Lucrative Licensing Deals With Drug, Biotech Firms Are Raising Ethics Issues For Hospitals

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By Liz Kowalczyk, Globe Staff Date 03/24/2002

When Amgen, the world's largest biotechnology company, recently promised to triple sales of a top-selling arthritis drug called Enbrel, there was a little-known beneficiary: Massachusetts General Hospital.

Mass. General AIDS researcher Brian Seed helped discover Enbrel in the late 1980s, and over the next several years the hospital patented and licensed the drug. It turned out to be a lucrative move: Seed and Mass. General saw more than $16 million in royalties last year. If sales of the $800 million-a-year injectable medication rise, so will their share of the profits.

A decade ago, many academic medical centers shunned profit-making deals with industry. But Harvard Medical School's major teaching hospitals, hoping to replicate deals like Enbrel, are aggressively licensing discoveries by their physicians and researchers to biotechnology and pharmaceutical companies. And they are grappling with a host of business and ethics issues, including how to protect patients when hospitals and doctors have a financial stake in the outcome of their treatment.

Children's Hospital last year closed 33 deals, up from 13 three years ago, while royalties and fees doubled from $2.7 million to nearly $6 million. Partners HealthCare, the parent organization of Mass. General and Brigham and Women's Hospital, earned $31 million in royalties last year, half from Enbrel, a sixfold increase since 1998.

Dr. Edward Benz, president of Dana-Farber Cancer Institute, where the number of deals has grown 60 percent in the last three years, said "there's been a sea change nationally" at academic medical centers, in part because of a 1980 law allowing universities and hospitals to profit from research.

But at Harvard's teaching hospitals, the shift also has been fueled by concern that they are not doing enough to leverage the enormous amount of research money flowing annually into Boston - $1 billion in federal grants.

Sloan-Kettering Cancer Institute in New York City has one-fifth the research funding of Partners. But it earned $46 million in licensing fees and royalties in 2000, mostly from Neupogen, a $1.3 billion-a-year drug licensed to Amgen that reduces infections caused by chemotherapy.

The five independent hospitals that receive the most money from the National Institutes of Health are all Harvard teaching hospitals. Children's Hospital, which received $110 million in research money last year, is the largest pediatric scientific enterprise in the world. "We don't want our researchers' ideas sitting on the shelf," said Bruce Zetter, interim vice president of research at Children's.

The push for "technology transfer" at the Harvard hospitals - and at many academic medical centers - has significant implications for patients, who benefit from the discovery of more effective medications. Enbrel, for example, has proved highly effective in helping control pain and limiting damage to joints in people with rheumatoid arthritis.

While universities and hospitals have the most extensive basic research enterprises in the country, they need pharmaceutical companies with deep pockets to develop and market their discoveries. But in some cases questions have been raised about whether these relationships have hurt patient care.

One prominent case was the 1999 death of Jesse Gelsinger, an 18-year-old who was enrolled in a gene therapy trial at the University of Pennsylvania. The family's lawsuit against the university, which was settled in 2000, alleged that researchers lost focus on safety partly because the university held equity in the company developing the drug and the lead doctor held one-third of its shares. The doctor, James Wilson, eventually cashed in his shares for $13 million, according to the Gelsinger family attorney, Alan Milstein. The university said it did not neglect patient safety, but could not comment on specifics.

"The rewards in some of these relationships are too great," Milstein said. "The money from industry is too great. The researcher is supposed to be this objective, unbiased observer with no interest in the outcome of the experiment."

Harvard Medical School has some of the strictest conflict-of-interest rules in the country for individual researchers, forbidding them to hold more than $20,000 worth of stock in a company for which they perform research. But there are no systemwide rules for when a hospital holds equity.

Dana-Farber, Partners and Beth Israel Deaconess Medical Center do not conduct clinical trials for companies in which they hold equity, executives said. Children's Hospital does allow the hospital to participate in clinical trials under those circumstances, but requires that the hospital's financial stake be disclosed to patients in the trials. There are no such trials underway at Children's now.

Still, the hospitals are debating policies to cover a range of other situations that could create a conflict of interest or harm patients or the hospitals' reputations.

Immunex, which announced in December it was being bought by Amgen, is aggressively testing Enbrel for a range of other illnesses, including psoriasis. Mass. General must decide what to do if Amgen asks it to participate in the clinical trials.

Since the hospital stands to gain more royalties from the success of such clinical trials, should it take part? Seed began working on methods to fool the HIV virus in the late 1980s at Mass. General, an investigation that eventually led to Enbrel. He declined to be interviewed for this story. But hospital executives said his idea was to create decoy proteins to which the virus would bind, rather than to vital cells in the body. It quickly became clear that this type of fusion would work across a range of proteins, and Mass. General licensed the idea of protein fusion in 1997. Immunex applied the concept to block a protein that causes destruction of the joints.

After Immunex and Amgen announced their deal, Amgen chief executive Kevin Sharer promised to triple the drug's sales, which will mean increasing the sales force and putting testing in patients with other illnesses on the fast track. So far, Mass. General has earned $25 million in Enbrel royalties, a quarter of which goes to Seed.

Frances Toneguzzo, Mass. General's director for corporate-sponsored research and licensing, said she believes the hospital could participate in clinical trials with extra oversight, such as a second investigator to monitor the lead investigator.

Children's is discussing whether to sell its equity in 14 companies, worth an estimated $5 million to $10 million. One of these companies is Entremed, which paid for experiments in which Dr. Judah Folkman of Children's discovered Angiostatin - a protein drug designed to cut off the blood supply to malignant tumors. Small biotech companies often are cash poor and can't offer upfront fees to hospitals in return for intellectual property, so they offer equity instead. Harvard University has a policy of selling equity at a fixed, predetermined point - when the company goes public, for example - to avoid the appearance of playing the market. But Children's did not want to appear to be profiting when Entremed went public in 1996, Zetter said, so it held onto its stock.

"We wanted to make sure the research was judged on its own merits and there was no possibility of someone saying, `Children's is in this just to make money,' " Zetter said. "It seemed at the time the simplest thing to do was to not do anything."

These quandaries have grown more common since 1980, when Congress passed the Bayh-Doyle Act, allowing universities and hospitals to patent federally funded research and license inventions to private companies. The law blurred the line between academic research and business. Some nonprofit institutions and companies have benefited enormously from the law. Columbia University, for example, patented a gene-transfer process in 1983 that 28 companies have used to make new drugs. It was a significant contributor to the university's $143 million in licensing royalties last year.

At first, universities with strong engineering programs patented their discoveries most aggressively. But hospitals have become increasingly interested, particularly since managed care restricted their income during the 1990s and heated competition for patients fostered a more entrepreneurial attitude.

In recent years, the Harvard hospitals have significantly expanded their technology transfer staffs and their outreach to doctors and researchers who might have profitable ideas. Children's doubled its staff in the last two years, recruiting seven PhDs, two MBAs, and three lawyers. Partners doubled its staff working with industry to 30 since the late 1990s. Tufts-New England Medical Center, which has 30 active licenses and $1.1 million in annual royalties, also plans to expand.

Dr. David Blumenthal, a Harvard professor and director of Mass. General's Institute for Health Policy, said that even though hospitals have had a growing interest in licensing discoveries, most do not make money. Successful universities and academic medical centers usually stumbled upon a single blockbuster, such as Sloan-Kettering's Neupogen.

"Mostly this has not paid off in a big way," he said. "This is a risky business and a low probability activity. Most patents aren't licensed and most licensed patents don't make much money. A university will be very lucky if they have a big hit. Nevertheless, they continue to pursue it avidly."

Even if the revenue remains modest, Toneguzzo said that the money is important to the hospital's research mission. At Mass. General, royalties are divided into four equal parts - 25 percent each for the inventor, his or her lab, the department, and the hospital.

"I don't see this as a revenue stream that will keep the hospital afloat," she said. "Having said that, it's very important money because it comes with no strings attached. So it lets our researchers try out new things that they normally can't get funding for."