»Annotated Case: The Case of the Promising New Drug«
Dr. Linda Roberts has spent the past five years working on a new drug for the treatment of lupus erythematosis. The molecule she designed links a fragment of an anti-inflammatory drug with a protein that binds to the diseased cells. Designing this new drug was made possible by two decades of research in the Immunology Laboratory at Westfield University Medical School, where Dr. Roberts works. Without the basic work in researching the molecular biology of this disease (the early stages of the research were funded by the National Institutes of Health), the highly specific drug would never have been developed.
At the same time that Dr. Roberts’ research has yielded such promising results, federal financial support for biomedical research has declined. If this new agent were an effective treatment and a commercial success, it could be extremely helpful for Dr. Roberts, her department, and especially the medical school.
Dr. Roberts’ research in the past five years has been supported by funds from Arthrid, Inc., a company that markets a number of drugs for arthritis. She was also given a consultant fee of $50,000. Indeed, researchers working for Arthrid helped with methods for producing large amounts of the therapeutic molecule. Without the resources of a pharmaceutical company, developing a marketable product would have been extremely difficult, if not impossible. Also, changes in federal regulations governing research encourage collaborations between academic scientists and companies in order to promote the transfer of technology from the laboratory bench to the clinic. 
There has also been a trend for institutions to hold equity interest in the start-up companies of their faculty. Because Arthrid is a local company and has been generous to the medical school, several members of the Westfield University Hospital Institutional Review Board (IRB) have bought stock in the company.
This long-standing relationship made it feasible for Arthrid and the medical school to enter into an agreement that entitles Arthrid to own the patent rights to all discoveries made in the course of the research it funds, and entitles Westfield University to 5% of Arthrid stock and a 5% royalty on sales of all products that result from the research.
In the highly competitive pharmaceutical industry, companies like Arthrid, Inc., seek patents on all promising discoveries. A patent gives the patent holder the right to exclude anyone else from making the patented product during the 20-year life of the patent. During those 20 years, the patent holder would hope to earn enough revenue from the product to recover the typically enormous costs of the basic and clinical research that leads to the production of the product. It is possible for the research and development of a drug, and the subsequent approval by the FDA, to take as long as 10 years and cost more than $800 million.
Included in the Arthrid-Westfield agreement is a non-disclosure agreement, whereby Arthrid will be able to protect its proprietary interests. There are restrictions regarding publication, including Arthrid’s right to review all data and a mandate for Dr. Roberts to send to Arthrid all manuscripts at least 30 days prior to their submission for publication. This would allow Arthrid to delete any information that, according to the company’s directions, should not be published or presented, which might threaten its rights to any patentable invention.
Extensive use of the experimental drug in animal models of lupus has been highly successful, producing the desired anti-inflammatory effects. Other similar drugs have been used without any serious toxicity. Thus, the drug is now ready for Phase I clinical trials. To encourage this collaboration, Arthrid would be pleased to pay for a trial at Westfield University Hospital. By all accounts, Dr. Roberts would be the ideal clinician to conduct the trial, because of her intimate knowledge of the drug. Arthrid is willing to issue to Dr. Roberts 2% of its common stock. In addition her husband will receive 2% of Arthrid stock and her 14-year-old son will receive 1%. If the trial is successful, this would go a long way toward covering her son's college tuition.
Dr. Roberts and her colleagues work in the hospital’s Medical Clinic, which has a large number of patients with lupus who would be available and thus easy to recruit for the clinical trial. Also, because of the department’s reputation in research and patient care, Dr. Roberts would be able to enlist the cooperation of other hospital departments around the country in initiating a multicenter clinical trial of the new agent for treating lupus. Dr. Roberts and her colleagues submitted a proposal to the IRB which they believe justifies the use of their clinic patients because of the benefit that this new drug will provide.
On the assumption that she will be conducting the trial, Dr. Roberts approaches her postdoc, Dr. Henry Chung, to ask if he would join her in testing the new drug. But Dr. Chung has been pursuing a different and potentially significant project, cloning a gene for asthma, and is close to completing his work on it. Completing the asthma project would put Dr. Chung in an excellent position to apply for a faculty post and qualify for a grant under a newly announced federal program; working with Dr. Roberts means that he must set this work aside. Dr. Roberts tells Dr. Chung that if he joins in the Arthrid project, the company will issue him shares of Arthrid common stock equal to 2% and also pay him a generous consulting fee. In addition, Dr. Chung would continue to receive his postdoctoral stipend.
Dr. Chung is already somewhat annoyed that Dr. Roberts is spending so much time at the Arthrid labs; he is not receiving the supervision for his asthma project from Dr. Roberts that he feels he needs. Westfield University Medical School allows a faculty member to spend 20% of his or her time on outside commitments, and Dr. Roberts is spending about 12-15 hours a week at the Arthrid labs. Since Dr. Roberts works closer to 60 hours a week (she always works on the weekends and takes work home every night), she does not feel that her time away from the medical school is excessive. Furthermore, this time away from her medical-school lab allows her to work on the therapeutic molecule using laboratory equipment at Arthrid which her own lab lacks.
Meanwhile, Dr. Frank Bonita, a colleague of Dr. Roberts’, asks Dr. Roberts for a small quantity of a reagent that has been used in the lupus drug research. Drs. Bonita and Roberts were students together, entered the department at the same time, have openly discussed with each other all their research for many years, and are good friends. Each has been indispensable in the research success of the other. The secrecy covenant in the Arthrid-Westfield contract now prevents Dr. Roberts from granting what would otherwise be Dr. Bonita's routine request for a reagent. Dr. Bonita wonders whether Dr. Roberts acted prudently in so restricting herself.
The IRB will meet soon to review Dr. Roberts' proposal to study the new drug at Westfield University Hospital. The IRB chair has been informed by the dean of the medical school how important this proposal is for the medical school and makes the IRB members aware of this.
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