Trial Opens in Suit against Bay Area Biotech firm

By Gary Gentile Associated Press writer
Wednesday September 05, 2001

LOS ANGELES — A contract signed before anyone knew billions would be made selling bioengineered drugs is at the heart of a $400 million legal dispute between a pharmaceutical company and the research center whose work led to several key patents. 

The 1976 contract, between South San Francisco-based Genentech Inc. and the City of Hope National Medical Center in Duarte, provided that Genentech would fund research at the City of Hope’s Beckman Research Institute. In return, Genentech would own whatever patents would be issued and would pay the hospital a 2 percent royalty on the sales of certain drugs resulting from the research. 

During opening arguments Tuesday in Los Angeles Superior Court, the lead attorney from City of Hope alleged Genentech concealed licenses with drug companies over the 25 years of the deal to avoid paying about $340 million in royalties. Genentech owes the hospital more than $400 million, including interest, the hospital argued. 

Lawyer Morgan Chu, who represents the hospital, said he would present evidence of “a string of broken promises by the defendant, Genentech.” 

Genentech’s lead attorney, Susan Harriman, said City of Hope only brought the lawsuit when it became worried because royalties from Genentech would stop when the patents expired in a few years. 

“Genentech has paid City of Hope every penny it was owed ... ,” Harriman said. “City of Hope was extremely well compensated for its work.” 

At issue are drugs involved in the production of human insulin and growth hormones made possible in part by work done by City of Hope researchers Arthur Riggs and Keiichi Itakura. 

Many credit them as the first to synthesize human insulin through techniques that since have been used to create some of the building blocks of biotech, including a hepatitis B vaccine. 

Chu said Genentech hid 27 licensing agreements it made with pharmaceutical companies to make drugs based on City of Hope’s research. When hospital officials discovered the problem in 1998, Genentech tried to reinterpret the 1976 agreement to limit when royalties would have to be paid, Chu said. 

The key dispute is whether DNA actually made in City of Hope laboratories must be used in the creation of drugs in order to trigger royalty payments to the hospital. 

City of Hope argued Tuesday that Genentech is profiting from patents based on its discoveries and must pay royalties anytime Genentech licenses those patents to a drug company. 

Genentech, which posted sales of $1.7 billion last year, argued that City of Hope was an independent contractor hired to produce strands of DNA as well as research. Therefore, the company only owes royalties on drugs made possible both by the patents and the DNA made by City of Hope. 

Harriman said she would show during the trial that City of Hope should have known about the “concealed” licenses because they were mentioned in company documents, including press releases, annual reports and filings with the Securities and Exchange Commission. 

Among those receiving reports from the company, which went public in 1980, were two of its largest shareholders — City of Hope scientists Riggs and Itakura.