Our interview took place on Friday, December 14, 2012. During our interview we talked about the nearly constant challenges to gut Bayh-Dole, which is the very foundation of university technology licensing and the piece of legislation called the most successful domestic legislation in the post World War II era by none other than The Economist. We also discussed what it is that universities do and how, despite what the critics say, the basic research done by universities is hardly ready for the marketplace. To read the interview from the beginning please see Part 1.
Without further ado, here is Part II (the finale) of my interview with Todd Sherer.
QUINN: Now one of the things that we had been talking about is sort of with respect to the critics, and they say the federal government is spending this amount of money to that make that amount of money. To some extent I guess everybody is hypocritical at times. Sometimes you look at things and maybe you have one feeling one way and another feeling on another thing, and you don’t step back and say oh, are they consistent. I always try to look at the hypocrisy that is out there. And one of the things that catches me is that the last several months leading up to the election, everybody was seeming to want to whether we want to big government or do we want smaller government. And philosophically what is the role of government and should government run more like a business or not. And so many of the people who it seems that are the ones that are the critics of the IP community are of the mindset that government should not run like a business because it needs to provide support and benefit to people who need help, etc., etc. And many of those same people then turn around and make this argument that says, oh well the government needs to run like a business. It’s paying sixty-five billion dollars in research and only making two billion in licensing. Therefore, it’s broken and we need to just throw it away.
SHERER: Yes. It’s interesting because at the same time that we have critics looking at that two billion number and saying the investment of federal research isn’t good enough, we’ve always had our critics who think that any negotiation or any price they pay might be too much, who have claimed that universities don’t appreciate the full value, or the actual value, of what they’re licensing, meaning they think the Tech Transfer Office doesn’t realize how much money the company has to put in it in order to get a product on the market. So that audience criticizes us and says that we’re asking too much for intellectual property because we’ve only exposed the tip of the iceberg, and they’ve got to invest in everything else that’s submerged and very risky and hugely expensive, and a much larger investment than what’s been made at the institution. And at the same time, you’ve got other critics saying, you know, we’re not getting a good return on our investment, who don’t seem to appreciate –-
QUINN: Yeah. And when you’re getting it from both sides, that probably means you’re doing it exactly right.
SHERER: Yes, probably so. The other part of that is this whole concept of what the institution, what academia should be doing so that some of our critics who are a little bit more informed say okay we get the fact that research is –- the difference between basic research and applied research. And we understand the fact that an investment in research might be important for the country. But in a global financial crisis, where there needs to be a redistribution of our money and where we invest it, we can’t afford to invest in basic research. We need to force things more along the applied category because we need jobs to be created in the short term. So then you start getting into that argument about what we should be rewarding and what we should be investing in, and how we should incentivize researchers at the academy. And you get into the issue of whether it makes sense to trade off the future for the present. And I would argue, and I think a lot of people would argue, that not continuing an investment in research is a bad investment for the future; that we need to do both. We need to invest in basic research, but look for new ways of accelerating innovation, so that we can have a bigger impact on, you know, job growth in the current economy. But also recognize that if we trade up on basic research, the job growth may not be there in the future.
QUINN: Well that’s right. And from my perspective, it’s an extremely frustrating argument to have because at the base point, what I think all of these people that are attacking the patent system, whether they are attacking software patents or they’re attacking Boyh-Dole, or they’re attacking pharmaceutical or whatever, they don’t want a patent system. And they’re picking and choosing the battle to fight this. But the rhetoric, and you talk to them, they do not like exclusive rights. And it’s a frustrating argument to have because the argument is devoid of any facts, because you put facts in front of these people and they can’t respond. They just ignore them. And you point out that in no –- there’s nothing they can point to that would suggest that lack of exclusive rights would lead to greater innovation, when in fact all of the evidence shows that wherever there is a lack of exclusive rights, there’s a lack of a basic economy, no outside investment, and no innovation.
SHERER: It’s problematic to understand and know with a lot of clarity exactly what a licensee is going to need because of the very early stage of the technology. Nobody knows for sure what area of product development — in many of these therapeutic discoveries, for example, there are debates about whether it’s a cure for cancer or a cure for inflammatory diseases, at the point in which we (unintelligible).
QUINN: Right. And you never know. I’m sure you remember the Cox-2 inhibitors. That was believed to be the next greatest thing. And then years into it they had to start pulling it from the market and saying we can’t use this as widespread as we thought because in the general population it has significant risks. You just never know with innovation.
SHERER: Right, right.
QUINN: And that’s a risk factor that the companies who are coming to the universities to license, they absolutely have to keep that in mind as well. But now that doesn’t mean that the innovations that Rochester made going down that way with Cox-2 [ph. sp.] were useless. I mean all science builds upon what has come before it.
SHERER: Yeah. And it’s just a part of the process, if people haven’t lived through it, it’s just unfortunately, it’s so difficult to try to get that across. I love the Tuft’s hospital drug chart, that funnel, that shows that one in ten thousand compounds at this stage will make it to the market. By the time you get into clinical trials, on average, one in five will make it to the market. But at the level at which research is occurring, it’s like one in a hundred thousand that get discovered will make it to market. And so it’s a funnel that’s just fraught with all sorts of risk. And those numbers, that one in a hundred thousand, only talks about the risk. What it doesn’t illustrate is the huge expense, the billion dollars on average that has to go into that winner to get it to the marketplace. And people just don’t, they don’t understand that, even if you tell it to them. It’s just hard; it doesn’t resonate so well if they haven’t lived through it or been exposed to it. We’ve got a start-up company here at Emory that’s been in existence for almost 20 years now trying to push a hemophilia drug to market. Small population; nobody wants to fund it; it’s in Phase 3 clinical trials, and we’ll see if, depending on how it succeeds and whether or not the market factors will continue enable it to get to market or not get to market. But that company has been working on it for 20 years trying to get that to market.
QUINN: And that’s a great example too; another argument that proves our basic point, when you look at the orphan drugs. You have small markets and not a lot of money to be made. Since the Orphan Drug Act, there’s 13 times more drugs to treat those neglected diseases. It’s all about incentives.
SHERER: Yes. It really is. That’s a great example of how if you change the incentives, you can have a positive impact on the marketplace; because it used to be that companies didn’t want to hear about our potential orphan drug candidates. And now it’s one of the hotter areas in which they want to come and look for; and in large part just because the risks are reduced a little bit, because the incentives are modified for people to and companies to take a look at those drugs, when in the past they were just economically unattractive opportunities.
QUINN: Well I know that we’re bumping up against the time that you had available. I know I really appreciate you taking the time to chat with me. Do you have any last thoughts about where you see AUTM going or what you’d like to see happen moving into the new year?
SHERER: Well maybe I’ll express a concern. So the great thing –- there are some good things that are happening out there. And that is that there are lot of people that are looking –- I mean tech transfer, university tech transfer is not perfect. And one of the messages AUTM is trying to get across, and will continue to promote, is that our members are not resting on their laurels. They are continuing to look for creative new ways to accelerate innovation. And I think that’s an important message to get across. Because a lot of times our critics too are looking at business practices that might have been popular ten years ago, and have since been abandoned in favor of business practices that are more productive.
And so there’s a lot of money going into programs, you know, at the basic and applied stage of research funding and translational research funding, and then money going into training entrepreneurs in creating funding for companies and things like that. But the part that we have to be careful not to abandon is the fundamentals which are patents and licensing. And what we’re seeing, what the AUTM survey is showing, is that patent budgets are going down. And that’s of concern to me, because everything has to go through that funnel. You can do a lot of research, basic and then applied research and have translational funding, but that technology has to come through the Tech Transfer Office and through the patent budget. So it doesn’t do us a lot of good just to have funding targeted at programs at the front end of that funnel to try to shove it through, through the right limiting step, or pull it out the other side. We need to also be mindful of the fact that we need to invest in those fundamentals, that patent and licensing part. Because we’ve also seen that the number of licensing professionals has gone down over the last couple of years in the Tech Transfer Offices. So, what we don’t want to see is that trend continue. We don’t want to see the number of our staff go down and the patent budgets go down at a time when we want to improve impact.
QUINN: Okay, well hopefully that won’t be the case. I know a lot of times the frustrating thing is that during down cycles companies they cut the research and development budgets and their patent budgets, as if cutting is going to lead to finding more.
SHERER: Yes, right.
QUINN: It only seems to accelerate a downward spiral. And I for one know that there’s a number of universities that really do a wonderful job. So if any universities are out there that want to do better, you need to be a member of AUTM, number one; you need to go to their programs and listen and learn, and then you really need to model yourself after those handful of schools that year in and year out just knock it out of the park because they have the infrastructure, and they have the dedication and the resources to do what needs to be done.
SHERER: Yeah. And they just stay committed to a sound, robust program. Because if you’ve got research going on at your institution and a responsible tech transfer effort, and you’re patient, what our data shows is that anybody can get lucky if look at the AUTM data in 1990. Back when I got into the business, the mantra was that nobody could make any money in this business except for Stanford, Warf (ph. sp.) and MIT. And there were only like five or eight schools that reported income in excess of ten million in 1990. The high was twenty million. If you look at the 2010 survey -– I haven’t looked at the newer data yet in this respect -– there were 44 schools that reported revenue in excess of ten million dollars, and the high of two-hundred million. So, you know, you don’t have to just be Stanford, Warf, and MIT to make money in this business. It can happen anywhere.
SHERER: But the problem is, is a big hit business model and big –- because you don’t get rich selling early-stage technology. If money is going to be made, and this is another thing our survey data shows. This is that 70% of the revenue will come from running royalties, which means in order to make big money, there has to be a product put on the market, which means your licensee has to be successful. And the good thing about running royalties driving the licensing revenue is that means product is being moved. And if product is being moved, then that means the public is benefiting from the product that’s being moved. So anyway, it’s just sort of an interesting way of looking at it, and a recognition again that you don’t have to be a big school. You may have to be patient because you’ve got fewer shots on goal, but because of this big hit business model. But if you stick with it over time we’ve seen a lot of relatively small schools make pretty substantial revenues off of their technology.
QUINN: Yeah. And what I would just add –- I would totally agree with that, but I also just say and if you’re new to this and/or you’re struggling, look at what Stanford, Warf and MIT are doing and seeing what you learn and then bring back to your facility is probably the best thing you could do.
QUINN: Well I really appreciate you taking the time.- - - - - - - - - -
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About the Author
Gene Quinn is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.