Diagnostic Kits/Paper

Are patents clogging the pipeline: The effects of intellectual property on commercialization and access to genetic diagnostics
(A Summary Paper of our Research to date)
By Carolina Rossini, Andrew Clearwater, and Mackenzie Cowell

Last Draft: December 3, 2009

Introduction

Description of the GDx Market

Defining Genetic Diagnostics

from Give_an_overall_picture_of_the_Kits'_sector

To quantify the Diagnostic Kit Market, we must start with a working definition. We use the phrase Diagnostic Kit to cover the In-Vitro Diagnostics (IVD) Market. The IVD market is composed of products which produce clinical data from a sample of tissue taken out of a patient (note that other diagnostic products such as medical imagers and in-vivo diagnostics are not included).

IVDs can be categorized based on the location of testing. The vast majority of routine tests are performed in-house hospital labs or in reference labs. These tests may be supplied as a complete kit to the testing laboratory or may be developed in-house with Analyte Specific Reagents (ASRs). ASR-based diagnostics are interesting because the ASRs are sold alone, without specific testing procedures, instructions, or supporting materials. Instead of purchasing a complete kit, labs (which must be CLIA high-complexity certified) purchase just the ASR and develop their own tests around it. Lastly, some kits are available directly to consumers over-the-counter. Of these, some can be operated in the home, such as pregnancy tests and blood glucose tests, while others require the user to ship a sample to a remote reference lab. DNA Direct is a company that operates in this space, providing gene-based OTC diagnostic kits that are evaluated in a remote lab.

• Priorities for Personalized Medicine, prepared by the Council of Advisors on Science and Technology (PCAST). Available at: http://www.ostp.gov/galleries/PCAST/pcast_report_v2.pdf
  • "PCAST hopes that this report in its entirety helps lay a foundation for realizing important health care benefits from genomics-based molecular diagnostics, while providing a balanced assessment of the promise and current limitations of personalized medicine more broadly."
  • Intellectual Property Section page 21
    • "The ability to obtain strong intellectual property protection through patents has been, and will continue to be, essential for pharmaceutical and biotechnology companies to make the large, high-risk R&D investments required to develop novel medical products, including genomics-based molecular diagnostics."
    • Issues raised specific to genomics-based molecular diagnostics
      • changes in case law to make
        • nonobviousness standard more stringent
        • patent diagnostic correlations possibly not patentable
      • expanding research and development exemption (really?)
      • injunction relief for patent infringement made more difficult
      • Patent Reform Act of 2007 (proposed but not passed)
    • "Therefore, PCAST strongly recommends that a separate PCAST subcommittee be convened to address these patent law issues across all domains and issue a report devoted exclusively to these issues."

Brief History of GDx and Related Technology

• chemical patents at turn of century (see Palombi's work)

The recent history of the diagnostic kits market is a history of consolidation. "[T]he 1980s and 1990s saw the establishment of some 7000 independent reference labs." (Diagnostic Test Service Commercialization in Multiplex and Esoteric Testing page 13) By 2008 that number had collapsed to less than half with 3000 small reference labs in the U.S." (Diagnostic Test Service Commercialization in Multiplex and Esoteric Testing page 13) By the mid nineteen nineties there were clear leaders: Labcorp of America, Corning, and SmithKline Beecham (Beckman) (Diagnostic Test Service Commercialization in Multiplex and Esoteric Testing page 13) In 1997 Corning created Quest Diagnostics as an entity to hold their laboratories and in 1999 Quest Diagnostics purchased the laboratories of SmithKline Beecham (Diagnostic Test Service Commercialization in Multiplex and Esoteric Testing page 13) Since 1999, LabCorp and Quest have been the two largest independent labs in the U.S.

Overview of IP Landscape

Sources: Overview picture of the Kits' sector & Economics of IP added all of ECO & IP

Patent Protection

20%
Understanding the intellectual property landscape requires discussion about a of a wide variety of protections including: patents, trade secrets, nondisclosure agreements, non-compete agreements, non-solicitation agreements, confidentiality agreements. While all these protections play an important role in the development of diagnostic test, patents are the most important protection. The results of a study carried our by Jensen and Murray shows “20% of human genes are explicitly claimed as U.S. IP” (Jensen, K. & Murray, F., 2005). The patent coverage is not evenly distributed. “Although large expanses of the genome are unpatented, some genes have up to 20 patents asserting rights to various gene uses and manifestations including diagnostic uses, single nucleotide polymorphisms (SNPs), cell lines, and constructs containing the gene” (Jensen, K. & Murray, F., 2005). These areas of concentrated patent protection raise concern about the possibility for a patent thicket to develop. Basically, if we stand on the shoulders of giants and build upon the innovations of others, then "a dense web of overlapping intellectual property rights that a company must hack its way through in order to actually commercialize new technology" acts as a barrier to innovation. (Shapiro, 2001) The rise of patent protections over genetic testing research has to potential to cause labs to decline to develop new tests and stop their current genetic test offerings. (Cho et al. 2003) Patenting of genetic testing can “increase the costs of genetic diagnostics, slow the development of new medicines, stifle academic research, and discourage investment in downstream R&D” (Jensen, K. & Murray, F., 2005) Concern over patent thickets may be premature. Esther van Zimmeren et al. found conflicting information about the existence of a patent thicket. (Esther van Zimmeren et al. 2006) The Committee on Intellectual Property Rights in Genomic and Protein Research and Innovation (US National Research Council of the National Academies) concluded there is "no substantial evidence for the existence of a patent thicket or a patent-blocking problem in genetics." [1] On the other hand, patent holders of gene based diagnostics are more active in asserting their patents which gives some support for the conclusion that diagnostic kit research is currently being inhibited. (Esther van Zimmeren et al. 2006)

Myriad

• The ACLU Case (Association for Molecular Pathology, et al. v. United States Patent and Trademark Office, et al.)
  • [Rights and Civil Wrongs: The ACLU Lawsuit]
  • [Challenges Patents on Breast Cancer Genes]
  • mutations: BRCA1 and BRCA2
  • As a result of the PTO granting patents on the BRCA genes to Myriad Genetics, Myriad's lab is the only place in the country where diagnostic testing can be performed (ACLU Challenges Patents On Breast Cancer Genes)
  • "Myriad's monopoly on the BRCA genes makes it impossible for women to access other tests or get a second opinion about their results, and allows Myriad to charge a high rate for their tests - over $3,000, which is too expensive for some women to afford." (ACLU Challenges Patents On Breast Cancer Genes)
  • Obstacles to the lawsuits success: (Patent Rights and Civil Wrongs: The ACLU Lawsuit)
    • genes are considered patentable subject matter (see Diamond v. Chakrabarty).
    • Standing: "none of the plaintiffs who sued Myriad have themselves been sued for infringing Myriad’s patents." (Patent Rights and Civil Wrongs: The ACLU Lawsuit)

Market Structure
Merz claims market structure is primarily influenced by "the number of patents related to a test", "the simplicity of a test may favor pure competition", and "prevalence of a disease or condition." (Merz, J.F., 1999) Merz is most concerned with the effect of patents on the market structure. (Merz, J.F., 1999)

Patents as Incentives
In order for patents to justify the monopoly they allow, the need for the monopoly as a market incentive to innovate is often cited. Genetic diagnostic kits specifically may not fit within this justification. "Several reports from national and international bodies note that genetic testing applications require far less investment after initial gene discovery than development of therapeutic proteins, and so the rationale for exclusive intellectual property rights may be less compelling." (Pressman, L. et al., 2006) Merz also found that there is evidence that patents are not necessary for the quick transformation of the genetic markers to a clinical test. (Merz, J.F. et al., 2002)

Market Patent History
"Myriad Genetics, Athena Laboratories (now part of Thermo Fisher) and Nymox Pharmaceuticals were among the first companies to offer their patented and proprietary assays as a service in their own laboratories." (Diagnostic Test Service Commercialization in Multiplex and Esoteric Testing page 26) When patenting of genetic diagnostic kits began, the practice was considered controversial. The lack of access was "seen as unethical and preventing widespread access to what were considered important tests. Further, both companies pursued labs that infringed on their patent positions by offering these tests and threatened litigation." (Diagnostic Test Service Commercialization in Multiplex and Esoteric Testing page 26) The widespread controversy over these patent protections has diminished over time but still continues on a smaller scale.

Insert Patent Filings Chart

• Patent Filings by Field of Technology in World Patent Report- A Statistical Review 2008
  • Biotechnology
    • 2001: 45,573
    • 2002: 47,576
    • 2003: 44,632
    • 2004: 41,993
    • 2005: 40,861
    • Annual Growth -2.7%
  • Pharmaceuticals
    • 2001: 69,355
    • 2002: 69,160
    • 2003: 66,050
    • 2004: 68,650
    • 2005: 74,254
    • Annual Growth 1.7%

Bayh-Dole

AUTM

BIO BIO is the largest biotechnology organization in the world. BIO is strongly in favor of the patent protection of university research.(Source: Biotechnology Industry Organization (BIO)) A BIO member surbey "shows that university-based technology transfer serves as a foundation for the creation of many biotechnology companies and industry job growth. Half of surveyed companies were founded on the basis of obtaining an in-license agreement with significant, subsequent job growth." (Source: Biotechnology Industry Organization (BIO))

Forces affecting the GDx Industry

Intellectual Property

Patenting Trends

• 'Patents

The market for genetic diagnostic kits shows a trend towards consolidation (Diagnostic Test Service Commercialization in Multiplex and Esoteric Testing) At the same time, there has been "an increase in patents on the inputs to drug discovery (“research tools”)." (Cohen et. al., 2003) Despite this increase in patents in patent activity, no substantial patent barriers have been found as a result of this increase in patents on the inputs to drug discovery (Cohen et. al., 2003). There has been incongruity between the concern expressed about patents and empirical evidence from recent studies. In fact, The perception of rising patent litigation rates in the area of DNA-based patents is most likely false (Mills, A.E. & Tereskerz, P., 2008) A recent study found that the rate of litigation involving genetic patents has decreased in recent years. “Between 2000 and 2005, the rate of patent litigation for the patent classifications studied dropped significantly from 14/3,827 to 1/2,772” (Mills, A.E. & Tereskerz, P., 2008)

START HERE

Palombi, L. The Search for Alternatives to Patents in the 21st Century. (2009) Available at http://cgkd.anu.edu.au/menus/publications.php#palombi "are patent monopolies the most efficient and effective form of encouraging innovation and capacity building?" page 3

SEE ALSO Gene Cartel

• Justifiable scope of protection for gene patents
  • This topic is rarely discussed in the literature (Verbeure, et al., 2005) but the implications of broad or narrow claim recognition are important to our research.

move this?

• Bayh-Dole

The Bayh-Dole Act may not be serving its purpose in the genetic testing context. If genetic research is inhibited by current patenting behaviors then the fact that at least one study found “[t]he majority of the patent holders enforcing their patents were universities or research institutes, and more than half of their patents resulted from government-sponsored research” means that the act holds a central role in creating a barrier to access (Cho et al. 2003). While Cohen et. al. found substantially no patent barriers to university research there was "some evidence of delays associated with negotiating access to patented research tools, and there are areas in which patents over targets limit access and where access to foundational discoveries can be restricted. There are also cases in which research is redirected to areas with more intellectual property (IP) freedom. Still, the vast majority of respondents say that there are no cases in which valuable research projects were stopped because of IP problems relating to research inputs." (Cohen et. al., 2003)

Proposed Alternative Protection Schemes

• Patent Pools
• Patent Clearing Houses

Licensing

• Licensing Approaches

Van Overwalle defines four licensing approaches (Geertrui Van Overwalle et al., 2005) First, access to the genetic sequences is free but commercial test kits require a royalty. Second, the license for the commercial test kit to labs is set at a price that makes access to the genetic sequences more expensive. Third, an exclusive license is given to laboratories in a way that limits access. Lastly, there are open licenses which allow improvements to the patent to be shared as a way to facilitating cooperative invention (ie. Biological Innovation for Open Society). Given these options presented by Van Overwalle, there were several trends in licensing behavior that are important to the development of genetic diagnostic tests. The likelihood of granting a license for patented DNA sequences was found to be similar for firms and nonprofits but nonprofits were far more likely to grant exclusive licenses. This use of exclusive licensing demands further study to find out if the use of these licenses is justified or merely a default practice with little substantive justification. (Henry, M. et al. 2002) Next, it is important to consider that changes in patent ownership and licensing complexities can have measurable effect on the development and performance of genetic testing. (Merz, J.F. et al., 2002) A industry trend towards greater complexity has not been shown but Merz demonstrates a case where the transaction costs due to changes in patent ownership and licensing reduced innovation and research for that area of genetic diagnostic tests.

• Licensing Behavior

Licensing behavior varies by entity. The study conducted by Henry et. al found that for profit and non-profit entities approach patent and licenses differently. (Henry, M.R. et. al., 2003) Patenting behavior of for-profit entities showed a tendency towards filling patent applications for all new technologies and then deciding what to pursue based on commercial interest. Non-profit entities, on the other hand, were more selective about when to apply for a patent. Licensing behavior was found to be fairly uniform with both types of entities, licensing was most often used as a method of commercialization with licensing for research was very infrequently. Despite these similarities, nonprofits were more than twice as likely to license exclusively as compared to for-profit companies (Henry, M.R. et. al., 2003).

Licensing behavior can have a measurable effect on the development and performance of genetic testing laboratory studies. Many changes in ownership and degree of patent enforcement lead to market confusion, which has a chilling effect on new and current research. (Merz, J.F. et al., 2002) On the other hand, these licensing effects may actually be a decrease in market rather than effects of licensing behavior (Merz, J.F. et al., 2002)

• Compulsory Licensing

Trade Secret

• The importance of this was made clear in our interview with Andrew W Torrance
• Trade Secret is used to early development, and it supplements patent protection later in the value chain
• Strong confidentially, non-solicitation, assignment, & Noncompete Agreements enable the protection of Trade Secret data.
• Even with a patent license, the knowledge transferred by the patent is often not enough to reverse engineer

Existing and Evolving GDx Models

Commercialization of Basic Research

• Licensing of research to existing GDx company
• Licensing of research to new GDx start-up
• Usage of research in public domain by existing GDx company? (multiplex kits?)

Paths to Market

• ASRs
• Kits
• DTC