The Los Angeles Times reports that Chiron, the California biotech responsible for the identification of the hepatitis C virus (HCV) in the 1980s, has introduced a new policy for companies wishing to license its HCV patents. Chiron holds over 100 patents related to the HCV genome, which won't expire until 2015. Any company that develops a new drug targeting hepatitis C (such as a protease inhibitor), or a diagnostic test to detect and measure HCV (viral load; test for screening the blood supply), needs to license Chiron's patents, typically by negotiating a licensing fee and royalties on product sales. Chiron typically charges each company millions of dollars in licensing fees during research and development alone, and makes millions more each year in royalties from HCV tests.
Chiron's enforcement of its patent rights has slowed the pace of HCV drug development considerably, as other companies struggled to reach reasonable terms for licensing -- with Chiron filing several lawsuits beginning in the late 1990s that effectively halted much of the research into HCV protease inhibitors. Nobody can say how close we'd be today to having an effective HCV protease inhibitor on the market, were it not for Chiron's use (or abuse) of its patent position. But it's arguable that Chiron's actions -- or, put differently, greed -- will result in thousand of needless deaths from HCV-related liver disease over the next several years.
Under the new arrangement, companies can license Chiron's HCV patents without paying any up-front costs. Companies only have to make payments to Chiron when they reach certain milestones in their research, and then pay royalties on any sales for approved products.
This benefits small start-up companies that don't have a lot of capital, and need to focus their resources on research. But there's a trade-off: if these companies bring a product to market, they'll have to pay Chiron steeper royalties on sales. The first company to license Chiron's patents under the new terms is a new San Francisco-based biotech called Prosetta (see Chiron's press release). 15 other companies developing HCV diagnostics and drugs have already licensed Chiron's patents.
The structure of these deals pose a dilemma for small biotechs: they get to do more research now, but they'll make less money later. Biotechs typically spend several years -- often a decade or more -- conducting costly research before they can get a drug approved and begin earning money. While some larger biotechs, like Chiron and Amgen, are profitable, the biotech sector as a whole won't be profitable for several years to come.
New drug companies have to raise money to finance the costs of bringing a drug to market -- through private investment, acquiring debt, or selling stock. Their ability to raise money is directed related to their potential for future profits. Chiron's licensing terms reduce a company's potential profits for new HCV drugs, potentially making the company a less attractive target for investment.
Many small companies ultimately seek a partner -- a larger, established pharmaceutical company -- to finance the costs of research. In exchange, the partner typically acquires some or all of the marketing rights for the drug, meaning that the partner will actually sell the drug and share profits with the company that developed it. But with HCV, Chiron automatically becomes a third partner in these arrangements, again making these deals less attractive to the larger companies.
Chiron's new terms won't affect larger companies developing HCV drugs, who can afford to make up-front payments during development and would prefer to minimize the share of royalties to Chiron when their drugs reach the market. But many of these companies consider Chiron's terms onerous, creating a disincentive for the pharmaceutical industry to invest in HCV drug development relative to other fields of research.
So this may enable some smaller companies to pursue HCV research, but Chiron still effectively controls the pace (and profits) of HCV drug development. Chiron's certainly not losing any money on these arrangements. The new terms don't signal a kinder, gentler Chiron -- they reflect an attempt to salvage Chiron's reputation in the current political climate. The LA Times writes:
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.
"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 still has a long ways to go before receiving any good corporate citizenship awards from the HCV community.