Just thought people following this stock may be interested in the following article in FORBES.COM I thought it made very interesting reading for anyone hold GTG for the longer term.
Junkyard Dogs
by Zina Moukheiber | Sep 29 '03
A tiny Aussie firm has claimed rights to vast tracts of the genome and is riling the biotech world. Francis Collins was in the middle of his keynote speech last July at the International Congress of Genetics in Melbourne, Australia when he arrested the audience with a rebuke singling out a local biotech firm. Collins, the force behind the mapping of the human genome and now the director of the National Human Genome Research Institute, accused the firm of hijacking drug research with flimsy patents covering huge strips of so-called junk DNA, biological bits once thought insignificant but now central to the work of disease hunters.
In the audience was a stunned Malcolm Simons. Cofounder of the accused firm, Genetic Technologies, he stood up and introduced himself as the author of the patents. He replied that his claims were deserved and cleared by the U.S. Patent & Trademark office. Simons, a 63-year-old immunogeneticist recently made bald by chemotherapy, sat down, a bit shaken. He says now: "That was a perverse comment. I was the first to realize that junk DNA is not junk."
Genetic Technologies has incited a mini-riot in the high-stakes world of biotech. Gene hunters have long focused on a mere 1.5% of the human genome, an estimated 25,000 genes that code for proteins and thereby control the immune response, organ growth and brain activity, among other things. The other 98.5% of the double helix was derided as junk, a vestige of the distant evolutionary past. But since the first draft sequence of the human genome was released in 2000, scientists have realized that junk DNA plays a key role in switching genes on and off. And they are astonished to find that an obscure company has a claim on the junk and wants to be paid for it.
Simons' four key patents, granted by the U.S. between 1993 and 1998, cover the use of variations in a junk DNA sequence to assist in analyzing or identifying genes in the coding regions. But the patents are broad enough for the company's chairman, an irascible Aussie doctor-turned-entrepreneur named Mervyn Jacobson. He has compiled a list of more than 1,800 companies whose work he thinks falls within the scope of the patents. "The world has become our research lab," he says.
The patents expire between 2010 and 2016, and Jacobson wants to make the most of that time. So far the company has sold licenses to two universities and eight U.S. companies, including Quest Diagnostics, Nanogen, Perlegen Sciences and Myriad Genetics. Prices range from $75,000 for the University of Utah to $1 million for Myriad. Jacobson has generated $7 million in license revenue since mid-2002--this, for a firm that grossed $3 million last year, half of which came from helping to settle paternity disputes.
If you don't pay, you get sued--especially if you scorn Jacobson. Last year a major U.S. biotech firm invited him up to learn more about his patents. Jacobson flew from Australia, but the company's head of business development never showed. "They view us as sufficiently small and far away to ignore us," says Jacobson.
Three U.S. firms now face infringement suits for refusing to pay: Applera, Nuvelo and Covance. Jacobson says Applera should either buy a license or stop using noncoding DNA for, among other things, a diagnostic test for cystic fibrosis. Jacobson also wants $5.7 million in license revenue from the New Zealand department of health. He has also taken the unusual step of demanding $1,000 fees for academic licenses. "Every university that does genetic research potentially infringes their patents," says Brent Brown of the University of Utah's technology-transfer office, which took its license in May.
An early paying customer was Sequenom, a DNA-analysis company in San Diego that agreed to pay $500,000 in April 2002. Says Antonius Schuh, chief executive of Sequenom: "It's a ridiculous, trivial patent." He sat for four months on a letter from Jacobson notifying the company that its research might be infringing. Eventually, Schuh decided to pay before the price went up.
Simons, who left Genetic Technologies in 2000 after a tiff with Jacobson, has been growing steadily more aghast at his former colleague's hardball tactics. Though he is currently battling multiple myeloma, a fatal bone-marrow cancer, Simons says he is willing to take the stand for either side to clarify the patent if the Applera lawsuit goes to trial.
Genetic Technologies' detractors say its patents could crumble under attack from a good defense lawyer. Genome mapper Francis Collins says prior research undermines Simons' work. He cites a 1978 paper that showed a link between the gene behind sickle cell disease and a variation in a section of junk DNA. Jacobson dismisses as poppycock the notion that noncoding DNA was understood back then.
Research into noncoding DNA has recently been gaining force. In December 2002 a pivotal Nature article pointed out that junk DNAmay help explain the differences between man and mouse, since the two creatures share most of their genes. About 5% of the genome in both humans and mice has changed little for millennia, and about half of that 5%is noncoding. The fact that these pieces of DNA have been around that long implies some role.
Up to one quarter of genetic mutations occur either in introns, noncoding segments of DNA sandwiched within the coding regions of a gene, or in sequences between genes. Mutations in introns give rise to cystic fibrosis, breast cancer or forms of anemia. Variations in the between-gene regions have been linked to sickle cell anemia and diabetes.
Simons' breakthrough in finding meaning in the junk dates to 1987, when he was setting up a DNA diagnostics business for an Australian company in Burlingame, Calif. On the side, he took part in an international workshop studying the human leukocyte antigen gene complex, which helps regulate the immune system. He found a link between HLA and the regions of junk.
By 1988 his employer had gone bankrupt, and Simons was forced to return to Australia. Mervyn Jacobson read about Simons' bumpy journey and was smitten with the idea of finding value in junk DNA. In 1989 they formed GeneType and applied for their first patent covering noncoding regions and HLA. In 2000 GeneType pulled off a reverse merger with a publicly traded Australian shell company that formerly mined for gold. The deal brought in $6.5 million in today's dollars. DNA may be a richer lode.
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