By: Lila Feisee
BIO's Director for Federal Government Relations and Intellectual Property
Consider this: We all know that Alexander Fleming discovered
penicillin. Some of us know he did it in 1928. But how many people can tell
you who Andrew J. Moyer is — and why penicillin didn't become commonly available
Indiana-born Andrew J. Moyer was a microbiologist with the
U.S. Department of Agriculture in Peoria, Ill. At the start of World War II,
recognition that penicillin could treat wounded soldiers led to international
cooperation in looking for a way to mass-produce the drug. In the United States,
Moyer was handed the assignment. And he produced. He found that by culturing
the Penicillium mold in a culture broth of corn steep liquor and lactose,
penicillin yields rose dramatically. He also discovered that in this medium,
continuous shaking further improved yields and the production rate. Andrew
J. Moyer holds patent numbers 2,442,141 and 2,443,989. We'll come back to
Who should own biotech inventions? The question is vital to
the industry — the answers have spurred the growth of biotechnology and will
determine its future. In answering this question, we'll focus today on two
issues: the law covering patents and the function of technology transfer —
specifically, how research paid for by the federal government is allowed to
Let's start from the legal beginning, with the Constitution.
Article I, section 8, clause 8, gives the federal government the mandate "to
promote the Progress of Science and useful Arts, by securing for limited Times
to Authors and Inventors the exclusive right to their respective Writings
A little later, the Patent Act of 1952 specified, among other
criteria, that a composition of matter, or an improvement on the composition
of matter, a process of making and a process of using the composition of matter
make a discovery patentable. The law forbids products of nature, laws of nature
and mathematical algorithms from being patented. However, nothing in the patent
act precludes a patent from being issued on an extraction from nature when
it has been formed into a useful composition of matter.
Patents and the Courts
The courts have upheld this. In 1979 the Court of Customs
and Patent appeals ruled in In re Bergy, that a biologically
pure bacterial culture was patentable and not a "product of nature,"
since the culture did not exist in nature in its pure form and could be produced
only in a laboratory under carefully controlled conditions.
Then in 1980 the Supreme Court in Diamond v. Chakrobarty
found that genetically engineered bacteria useful for cleaning up oil spills
were patentable. In writing for the majority, Chief Justice Burger cited the
congressional report accompanying the 1952 Patent Act that Congress intended
statutory subject matter to include anything under the sun that is made by
The law is clear on who should own biotech inventions.
Interestingly, before 1980, only a handful of biotech companies,
including Genentech and Cetus/Chiron, were around. After Diamond v.
Chakrobarty, the biotech industry grew phenomenally. Coincidence?
Government Sponsored Research
Another factor that spurred growth was legislation passed
in 1980 reforming U.S. patent policy related to government-sponsored research.
A little background on this issue —
Since World War II, the U.S. government has made significant
contributions to the world's science and technology base, both by supporting
basic scientific research and by pursuing science and technology missions
within federal agencies.
Two major beneficiaries of this federal spending have been
universities and U.S.-based corporations. The universities benefited because
the government was willing to underwrite basic research that may not lead
to the creation of new and profitable products or services in the near term.
The corporations benefited from the products and services they could develop
for the government itself as well as from the "spin-off" process,
whereby the results of government-sponsored research were used to develop
products and services for the private sector.
Despite the perceived success of federal efforts to support
R&D, by the late 1970s there was a growing dissatisfaction with federal
policies on patenting the scientific knowledge resulting from the research.
Many government officials, for example, believed that federal laboratories
were keeping information away from those who could make use of it. There was
also a concern that because the government had retained title to inventions,
no one was bothering to advance the research. There was no incentive to do
so. Further, with the maze of bureaucracy caused by lack of a uniform policy,
made companies reluctant to deal with the government, even if they were interested
in the research.
By the end of the 1970s, fewer than 5 percent of the 28,000
patents being held by federal agencies had been licensed. Almost all the research
sat on the shelf, gathering dust, because no one had an incentive to do something
In 1980, Congress addressed these concerns by enacting the
Bayh-Dole Act (P.L. 96-517, Dec. 12, 1980). The act had two purposes: (1)
to allow universities, not-for-profit corporations and small businesses to
patent and commercialize their federally funded inventions and (2) to allow
federal agencies to grant exclusive licenses for their technology to provide
more incentive to businesses.
With the help of the Supreme Court decision of Diamond
v. Chakrobarty and the Bayh-Dole Act, the biotech industry sky-rocketed.
Today there are over 1,300 biotechnology companies in this country alone.
These companies are developing effective new therapies and cures for myriad
diseases, including our most intractable illnesses such as heart disease,
all forms of cancer, Alzheimer's, Parkinson's, osteoporosis; almost every
disease is under assault by biotechnology companies. Because of the rapid
pace of this research, people born in the last decade of the 20th century
have a good chance of seeing the dawn of the 22nd century — and be
in good enough condition to enjoy it.
The U.S. biotech industry is the world's largest, by far,
and most successful, employing more than 150,000 people; that's more than
the toys and sporting goods industries. If you add in jobs generated indirectly
by biotechnology, the industry was responsible for nearly a half million jobs
last year and a total of nearly $50 billion in revenues.
As I indicated earlier the biotech industry is a little over
two decades old and the genomics advances you hear so much about have occurred
within the last 10 years. In that short time, the biotech industry has produced
nearly 100 biotech drugs and vaccines that have helped more than 270 million
people worldwide. Another 350 biotech medicines are in late-stage clinical
It's a sunny day for biotechnology.
The situation will start to cloud over if anyone steps between
biotech companies and the patents they can receive.
Because our industry is so research-intensive and because
our companies rely on private investment to support that research, they and
their investors on Wall Street are sensitive to public policy decisions made
here in Washington. We saw evidence of this most recently with the joint statement
by President Clinton and British Prime Minister Tony Blair on gene patents.
A misinterpretation of that statement shook Wall Street's confidence in our
companies. The dive in confidence was followed immediately by a dive in investment,
which happily, we survived and recovered from.
The good news is that intellectual property, in this case
gene patenting, is an issue where a little explanation can clear up a lot
of questions. Patents are not granted on the raw DNA sequences of genes. A
patent is awarded only if the applicant can describe a gene's role in human
health or other commercial application. And a patent has no impact on academic
researchers not engaged in commercial activity. Such researchers are free
to work without getting a license.
But without patents, there would be no biotech industry and
no innovative drug development. You should know that developing a drug is
risky and challenging. On average, it takes hundreds of millions of dollars
(specifically 500,000,000) and 10 or more years to develop a single drug or
vaccine. And for every five drugs that enter clinical trials, only one is
approved for patients.
Incentive to Discover
Patents enable companies to sell their new treatments and
cures for a limited time free from competition. This gives them the opportunity
to earn the money they need to stay in business, pay their employees and re-invest
to develop more new drugs.
Indeed, we can argue that securing a patent spurs benefits
to the public. Return with me to the case of penicillin, which is a perfect
example of lost opportunity. Fleming discovered it, but didn't patent it.
He had no idea what penicillin did. Because there was no patent, there was
no incentive for any company to determine what penicillin did, and it lay
undeveloped for many, many years. Eventually a company secured a patent on
a method of manufacturing penicillin, and it was finally developed as a drug.
It would have been perfectly appropriate to patent penicillin if a company
could have isolated it, purified it, identified its structure, and determined
its value to human health.
There are lots of compounds in nature that the biopharmaceutical
industry has developed as drugs and biologics. Interferons, interleukins,
and insulin are found in nature, but they are not found in a form that is
usable as a drug or biologic. If a company extracts the compound from its
natural setting, purifies it, identifies its structure, and determines how
it affects human health — you have a patentable industrial invention.
The patent system does not just apply to completely man-made
synthetic products. If it did, we'd ignore all the wonderful benefits we can
find in what Mother Nature has created. It is true that one cannot patent
an element found in its natural form; however, if you create a purified form
of it that has industrial uses — say, neon — you can certainly secure a patent.
Remember: "Anything under the sun made by man."
The Success of Technology Transfer
Now, let's look at how at the matter of technology transfer.
Some people might ask if ownership issues are different for innovations produced
with federal funding. The short answer is "NO." Let me take you
through the longer answer.
The United States leads the world in research and development
of biotechnology products. A key reason for this is government support of
basic research at universities through funding from the National Institutes
of Health. Breakthroughs in basic research can lead to life-saving therapeutics
through cooperative efforts of the public and the private sectors.
The NIH is the pre-eminent American basic medical research
agency. For its contribution to the drug development process, in 2000, NIH
was paid $52 million in royalty payments by the biopharmaceutical industry.
Also in the year 2000, the NIH obtained 120 U.S. patents, filed 189 applications
and executed 185 licenses and 109 cooperative research and development agreements
(known as CRADAS) with the private sector.
In 1996, according to the Association of University
Technology Managers Licensing Survey, FY 1997, of the $478.5 million
in royalty payments universities received, 87 percent ($416 million) were
from life science inventions, most of which grew out of federal research grants.
As a result of the transfer of technology from the public
sector (NIH and its funded institutions) to the private sector, 23 new biotech
drugs were approved for marketing in 2000. Much of the basic research that
yields these life-saving therapeutics could not happen without NIH-funded
research. But contrary to public opinion, NIH cannot create biotech therapies.
It is not equipped to do so.
NIH and Biotech
The notion that NIH research has spawned the biotechnology
revolution is a real one, though a bit oversimplified. In most cases, the
government's role in bringing a new therapy to the market is far upstream
from the high-risk, capital-intensive development and testing that biotech
and pharma companies undertake. The biotech industry, which has more than
doubled its revenues in the past six years, spends a greater percentage of
those revenues on R&D than any other industry. In 1999, the industry spent
$11 billion on R&D, more than 50 percent of its total $20 billion in revenues.
Government funds for basic research are a small portion of
the total cost of translating a laboratory discovery into a life-saving medicine.
Biotech companies spend many times more than the initial NIH funding to bring
a new product into the marketplace.
Patent protection makes investment of time and money in biotechnology
possible. Biotech companies could not risk the enormous investment required
to develop products without the intellectual property protections provided
by the licenses they negotiate with university patent holders. Without exclusive
licenses to those patents, biotech companies could not raise the hundreds
of millions of dollars in capital required to create new medicines. As I've
already mentioned, the biotech industry spends more per employee on research
and development than any other industry.
Some people are calling for what amounts to price control
on drugs that are developed from federally funded basic research. Senator
Wyden of Oregon noted that Bristol-Myers Squibb's revenue from the cancer
drug TAXOL in 1999 was $1.5 billion. He said that "this was not a drug
that came about through the genius of the private sector; it was a drug developed
at the National Institutes of Health by dedicated scientists who worked hard
and were pushing with every ounce of their strength to come up with new products
to help women."
But consider this: To develop TAXOL, Bristol-Myers Squibb
invested approximately $1 billion (not including expenditures
for marketing, advertising or sales promotion) while NIH spent only $32 million
(and both spent an estimated $65 million to $114 million in a CRADA).
To give you more evidence of how Bristol-Myers Squibb conducted
the majority of the research, and spent the vast majority of the money to
develop TAXOL, I offer the fact that the company's employees devoted more
than 205 staff-years to develop TAXOL in 1991 and 1992. This compares with
the 125 staff-years put in by NIH-funded researchers, as estimated in the
These statistics in no way discredit efforts put in by NIH-sponsored
scientists. But it is clear that the US system provides the best vehicle to
commercialization of basic research and eventually into patients who need
them. In the case of TAXOL, the cooperative efforts of the public and private
sector developed and brought to the market a life saving therapeutic. The
lives saved due to this cooperative effort more than make up the return on
the NIH investment.
Not surprisingly, companies are more willing to engage in
similar efforts that will benefit all of us when they are not threatened with
In 1995 NIH stopped reviewing the prices set by companies
that licensed government-funded basic research discoveries. NIH Director Harold
Varmus was quoted in the April 11, 1995, edition of NIH News
as saying that "NIH's primary programmatic mission, legislative mandate,
and expertise is in biomedical research, not in product pricing." Since
the repeal of this price review policy, there has been a fourfold increase
in NIH cooperative research and development agreements with biotechnology
and pharmaceutical companies. The more research there is, the greater the
probability that good will come of it.
In December 1999 the NIH released "principles and guidelines"
about NIH funding with respect to transferring research materials and tools.
The research tools are very broadly defined to include monoclonal antibodies,
cell lines, animal models, reagents, combinatorial chemistry libraries, clones
and cloning tools like the polymerase chain reaction, databases and computer
software to the extent these are used as a unique research tool. The guidelines
require that these research tools be widely accessible to all. This in essence
forces a non-exclusive licensing provision on these materials. Public Law
106-104, enacted last year, essentially gives the guidelines the force of
The impact of these guidelines on product development has
yet to be determined, but it is well known that many start-up biotech companies
get their root from exclusive licenses to some forms of research tools and
platform technologies discovered under NIH funding.
In addressing the question of who should own biotech innovations,
other questions occur.
How should private industry interact with university biotech
The answer is intuitive-As they would with any prospective
partner. Universities hold the wealth of knowledge and information and businesses
hold the wealth of opportunity and capital. The two need not be mutually exclusive.
Contrary to the media's representation-business is not bad. It is the backbone
of this country.
How can universities foster tech transfer?
Interact with the private sector. Listen to business leaders.
Look for ways that will benefit both the university and the company involved.
Tech transfer should be a win-win situation.
And, closer to home for you in northeast Ohio, how can a fledgling
biotech community jump-start its growth?
My advice is to keep pursuing basic research and keep communications
open with the private sector. Provide your scientists with the incentives
to gain from their hard work. Work with your legislators to create a business
friendly environment, in the area of tax incentives and research incentives.
Make technology transfer an easy process. I was in the small town of Aurora
Colorado a couple of months ago and they are doing something that other states
are slowly taking up. They are building incubators and renting out short-term
lab space. This allows scientists with ideas to start up their own small labs
or start up company. With a promising discovery they can patent their ideas
and begin to gather venture capital. Many of these small companies will go
out of business. But that is OK. There will be others that will take up the
slack and even hit the jackpot. With these incubators the only thing lost--
is some time. But nothing ventured- nothing gained.
To sum up:
Should there be limits on private ownership?
Does this answer change if the innovations are produced with
What is the proper role of government funding and regulatory
institutions in regulating biotech R&D by the private sector?
The government should fund biotech R&D and not impose
The intellectual property system in this country is unrivaled.
The government has created an environment that is ripe for innovation and
competition. University licensing activities have contributed $24.8 billion
to the U.S. economy, and 1,300 companies have created 150,000 jobs. By not
limiting ownership to biotech inventions, the United States has given rise
to a biotechnology industry that has given the world more than 100 drugs to
ease human suffering with 350 more on the way.
The rest of the world seeks to conform their laws to match
ours. Some countries have spent countless dollars for basic research, yet
they have been less successful than the U.S. in bringing the research from
the bench to the bedside. We have found the near-perfect balance and cooperation
between the private and public interests. Following the guidelines that patents
can be issued on anything under the sun that is made by man, the future for
biotech is bright. Since the system isn't broken, let's not fix it.