2 Proposed Laws Bitterly Divide Biotech Industry : Drugs: The bills deal with how winners and losers are determined in two arenas--market exclusivity and patents.

Thomas G. Wiggans remembers that day in February when he tried to nudge fellow industry leaders over to his side of an issue.

Directors of the Industrial Biotechnology Assn. were meeting at the Pier 66 resort in Ft. Lauderdale, Fla., and Wiggans was calling for changes in the Orphan Drug Act.

“I’m sure it was sunny when the meeting began and cloudy by the time it was over,” said Wiggans, president of Serono Laboratories of Norwell, Mass. “But I’m not sure whether it was from the weather or the outcome.”

Even if figurative, those were storm clouds Wiggans sensed. In the months since that meeting, disgruntled companies have either left the trade group--including three of the industry’s most notable firms--or are considering leaving. Company executives have taken to airing their rivalries and disputes with bitter words and charges, and some have begun lobbying Congress in direct and adamant opposition to the IBA.

The two main bones of contention are proposed changes in the 7-year-old Orphan Drug Act and a new bill, the Biotechnology Patent Protection Act. Both deal with issues of great significance to biotech companies: market advantages for new products, and patent and trade protections. The IBA board voted to oppose the first and support the second. The discontented generally take the opposite view on each bill.

Insiders say the cracks in the once glassy-smooth, united public front of the biotech community are part of a phase that the young industry must go through on its way to maturity. Biotech companies have always had disparate interests, said Stephen Bent, a biotech patent attorney. But now that they are readying more and more products for the marketplace, enforcement of trade and patent laws “is a bigger issue and those disparate interests are coming to the fore,” he said.

Yet the squabbles pertain to more than just which company reaps which financial rewards. Ultimately, consumers’ interests are at stake. How some of today’s most contentious issues are resolved could determine the development, availability and pricing of a broad range of biotech products, especially drugs.

As costs to develop and produce a new drug for humans climbs past an average of $150 million, companies are intent on securing patent protection and marketplace position for their products. Such assurances encourage development of high-cost drugs. But critics say some marketplace advantages are unfairly gained and lead to unwarranted monopolies and higher prices for treatment than would exist if there were competition.

That criticism rings throughout the debate over the Orphan Drug Act. The IBA has opposed changes in the law, which grants tax credits and seven-year market exclusivity to the first company that develops a treatment for a so-called orphan disease, one with fewer than 200,000 sufferers. Proposed changes in a bill by Rep. Henry A. Waxman (D-Los Angeles) would make it harder to retain the orphan status.

The Biotechnology Patent Protection Act, co-sponsored by Rep. Frederick C. Boucher (D-Va.), would amend patent and trade laws to expand protections. It is the more controversial of the bills.

Both bills relate directly to ongoing disputes over two hot biotech drugs, human growth hormone and erythropoietin, or EPO. Robert A. Fildes, chief executive of Cetus Corp., contends that the IBA’s position on the bills can be traced to what he maintains is undue influence over the IBA by Genentech and Amgen (Genentech makes growth hormone and Amgen makes EPO). Fildes calls those on the opposite side of the issue “shortsighted, greedy people.”

Changes in the Orphan Drug Act could harm companies that have gained orphan status for their products or are basing research and development strategies on the act. Genentech of South San Francisco qualifies on both counts. And Amgen of Thousand Oaks is locked in an increasingly acrimonious patent battle with Genetics Institute Inc. over the anemia treatment drug EPO. The patent protection bill would greatly aid Amgen--and harm Genetics Institute almost in proportion.

The IBA’s stances on the bills became the last straw for Fildes. He pulled Emeryville, Calif.-based Cetus out of the group, despite Cetus’ long affiliation with the IBA. Fildes recently spent a week in Washington telling politicians and their staffs that the IBA does not represent the entire biotech industry in the matter of the two bills.

Unlike many of the other main players in the dispute, Fildes’ company does not seem to have a direct stake in the outcome. Other dissatisfied companies are caught up in rivalries with significant financial implications. Genentech’s Washington lobbyist, David Beier, labels them “losers” who want to be “rewarded for coming in second.”

Serono Labs, which Wiggans said is still weighing a decision about IBA membership, would benefit from changes in the Orphan Drug Act. It was one of five companies working on human growth factor when Genentech won the race, receiving orphan status for its Protropin product to treat children who suffer from a growth hormone deficiency that causes them to be short.

In several cases, companies have received orphan status for drugs that are intended for eventual widespread use; the orphan status gives them a big jump on competitors. The amendments proposed by Waxman would remove the market monopoly once the drugs themselves are no longer rare.

Gabriel Schmergel, chief executive of Cambridge, Mass.-based Genetics Institute, supports the Orphan Drug Act changes. His main grudge, though, is against the biotech patent bill.

Schmergel, another founding member who quit the IBA, contends that in the face of some decisions that support Genetics Institute’s case, Amgen is “trying to get Congress to reverse what happened in court.” Amgen, Boucher and others who support the patent bill, on the other hand, present it as a measure to “close a loophole” in patent and trade laws, and protect American products against foreign imports. And patent attorneys worry that changes in patent law to accommodate biotech companies would have far-reaching ramifications.

There are many types of patents possible on a new product, but generally they fall into three categories: starting materials, process (manufacturing) and final product. Patentability requirements include basic tests of novelty or “nonobviousness”--meaning something that wouldn’t be well known to persons with a general understanding of the science. In recent years, it has become increasingly difficult for biotech companies to obtain process patents, in part because much of the “manufacturing” is done by natural biological processes.

The Boucher bill would allow companies to patent even obvious processes, as long as the starting materials were unique. Further, it would amend trade laws so that products manufactured abroad would be barred from import if an American company’s starting materials patent were being infringed upon.

All of which hearkens back to the EPO dispute, a labyrinth with intertwining companies and countervailing suits, claims and court decisions that is biotechnology’s most important and protracted patent case.

Amgen and Genetics Institute have valid patents on EPO (and each has been found to infringe on the other’s patents), but neither has received a process patent on EPO. A major sticking point is that Genetics Institute licensed its EPO product, Marogen, to Chugai Pharmaceuticals of Japan, which manufactures the drug there. Chugai, in turn, entered a joint venture with Upjohn, the Kalamazoo, Mich.-based pharmaceutical giant, to sell the product in the United States once it is cleared by the Food and Drug Administration. Whereas the same product made in the United States by Genetics Institute infringes on Amgen’ patent, when made abroad by Chugai it does not, the International Trade Commission has ruled.

Amgen is worried about what will happen to its share of the market should the Chugai-Upjohn partnership be allowed to sell EPO in the United States. At its current clip, Amgen could sell about $200 million worth of EPO this year, with analysts putting the eventual market for the drug in the billions of dollars. What’s more important is that Epogen, Amgen’s brand of EPO, accounts for 89% of Amgen’s revenues.

The patent protection act could be a fatal wound to the Chugai-Upjohn venture, as Marogen is its only product. After the IBA vote to support the bill, Upjohn decided not to renew its membership in the organization, though it declines to elaborate.

Kenneth Lee, an analyst in Ernst & Young’s high-technology group in Palo Alto, said he once hoped that Amgen and Genetics Institute would settle the dispute amicably. Now, though, he said, it may be good that they are duking it out all the way. “It is healthy for a young industry to establish the value of patents,” he said.

But, Lee added, “there’s a limit at which any of this (bickering and name calling) makes sense . . . The strength of the industry would be enhanced if they look at it from the point of patient benefit.” That, he said, means that it should not be “a winner take all” business.