A BIOINFORMATICS BUSINESS MODEL AND
 THE BOLD PATENT STRATEGY BEHIND IT:
     THE CASE OF INCYTE GENOMICS


     John Stor...
Once upon a time there was a
company that decided to patent the
       human genome …
The Biotech Boom of the late 1990’s and
             early 2000’s
 Genomics as a business model:
   Incyte Genomics, Celer...
The Incyte Business Model

 Sequence the human genome
 Collate sequence and expression data into
 annotated databases
 Sel...
The Business Plan Required An Ambitious
            Patent Strategy
 Business Goals:
   Assure subscribers of freedom-to-o...
Incyte’s Patent Program

 Filed over 2000 patent applications
 Covered about 11,000 full-length gene
 sequences
 Large int...
The Utility Requirement

 35 U.S.C. § 101 Inventions Patentable
   Whoever invents or discovers any new and useful
   [inv...
Purpose Of The Utility Requirement

 Brenner v. Manson, 383 U.S. 519, 534-535
 (1964)
   The quid pro quo for granting pat...
The USPTO Guidelines for Utility

 Three-part test for utility:
   Credible Utility
     Not wholly inoperative
   Specifi...
Patent Examination:
 Irresistible Force Meets Immovable
                 Object
“Polynucleotides coexpressed with matrix-
...
Immovable Object:
Patent Office Rejection For Lack Of Utility
 Co-expression of claimed gene with known matrix
 remodeling...
Irresistible Force:
              Incyte Responds
No biological activity necessary:
  The claimed gene had utility as a “s...
Immovable Object:
              Final Rejection
The specification did not “establish any toxin
which would induce the expr...
Incyte Changes Its Business Plan And
Abandons Its Patent Strategy
 November 2001:
   Inycte replaces senior management wit...
Stock Prices Of Incyte, Millennium, Celera and
Human Genome Sciences … and Affymetrix
Did The Patent Strategy Make Business
Sense?
 Incyte’s strategy of patenting 11,000 human genes depended on
 generating ro...
Whither The Utility Requirement:
           In re Fisher

In re Fisher – CAFC decision September 7, 2005
Appeal from BPAI ...
Whither The Utility Requirement:
           In re Fisher

Held: ESTs lack patentable utility
 Utilities are not “substanti...
Whither The Utility Requirement:
           In re Fisher

Dissent (Judge Rader)
 ESTs have utility as research tools
 Deci...
Conclusion: How To Demonstrate Utility

 Credible utility:
   Narrow utilities are more credible than broad ones
 Substant...
John Storella
Special Counsel
Wilson Sonsini Goodrich & Rosati
650-849-3245
jstorella@wsgr.com
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The Case Of Incyte Genomics

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The Case Of Incyte Genomics

  1. 1. A BIOINFORMATICS BUSINESS MODEL AND THE BOLD PATENT STRATEGY BEHIND IT: THE CASE OF INCYTE GENOMICS John Storella The American Conference Institute 5th Advanced Forum On Biotech Patents September 2005
  2. 2. Once upon a time there was a company that decided to patent the human genome …
  3. 3. The Biotech Boom of the late 1990’s and early 2000’s Genomics as a business model: Incyte Genomics, Celera, Millennium, Human Genome Sciences Incyte Genomics: A bioinformatics “Pure Play”
  4. 4. The Incyte Business Model Sequence the human genome Collate sequence and expression data into annotated databases Sell subscriptions to the databases to pharma Collect reach-through royalties on pharmaceutical drugs developed using the database Most pharma companies signed up
  5. 5. The Business Plan Required An Ambitious Patent Strategy Business Goals: Assure subscribers of freedom-to-operate if they found something valuable using the database Use patent licenses as basis of reach-through royalties Patent strategy: Patent the human genome
  6. 6. Incyte’s Patent Program Filed over 2000 patent applications Covered about 11,000 full-length gene sequences Large internal patent group Cost estimated at $5M to $10M per year But in the PTO …
  7. 7. The Utility Requirement 35 U.S.C. § 101 Inventions Patentable Whoever invents or discovers any new and useful [invention] may obtain a patent therefor ….
  8. 8. Purpose Of The Utility Requirement Brenner v. Manson, 383 U.S. 519, 534-535 (1964) The quid pro quo for granting patent monopoly is a benefit to the public The utility requirement prevents overreach into undeveloped technical areas, thereby tying them up against development by others Specific benefit must exist in currently available form
  9. 9. The USPTO Guidelines for Utility Three-part test for utility: Credible Utility Not wholly inoperative Specific Utility In contrast with “general” utility Substantial Utility “Real world” utility that does not need further research to confirm Not a “self-referential” utility
  10. 10. Patent Examination: Irresistible Force Meets Immovable Object “Polynucleotides coexpressed with matrix- remodeling genes” U.S. Pub. 2002/0019000 Representative claim: 2. An isolated polynucleotide comprising a nucleic acid sequence of SEQ ID NO:6, or the complement thereof.
  11. 11. Immovable Object: Patent Office Rejection For Lack Of Utility Co-expression of claimed gene with known matrix remodeling genes does not show biological function for protein encoded by the gene Diagnosis, prognosis and therapy of disease were “general” utilities and not “specific” utilities The asserted utilities also were not “substantial” because further research would be needed to identify a real world utility. The examiner did not address the issue of credible utility.
  12. 12. Irresistible Force: Incyte Responds No biological activity necessary: The claimed gene had utility as a “surrogate marker” for the known matrix-remodeling genes. The claimed gene was useful as a probe for gene expression monitoring in the context of drug development and toxicology testing
  13. 13. Immovable Object: Final Rejection The specification did not “establish any toxin which would induce the expression of SEQ ID NO: 6 or NO: 22 … so that SEQ ID NO: 6 and NO: 22 can be part of a pattern of expression in response to the toxin.” (Incyte abandoned the application in October 2004)
  14. 14. Incyte Changes Its Business Plan And Abandons Its Patent Strategy November 2001: Inycte replaces senior management with team specializing in drug development December 2002: Incyte Genomics changes its name to Incyte Corporation February 2004: Incyte shuts down Palo Alto facility, lays off 257 employees, including patent staff Incyte terminates development of LifeSeqtm September 2005: Incyte and the other genomics companies fall out of favor
  15. 15. Stock Prices Of Incyte, Millennium, Celera and Human Genome Sciences … and Affymetrix
  16. 16. Did The Patent Strategy Make Business Sense? Incyte’s strategy of patenting 11,000 human genes depended on generating royalty stream that was greater than the cost to generate it Factors in modeling the net present value of the patent portfolio depend on: Cost to establish and maintain the portfolio Expected royalties on drugs under patent Discount rate Optimistic and pessimistic assumptions place the net present value between $600M and negative value.
  17. 17. Whither The Utility Requirement: In re Fisher In re Fisher – CAFC decision September 7, 2005 Appeal from BPAI decision Issue: Whether EST’s from unidentified maize genes have patentable utility Asserted utilities: To identify presence or absence of a polymorphism To isolate promoters To use as a marker on a genetic map
  18. 18. Whither The Utility Requirement: In re Fisher Held: ESTs lack patentable utility Utilities are not “substantial” because there was no showing that the ESTs had been used for the asserted purposes ESTs are “research intermediates” or “objects of research” Utilities are not “specific” because any maize EST has the potential to be used for these purposes
  19. 19. Whither The Utility Requirement: In re Fisher Dissent (Judge Rader) ESTs have utility as research tools Decision is a distortion of the utility rule Proper tool for assessing patentability is “non- obviousness” requirement Do ESTs really involve an “inventive step”? Federal Circuit has deprived PTO of this tool through the Deuel line of cases
  20. 20. Conclusion: How To Demonstrate Utility Credible utility: Narrow utilities are more credible than broad ones Substantial utility: Include in the patent application as much information about the biological activity of the molecule as possible Specific utility: Assert utilities that are not widely shared among other molecules in the same class
  21. 21. John Storella Special Counsel Wilson Sonsini Goodrich & Rosati 650-849-3245 jstorella@wsgr.com

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