Drugs, Not Gene Patents, Drive Biotech Companies (Correct)
By Brian Reid and Kristin Reed
Washington, May 9 (Bloomberg) -- Benjamin McGraw runs a drug
development company that depends on acquiring patent rights to
human genes from companies and universities that discover them.
Buying and selling genes, a business that excited investor
interest in biotechnology stocks this year and briefly doubled his
company's share price, isn't really where the money is, he said.
``So far, the cost of a license to a gene has been very
reasonable,'' said McGraw, chief executive of Valentis, Inc.,
which recently agreed to pay about $1 million and a percentage of
future drug sales for patent rights to a gene it's using to
develop a drug for heart disease.
The market value of gene patents won't emerge until they're
used to create drugs, though that didn't keep investor enthusiasm
from more than tripling shares, earlier this year, of Incyte
Pharmaceuticals Inc., Human Genome Sciences Inc. and other
companies that hold hundreds of gene patents.
Simply discovering genes doesn't guarantee profit, said
McGraw. ``It's the guys who are discovering the function'' of the
genes that may be able to use the knowledge to create profitable
products, he said.
McGraw hopes to be among that group. Valentis designs
medicines using human genes encased in fatty materials called
lipids.
When Valentis buys or licenses a patent for a gene, it
receives a description of the gene's parts and an inkling of its
function, usually in return for royalties on drugs based on the
gene.
Valentis has five compounds in human trials. The company
purchased patent rights last year from Vanderbilt University and
Progenitor Inc. for a gene called del-1, which stimulates the
growth of blood vessels. Valentis says it hopes to use the gene to
make treatments that prevent chest pain and heart attacks.
Wild Markets
Even if the worth of patents is unclear, investors have
poured money into shares of companies accumulating gene patents.
Shares of Magainin Inc. jumped 19 percent on March 28, after
the company said it had patented an asthma gene. Human Genome
Sciences rose 21 percent on Feb. 16, the day it said the company
had won a patent on a gene that may play a role in HIV infection.
Valentis shares more than doubled in January and February.
Those gains vanished in the weeks following President Bill
Clinton's March 14 statement that gene data should be freely
available to all scientists. Clinton's statement raised concerns
about gene patents that he later sought to dispel by endorsing
companies' rights to patent privately funded genetic discoveries.
The Nasdaq Biotechnology Index fell 13 percent on March 14
and continued its slide even after Clinton's subsequent statement.
The index, which had risen 26 percent for the year before then,
has fallen almost 15 percent since.
Still, ``investors continue to have very high expectations
for the ability of genomics technologies to revolutionize drug
discovery,'' said Ahktar Samad, a biotechnology analyst at Oscar
Gruss & Son.
Accelerating Drug Discovery
Drug companies now find new drugs through a process of trial
and error, analyzing thousands of compounds in the hope that one
will have a medical use.
Genomics could speed that discovery process. Knowing a gene
and how it works can give drugmakers a blueprint for designing
molecules to mimic the functions of beneficial genes and proteins,
or block the action of damaged ones.
A gene patent gives the holder 20 years of exclusive rights
to commercialize the use detailed in the patent.
To satisfy the patent office, researchers must give a
detailed gene sequence -- the string of chemical letters that
defines the gene -- as well as its functions and the ways in which
it can be used. Others may patent additional uses for the gene,
though the sequence can only be patented once.
Patent Value
The value of most gene patents is likely to depend on whether
the patent includes enough data to be used in making new drugs.
An HIV-related gene patent held by Human Genome Sciences may
face legal challenges, experts said. There is no dispute that the
company first identified the gene's sequence, but analysts say the
uses listed in the patent are vague and the patent doesn't explain
the gene's connection to HIV. Another company might win a patent
that describes in detail how the same genetic sequence can be used
to fashion a new generation of AIDS drugs.
``A patent is only as good as the scope of its claims,'' said
Judy Jarecki-Black, a patent lawyer at Womble, Carlyle, Sandridge
& Rice. ``Just saying, 'I have a patent on this gene,' doesn't
mean anything.''
Gene patents will be most valuable to companies that use the
information to develop blockbuster drugs, experts say.
``Where the multibillion-dollar company lies, is in the
creation of multibillion-dollar drugs,'' said Steven Holtzman,
chief business officer of Millennium Pharmaceuticals Inc., which
has won 60 patents in the last three years, most for genes or
methods of using genes to make drugs. ``From the beginning, we've
said that genes are not enough.''
Millennium seeks to use its gene discoveries to design drugs.
Incyte has no plans to develop drugs from its portfolio of
hundreds of patented genes. Instead, the company enters all of its
genes in a database. Drug companies pay about $10 million a year
for access to the information and promise Incyte a share of
profits from any drugs based on the data.
With no drugs on the market developed directly from gene-
patent information, companies can only speculate about the worth
of any gene patent, a process James Johnson, the chief financial
officer of Targeted Genetics Corp., compared to a land rush.
Companies patenting genes are ``like someone who bought huge
quantities of Southern California real estate in the 1940s and
1950s,'' said Johnson.
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