Regeneron Pharmaceuticals Inc. announced Tuesday that it hasreceived notice of allowance on its patent application forproduction of ciliary neurotrophic factor (CNTF) in E. coli.Regeneron has already received an allowance for the CNTF genesequence. Both applications, however, went directly to theinterference branch of the U.S. Patent and Trademark Officebecause the company faces potential interferences with twopatents already issued to Synergen Inc. of Boulder, Colo.
With only notices of allowance and no issued patents in hand,Regeneron will have to wait for a ruling from the Board ofPatent Appeals and Interferences which could further cloudthe murky CNTF patent situation. If an interference is declared,a full-fledged proceeding will ensue to determine whichcompany invented the technologies first.
"If there are two overlapping claims to a patent, it is thestatutory responsibility of the patent office to award the patentto the party who invented it first regardless of who was issueda patent first," said Paul Lubetkin, vice president, generalcounsel and secretary of Regeneron. "It's a zero-sum game.Only one company can win."
Although Synergen has three issued patents for CNTF, Lubetkinargued that in light of the potential interference rulings, "it'sfar less clear than a scorecard that says three-zip." Synergen'spatents cover the gene, its production in bacteria and apurification processHonly the gene and production patents aredeemed "commercially important" by Regeneron.
Synergen applied for its CNTF gene sequence patent one weekahead of Regeneron in September of 1989 while Regeneronapplied for the CNTF production patent two months beforeSynergen in October of the same year. Synergen was awardedits gene patent in March of 1991 and its production patent inAugust of last year.
"Once a patent is allowed, the patent office reviewing teamdoes an interference search to discover other similarapplications pending," explained Tom Ciotti, an attorneyspecializing in biotechnology patent interference law with thefirm of Morrison & Foerster in Palo Alto, Calif. "In this case, onehas to assume that the team working on Synergen's applicationfailed to find the Regeneron application. The system was set upto avoid conflicts like this, but oversights do occur."
Both companies are racing to develop CNTF for the treatment ofneurodegenerative disorders with vast markets but aretargeting amyotrophic lateral sclerosis (ALS), also known asLou Gehrig's disease as an initial indication. The first to gainFDA approval for ALS will have seven-year exclusivemarketing rights under the Orphan Drug Act. Roughly 30,000Americans suffer from ALS.
"The only thing we know right now is that we have threepatents and they have none," said Paul Laland, associatedirector of corporate communications for Synergen. "We havenot been notified by the patent office that any interference hasbeen declared."
If and when an interference is declared and one of thecompanies wins the patents, the losing company could stillappeal the patent office's ruling. An appeal could take years.Analysts suggested the two companies might be better offsigning a cross-licensing deal than pursuing a lengthy patentbattle in court.
"I think this is a clear story where two companies can cross-license their technology, create an oligopoly and address a largecommercial market opportunity together," said Peter Drake, ananalyst with Vector Securities International in Deerfield, Ill. Heinitiated coverage of Regeneron on Feb. 7 with a "buy" rating.
Drake called Synergen chief executive officer Jon Saxe "astudent of the game of cross-licensing vs. litigation" andRegeneron CEO Leonard Schleifer one of "a new breed ofpragmatists." He predicted the two would not get mired in aswamp of litigation.
"Interference proceedings can be as expensive if not moreexpensive than litigation, " said Morrison & Foerster's Ciotti. "Alot of interferences are settled just as a lot of litigation issettled because the interference process creates uncertaintyand businessmen want certainty. Settlement depends upon theplayers and the amount of money involved."
Ciotti said that while the two companies can strike a deal tocross-license their technology, the interference board still mustrule on which company invented CNTF and its productionprocess first. Both companies will have to hire lawyers, takedepositions of witnesses, pore over lab notebooks and presentmounds of paper in order for the interference office to makethat determination.
Lubetkin said that Regeneron has no plans to sign any dealsuntil the "matrix of factors facing us makes it clear that asettlement is rational." He added, "If you wait too long in a zerosum game, you can be out of the game entirely. That's theknife's edge here."
Regeneron stock (NASDAQ:REGN) closed Tuesday at $15.00,down 25 cents a share while Synergen stock (SYGN) closed at$49.75, up $1.50 a share.
-- Lisa Piercey Business Editor
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