The Clone Wars

Wrangling over cloning patents may decide which of three obscure companies grows up to be a powerhouse

What do you get when you combine three biotech companies, a handful of patents, and a Noah's Ark full of cloned animals? A messy fight for control over one of biology's most promising new fields. Farmers are already cloning prized cows and pigs, a practice that will balloon if, as expected, the Food & Drug Administration approves the marketing of milk and meat from clones later this year. The world's first cloned kitten was born in December, perhaps heralding an industry aimed at people who can't bear to part with their household pets. More significantly--if the ethical issues are ironed out--scientists might someday use the same cloning technique to produce human stem cells for use in repairing damaged organs or tissues.

The three companies claiming to control this technology are not nearly as well known as Dolly the cloned sheep or CC the cloned tabby cat. The leading player is Geron Corp. (GERN ) in Menlo Park, Calif., which got into the cloning game in 1999 by acquiring Roslin Bio-Med Ltd., a spin-off of the company that created Dolly. Its two challengers are Advanced Cell Technology Inc. in Worcester, Mass., headed by a Geron defector, and Infigen in DeForest, Wis.

The Microsoft of this new industry, if there ever is one, will be the player that gains the tightest grip on core patents. That company would be able to collect fees from all companies using cloning technology in research--and demand a cut of royalties from resulting products. Alternatively, there may never be a king in this murky domain. Under one possible scenario, several companies could end up holding patents on narrow approaches to cloning.

Patent disputes that are just now getting the attention of the U.S. Patent & Trademark Office will eventually sort all this out. For the time being, uncertainty over who will wield the most patent power is a headache not only for the three companies involved but for dozens of startups pursuing clone-related research. "Anytime there is confusion in the marketplace over who owns the rights to what, raising capital becomes a challenge," says Infigen President Michael D. Bishop. "If we can't clear up the ambiguities of these base patents, we won't be able to move forward with the technology."

Cloning is too new for any company to begin raking in revenues, but the potential is clear. ACT charges $20,000 a head for the milk cows it clones and earned $1 million last year from licensing its know-how to others--including Genetic Savings & Clone, which funded the creation of CC the kitten at Texas A&M University. Granted, the process has yet to be perfected: For every healthy clone, there are hundreds of miscarriages and defective births. Still, the scope of the opportunity, claims ACT founder and CEO Michael D. West, "is limited only by human imagination."

Or by the patent authorities. The technology at the center of the intellectual-property disputes is called "nuclear transfer." The DNA of the animal being cloned is sucked out of one of its cells and fused with an emptied-out egg cell, which then develops into an embryo. Geron argues that Dolly the sheep was the first animal created with this technique, back in 1997, by Geron's Roslin unit. That first use is the reason Geron CEO Thomas B. Okarma is certain his company will prevail in the patent battle. "I have Dolly," he says. "I have no fear."

Okarma also believes that he has a lot less to lose than his competitors. Licensing fees from cloning patents accounted for less than 10% of Geron's $3.6 million in revenues last year. The rest came from research partnerships with such companies as Kyowa Hakko, a Japanese pharmaceutical company.

Most of Geron's research is focused on a potential cancer treatment based on the behavior of a natural enzyme called telomerase, which has nothing to do with cloning. The company is also developing remedies for diabetes, heart disease, and neurological disorders based on embryonic stem cells. So any revenues Geron derives from the disputed cloning patent are gravy. "We care more about curing cancer," sniffs Okarma.

ACT, on the other hand, is betting the farm on its clones. Its subsidiary, Cyagra LLC, breeds cloned cows and sold about $1 million worth of the animals last year. West hopes to use the same cloning technique to produce human embryos from which stem cells can be harvested. "With therapeutic cloning, we could make any kind of cell identical to those of any patient, engineered in any way," he says, and estimates the potential market to be well over $10 billion a year. "The market is absolutely huge."

Maybe so, but West's impatience to conquer that market isn't making him many friends. In November, ACT announced it had successfully cloned a human embryo. In reality, experts say, it had only created a mass of cells that died before they became a viable source of stem cells. Many scientists in the industry pegged the announcement as a disturbing ploy to catch the attention of venture capitalists. ACT, which has raised $12 million so far, is now on the hunt for an additional $10 million to $15 million. "It's horrifying," says Arthur L. Caplan, a professor and director of the Center for Bioethics at the University of Pennsylvania. "The desire to raise money and secure a patent position is driving these companies into a land-rush mentality."

In January, the U.S. Patent & Trademark Office took a step toward sorting all this out. It agreed to investigate Geron's claim that ACT's key patent should be withdrawn because Geron's Roslin unit invented and first used the technology. Then, on Mar. 11, the battle took a new twist when the patent office said it would investigate whether one of Infigen's applications for an animal-cloning patent also overlaps Geron's pending patent. Infigen, which is also cloning livestock, already has a separate dispute with ACT over the same technology.

It will take at least a year, maybe two, to determine who owns the disputed technology. Patent authorities must consider who first invented the cloning method as well as who put it into practice most effectively. Thanks to Dolly, Geron has the upper hand, patent experts say. Ultimately, though, all three companies could end up with patents that differ slightly, based on such factors as the types of cells that are used or the manner in which they are prepared. "Very often, the scope of one patent does not end up being nearly as broad as initially assumed," says Edward G. Poplawski, a patent lawyer with Sidley Austin Brown & Wood LLP in Los Angeles.

This is not the first time Geron has tried to corner the intellectual-property rights to a new technology. Last year, it was sued by one of its research partners, the Wisconsin Alumni Research Foundation, over the scope of its licensing rights to key lines of embryonic stem cells--the bulk of the cells in existence when the government stopped funding research aimed at developing new stem-cell lines. In January, to settle the dispute, Geron gave up exclusive rights to all but a few cell lines that it deemed held the most commercial potential.

Still, some biotech executives worry that Geron has too much power to control access to potentially life-saving cells. Lutz Giebel, CEO of San Diego-based CyThera Inc., says he had to go overseas to obtain stem cells for his company's research. "It would be a waste of time to try to get a reasonable license from Geron," says Giebel. Okarma, however, insists that all interested companies are welcome to come talk to him.

Nevertheless, fears that barriers may arise in the emerging cloning and stem-cell fields are driving some investors away from startups. "Where intellectual property is uncertain, you can't be sure of a company's ability to operate freely and to exclude others," says Michael Lytton of Oxford Bioscience Partners, a Boston venture-capital firm. "This is a very serious problem." Add in the possibility that the government could ban all human cloning--even for therapeutic purposes--and the end result is only a handful of U.S. companies able to raise enough money to get their research off the ground.

The uncertainty has become a burden in other ways, as well. Fewer companies entering the field means fewer potential collaborators to help advance the study of cloning. "We believe all research in therapeutic cloning will benefit us," Geron's Okarma says. "We're frustrated that we've been unable to create a network of partners. We're losing a lot of knowledge." A protracted patent battle could set the clock back years in the effort to use cloning to regrow the damaged cells of hearts and brains. And even the companies battling for the patents know it would be a shame if such a promising technology resulted in nothing more than cloned kittens.

By Arlene Weintraub in Menlo Park, Calif., with Faith Keenan in Worcester, Mass.

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