Intellectual Property: payday for the Medical Research Council

After a long legal battle, US-based Abbott Laboratories and the UK company Cambridge Antibody Technology have finally settled over royalties for the antibody drug Humira in the biggest single patent victory for European science in years. How will the experience colour the IP management strategies of the two main beneficiaries, the UK Medical Research Council and Cambridge Antibody Technology itself?

The settlement will cost Abbott $255 million, and comes after Cambridge Antibody Technology (CAT) Group reached an out-of-court settlement with the US company over the royalty rate for Humira, a blockbuster antibody drug for treating inflammatory diseases that is based on an antibody discovered by CAT in the mid 1990s.

CAT was set up in 1989 to commercialise technology developed at the Medical Research Council (MRC) Laboratory of Molecular Biology, Cambridge, for generating monoclonal antibodies through phage display. Through its licensing agreement with CAT, the MRC was entitled to a 2 per cent royalty on sales of Humira.

One-off payment

The MRC has now given up its royalty stream in return for a one-off payment of £108 million, plus £4.2 million per year over the next five years. It also received a further £5.1 million in royalties withheld while CAT and Abbott were slugging it out in court over the past two years.

The failure to patent Cesar Milstein and Georges Köhler's Nobel prizewinning invention of monoclonal antibodies, also made at the Laboratory of Molecular Biology, is frequently cited as the exemplar of the UK's inability to capitalise on its prowess in academic research.

But the finger pointing that ensued did force the MRC to adopt a rigorous approach to protecting its intellectual property. And just over thirty years after they were invented, monoclonal antibodies have finally generated serious commercial returns for the research council in the form of £134 million in royalties from Humira.

This is by far the largest single payment the MRC has received for any product based on its research. Nick Winterton, Executive Director of the MRC and Chairman of MRC Technology, the Council’s technology transfer arm, said the decision to accept a one-off settlement was based on balancing risk.

The prime driver to accept a one-off payment was that the offer was on the table. "What influenced our decision on whether or not to accept it was the management of risk in relation to the overall portfolio," said Winterton.

"We have royalty streams from a number of different drugs, but on all of these, as on Humira, no future payment is guaranteed because it depends on future sales. So, we felt on balance that we should take a guaranteed sum that we were getting upfront." Other drugs on which the MRC receives royalties include the cancer treatments Avastin and Herceptin.

Independent valuation

Before taking the money the MRC conducted its own assessment of the value of the royalty stream, and commissioned an independent valuation. It also sought an assurance that the UK government would not reduce the MRC’s grant payment, currently around £450 million a year, as a result of the windfall.

As a result the MRC will be able to fund the rebuilding of the Laboratory of Molecular Biology.

Winterton believes the outcome vindicates the philosophy that underpins the MRC's approach to commercialising its intellectual property. "For us, the prime driver in technology transfer is that it is a way of getting research translated into products that improve healthcare. The aim is not making as much money as possible but getting the technology exploited…[In the case of Humira] our technology led to a good drug, benefited the UK economy and resulted in us getting a large sum of money for future medical research."

Of late the MRC has put increased emphasis on what it terms translational research in which, rather than leaving it to market forces, it carries out work to ensure intellectual property is translated into products.

The move is partly as a result of the fact that it is getting harder and harder to interest investors in early stage research. This is a common problem for publicly funded research institutes across Europe, and leaves them with no choice but to pay for proof-of-concept studies to get technology to a stage at which it can be licensed.

For example, in May 2005 the MRC announced the formation of a drug discovery group to accelerate the translation of research it funds into new therapies. It recruited Justin Bryans, a senior scientist at the pharmaceutical company Pfizer, to head the group.

The Institut Pasteur in Paris has taken a similar approach, moving from basic licensing to putting more money into bringing research findings further on. In some cases it is doing preclinical and even clinical development. This decreases the risk for investors but also adds value for the Pasteur when the technology is eventually licensed.

Winterton says the Humira payday shows that it is important to maintain a balanced approach to near market and blue sky research. "I suppose this gives us an argument for saying don’t focus too much on translational research, because in our fundamental mission of working for better health some of the most exciting opportunities come from very basic research."

Uncertainty

Meanwhile, Peter Chambré, CEO of CAT, says he is pleased with the settlement and to be free of the distraction of litigation. "The case was undoubtedly overhanging the company, and it did create uncertainty."

But he refuses to extrapolate any general lessons over what tactics biotech companies should adopt when large pharmaceutical partners attempt to pull rank over royalty rates. "I have spent two-and-a-half years avoiding that question," he says. Even now that the case is resolved Chambré will not presume to advise anyone else on how to handle IP disputes, as he believes every case is unique.

Chambré joined CAT in April 2002, replacing David Chiswell, a co-founder of CAT and one of the scientists involved in the discovery of phage display.

Under Chiswell’s leadership, CAT’s policy was to defend the patent portfolio rigorously through legal action, and at the time Chambré took over the company was involved in a number of infringement cases. In 2001 and 2002 CAT was paying around £2 million in legal fees to protect its patents.

Chambré instituted a new policy of "licensing not litigation", with the objective of gaining a share in as many successful antibodies as possible. This policy saw CAT settling cases brought against its German counterpart MorphoSys, of Munich, and Crucell, of Leiden in the Netherlands. The company also reached agreements with the Swedish company BioInvent and Dyax Corporation of Cambridge, Massachusetts, both of which had contested CAT patents.

Claim and counterclaim

It was the dispute with MorphoSys that was the most bitter, with claim and counterclaim in both Europe and the US. To many it was unproductive, not to mention unseemly, for two of Europe’s leading antibody development companies to be locked in litigation.

When peace broke out in December 2002, MorphoSys gave CAT an equity stake and agreed to pay an annual €1 million licence fee for five years, plus milestones and royalties on certain products. "CAT remains a shareholder [of MorphoSys] and the two companies have a very good relationship", says Chambré.

Having settled all outstanding patent litigation by the end of 2002, it is ironic that the past 30 months of Chambré's working life should have been overshadowed by the legal case against Abbott.

Fresh from the settlement with MorphoSys and Crucell, in January 2003 CAT received the cheery news that Humira had received approval from FDA, the first antibody based on CAT’s technology to reach the market. CAT expected to receive 5.1 per cent of sales, but as the drug was launched on the market Abbott said it was going to pay only 2 per cent.

At issue was a royalty offset clause which Abbott interpreted as allowing it to offset royalties paid to any other company whose technology featured in Humira, and CAT said referred only to its phage display and antibody libraries.

Humira originated from a collaboration, signed in 1993 and updated in 1995, between CAT and BASF Pharma. Abbott acquired the antibody when it took over BASF's pharmaceutical operations in March 2001.

At the time the agreement was reached the relevant CAT patents had not been granted and CAT argued that the clause allowing royalties to be offset was intended to protect BASF in the event that any other company was granted patents on phage display – but that did not happen.

CAT and Abbott could not agree, and despite his view that there is too much inappropriate litigation in the drug industry, Chambré felt he had to go to court. CAT won the initial case in December 2004, but Abbott lodged an appeal that was due to be heard the week the settlement was reached.

While the other licensors agreed to be bought out, CAT opted for an ongoing royalty stream of about 2.7 per cent, just short of the 3.1 per cent it would have kept after splitting the 5.1 per cent overall rate with the MRC, Scripps and Stratagene.

Despite, (or maybe because) of all the patent litigation it has gone through, CAT will not be relaxing its attitude to IP management. "In biotech intellectual property is at the heart of what you do. You have to continue to focus on it and actively manage it," says Chambré.

He adds ruefully, "We are always learning about how to develop and protect our assets and clearly the contracts we draw up are different now – we certainly pay more attention to any royalty offset clauses."

Apart from CAT and the MRC, other beneficiaries of the settlement include the ten or so scientist inventors of phage display, and the Scripps Institute and Stratagene Inc, both based in La Jolla, California.