[Ip-health] Critical story of Bayh-Dole in Fortune

[James Love]

Link to page one of Fortune Story:

http://www.fortune.com/fortune/fortune75/articles/
0,15114,1101810,00.html

FORTUNE - Fortune 75

GOVERNMENT
The Law of Unintended Consequences

Twenty-five years ago a law known as Bayh-Dole spawned the biotech
industry. It made lots of university scientists fabulously rich. It
was also supposed to usher in a new era of innovation. So why are
medical miracles in such short supply?

By Clifton Leaf

Even in the mute efficiency of international wire transfers, $540
million makes a noise when it lands in your bank account. To Kent
Alexander, that sound was a thud=97and in this case "not one single
thud, but a lot of different thuds." All afternoon on July 21, 2005,
Alexander, who is Emory University's general counsel, president Jim
Wagner, and other senior members of the school's administration were
receiving e-mailed reports from the finance de- partment: "121
million just hit!" And then, 50 minutes later, "183 million just
hit!" Half an hour after that, an even richer stash arrived. Thud.
"It was an out-of-body experience," says Alexander, 46. "By any
definition, it's a huge deal. As one of our trustees was saying, 'It
doesn't get any bigger than this on Wall Street.' "

The deal in question had closed only days earlier, when a pair of
biotech companies, Gilead Sciences of Foster City, Calif., and
Royalty Pharma of New York City, outbid several other parties for
Emory's roughly 20% stake in the powerful anti-retroviral drug
Emtriva, which is used to treat HIV. The drug was developed more than
15 years ago by three of the university's scientists, working on
federal research grants, but received FDA approval only in July 2003.
Now, however, Emtriva (a modest seller in its own right) was being
married to another antiviral in a single pill. The combination drug,
called Truvada, was expected to have a worldwide market of nearly $1
billion in 2006. Emtriva was becoming a blockbuster. Citigroup set up
the auction and hammered out the terms with bankers from Lazard. A
white-shoe law firm, Covington & Burling, calculated the drug's
projected royalty streams through the year 2021, when the patent life
was scheduled to end.

The hard work was over, and now it was time for a champagne toast and
a brief "end-zone dance," as president Wagner described it. In a
short while they could start thinking about how to reinvest their
windfall=97around $320 million after fees and the 40% cut that belonged
to the three Emory inventors. The cash would enhance Emory's
leadership in AIDS-vaccine research=97and help Wagner's plan to turn
the university into a top-tier "destination" school. "This is just
such a win-win-win story," Wagner says jubilantly. "We have an
invention here that addresses a real international scourge, and we
are now taking these resources and reinvesting them in American
research and education. It's a pretty happy story."

Well, not entirely.

The Emtriva case may sound like yet another innovation in an unending
stream of medical miracles, from "smart drugs" to gene therapy. But
believe it or not, it's an example of a profound system failure. For
a century or more, the white-hot core of American innovation has been
basic science. And the foundation of basic science has been the fluid
exchange of ideas at the nation's research universities. It has
always been a surprisingly simple equation: Let scientists do their
thing and share their work=97and industry picks up the spoils.
Academics win awards, companies make products, Americans benefit from
an ever-rising standard of living.

That equation still holds, with the conspicuous exception of medical
research. In this one area, something alarming has been happening
over the past 25 years: Universities have evolved from public trusts
into something closer to venture capital firms. What used to be a
scientific community of free and open debate now often seems like a
litigious scrum of data-hoarding and suspicion. And what's more,
Americans are paying for it through the nose. Let's go back to
Emtriva for a moment. Raymond Schinazi, a virus specialist at Emory,
got the idea for the drug after hearing a lecture by a Canadian
researcher, Bernard Belleau, at a 1989 AIDS conference in Montreal.
Belleau had discovered a compound that helped shut down the virus's
genetic machinery, and Schinazi soon realized that with some chemical
wizardry, the substance could be transformed into something far more
potent. Thanks to a bit of "serendipity," Schinazi says, he and two
Emory colleagues were able to do just that: create a compound that
may be orders of magnitude more active than Belleau's. In the end,
the difference between the two substances came down to one atom of
fluorine. It's a perfect example of how one inspiration can build on
another.

This combination of open exchange and fervent competition between
great researchers helps bring about scientific advances. And when the
system works, the sum of each contribution is greater than the whole.
But what happened next in the Emtriva saga was a race to the patent
office. Emory got there =97 a week.

That filing in 1990 triggered a morass of lawsuits over Emtriva and a
related compound. Belleau's biotech employer sued; so did
pharmaceutical giant Glaxo Wellcome (now GlaxoSmithKline), which had
licensed what it thought was Belleau's discovery. Emory found itself
embroiled in litigation that a veteran patent attorney called the
most complex he'd ever seen. (One federal case had 36 individual
"lead attorneys.") Emory's squadron of lawyers not only had to fight
through those cases but also skirmish through four long challenges at
the U.S. Patent & Trademark Office (USPTO) and repeat those battles
in Europe, Australia, Japan, South Korea, and Canada. All told, the
disputants wrangled on for nearly a decade and a half and consumed
millions of dollars in attorney's fees.

   [snip]

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James Love, CPTech / www.cptech.org / mailto:james.love@cptech.org /
tel. +1.202.332.2670 / mobile +1.202.361.3040