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Chiron Relaxes Patent Licenses

Times Staff Writer

Chiron Corp. today plans to announce a change in the licensing policy on its patents covering the genetic makeup of the hepatitis C virus, a move that could lead to the development of new drugs to fight the disease.

Scientists at the Emeryville company were the first to identify the virus in 1987, and Chiron has more than 100 patents on the virus’ genome -- the molecular code the virus uses to reproduce itself. The company has been accused of controlling its patents too tightly, stifling research that could lead to new treatments.

Chiron has consistently maintained that its defense of its patents, which expire in 2015 in the United States, has been appropriate and fair.

But Chief Executive Howard Pien said Chiron would no longer demand that licensors pay upfront fees and make annual payments to obtain rights to the hepatitis C patents. Pien said the company had heard complaints that the fees were too steep for small companies.

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About 4 million Americans and 170 million people worldwide are infected with the hepatitis C virus, which can lead to severe liver damage.

The disease is typically treated with a combination of interferon and ribavirin, but at best only half of patients respond to those drugs.

Pien said he did not want Chiron to be viewed as a company that blocked drug development -- particularly in Washington, where the cost of medical innovation has become part of the broader discussion about pharmaceutical pricing.

Along with other drug firms, Chiron is lobbying to block laws that would permit the importing of low-cost drugs from Canada, saying such legislation would hurt profits and damage the industry’s ability to develop new products.

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“Our ability to make a meaningful contribution in policy debates is in part influenced by whether we are perceived as a good corporate citizen,” Pien said.

Chiron’s first contract under its new patent policy is with Prosetta Corp., a San Francisco biotech firm with seven employees. Pien wouldn’t discuss the contract in detail but said Prosetta should save “millions of dollars” in the early years of the contract.

But the deal could pay off later for Chiron if Prosetta develops a marketable drug. The contract includes a higher royalty on sales than called for under previous agreements. The new terms show “we want to commercialize the technology and get it into the hands of anyone who seeks it,” Pien said.

Michael Farmer, chief operating officer of Prosetta, said the company had been leery about negotiating with Chiron because it could not afford the company’s “seven-figure fees.”

“We concluded that if we had to pay those kinds of sums we were not going to go after hepatitis C,” Farmer said.

Chiron, which is working on a vaccine and drug for hepatitis C, has licensed its patents to 15 other companies. The licenses are an important source of revenue for Chiron, which had revenue of $1.8 billion last year. In 2003, Chiron received $312.2 million in royalties, mostly from licenses on hepatitis C, HIV and a drug used to treat multiple sclerosis.

But the company’s defense of its patents came under scrutiny last year in a report by the National Academy of Sciences on intellectual property rights.

The report said there had been complaints that lawsuits filed by Chiron to protect its patents “are deterring others from developing” drugs to fight hepatitis C. And it noted that the firms being sued had refused to sign licensing agreements that included “significant up-front payments” and royalties.

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Gilead Sciences Inc. of Foster City, Calif., dropped work on a hepatitis C drug in 1999 after it was sued by Chiron. Last year, Gilead agreed to license Chiron’s patents so it could continue to work on drugs for the disease.


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