No. of Recommendations: 7
Posted this on the bio board, but thought it was a good article for this board too. Any comments on where patents are headed and who seems best positioned in possible outcomes. Bios are hard to follow for the interested with no law and science background. I keep reading!

Hi Chris,

I am pulling myself out of the muck of Bar Exam preparation. Ugh! I don't like when I have to focus on one thing 18 hours a day, it's killing my post per day rate.

Regardless, I'll try to tackle your question from a "need to know" standpoint of investors.

First off, patents on gene based inventions are strong and should stay strong. The President, Judge Rader from the Federal Circuit, several others and (humbly) myself think that patents of gene based inventions are here to stay. The question is, in what form and what is required to obtain one.

Now, since you read the biotech report you know the difference between composition of matter patents and method patents. Method patents are narrower in protection and are therefore found much less objectionable by scientists and others who're concerned about stifling research.

Method patents would cover something like "Using compound X (i.e., a list of bases) to treat disease Y." Anyone who uses compound X to treat Y is infringing. These patents are strong and are here to stay. They are the mainstay for pharma companies in that many compounds with therapeutic uses are heretofore already known compositions. They are still quite powerful in that they can be stated broadly enough to cover many non-material varitions in compound X and use Y.

Composition of matter patents are where the majority of angst lies. A patent on a composition of matter allows the owner to prevent others from making, using or selling that compound. For any reason, whatsoever. Many scientists believe them to be too broad and think that they inhibit research. The patent office, the courts and the legislature don't yet seem to object to them per se. However, many are concerned that they are being given away too easily.

To prevent a flood of patents on genes as a composition of matter, the USPTO (U.S. Patent and Trademark Office) is imposing stricter guidelines on the utility standard. Utility is defined as a practical use such as a diagnostic procedure or therapeutic use. It is a requirement for obtaining the composition of matter patent, not a limitation.

This is confused with the mehtod patents where the utility is part of the limitation. Using compound X to treat Y is the scope of protection as well as embodying an actual utility. But, they don't have to be joined like that. Otherwise an invention that was a chair would only be infringed by someone using the chair to sit on(the purchaser) and not the manufacturer (who never sits on the chair).

Back to the utility standard. The big question is whether the utility can be proved using prospective (or predictive) biology or actual biological data. Right now, the USPTO has reversed itself and is insisting on actual testing biological in vitro or (preferably) in vivo testing.

What does this mean to us as investors?

Well, let us consider our different groups of companies. We have pharma companies, bioinformatics companies and some of both.

Pharma Companies
For them, it is business as usual. A method patent protects their invention just fine. They also do lots of in vitro and in vivo testing which gives them a good argument for composition of matter patents.

Mixed Bioinformatics/Pharma
These companies include HGSI and MLNM. Their actual drug development programs won't suffer from the necessity of doing in vivo/vitro testing because it is necessary for FDA clinical testing.

However, their informatics work does not include as much in vivo/vitro testing as the drug development. Here we have a problem, I would be careful about preguessing the number of patents that company would get based on the number of applications filed. From the slow trickle of gene patent issuance, my guess is that only the most well-supported apps will make it through.

Is this that bad? In my opionion,no. Those that don't make it through are of more specualtive value anyways. However, it puts a damper on my enthusiasm a bit for the large patent estates that HGSI and INCY are touting.

What I personally like about HGSI is that they have focused their efforts on a select list of genes - the signalling proteins. Because these proteins are express between cells and are garnered from tissue-specific cells, HGSI is much better equipped to make out a case for utility. Especially with claims for diagnostic proceedures. If you are seeing elevated amounts of certain tissues in the blood stream that tend to be involved in cancer (i.e., the colon) then you have a great diagnostic test which will easily meet the utility standard.

I also like HGSI and MLNM in that they are doing drug development. With that drug development comes the equipment, people and experience to make out an excellent case for utility.

Here we have companies ranging from the over-hyped DoubleTwist, to Celera Genomics, to Incyte. In this case I see that tighter restrictions on the patentability of genes will HELP CRA and DoubleTwist. Why? Well for two reasones.

ONE: Because it will move the land rush participants back to the starting line and give CRA and DoubleTwist and other newer companies a chance to compete. Then CRA has a crack at the genes that were in earlier patent applications that would be abandoned or fail to issue under the tighter utility requirements. Thus, it is a new race and the fastest will win. Those with the most speed.

Who do you think will win the battle for speed? I don't think I have to answer that one.

SECOND: I think that copyright will become the protection of choice for MOST bioinformatics basic science information. This will favor the largest databases and not the earliest, because you can rediscover the same gene in a new database without paying royalties to the first database. If it were a patent the drug company using the CRA database would find the gene, and then once it wanted to make that gene it would have to pay INCY. In other words, most would want to sign up with INCY just to get the patent license for making the gene that goes with it.

Copyright protection will be necessary to cover that information that doesn't meet the utility standard. This will be most of the information since in vivo/vitro testing is expensive and time-consuming. Most of this work will be done as part of collaboration with pharma companies. Because copyright protection only covers the form of the expression and not the data itself, this information can be rediscovered. This means that the fastes bioinformatics company will be the best.

Okay, at this point I will stop and summarize on the effects of the new guidelines.

1. It won't affect drug development biotech companies (or big pharma).

2. Mixed bioinformatics and drug development companies will lose some valuable patent estate (or never really gain it in the first place). However, they can best minimize the damage because they have done more in vivo and in vitro testing.

3. Old bioinformatics companies better look out. Their patent estates may not be realized and they are going to lose that costly lead they had. Their survival will depend on being able to beat the others to the finish line because the race is being restarted.

4. New bioinformatics companies are in the catbird seat if the increased utility standards are upheld. Those with the biggest and best databases will prevail (hence those building the databases the fastest are the best picks). The protection of choice will be copyrights since most of the information will not really meet the utility standard.

Whew! Time for bed, long day of studying tommorrow.


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