Today's News: Government Supports Gene Patents [News] March 14, 2000

Today's Real News: Government Supports Gene Patents
How investors are misunderstanding biotech

By Jeff Fischer (TMF Jeff)
March 14, 2000

People fell all over themselves to sell biotech shares today, even though many of these same people had rushed to buy the shares only recently. Human Genome Sciences (Nasdaq: HGSI), Celera (NYSE: CRA), Millennium Pharmaceuticals (Nasdaq: MLNM), Incyte (Nasdaq: INCY) and many other young, leading biotech stocks fell 20% or greater. The culprit?

The media is pointing to Bill Clinton and the U.K.'s Tony Blair. The two men had the "audacity" to propose that raw human genome sequencing information should be shared with the public. That is not new information, however. The Human Genome Project was created long ago to do this very thing (share its information), and since its inception Celera stated that it would likely share its raw data for free or at very little cost to subscribers. So, in fact, the only novel news presented today was good news, thus it is baffling that biotech shares got stomped.

This evening I spoke with Human Genome Science's President and CEO, Dr. William Haseltine, and he happily pointed out that today was the first time in history that the government publicly stated that it supports gene-related patents. Dr. Haseltine said, "Read the quote from Clinton," and then he read it aloud. Today Clinton said, "Intellectual property protection [i.e., patents] for gene-based inventions will... play an important role in stimulating the development of important new health care projects.'' Dr. Haseltine said that if he wanted to, he could begin his next annual report with this monumental statement, and quote today as a monumental day.

Investors apparently misunderstood the meaning and implications behind Clinton's statements, however, sending almost all biotech stocks sharply lower. How could Wall Street misunderstand so badly? Perhaps because today the government also stated that scientists cannot get patents for human genes themselves. This, however, should not be a surprise to the industry or to investors, either. Any biotech company with patent attorneys worth their salt would not attempt to randomly patent human genes.

As Dr. Haseltine has said in the past, "Trying to patent a human gene is like trying to patent a tree. You can patent a table that you build from a tree, but you cannot patent the tree itself." With genes, you can patent specific uses that you discover regarding a gene, but you cannot patent the gene itself. (After all, you didn't create the gene. Just like you didn't create the tree.)

Human Genome Sciences has been issued 117 patents on specific uses for genes in the body. These are the kinds of patents that have value and that should, almost without a doubt following today, stand up in a court of law. Dr. Haseltine said, "Raw genomic data is not patentable because it is not useful [or original]." His company, instead, has focused on isolating genes and turning them into forms that can be used to make a protein for the body. This practice is original and patentable.

So, today the business of patenting information regarding the use of isolated genes was blessed by two key leaders of the Free World. Biotech companies such as Human Genome Sciences and Millennium Pharmaceuticals, both of which have been obtaining patents on this very premise for several years, have been vindicated, as has the entire gene-based drug industry of the future.

Celera and Raw Genome Data
"Part two" of today's news was that, according to Clinton and Blair, all raw human genome data should be shared with the public.

From the start, Celera has planned to make much of this information widely available without cost or at very little cost. This month, Celera will publish the fruit fly genome free of charge. In the future, Celera will share sequencing data from the human genome as well. As today's detailed press release from Celera reminds, this has always been the plan.

Celera is interested in sharing information with the world, not locking it away. Will all of Celera's information be freely shared? Well, most likely much of its "raw data" will be shared openly, and this raw data is what the government was naively clamoring for today -- "naively" because the value of the raw data (the genome itself) is limited anyway. When Celera adds additional expertise to its genomic information, however, it will almost certainly patent (when possible) and sell that value to subscribers. It is, after all, a business.

Understand, though, that having the human genome sequenced alone will not answer many questions or create much value by itself. This is only the beginning of the work. Isolating and discovering what each gene does in the body is where actual medical solutions can be discovered. Companies that discover these solutions deserve rewards for their labor and expense, and they will be rewarded -- as the government stated today (although the message was lost in the noise). Admittedly, most of the potential reward for young information gathering companies lies far down the road, but that has always been the case. Celera is in "phase one" of its business plan. (Biotech companies that have patented uses for isolated genes for years are considerably further along.)

So, the real culprit behind the tumble in biotech shares today was not Clinton or Blair, but investors who do not understand the business models that many young biotech companies are trying to create, and it was investors who may not understand how the patent process works and is enforced, either. These are complex topics and admittedly a great deal of uncertainty exists. However, companies such as Human Genome Sciences, Millennium Pharmaceuticals, and others that have filed patents for specific uses of isolated genes received excellent news from the government today, while genome sequencing companies, such as Celera, were merely reminded that leveraging raw genome data into dollars will meet much resistance. However, the real value has always been buried far beneath the raw genome data, and don't think that Celera didn't already know that.

Related Links:

  • Today's Government News Brief
  • Celera discussion board
  • Human Genome Sciences discussion board
  • Millennium Pharmaceuticals discussion board
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