Foundation’s stem cell patents impede research, scientists say

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The San Diego Union-Tribune

In Wisconsin lurks a force that scientists say is strangling embryonic stem cell research far more than any federal funding restrictions.

The University of Wisconsin Alumni Research Foundation, generally known as WARF, holds three broad patents that essentially give it control of embryonic stem cells used in the United States.

Scientists charge that WARF‘s greed in controlling the patents is thwarting potentially life-saving research.

University of Wisconsin Madison Researcher James A. Thomson received the first embryonic stem cell patent in the United States in 1998.

Earlier this month, two consumer groups and a stem cell scientist from the Burnham Institute in La Jolla filed the first request to the U.S. Patent and Trademark Office that the patents be invalidated. Besides complaining about their scope, the groups said the patents never should have been issued because they cover science that is not unique.

WARF‘s defense is that it owns a seminal technology that is the gateway to a hot new field, and it wants to be paid a fair price for sharing it, according to one of its lawyers.

What’s ultimately at stake is control of a potential billion-dollar industry that could make therapies to treat some of the world’s most devastating diseases.

Scientists in the United States say the race is still in its early stages, but other countries are pulling out in front. In Singapore, Israel, the United Kingdom, Sweden and China, experts are plowing ahead with this promising science, unfettered by the patents and supported by government research funding not available in this country.

As a result, many U.S.-based scientists are looking for opportunities to take their work abroad. Two studies out of Princeton University show that U.S. stem cell scientists, compared to researchers in other fields, are disproportionately considering leaving the country. Patent concerns and access to the essential cells were among the reasons cited.

Patent claims

In 1998, University of Wisconsin researcher James A. Thomson received the first embryonic stem cell patent in the United States, after claiming he had a recipe for extracting the cells from primate embryos.

Thomson received additional stem cell patents on the process in 2001 and last April.

Under the patents, a researcher in the United States who uses embryonic stem cells in any way must pay a licensing fee to WARF, the university’s licensing arm.

“Outside of the (U.S.) government, the No. 1 hindrance to stem cell research is the WARF patents because of how they try to enforce their licenses,” said Mahendra Rao, the former head of the National Institutes of Health‘s stem cell efforts.

Rao quit that coveted position last year and took a job with Carlsbad-based Invitrogen, an international biotechnology company. In his new job, Rao can work on embryonic stem cell projects at Invitrogen‘s offices around the globe. That includes an office in Asia, where the company recently moved a portion of its embryonic stem cell program, said company spokesman Greg Geissman.

Rao’s concern about WARF has been echoed by the current stem cell chief at the NIH and by the chief scientific officer at the science-funding Juvenile Diabetes Research Foundation and intellectual property lawyers across the country.

The critics say they don’t oppose patents, just the degree to which the foundation wants to profit from those it controls.

Licensing rights

WARF lawyer Elizabeth Donley said allegations of excessive control and greed are false, trumped up by scientists looking to use a crucial research tool for free. She said the patent challenge is a red herring.

“We are the only ones who have distributed (embryonic stem cells) to more than 300 different researcher groups worldwide and trained scientists in dozens of countries. Fifty-four scientists in California are currently using our stem cells for free,” Donley said.

The stem cell patents have brought the university wide recognition, including a 2001 appearance on the cover of Time magazine for Thomson. WARF‘s patent work, which also includes the rights to the blood thinner Warfarin, earned it a national Medal of Technology from President Bush, for “making sure the public benefits from its research.”

And Carl Gulbrandsen, who earns $336,500 as the managing director of WARF, last year was appointed by Bush as a policy adviser to the patent office.

Early on, WARF recognized the licensing potential of its embryonic stem cell patents, and created the WiCell Research Institute to license the rights to the cells and to further the research on them. The foundation won’t disclose the revenue it has made from the patents but said it earns less than it spends on stem cell research and licensing.

One of the foundation’s first negotiations was with the federal government, which had supplied grant money for the research that led to at least the first patent.

That led to an agreement under which the federal government, the National Institutes of Health, the Food and Drug Administration and the Centers for Disease Control and Prevention would be able to use the cells free for research.

WARF also agreed to make it easy for nonprofit research labs to obtain and use the cells. Originally, WARF charged research institutes $5,000, but that fee recently was reduced to $500.

However, if the research leads to a discovery that could be patented and then licensed to other scientists, the foundation wants those licensees to pay it, too, said John Wetherell, an intellectual property lawyer with Pillsbury, Winthrop, Shaw and Pittman in San Diego.

Stacks of fees

Nonprofit labs get off easy, compared with what commercial biotechnology and pharmaceutical companies must pay, WARF‘s critics say.

According to the Foundation for Taxpayer and Consumer Rights, which filed the July 18 challenge to the WARF patent, licensing fees can go as high as $250,000.

And that does not include annual maintenance fees of about $40,000 and potential royalty payments, Wetherell said.

Donley, the WARF lawyer, would not talk about the high end of the foundation’s scale of licensing fees. But she said a commercial license could be as low as $75,000, broken into three annual installments. WARF has also been willing to take a stake in a company in lieu of fees, she said.

“If a company can’t afford our $25,000 yearly fee, then it cannot afford the growth factors it needs to grow the cells,” Donley said.

That’s a flawed argument, said Cathryn Campbell, an intellectual property lawyer with Needle and Rosenberg in San Diego.

“It’s about how to maximize the value of this technology and how much this license should cost,” Campbell said. “Even $25,000 is a lot for the kind of biotech company that will likely be doing this research.”

Rights held by Geron, a San Francisco Bay Area biotech company, represent another expensive hurdle. WARF gave it exclusive commercial rights for the use of embryonic stem cells in treating cardiac, nervous system and pancreatic diseases.

If a company wants to develop therapies in these areas, it must negotiate a licensing fee and royalties with Geron.

Wetherell said companies often must combine the science covered under several patents to create a product, meaning they have to pay royalties on a stack of licenses. If that stack amounts to too big a percentage of potential profits, it becomes a disincentive to work on a product for which there’s no guarantee of success, he said.

Biotech origins

The WARF patents are much more expensive to use than some of the pioneering patents that have come before it — including at least one that was essential in the creation of the world’s biotechnology industry.

In 1980, Stanford University and the University of California system patented recombinant DNA, the process of splicing genes from one cell into another. It was one of two pivotal patents that gave birth to biotech.

The Cohen/Boyer patents were broad in their scope, but Stanford and the UC system made a decision to license widely and cheaply to early biotech companies and to make the technology available without charge to universities and nonprofit institutes.

Biotechnology companies grumbled at the time about having to pay $10,000 for the science, but it was much cheaper to buy the license than to fight it in court, Wetherell said.

The result was that more than 350 companies took licenses, the universities made $255 million and the public got the benefit of the products that were developed, Campbell said.

Long reach

For scientists like Joydeep Goswami, it’s not just the fees WARF charges that are problematic.

Even more troubling, he said, are the controls that WARF wants to place on companies using the cells and on products that are developed using embryonic stem cells at some point along the way.

For two years now, Invitrogen has been negotiating a license with WARF, said Goswami, Invitrogen‘s vice president for stem cells and regenerative medicine.

“We are not opposed to patents. We respect them and see their value,” Goswami said. The company typically pays for licenses on 40 patents a year, he said. But WARF has what he called “a reach-through royalty clause, where they say anything you’ve invented remotely by using human embryonic stem cells will now have a royalty obligation back to WARF.”

For example, if Invitrogen uses embryonic stem cells early in the development of a tool for drug discovery but the production of the tool doesn’t involve stem cells, WARF would still want royalties on the tool, he said.

WARF also wants companies with licenses to pay royalties on products they sell in foreign markets that don’t honor the patents, Goswami said. That would give an advantage to companies overseas, which can develop the same tools without owing money to WARF.

Donley denied that WARF charges the reach-through royalties, although many scientists, business executives and intellectual property experts cite them.

The bottom line, Donley said, is that the incentive for receiving a WARF license is the ability to do business in the United States, the world’s largest drug market.

California tab

WARF has now turned its attention to the new California Institute of Regenerative Medicine, which was created under Proposition 71 to distribute $3 billion in bond proceeds to further stem cell research in the state.

Though the agency will distribute money only to scientists — and will not conduct any research itself — WARF wants it to pay some type of fee.

Whether that will be a licensing fee, royalties or some kind of deal that allows WARF scientists to collaborate with Proposition 71-funded scientists needs to be worked out, Donley said.

Leaders of California’s stem cell institute said they have met with WARF, but insist there are no ongoing negotiations with the foundation.

The stance of the stem cell institute is that the researchers receiving state grant money are “knowledgeable third parties with all the know-how of receiving all the licenses and approvals they need to conduct their research,” said Edward Penhoet, vice-chairman of the institute’s board.

Recently, the California institute’s board decided that if a grant-receiving organization made a discovery with Proposition 71 dollars that could be patented and sold, a portion of the profits would be returned to the taxpayers.

The board debated this policy at length, because it was looking for a balance between getting a return on the investment of taxpayers and not hindering scientific development.

WARF has decided it is entitled to a cut of the state’s royalties.

“They are building a program using our patent. You can’t build a program on our patents and pay us nothing,” Donley said. “Who has dollar signs in their eyes now?”

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