On December 10, 2012, AUTM published the results of the AUTM U.S. Licensing Activity Survey: FY2011, and the AUTM Canadian Licensing Activity Survey: FY2011. Among the findings of the survey were that the 58 institutions (i.e., 31 percent of the 186 respondents) reported that 2,821 of their licenses paid $662 million in running royalties based on $37 billion in product sales, implying an average royalty rate of 1.8 percent. The survey also contained very positive news about startups founded around university technologies. Some 66 institutions (i.e., 35 percent of the 186 respondents) reported employment of 24,653 by 1,731 operational startups, an average of 14 employees per startup.
Upon receiving the press release I set up an interview with Sherer, which was conducted on December 14, 2012, via recorded telephone call. What follows is Part I of our two-part interview.
QUINN: Thanks for taking the time to chat with me today, Todd. I know that AUTM just released a survey earlier in the week, and I wanted to chat with you about that. First, why don’t you start off, tell us a little bit about the survey if you can and what AUTM learned.
SHERER: Well, the licensing survey is something we conduct every year. We’ve been doing that for 20 years now. And I would say the primary thing we learned is that despite the fact that we’re in the middle of a global financial crisis, maybe hopefully we’re beyond the middle of a global financial crisis; but despite the world economy that activity and technology transfer continues to be very strong. That’s not surprising, because it is the investment in research that drives the level of activity we see in Tech Transfer Office, and we know that at least up through the current timeframe that the investment in research has continued to increase every year, although there’s certainly uncertainty about what might happen in the future.
QUINN: And why is that uncertain do you think?
SHERER: I guess stating the obvious, the uncertainty about whether or not we’ll hit a fiscal cliff and whether or not, you know, we’ll face sequestration. And then that would result in across the board cuts I think. We experts have projected that in the short term alone, that would mean a 7% decrease in federal funding at our respective institutions. And then it kinda depends an awful lot on what happens from there as well.
QUINN: I just wanted to be clear about what we were talking about there, whether it was fiscal cliff related, because I’m sure you know more and more the very basis of university technology transfer is under attack. There are people who don’t like and would like to do away with Bayh-Dole.
SHERER: Yes. So I wasn’t speaking to that yet. At this point, I was only speaking to the fiscal sort of realities. But it is true that in the middle of this global financial crisis that everybody is pointing fingers at everybody else because we don’t have jobs in the world, and certainly this country wants more jobs. And my interpretation is that the theory sort of goes like this: That if we don’t have enough jobs, well then let’s ask the experts where job growth comes from. And the experts have said that net job growth comes from companies that are less than five years old. Okay, that’s great. What do young companies need? Well young companies need entrepreneurial talent. They need access to financial resources, and they need access to technology. And the way this eventually finds its back at the institution is that universities are recognized as a major source of new innovation and technology. I think some people follow that flow of logic and say well university technology transfer must be broken. We need to fix it, because we need more innovation to be available, because out of that innovation is where we get these young companies starting.
QUINN: Yeah. Does that make any sense to you whatsoever? I mean for me it makes no sense whatsoever, simply because you look at life as it existed prior to Bayh-Dole. And you look at life as it exists now after Bayh-Dole. And it’s night and day. There was no technology transfer before Bayh-Dole, and now we have widespread technology transfer, thousands, many thousands of companies have been started. Many, you know, tens of thousands, probably hundreds of thousands of jobs have been created. And people want to go back. It’s almost if they want to go back to the dark ages when this just didn’t happen. And I struggle to figure out what it is that these people are really thinking.
SHERER: Yeah, it is concerning. I mean it’s not hard to find people, whether it’s inventors or it’s start-up companies or it’s established companies. It’s not hard to find people that have got a complaint about how technology transfer, or this first step of the innovation pathway. It’s not even the first step. The first step is research. The second step is you’ve got a discovery; what will you do with it. Everybody has got an opinion about that second step. And it’s true; it’s a very -– it’s the most inefficient step of the – -or one of the most inefficient steps of the innovation pathway. Because when you’re at the very beginning where risk is highest, then, you know, the law of the land is you invest less as risk is high, and you invest more as risk gets reduced. So we know the least about what the potential for this discovery is at the early steps of the innovation pathway. So it is an inefficient part of the pathway, and everybody recognizes that. But the problem is, in recognizing that inefficiency is that I think we find people grasping at fixes that aren’t really going to have an impact, and quite frankly could have a negative impact on innovation if they were pursued. And I would put trashing the Bayh-Dole Act, or doing something drastic, gutting the Bayh-Dole Act, in that category because the brilliance of the Bayh-Dole Act, as you already know, is that aligned ownership control and passion in the right location, so that you had both the motivation and the legal entitlement in the same place so that you could pursue these inventions.
QUINN: Do you suppose that some of what is going on is people that are advocating against Bayh-Dole really don’t seem to understand the limitations on what university research is all about? I hear a lot of people talk about how, well the universities are the ones that are developing these drugs, or developing these treatments. And that’s’ just not true. Could you talk to that a little bit about what is it that the university members actually do?
SHERER: Yeah. And I think what you’re referring to is that people have taken a look at the sixty, sixty-five billion dollars a year of federal money that goes into research, and then compared that to the two billion dollars, or two and a half billion dollars, of licensing revenue that comes out , and they jump to the conclusion that that’s a bad return on the investment in federal research. And that’s just a non sequitur. I mean there’s no reason to link, it doesn’t logically make sense to link the investment in federal research with licensing revenue. The primary reasons and metrics that should be associated with the investment in federal research are things like publications, and, you know, training a workforce of Ph.D. and other advanced degree level students, and advancing the world’s knowledge around important subject matters. Only in rare cases should one expect that kind of an activity to lead to something that might have commercial potential. And so that’s the reason why putting the two of those together, those two numbers together, just doesn’t make sense. Another thing that it seems like sometimes our critics do is they want to link the investment in federal research with the number of new drug approvals, as though universities are the parties that are securing those new drug approvals. Again, you know, these are very early-stage, embryonic stage, invention discoveries that come out of federal research. Those get licensed into start-up companies or biotech companies or pharmaceutical companies, or other companies in the physical sciences space who will actually develop products and eventually put them on the market.
QUINN: Yeah. And let me ask you, well maybe even a little bit more direct. Universities, when they license something, it is not ready for a shelf, correct?
SHERER: That is correct.
QUINN: And many times, there’s going to be many years of commercialization research that needs to be layered on top of the basic scientific breakthroughs that the universities have made?
SHERER: Right. Years, and in the case of new drugs, hundreds of millions of dollars will need to be invested above and beyond what has already been invested in the research in order to get that new product to market. I had a great example one time. We had a member of the business community who had convinced a president I worked — of a former institution I worked for that you guys are sitting on a gold mine. You just don’t realize it. And he’d come out of the IT sector, but he thought he understood how it worked in the life science sectors as well. And so he marched into my office, and I thought how am I going to make my point about the investment decisions I have to make on behalf of the institution. So I handed him a two-paragraph non-confidential summary talking about a new protein sequence that we had just –- one of our researchers had just discovered. And we were trying to make a decision about whether or not to file a patent on that protein sequence, because the protein in question was thought to play a role in a cell signaling process that was thought to play a role in a disease process, neither of which had really been established. I had to make a decision about whether or not to file a patent, because once the publication is out and the world knows about the protein sequence, well then we lose our composition of matter coverage. He took a look at that and he said, “Well I’m going to need a lot more information.” I said, “There isn’t any more at this point in time. This is all we have.” He went away and I never saw him again.
QUINN: Yes, and that’s really the frustrating. The role of the university is to engage in almost speculative research, research for the purpose of forwarding science. And then if anything comes from that, that’s great because there’s so many other things that go into that. We want the universities to be researching things that commercial companies wouldn’t otherwise undertake. And we want the educational value. But let’s shift gears a bit. With respect to the survey, it sounds like it’s good news. Are you happy? Is AUTM happy? Are the members happy? Or are there things that you still want to really focus on trying to improve?
SHERER: Well, you can see what the trends look like. And sometimes people get so caught up in trying to compare Institution A to Institution B. And at that level, I just don’t think the survey is as helpful, because there are just a lot of additional things that go into whether or not this institution has been in the business long enough, or gotten lucky and had its big hit, and another institution hasn’t.
But what the survey is extremely useful in doing is showing out trends, as well as sort of the overall impact. And so again, we’re quite happy that the survey once again, you know, that we had a good number of respondents. But we added a couple of new questions, because we’re trying to get more at the economic impact. It used to be, and I still think, that the ultimate validation of a tech transfer program is new products on the market. It doesn’t matter whether those products make money or don’t make money. That’s the ultimate validation, that we not only transferring technology, because you can do a deal and transfer technology, but the question is, is the public benefiting from the investment in research. In order for that happen and be demonstrated, I think we need new products on the market. And what we found in this global financial crisis and visits to the Hill, is it’s not necessarily good enough to talk about products. We’ve got to talk about jobs created.
SHERER: And so we added two new questions to the survey this year. And not surprisingly, we didn’t get a huge response to answering those questions, in part because it’s not dated, that people are already automatically tracking within their databases in their offices. And so what we hope is that those two new questions will continue to –- the number of respondents will continue to increase, and we’ll have just as many respondents in the future answering those questions as we currently do all the questions that have been around for, in some cases, 20 years, and in other cases five or 10 years.
QUINN: And what were those questions?
SHERER: One is estimating the number of actual net product sales. So we report royalties. If we report two billion dollars in royalties, that’s just, as you know, that’s a percentage of what the actual sales of products are.
SHERER: And so one of the questions we’re trying to get at is what are the total sales of those products.
QUINN: That would be useful information. I saw in the press release that kind of worked backwards and say that should mean that this amount of product was sold as a result of that particular licensing royalty, because the royalties all fall within a certain window anyway.
SHERER: Exactly… the order of magnitude is probably pretty accurate. And again, we only had 69 institutions that reported and participated in that question, as compared to the -– I’m trying to remember how many we had total; probably around 190 respondents. So, you know, the number is going to be much bigger than that if we can get more people to respond to that question.