Making money from academic research is nothing new
One day, in the mid-1990s, Jeffrey Phillips, a pharmacologist in MU’s Department of Surgery, went to University Hospital to treat a comatose patient who had developed a bleeding ulcer.
Phillips’ first approach was to administer omeprazole, a proton pump inhibitor used to reduce stomach acid, but the coating on the drug clogged the patient’s nasogastric tube. Phillips then tried dissolving the omeprazole in water and adding sodium bicarbonate. The solution passed through the patient’s tube, and within a few hours, the bleeding had stopped.
Phillips began testing his innovation as a way to prevent gastrointestinal bleeding in intensive-care patients. He patented the formulation in 1996 as the first immediate-release omeprazole powder for oral suspension and set out to find a drug company willing to market it.
In 2001, Santarus, a San Diego-based specialty pharmaceutical company paid MU $1 million for the right to manufacture and promote Phillips’ formulation, now known as Zegerid. After the U.S. Food and Drug Administration approved its use in 2004, Zegerid became Santarus’ flagship drug. In March, the company announced that sales of Zegerid in the fourth quarter of 2006 were up 248 percent over the fourth quarter of 2005.
In an alumni newsletter, published around the time of FDA approval, Phillips was quoted as saying the Zegerid story illustrated the benefits of practicing medicine in an academic setting.
“I had the opportunity to research an idea that immediately helped patients at the University of Missouri and will eventually help millions of people around the world,” he said.
Zegerid has also been good for MU. Since its licensing agreement with Santarus, MU has pulled in some $10 million in royalties from sales of the drug, revenue that has been fed back to the university’s research programs.
And there’s more to the story: In November, Santarus licensed an over-the-counter version of Zegerid to the pharmaceutical giant Schering-Plough. The deal could be worth as much as $80 million to Santarus — and result in millions more in royalties for MU.
The commercialization of academic research, or university technology transfer, has been around for decades. Perhaps the most famous example originated at the University of Florida in 1965. Four researchers, using dehydrated football players as their subjects, put together a combination of carbohydrates (sucrose, glucose and fructose), electrolytes (potassium and sodium) and lemon juice to create Gatorade.
It has generated more than $80 million for the University of Florida since 1973, when a series of legal disputes over commercial rights led to the creation of a special trust to fund future research.
Indeed, Gatorade was just the beginning for the Gators. Last year, UF earned nearly $43 million in income generated by licensing agreements. In the past five years, 46 new companies were launched based on technologies developed by the university’s researchers.
The University of Florida’s technology transfer operation tops performances among public institutions and is fifth overall. According to the Milken Institute, a California-based economic think tank, UF is in the elite company of private research powerhouses such as MIT, Stanford and Cal Tech. Released in September, the institute’s study, “Mind to Market,” ranked 135 universities in the U.S. and Canada based on four categories: patents issued, licenses executed, licensing income and start-up companies spawned by the school’s intellectual property.
Despite the success of Zegerid, MU was nowhere to be found in the Milken report. While the University of Florida has averaged about $25 million a year in licensing income since 1997, MU’s best year was 2005, with $9 million. In 2006, MU’s income from licensing was $2.6 million.
Another measure of tech transfer prowess is the number of patent applications filed. In 2004, according to “Mind to Market,” UF filed 233 patent applications. The 42 applications filed by MU in 2006 were a slight improvement over previous years.
But now MU officials and state business leaders believe the university’s tech transfer program is poised to take off. While acknowledging that MU’s administration of patents and licensing has “continued to evolve” over the past two decades, they point to several key developments they believe bode well for the future:
Centennial’s president, Andrew Beverley, the chairman and CEO of First National Bank and Trust Co., said that with a research park and business incubator in the works, the 41 investors in the angel network see “a tremendous amount of promising ideas” on the horizon.
“There’s a strong sense in the business community that all of the stars are lined up with unprecedented levels of research on campus,” he said. “It seemed like all of the pieces were there. One of the things that was missing was investment capital.”
In the late 1960s, Charles Gehrke, a chemist at MU, developed a way to analyze amino acids in corns, grains and cereals. His methods were in demand by analytical chemists, presenting Gehrke and his two partners with a business opportunity.
Today, Analytical Bio-Chemistry Laboratories Inc. provides analytical and biological services for the pharmaceutical, agricultural, animal health and chemical industries. But, at the time, bringing academic research to the marketplace was relatively rare.
“In the 1960s into the 1970s, we didn’t really have a program of really encouraging faculty to do what I did at that time as they do now,” Gehrke recalled. “Of course, this whole concept has changed in the last 10 years and (at) other universities much earlier. It would have been an incentive to help, but it was sort of going against the grain at the time.”
Back then, the rights to most patented innovations were retained by the federal agency that funded the research. As late as 1980, research conducted at American universities produced only about 250 patents a year.
Then, in 1980, Congress passed the Bayh-Dole University and Small Business Patent Act, which allows universities, small businesses and nonprofit institutions to gain ownership of an invention before the government. For the first time universities had a legal and financial stake in their intellectual property, with the ability to obtain rights for inventions discovered from research funded by the federal government. As a result, by 2004, according to the Association of University Technology Managers, 3,268 patents were issued to 149 different universities.
John Gardner, vice president of research and economic development for the UM System, said that the Bayh-Dole Act represented the gradual shift in technological development since the 1950s.
“All of the sudden, universities have become the front end of technology development in this country,” said Gardner, who announced recently that he would leave UM to become vice president of economic development and extension at Washington State University. “I would challenge anyone to point to economic development since World War II that’s not anchored by a university. There is none.”
Not everyone was as excited about what might transpire in the wake of Bayh-Dole. In 1996, the Council on Governmental Relations, in a study of university technology transfer, reported that some scientists were concerned that seeking patent protection before the traditional method of disclosure — publication in a peer-reviewed journal — could slow the exchange of scientific information.
Howard W. Bremer, a patent attorney and expert on technology transfer and intellectual property rights, has written that for most of the 20th century, a corporate subsidy for research was considered “tainted money” that would divert scientists from their basic research mission to ideas that only had commercial possibilities.
Joshua Powers, an associate professor of educational leadership, administration and foundations at Indiana State University, has researched university technology transfer operations around the country. He said the pressure to “bring home the bacon” has definitely increased on American college campuses.
“I think we have some solid evidence that it has had some negative effects,” he said of the impact of technology transfer on basic academic research. “They need to stop putting pressure on folks in believing that these exercises are about making money. One needs to reorient, ‘What is the purpose of why we’re doing this?’”
Powers said certain areas in universities, such as the humanities, aren’t as “close” to the marketplace, and those areas of academia could suffer when resources are limited. The growing phenomenon of technology transfer has exacerbated this problem, he said.
“It’s a matter of priorities,” he said. “What do we value in our country? Does that mean that the arts aren’t important? Resources are limited in anything we do.”
Powers, the author of a recent article in the Chronicle of Higher Education that casts doubt on technology transfer as a financial windfall for universities, says an unrealistic expectation underpins the mindsets of many schools. He points out that 60 percent of all licensing revenue comes from less than a dozen universities, mostly older and larger research institutions like Stanford, which brings in tens of millions of dollars annually through technology transfer. Most schools don’t have the skill or staff needed to discern whether an innovation has potential market.
“So much of the ‘success’ is caught up in something we called luck,” he said.
Michael Nichols, director of MU’s office of technology management and industry relations, called the tension between basic and market-driven research “a really, really old argument.” The two go hand-in-hand, he said: Technology transfer adds luster to basic research, allowing the research to be recognized and funded.
“The most basic science had to be done to solve all those problems,” he said. “You take these little building blocks of basic science, put it together, and it becomes something you actually recognize. But an individual one you don’t see. And that’s kind of the difference between basic research and applied research.”
MU’s changing role
According to Gardner, it took three “eras” for MU’s technology transfer operation to evolve into its present state. Before 1987, when it first dedicated an office to handle faculty innovations, technology transfer was run out of the system’s finance office. The new office handled the patenting and licensing process for all four UM campuses.
In 1999, the second era began to take shape when UM overhauled its patent and licensing office and created the office of technology and special projects, with a $1 million budget and triple the number of staff than the previous operation.
Gardner said the OTSP’s mission was to deliver blockbuster technologies — or, as he called them, “home runs” — to the marketplace.
“Universities that had hit a home run were making a lot of money,” he said.
Zegerid was most certainly a home run, but MU almost struck out with the heartburn drug.
Phillips said that when university researchers discover something new they have to make a decision: publish their findings or obtain patent protection. In a tenure system, publishing is important; a dozen or so new research papers are typically required before a researcher is even considered for tenure. So it was no small matter for Phillips, an untenured associate professor, to seek a patent for his formulation. That decision grew more complicated when MU showed little interest in helping him.
“I had to choose between two roads,” Phillips recalled. “Patent the invention and license Zegerid or pursue 12 publications of any type and get tenure. My real dilemma was, I could not publish my invention in research form or else it would not be novel, and I could not publish it in the patent office because I had no financial help from the university.”
After several years, Phillips said he was forced to turn to his department, the MU department of surgery, which invested hundreds of thousands of dollars to secure the patent. The department was eventually reimbursed as part of the licensing agreement with Santarus.
“In my estimation,” Phillips said, “one licensed product from patent is worth two dozen publications. But the university has no interest in harmonizing this discordant culture.”
Indeed, according to “Turning the Corner,” an October 2003 review of MU’s technology transfer operations by a four-person panel from the Association for the Advancement of Science, the university had a reputation as “extremely risk averse — and more specifically as a place where fear of making wrong decisions in this area leads to a lack of willingness to make any decisions.”
Noting that the “deal flow” in 2002 — two licensing agreements — was “alarmingly low,” the panel also criticized MU’s entrepreneurial culture. Faculty efforts to commercialize research were not “recognized, promoted, or rewarded,” the panel said, and many researchers reported that they did not know where to get help.
Phillips said it was left to him to research commercial opportunities for his formulation. He concedes that it all worked out well for him, but the experience left Phillips somewhat critical of MU’s technology transfer process. Throwing money at the issue isn’t doing nearly enough, he said. MU needs to offer more incentives for faculty to invent, bring in outside experts in technology transfer and secure more funding from the state.
“It’s never for lack of desire,” Phillips said. “You know, the road to hell is paved with good intentions. It’s not about wanting to do well. You got to have that, but you need a lot more.”
That was the also the consensus of the “Turning the Corner” panel, which helped usher in the third era of tech transfer at MU. The panel urged the university to re-evaluate its business model, to focus less on innovations that bring the highest financial return — the “home runs” — and more on outcomes related to MU’s economic development mission.
The panel also recommended that MU work more closely with its researchers to evaluate invention disclosures, develop a plan for commercializing those inventions and take a more active role in marketing them.
“There was a lot of pent-up demand, I think, for doing more,” said Nichols of MU’s office of technology management and industry relations, which was created last year following a reorganization of the university’s technology transfer operation.
Nichols described the system’s new philosophy as the “mutual-fund effect” — some will lose but there will also be winners. “Your probability of being a winner is better the more deals you do,” he said. “That’s the bottom line.”
Toward that end, MU increased its investment in helping faculty file and obtain patents. The university’s “patent prosecution” budget jumped more than 400 percent, to more than $400,000, between 2000 and 2004. Now, patents are sought for nearly half of MU’s invention disclosures; that figure was just 10 percent in 2000.
“You’re not necessarily building the next Ford Motor Company in this day and age,” Nichols said. “Instead, what you might be doing is using this intellectual property to create a piece of software that’s used all over the world.”
Today, each of UM System’s four campuses has its own a technology transfer office, responsible for working directly with faculty to steer their ideas to the market.
The process begins with a confidential disclosure statement that describes what the invention is and how it was discovered. Researchers are encouraged to file the disclosure before the word of the invention is published, which could the limit the time available to file for patent protection. A licensing associate then evaluates the disclosure for commercial potential and how it might fit into an existing or start-up business.
If the disclosure is eventually patented, licensed and brought to market, the inventor receives the first three-ninths of any income. The faculty member’s reputation and stature will also be enhanced, Nichols said. After expenses, two-ninths will later go back to the faculty inventor’s department; two-ninths will go to the faculty inventor’s campus to support research; and two-ninths will go to the UM System office of intellectual property.
“This year we project our revenues will be $4 million,” Nichols said. “That was double of what we got last year.”
Lesa Mitchell, vice president of advancing innovation at the Ewing Marion Kauffman Foundation, said that MU hasn’t been highly productive in commercializing university research, but that is changing. “In the last year, there has been a substantial change in strategy and tactics fostering innovation at the University of Missouri,” Mitchell said.
Specifically, she said, Gardner and Nichols have been “proactive” and “pro-volume,” collaborating with industry and reducing transaction costs as much as possible. Mitchell said part of reducing transaction costs means truly engaging in the negotiation process.
“(Nichols’) philosophy is, ‘Let’s just get deals done,’ which is just a godsend to both entrepreneurs and industry interested in collaborating with universities,” she said.
Mitchell said the success of a university’s technology transfer should not be measured by licensing incomes, but by the number of licensing agreements. Mitchell equated the tech transfer process to a lottery — the more chances you have, the more money you could make.
Nichols and Gardner believe that increasing the number of disclosures and patent opportunities fits in with its goals for two other key elements of MU’s tech transfer strategy: Discovery Ridge and the Life Science Incubator at Monsanto Park.
The Discovery Ridge research park sits in a corner of the 1,400-acre South Farm, a “land laboratory” purchased by the system in 1934 for crop and large animal research. Right now, Discovery Ridge is like a time capsule to be opened years from now. There’s a level of uncertainty to the project, which is more often described in analogies and models and ideas that may or may not come to fruition.
Gehrke said ABC Labs was considering an expansion of its existing facility when the opportunity to become Discovery Ridge’s first tenant came along.
“It will open doors because of the basic, fundamental research that goes on at the university and universities in general,” he said.
Gardner said the UM System is preparing land at Discovery Ridge in anticipation of attracting more businesses. The research park will also play a role in MU’s educational mission, offering students opportunities for internships and access to cutting-edge technology.
Nichols said that Missouri hasn’t offered a nurturing environment for start-up companies in the past, but that the Life Science Incubator could be the catalyst the state needs to change.
In addition to helping foster start-up companies and attracting venture capital to Missouri, incubators bring knowledge-based workers to the state and improve the overall economy, he said. It’s also cheaper for businesses, which have access to cutting-edge ideas.
“You’re still going out and mining the scientific expertise that’s located in universities,” Nichols said. “They get to be able to access a lot of intellectual property that would be impossible for them to be experts in and still make money.”
Jake Halliday, president and CEO of the Missouri Innovation Center, an independent, not-for-profit, on-campus organization that will help run the incubator, said the facility was the missing link in a strategy that has been two decades in the making. In the past, innovations have slipped out of the hands of Missouri entrepreneurs.
“When you have an innovation, you’ve really got two choices in what you do with it,” Halliday said. “You can either license it away to somebody and they run with it, or you can use it as the nucleus for a company here, and that’s what our strategy is.”
Bo Fraser, a UM System curator and Columbia businessman, said that he’ll be encouraging UM to continue pushing technology transfer on its campuses as part of the system’s newest mandate — as an engine for economic development in Missouri.
Fraser is a founding member of Regional Economic Development Inc., a group that aims to improve economic development in Boone County by enhancing public-private partnerships. He, like Gardner, Nichols and Halliday, is optimistic that after years of watching other land-grant universities in the United States create new businesses, new jobs and new income streams, MU’s renewed focus on technology transfer will pay off.
“I think that is the absolute right thing to do,” Fraser said. “The university is in a position to have a significant impact on economic development in this state, and there is a changing culture and attitude — certainly on this campus — that it’s OK to turn some of this research into commercialization and entrepreneurship.”