On Friday, January 21, 2011, I was at the Newseum for the Innovation Alliance conference on patents, innovation and job creation. The turn out was spectacular. Of course there were the usual suspects, but also in attendance were a number of Congressional Staffers and a good contingent of reporters. No doubt the location, only blocks away from the Capitol, facilitated the attendance of many.
I had the privilege of moderating the first panel on how patented innovations create jobs and economic growth. On the panel were Lisa Kuuttilla, President & CEO of STC.UNM at the University of New Mexico, Harry Leonhardt, Vice President & Deputy General Counsel for Amylin Pharmaceuticals, Inc., and John Swart, President of Exemplar Genetics, a small Iowa-based biotechnology company. The panel discussion ran the spectrum from Kuuttilla, who is responsible for getting University based research licensed and into the hands of start-up companies, to Swart who’s company is only three years old, has raised $6 million from investors and licenses University technologies, to Leonhardt who described Amylin as being in virtually the same position as Exemplar Genetics 20+ years ago.
At the outset of the presentation Swart, Kuuttilla and Leonhardt were invited to make initial remarks lasting about 8 minutes and then we turned to questions from the audience. Swart led off and he point blank said that the patents his company owns and the licensing rights they have obtained to other patents were of critical importance when attempting to acquire funding. I followed up and asked him “what impact would not having obtained investment have had on your business?” He said that without the money they raise from investors they wouldn’t be in business. Exemplar Genetics employs about 30 people presently.
During Kuutilla’s opening remarks she used examples to drive home the point that technology from the University of New Mexico is effectively getting into the private sector and companies licensing that technology are raising capital, hiring employees, expanding and succeeding. While New Mexico is not the only institution fostering growth, they do on average participate in the start up of 5 to 8 new companies a year. Kuutilla said that STC.UNM has participated in licensing technology to start-up companies that have created multiple hundreds of jobs at an average annual salary of $80,000 per job, which is $30,000 higher than the average private sector salary in the United States. See Federal Pay Continues Rapid Ascent. There is no doubt that jobs in the innovation economy are high paying and exactly the type of jobs we need to be fostering.
The truth is that start-up technology companies need funding and the key to obtaining funding is having a strong patent portfolio and exclusive rights obtained through licensing the patents of others. Swart said that as he was trying to raise early stage funding from a group of Angel Investors each one of them asked about the patent position of the company. Without a patent position and a story to explain why the patent position provided a solid foundation the Angel Investors would have gone elsewhere, which would have meant that the Exemplar Genetics would never have gotten off the ground, which would have been a shame for a company with exciting, disruptive technology.
In addition to the jobs that never would have been created but for the Exemplar patent portfolio the positive societal benefits that could come from their technology would never be realize. What does Exemplar Genetics do? Exemplar Genetics has come up with a process that bridges the considerable gap between the laboratory mouse and human testing featuring a substantially improved animal model: the pig. Pigs and humans share far more anatomical, histological, biochemical and physiologic properties than mice and humans, making them an excellent intermediary. Exemplar Genetics capitalizes on this similarity using specific gene modification to deliver a reliable model of human disease. They work with diseases such as cystic fibrosis, muscular dystrophy, heard disease and cancer. So thanks to a solid patent portfolio they have the economy gets jobs and those with terrible diseases and afflictions get hope.
The story of Amylin Pharmaceuticals is a perfect example of where a company like Exemplar Genetics can go with the right combination of dedicated scientists and proprietary technology that attracts the attention of inventors. Amylin’s story goes back to 1987 when a a newly discovered peptide hormone called amylin was believed to have real therapeutic value. This hormone is co-secreted with insulin by the beta cells of the pancreas and, along with insulin, is deficient in people who have diabetes. Amylin scientists believed there was a metabolic connection that, if discovered, would lead to a life-changing differences for those with diabetes. In short, this belief paid off. Amylin employs 1,500 people (see Amylin Yahoo Profile, which corresponds with Amylin’s LinkedIn profile). Their 2010 year-end financials have not been made public (they will be later this week) but for the nine months ending September 30, 2010, Amylin Pharmaceuticals has total revenues of $494.6 million, with $488.8 million attributed to net product sales. They had research and development expenses of $136.3 million, up from $134.9 million for the same period in 2009. Amylin is a real company with 1,500 jobs and none of that would exist today without strong patent protection.
It is almost sad that the Innovation Alliance had to hold this conference to address the obvious: patents protect innovation, attract investors and lead to job growth. It is purely fanciful for anyone to suggest that there would be the same level of innovation without a strong patent system. Those who make such a specious argument usually contend that the U.S. government funds basic science at universities and that science can just find its way into the marketplace. This naive view of the world does not comport with reality.
At the BIO 2010 Convention I interviewed Linda Katehi, Chancellor of the University of California Davis, herself an electrical engineer with substantial experience in technology transfer. She explained that the way research and innovation is handled by many Universities is not particularly likely to lead to success because companies become involved too late in the process and Universities do not get the market input that is essential prior to decided what basic research to translate into innovations. The University engages in basic research, moving on into translational research typically before turning the innovation over to start-up companies. It is in this hand-off period, known as the Valley of Death, that there is much risk and uncertainty for start-up companies. They need to take the basic research, which may or may not have been translated into useful preliminary innovations, and engage in enormous research and development steps to commercialize what is little more than basic science or preliminary feasibility science. So anyone that thinks that University science and preliminary translational research is ready for the market is just not familiar with the University or private sector realities.
If you still believe that the same level of innovation would occur without a patent system ask yourself this: if I spend money research and developing and others can copy me day one with impunity, what will they charge compared to me? Well, I have to recoup the research and development money invested and the free rider does not, so they will charge less. They will compete against me with my own technology but be able to charge less because they didn’t develop it, which is what the many irresponsible U.S. companies are learning after they have handed over their technology crown jewels to the Chinese, who then compete with the U.S. company with their own technology around the globe.
Still not convinced? If we do not have a way for those who create to enjoy the fruits of their labors they simply will not create as much. If we forced scientist and engineers to invent in their free time because they have to pursue other endeavors to pay their bills we would get less, if any, innovation. There are only so many independently wealthy people who could spend limited amounts of time inventing for free. In short, relying on innovators to innovate in their spare time rather than promoting an incentive based structure, like the patent system, is not a national innovation strategy.
The evidence of the benefit of a patent system for job creation is overwhelming and those who don’t see it are intentionally putting their head in the sand and pretending that it does not require any funds to innovate. NEWSFLASH: innovation doesn’t just happen, it is cultivated over time and requires funding.
It is shocking that at a time when the public is focused on job creation as the number one issue facing the country there are anti-patent and anti-innovation forces working to water down the value of a patent. We discussed the Microsoft v. i4i case and its potential impact on destroying patent value and making a patent a little more than a registration, much like a copyright. Anything that makes patents weaker will make it more difficult to raise critical early stage capital necessary for technology based companies to establish themselves, share their technologies in commercial form with the public and create the jobs that we so desperately need.
Earlier today, Jim Greenwood, a former Congressman (R-PA) and current President and CEO of the Biotechnology Industry Organization issued a statement in advance of President Obama’s State of the Union Address scheduled for Tuesday, January 25, 2011. Greenwood said:
The president’s State of the Union should, rightly, focus on jobs, particularly the need to create and fill new jobs to compete in an increasing competitive global marketplace. There’s no industry that better exemplifies the promise of job creation than biotechnology.
Today, the U.S. biotechnology sector employs more than 1.3 million workers in high-skill, high-wage jobs. Since 2001, our industry has added nearly 200,000 jobs. This is quite an accomplishment in the midst of a deep recession, and a sign that this industry can be a driver of economic growth. Quite literally we are just what the doctor – and president – has ordered.
Strong patent protection, balanced reimbursement policies, science-based regulations and other pro-innovation public policies will help our industry fulfill our promise. Through targeted policies such as the Therapeutic Discovery Project, which awarded tax credits to small cutting-edge biotech companies to support research and development efforts, the president can help spur continued medical innovation, grow American jobs and position our nation for continued leadership in the global marketplace.
If jobs, jobs, jobs is the mantra and focus of the those at the White House and on Capitol Hill then they need to start opening their eyes and ceasing with the rhetoric. Rhetoric only gets you so far. The Patent Office is in disarray due to the fact that user fees are siphoned off year after year by Congress, the Supreme Court seems poised to turn our patent system into a registration system and those who would prefer a weaker patent system because they already enjoy market dominance have moved their fight for reform from the halls of Congress to the Courts, where there is no way to engage in a holistic approach to reforming the patent system.
There is no great surprise why we haven’t seen many, or any, paradigm shifting or disruptive technologies for quite some time. The investment climate is awful for those who must fund innovations to get off the ground. We should be doing everything in our power to promote a strong patent system with strong patent rights. This will get investors to come off the sidelines and invest in exciting innovations, which is really the best way to create jobs, particularly those high paying jobs that dramatically exceed the U.S. average salary.
Call me crazy, but it seems that between Congress and the Supreme Court there is a raging war against innovators and consequently a war on jobs and job creators. You would think that even those we elect or those who get appointed high judicial offices should be smart enough to understand these issues.