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4. An Industry Perspective: Development of an MTA Harmonious with a Microbial Research Commons – Stephen J. McCormack 22 Exela, LLC, Las Vegas, NV My early work was done in academia. I was involved in the sequencing and other research associated with the advent of Sanger dideoxy sequencing in the 1980s at University of Massachusetts Medical Center in the laboratory of Michael P. Czech, MD. and then in Rockefeller Institute with Robert G. Roeder, MD. My Ph.D. is in virology, and since receiving it I have intentionally moved into different fields. I spent five years here at Georgetown University, for instance. My first professional job was at the American Type Culture Collection, working for the general counsel, where I was responsible for putting together many of the early formative material transfer agreements (MTAs). The one being used now is very different than the one I worked on there. I have also been involved in the formation of many different companies, including companies focused on diabetes and cancer, and now I work for a firm that deals with medical devices. In my talk I will not address many of the issues associated with copyright and publication because this is an area that I am not very familiar with, and there are many people here who are far more well-versed in the copyright and the publication issues. Let us go back to 1997, when many of the MTAs were being developed for a number of collections with regard to biological repositories and DNA and other matters. It was right around the time when Human Genome Sciences (HGS) and The Institute for Genome Research (TIGR) were formed, and it was also at the time when Craig Venter had left the National Institutes of Health to start TIGR, a not-for-profit organization, that was very tightly affiliated with HGS. According to the relationship that was set up, a number of government findings were coming into each one of these programs, that were used to sequence microbes and to have a full composite of gene expression data. At the same time, human expressed sequence tags (ESTs) were being discovered, and these were then being taken to HGS, where they were being categorized and utilized according to how they were expressed and what their therapeutic potential could ultimately be. It was within that framework and during that period that people began to recognize that there had to be some structures in place with regard to exchanges of information and biological materials between a not-for-profit or a government-funded organization, and a for-profit organization, such as HGS. It was also right around that time that Smith Kline Beecham invested $125 million into HGS on the basis of the promise and potential of those data and the information that was generated from them. Many of the repositories, including the American Type Culture Collection (ATCC), were used as warehouses for all of the sequence data that were being collected, and, according to the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent 22 Presentation slides available at: isionSelectionMethod=Latest. 25

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Procedure. A very significant percentage of all patented microorganisms were and are currently stored by ATCC. So, that is a snapshot of where we were about 12 years ago. Let me switch gears and talk about the commercialization of microbial resources. Microbes have been of tremendous societal and commercial value for millennia. Brewer’s yeast is a good example, as it has been used for baking and brewing for at least 6,000 years. Since the initiation of modern biotechnology, which takes us back to 1980 or so, these microbes have formed the basic underpinning of both generalized non-applied research and applied research. We have just scratched the surface of the commercial potential of these microbes because relatively few have been identified. In recent years, the genomes of several of these microbes have been sequenced, and we have just begun to harness the value of that new information. Today, some global standards and principles exist, but are being applied unevenly to the characterization, access, and licensing of these microbes and collections. So, just as the world culture collections all have minimum scientific and technical standards, a microbial commons approach—whether it is based on a compensatory liability rule, or on other approaches—is also a potential means of global legal standardization, which is essential for the propagation and development of this potential. It has been suggested that diverse licensing strategies and techniques have elevated transaction costs and other barriers for relatively simple, collaborative research projects. I think that we can all agree that there are higher transaction costs and that there is also an investment of time associated with the discussions and negotiations that take place. Furthermore, according to the liability rule principle, providing access to all microbial resources and collections will eliminate any of the competitive advantage that arises from keeping these materials and data from other organizations. However, I have run several companies, and I know my duty is to represent the interests of the shareholder. If I am running a microbial company, the essence of my duty is to extract as much value as possible out of what I am working on. If that means withholding that information from the general public or identifying a collection and utilizing that collection for the best purpose that I can to maximize my competitive advantage, it would be my fiduciary responsibility to do so. So, there is a potential caveat: A substantial amount of the data in the collections are in private organizations and in companies that are very well funded, such as pharmaceutical companies that are using the data for their own discovery work or for other purposes. It is clear that the limitation of access to these microorganisms does not permit a level playing field on the fundamental research but the actual sequence data is probably of greater value. The primary point to a research commons is that the data and the collections will not be kept locked away inside private organizations, but that the majority will be out in the public domain. When you look at what is being done with the Brain Research Project, two things are clear: first, that the applied research that will come out of it has not fully manifested itself as it has in microbiology and, second, that the genesis and the progression of the research in brain sciences has been within what is fundamentally a very collaborative government-sponsored research program. While the brain itself is extraordinarily complex, the policy issues surrounding the data are less so, and the neuroscience community is taking a far more linear and straightforward approach than is required in creating a microbial commons. 26

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One other thing keep in mind with regard to the postulate is that it is a seller’s market for those who have control of these microbes. As a buyer, if I am negotiating to acquire a microbial collection for commercial purposes, whether it is a world culture collection or a collection from another company, I am going to negotiate on the basis of what I think the fair market value is at that particular time. As a case study, let us examine ATCC. It is an independent, private, non-for- profit 501(c)(3) biological resource center, and it is part of the World Federation for Culture Collections (WFCC). Its primary goal as a biological resource center and as a research organization is to provide reliable, qualified, and low-priced biological materials for the advancement of basic research. That was the fundamental founding principle when it was established in 1925, when a committee of scientists recognized the need to have a common repository in the United States and a means to exchange microbes among the scientific community for scientific research. The purposes included the continuation of the advancement of that research, the validation of some basic research funding decisions, or other related goals. However, a lot has changed since 1925. In 1949, the first patent culture deposit took place at ATCC. In 1981, it began to accept patent materials from any country that had signed the Budapest Treaty. In 1997, ATCC initiated the first of its special collections and moved to Manassas, Virginia. As a case study, ATCC is reflective of many of the other culture collections throughout the world, so I did a little research to see what the mission statement is because such statements are indicative of the priorities within an organization. The mission statement on its Web site states that it is a global, non-for-profit, bioresource center and research organization that provides products, technical services, and educational programs to private industry, government, and academic organizations. Its goal is “to acquire, authenticate, preserve, develop, and distribute biological materials, information, technology, intellectual property, and standards advancement and application of sciences.” Its brochure offers a slightly different mission statement: After saying that its goal is “to acquire, authenticate, preserve, develop, and distribute biological resources and knowledge to scientific researchers,” which is very similar to the Web-based statement, it adds, “We strive to be the preferred provider of high-quality biological reference standards which, along with products and services developed in-house, enable science to touch people’s lives.” This is very different. It is saying that ATCC is a product-based organization. By contrast, the microbial commons will work in a context that is not product- based. It will not be a situation where people are sharing their products for open dissemination so that a competitor or a researcher in Ghent or a company in Tokyo can use them to create their own products. This is something that needs to be considered as we move forward. Another key point is that ATCC’s holdings, which are almost identical to the ones throughout the world, are growing exponentially. However, while the number of holdings is growing very rapidly, it is on the order of tens of thousands of samples, perhaps a couple of hundred thousand at the maximum. When you look at the cloned genes collection, however, it contains 8 million cloned genes, and the number is continuing to grow at a rapid rate. In setting rules of commons, whether we consider it a microbial commons or a biological resource commons, the same principles apply. In creating 27

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research commons we have to be sure to allow for value creation to be recognized and patent protection to remain in place. ATCC, for example, has a number of special collections, including MR4 for malaria, the mantle cell lymphoma cell bank, and a yeast genetic research collection. These special collections are microbial semi-commons that hold special value to the researcher in the field of malaria, lymphomas or yeast research. ATCC, by characterizing and combining these groups of cells or microbes, has created value that may warrant some royalty payment out of the discoveries from these special collections. There is a disincentive to having a research commons. From the industrial perspective, the sequestering of biological resources and data allows for a perceived monopoly on the downstream application of research discoveries. If I am running an organization that is seeking to obtain funding, whether it is a large laboratory where I am looking for research funding or a large, private organization where I am seeking investor support, then I definitely want to emphasize the value of this perceived monopoly. I am trying to sell as a value proposition that I have this great collection I am working with. It is only when sharing and broad distribution will provide a greater possible upside to the owner that this material will be disseminated, whether that material is held within a private corporation or within a culture collection itself. For example, I may want to get my results out into the public domain as quickly as possible because I am going to then get the best publications, the research grants, and the talks at the major conferences that take place. Consider a commercial licensing program for available microbes. If I want to create an environmental company and license microbes for, let us say, wastewater treatment or some environmental purposes, would I sign onto a microbial commons? Not unless some type of protection would sanction the research investment to commercialize the discoveries out of this environmental companies R&D laboratory. In almost every instance, I could not justify an investment into research program that would be equally accessed and “owned” by my competitors. The final two issues are what “commercial use” is and how a MTA would be applied to it. Here is the definition of commercial use in the standard ATCC material transfer agreement: “Commercial Use” means the sale, license, lease, export, transfer or other distribution of the Biological Materials to a third party for financial gain or other commercial purposes and/or the use of the Biological Material: (a) to provide a service to a third party for financial gain; (b) to produce or manufacture products for general sale or products for use in the manufacture of products ultimately intended for general sale, (c) in connection with ADME testing; (d) in connection with drug potency or toxicity testing which does not include either screening multiple cell lines for potential inclusion in a screening assay system or screening multiple compounds in a system for internal research purposes only; (e) in connection with proficiency testing service(s), including but not limited to, providing the service of determining laboratory performance by means of comparing and evaluating calibrations or tests on the same or similar items or materials in accordance with predetermined conditions; or (f) for research conducted under an agreement wherein a for-profit entity receives a right whether actual or contingent to the results of the research. 28

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We can conclude that the definition of commercial use is not very simple in application or determination. In essence, a commercial use refers to the sale, license, lease, export, transfer, or other distribution of biological materials to a third party for financial gain or other commercial purposes and the use of the biological material. The first two uses described in the definition, (a) and (b), are very clear because they point to financial gain, either from services provided to a third party or products manufactured for general sale. The ADME testing in (c) refers to absorption, distribution, metabolism, and excretion, which are the essential elements one examines in the early stages of product development in the pharmaceutical industry. When someone ingests a pill or a compound or a chemical, you want to know what happens—how it is absorbed, how it is distributed, whether it is altered within the body, and then, ultimately, how it is excreted. There are some contract groups that charge quite a bit of money to do this in early testing, so perhaps some businesses have been formed out of it, but is it a major commercial use? I do not think so. I would argue that this scenario probably goes right into the category of “may not be too valuable.” So we could remove those microbes from the MTA and place them into that microbial commons. Concerning (d), drug potency or drug toxicity testing, there are some very basic and general research components and activities that are done in animal studies long before any product comes into existence. If I am running a company and I have to pay to use a microbe for which there is a probability of only 1 in 10,000 that it may ultimately result in a product, I would not use that, and I would not be inclined to buy into a program under those conditions. It is too early within the process. The final one, (f), refers to research conducted under an agreement where a for- profit entity receives a right, whether actual or contingent on the results of the research. This example is a little bit more open-ended. It supposes that someone is doing sponsored research: I, Stephen McCormack, sponsor this research, and a laboratory wants to obtain all the rights and data that come out of that and then eventually may want to build something out of it. The conclusion that we can draw from this is that the definition of commercial use is not very simple, either in its application or determination, and it is also a moving target. There are various technologies available for licensing from ATCC, the world’s largest repository of biological materials. These include, for example, materials in ATCC special collections. If you take a series of microbes or a series of cell lines and bundle those, can you gain a proprietary value or a perceived proprietary value out of that? The ATCC also offers pre-1980 cell lines that are not subject to the terms and conditions of the Bayh-Dole Act. Another issue to keep in mind concerning liability rules is what happens if the WFCC organizations pursue value-added research and bundling strategies. In that case, the collections will move up the value chain, approaching the level of commercial products, and, indeed, they could be sold directly on the market for general application. This may invalidate a liability rule approach. Although the proper balance needs to be found, I do not think these culture collections should deviate from the basic purpose of preserving, maintaining, and distributing biological materials. That is why I started out talking about what a mission statement is and what a founding principle is—it is in these areas identified by the 29

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mission statement that these culture collections and these biological and microbial commons will grow. To wrap up, here are some things to consider as we develop a microbial research commons. First, in certain cases, the mere characterization of a microbe can create immediate commercial potential for the products. Consider H1N1. Sequencing and identifying these epitopes and picking them out is part of their fundamental characterization because you do not know what you have unless that is done. However, once one identifies the changes that have taken place, the information is immediately of value.. Second, microbes and microbial connections should meet certain non-commercial qualifications for the entry into this microbial commons. The timing is important, however. Discoveries and advances in scientific research will regularly move the line on what is eligible for these liability rules because as you learn more about what is commercially important and what is not important, the point where that liability rule should be applied will change. In conclusion, the commercial use of microbial cultures is very difficult to define because the value changes over time and is subjective to begin with at the time of their appraisal. Different people may look at the same thing in a different way and value it differently. So a multifaceted system may be required to form a microbial commons that will enable broad and effective access to data and to biological materials. The culture collections will have to continue to lead with MTA agreements that will work as desired in the core of these microbial commons. 30