Commentary More Power For Research Tools Introduction In almost all instances, start-up life science compa­nies will license their technology to survive beyond their initial seed and IPO stage, and to ensure market introduction of their first commercial product. Company strategy to keep the bulk of the technology property rights in-house can be contemplated once a revenue stream has been established. Even then, licensing will remain an integral part of the business process to some degreee. For certain entities, espe­cially the research tool companies, licensing will be the only means for generating income. Therefore, designing the correct licensing strategy early on in the process is of critical importance, being on the same level of importance and intertwined with secur­ing intellectual property rights.		Value Level Licensing Volume Technology Type Highest Low Late-stage clinical     candidate (Phase III and up) High Low Early-stage clinical candi     date ({hase I andII) Moderate Low Preclinical candidates Low Low Leads Low High Research Tools   From the outset, licensing strategy is dictated by the way the technology will be used. There are basi­cally 2 licensing choices — low volume and high volume. Low volume licenses are primarily exclu­sive or co-exclusive in nature, usually involving a new drug candidate. For these types of licenses, there is a broad value spectrum that is dependent on the stage of program development. High volume licenses are mainly non-exclusive, and on the lower end of the value chain.

 

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Reach Through and Deal Someone

For drug discovery purposes, research tools are those items that can be used to identify and evaluate new drug candidates. The general category encom­passes a vast number of items, including:

Cell lines, animal models, monoclonal antibodies. Clones, cloning tools (ie PCR), and DNA libraries. Reagents and combinatorial chemistry libraries. Laboratory equipment, machines, methods, screen­ing techniques, and bioinformatics.

Within the research tool sector, licensing tends to be on the more creative side in an effort to create higher value. One concept that should become more popular for the tool technologies is the reach-through royalty. Instead of asking for the traditional large upfront cash payment, the licensor asks for a lower upfront amount plus a royalty right derived from the sale of a drug that may be discovered during the licensed use of the research tool. In this type of arrangement, the licensor agrees to share the long-term risk of failure in return for participating in the discovery process and a much larger payout. Furthermore, the rights to the reach-through royalty can also be sold off by the licensor to a third party, if necessary or desired.

The reach-through license is not an industry norm, and has encountered a certain level of resistance. There are several hurdles that may get in the way of brokering this type of deal. One is the possibility of royalty stacking that may increase eventual market costs and decrease profits. In the instance where numerous research tools were used over the course of drug development, it may be difficult to determine which tool actually gave rise to the drug product, leaving one more prone to litigation.

A Tale of Two Peptides

A new twist to what can be defined as a research tool stems from a recent Federal Court of Appeals case, Integra vs. Merck KgA. Based on the court’s decision, chemical or biological compounds them-selves can now be considerd as research tools if used in the drug discovery process.

The case centers around a set of 5 patents covering a specific sequence of 3 amino acids, Arg-Gly-Asp (RGD), that are responsible for mediating the biolog­ical effects of vitronectin and its analogs.

Discovered by researchers at La Jolla Cancer Research Foundation, these peptides are highly selective modulators of cell attachment, with poten­tial in cell growth, blood vessel formation, wound healing and cancer therapy to prevent tumor forma­tion. The first patent in the series was granted in 1988. Integra acquired the property rights to the patents from Telios, which was the first company to obtain the patents rights from the Foundation.

Merck’s involvement with the technology started in 1988. The company began funding the research of Dr. David Cheresh of the Scripps Institute, also in La Jolla, who discovered a monoclonal antibody LM609 possessing activity as an inhibitor of the integrin cell surface receptor. In 1995, Merck asked Dr. Cheresh to evaluate a cyclic peptide having the sequence Arg-Gly-Asp-Phe-Val (cRGDPV), which was found to inhibit new blood vessel formation. This exciting discovery opened up the possibility of developing a novel class of angiogenesis inhibitors as anti-tumor drugs.

Encouraged on by the promising data, various cyclic RDG peptides were synthesized and evaluated for anti-tumor activity using a number of highly sophisticated in vitro assays, tissue culture systems and in vivo animal models. A lead candidate was chosen in 1997, which then proceeded to clinical tri­als in the US the following year.

Integra learned of the cyclic RDG angiogenesis program, and approached Merck with the opportuni­ty to license the rights to the RDG sequence technol­ogy. After lengthy negotiations, Merck declined. Integra then sued Merck, Scripps and Dr. Cheresh on the grounds of patent infringement. Merck contend­ed that their use of the RDG sequence did not infringe the Integra patents, being exempt under the common law experimental use doctrine and is within the safe harbor afforded under §271e of the US patent code. Merck also argued that the Integra patent claiming inhibition of blood cell growth was invalid as an article describing the effects of the RDG peptide on animal cell growth was published in Nature 1 year and 2 weeks prior to the patent application date.

The case was heard in front of a jury at the distric court. Despite having the Integra patent invalidated in court, Merck’s common law defense and safe har­bor argument were deemed to be non-applicable.

The court stated that the use of the RDG technology

between 1994-1998 was not for the sole pur­pose of supplying information for an FDA sub-mission as intended in the Hatch-Waxman Act, but instead for the identification of a drug can­didate for future clinical testing. The jury awarded Integra $15 million dollars in dam-ages, an amount determined to be equilavent to that obtained through a hypothetical licensing agreement containing upfront payments and suc­cessful completion of several milestones. One interesting aspect of the trial was the fact that the cyclic RGD peptides were not described as such within the Integra patents, yet their use by Merck constituted infringement based upon the premise that one skilled in the art would have know that these peptides could exist in either a linear or cyclic form.

While upholding the district court’s decision regarding patent infringement, the Court of Appeals did not deem that the $15 million dollar damage award was substantiated. The court sent the award back for further consideration, feeling that there should be more critical analysis of factoring into the licensing agreement the possibility of royalty stack‑

ing, reach-through royalties, the relative value of the RGD sequence as a research tool at an earlier stage of preclinical development, the amount paid by Integra for patent acquisition, and reasonable royalty negotioation factors.

Summary

The recent Fedearl Court ruling has set a legal precedent that will remain in effect for some time, and will have a large impact on the biotech-pharma industry with respect to the dynamics of licensing and litigation. Having a patented compound being classified de facto as a research tool and protecting its property rights affords the opportunity for others to either force a license or pursue damages from infringement in a similar manner as Integra.

Research tool companies should also give careful consideration to potential claims to drug candidates that may have been developed by the use of their patented tools or methods. In addition, the recent court ruling provides a better bargaining position for negotiating a reach-through royalty provision during the licensing process.

Ihor Terleckyj, Ph.D. is a regular contributor to Lab To Wall Street.