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Via Facsimile and Federal Express

26 January 1990 Mr. Reid G. Adler, J.D. Director Office of Invention Development National Institutes of Health Building 31, Room B1C38 Bethesda, MD 20892 Facsimile Number 301-402-0220'HDU5aLG

Thank you for the invitation to comment on your memorandum of 20 November, 1989, addressed to Mr. Robert B. Lanman, which I found to be an admirably articulate discussion of a complex subject. I shall confine my comments to the second of the two topics in the memorandum: the licensing of rights to fields of use outside the scope of an existing license.
1. In the pharmaceutical industry it is widely recognized that "use" patents are soft. That is, a patent claiming the use of a certain compound to treat a certain disease provides weak protection compared to a composition of matter claim on the compound itself. You indirectly suggest this in the last paragraph of page 3 in the memorandum, wherein you' descrlbe the possibility of two companies competing for each other's market when each has rights to the use of the same compound for different disease indications. Any prospective OLFHQVHa o f a use patent should recognize this potential shortcomiilg, and make a choice between three options: (a) negotiate a license agreement that provide s rights to additional fields of use; (b) accept a license agreement that does not guarantee .auxiliaiy fields of use, and thereby accept the concomitant risk of later discoveries additional uses; or (c) decline to license. A pharmaceutical company that fails to recognize "the potential pitfalls of a use patent might be expected to exhibit similar naivete in other aspects of drug development.

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2. There are several fallacies in section III of the memorandum, portions of which I shall excerpt:

victims for which the licensee is already conducting clinical trials, and a second use is later discovered treat disease Y having 200,000 victims. In this scenario, public health would seemingly be11efit from the original licensee being provided the patent rights to treat the second disease." This is/an
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(a) "For example, consider a compound licensed for the treatment of disease X having 5 milliort

alluring hypothesis, but it can break down in real-life scenarios. The licensee for treatment of highprevalence disease X, upon approval of the compound for treatment of disease X, has little incentive to expedite clinical trials for treatment of disease Y, since even in the absence of conclusive clinical studies on efficacy against disease Y, physicians would be prone to prescribe the compound for disease Y based upon modest data, such as animal studies. This allows the licensee to enjoy an expanded market without conclusively and rapidly determining effective dosages or demonstrating efficacy against disease Y, which in any event offers a small financial return compared to disease X; yet such a demonstration is clearly an imperative for "public health." This scenario is all the more

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likely when disease Y has no other effective therapies, as in the case of hepatitis B. If, instead, a separate company has a license for the treatment of disease Y, its unambiguous interest is in rapidly demonstrating efficacy and safety for that specific disease.
(b) "The first licensee is already at least into preclinical and ioxicological studies and would seemingly have a product development lead on any subsequent licensees." Many of the pharmaceutical compounds licensed from the Nl+ are evaluated in preclinical studies for efficacy, toxicity and pharmacokinetics by the NIH before being licensed. This certainly is the case with some of the anti-HIV nucleoside analogs, some of which were even tested in man prior to licensing, or underwent clinical testing at NIH expense after licensing. The preclinical or clinical information typically is made available to a licensee, and no doubt should also be made available to a licensee on a second field of use; thus in this instance the "product development lead" does not reside with the licensee for disease X, but with the NIH Similarly, some of the large pharmaceutical companies that have obtained these licenses from the NIH do not even manufacture significant amounts of the compounds themselves. The current licensee for the use of DDI to treat AIDS, for example, employs a contract manufacturer in Japan. Where is the "product development lead" in this case? Only a phone call and a purchase order away. (c) "Additionally, because physicians can prescribe a dritgfor other indications once the first indication is approved, a second licensee for the treatment of disease Y would effectively also have a field of use grant for the treatment of disease X." This may or may not be the case, depending upon the routes of administration, dosing regimens, and drug formulations the two diseases require. It should be noted as well that there are various means by which to more clearly delineate the permitted markets of the two licensees. For example, the two licensees could be restricted to defined channels of market distribution that appropriately segregate the two disease states. Alternatively, cross-over revenues between the two disease markets could be monitored through well-established pharmaceutical market research databases such as IMS, and inappropriate revenues or gross margins transferred to the entitled licensee.

Let me conclude by registering Gilead Sciences' dismay that the long-standing procedures for securing licenses on government inventions, which our company has carefully followed, have somehow been subverted in the case of our application for a license on a patent pending that covers the use of dideoxyinosine to treat hepatitis B. We await an explanation from the National Institutes of Health, and we believe we are entitled to a precise description of how the government's decisionmaking on this license will proceed. Please let me know if we can be of any assistance.
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Michael L. Riordan, M.D. President and Chief Executive Officer