positions, and uncertainties over the ownership of other patents, a company's ability to develop the "freedom to operate" is critical. In our view, a company's ability to gain legal access to all the technologies necessary to commercialize a genetically engineered product and protect against the future resolution of uncertain patent ownership requires strategic technology positioning. While part of the answer is licensing, when it is available, licensing can become very expensive, whether it be based on an up-front paid-up fee or a royalty arrangement. In the latter case, what is not readily appreciated is the royalty load that some new genetically engineered products will carry, which will dramatically reduce their profitability.

In the long run, the companies that will be successful in terms of maximizing profits from their technology base will be those that are willing to strategically negotiate timely access to needed technologies. This can be accomplished through cross-licensing, the formation of joint ventures between holders of key technologies and commercial alliances. In our view, priority should be placed on commercializing products as quickly as possible, or otherwise, risk competitive position.

The Real World Of Putting Together the Intellectual Property Puzzle
To get an idea as to how two companies are strategically positioning themselves to create the "freedom to operate", we will describe two different approaches: DNA Plant Technology's genetically engineered Endless Summer tomato, which is now in a test market and is expected to be rolled out commercially in fall 1995; and Mycogen's insect resistant corn, which is expected to be commercialized in 1996.

DNAP's Endless Summer Tomato - A Case of Developing Proprietary
Alternatives to Create the "Freedom to Operate". DNA Plant Technology's Endless Summer tomato has been genetically engineered to turn off the enzyme-based production of ethylene, which coordinates a number of the biochemical processes during the ripening of tomatoes. DNAP's competitive position is based on its proprietary technological base and the development of proprietary alternatives to insure its "freedom to operate". The following summary discusses DNAP's major technologies and its strategy to control its own destiny.

DNAP's "freedom to operate" to commercialize their Endless Summer tomato is subject to negotiating a cross-licensing agreement with Monsanto for use of the 35S promoter and the kanamycin (kanR) selectable marker gene system. While the current version of the Endless Summer tomato utilizes these two patented components, DNAP is currently in the process of substituting a proprietary fruit specific promoter to drive expression of the TRANSWITCH construct and an ALS-based selectable marker system, which is made up of the proprietary ALS gene (patented by DuPont) along with a proprietary promoter and terminator. In collaboration with DuPont, DNAP developed a selectable marker system, which is resistant to chorsulfuron, a sulfonylurea-based herbicide, which is produced from a plant-based enzyme, ALS (acetolactate synthase). DNAP's proprietary ALS promoter has a patent which is pending. A newer technology package, based on its proprietary promoter and marker gene system will be used in the new second generation version of the Endless Summer tomato. With regulatory approval of the Endless Summer tomato with the new technology package expected in early 1996, DNAP will have complete "freedom to operate".

Mycogen's Insect Resistant Corn - A Case of Cross Licensing to Accelerate Commercialization and Create the "Freedom to Operate"
Mycogen and Ciba Seeds each are expected to be the first two companies to commercialize B.t. (Bacillus thuringiensis) insect resistant seed corn in 1996, which has shown very effective protection from the European corn borer. The intellectual property position in bringing B.t. to the major crops is complicated by the number of players, the number of technology pieces which are patented and the number of patent filings which are pending. While it may not be clear whether any one company has the complete "freedom to operate", Mycogen believes that its broad intellectual property and patent position, both issued and pending in both the U.S. and Europe, puts it in the leading B.t. technology position.

Mycogen's strategic approach to become one of the first companies to commercialize insect resistant seed corn and create the "freedom to operate", is based on a two phase strategy. The first phase was the signing of a cross licensing agreement and research collaboration with Ciba Seeds in 1993. In return for giving Ciba Seeds access to its technologies for its first generation product, Mycogen was able to accelerate its entry into the marketplace by gaining access to Ciba Seeds' first generation B.t. transformed corn plant.

Ciba Seeds' recognition of Mycogen's broad intellectual property position as related to bringing B.t.'s to plants, in our opinion, was instrumental in forging the Ciba Seeds/Mycogen relationship. This position is based on four critical technology areas: (1) the transformation of plants with insecticidal B.t. genes to bring insect control to plants. A patent covering this broad area issued in Europe and is pending in the U.S.; (2) the synthesis of B.t. genes to dramatically improve B.t. protein expression in plants. A patent covering the synthesis of B.t. genes was issued in the U.S. in early 1995 and is pending in Europe;(3)the composition of plants containing synthetic B.t. genes for optimal insect control. Related patent filings are pending in both the U.S. and Europe; and (4) Mycogen's large collection of proprietary B.t. genes based on patents, both issued and pending.

Mycogen access to Ciba Seeds' technology base, combined with its own, has created almost complete "freedom to operate". Ciba Seeds' technology base includes the following major components:

The second phase of Mycogen's strategy is to create the "freedom to operate" for second generation B.t. seed corn products, by combining their own proprietary technologies with those that are licensed: