Fumbling Away The Future

~ When your enemy’s making mistakes, don’t interrupt him. Billy Beane (General Manager of the Oakland A’s) in Moneyball

~ Can’t anybody here play this game? Manager Casey Stengel in anguish over his 1962 New York Mets. The team went 40-120– the most losses by any team since 1899.

As an avid baseball fan nothing makes me crazier than seeing my team lose because of dumb unforced errors. And anyone who follows the Pittsburgh Pirates has seen more than their share of these (like on Friday the 13th under a full moon when our pitchers walked 6 batters in the 9th inning blowing a comfortable lead). Countries, like sports teams, make inexplicable unforced errors leading to loses that are a lot more significant than just losing a game. Two recent articles and one anecdote caution that if the US loses its technological lead it could be because of our own blunders rather than what our competitors are doing.

The first article illustrates the significance of one of our greatest resources: our unequalled system of publicly supported R&D. Patents as proxies: NIH hubs of innovation published in the June edition of Nature Biotechnology documents the tremendous potential federally-funded inventions have to help move the life science industry forward. Of course, potential is a double edged sword: every day teams with more potential lose to those who play the game smarter, avoiding unforced mistakes.

Patents as proxies looks at medical innovation which employs one million Americans, generates $84 billion in wages and salaries and $90 billion in exported goods and services. The U.S. biomedical industry dominates the world largely because of successful partnerships between our public and private sectors. Taxpayer supported inventions made in universities and federal laboratories are licensed under the Bayh-Dole Act to the private sector for commercial development. The article notes the resulting impact as universities created 1.7 new companies per day and 657 new products from their patent licensing in 2010 alone. It estimates “that approximately 30% of the total value of NASDAQ has roots in academic research.”

The authors then document the technological importance of university biomedical patents. Using federal databases they identified 6,659 inventions reported under Bayh-Dole with NIH funding between 2003 and 2012. They randomly selected 50 inventions to see how many times these discoveries were listed in forward patent citations as: “Multiple forward patent citations are indicators of impact in the private sector; each incremental patent citation represents millions of dollars of additional private sector R&D, while substantially increasing the market value of the controlling company.”

The findings are impressive. The patents generated under the Bayh-Dole Act averaged a forward citation rate of 7.9—more than twice the rate of private sector inventions of 3.1 and six times the rate for European biotech patents.

The article found that the National Institute of Biomedical Imaging and Bioengineering (one of the smaller Institutes in terms of funding) is notable both for high performance in the number of inventions reported from its extramural research and in their quality as determined by the forward citation methodology.

While the authors say that more analysis is needed, they suggest that in a time of fiscal austerity patent output metrics are a helpful guide for Congress, the federal government and the public to identify areas of taxpayer supported research likely to spur economic development, advance science and improve public welfare.

[Joe-Allen]

Of course, a reliable U.S. patent system is essential to turn these discoveries from academic research papers into useful products. As noted in a previous column the expense and risk of commercial development falls on the private sector.  A study in Nature Biotechnology on drugs commercialized from federally-funded inventions finds: “the private sector spends 100-fold or more to bring the product to market than the PSRI (public-sector research institution) spends in research directly leading to the invention.”

Here’s why: for every 10,000 compounds about 250 make it to preclinical testing, 5 go on to clinical trials, and one enters the marketplace.  Of these just 20% turn a profit– and they must pay for all those which died in the pipeline.

Company costs for drug development have risen from $140 MILLION per approved drug in the 1970’s at least$1.2 BILLION today. The Truly Staggering Cost of Inventing New Drugs unveils a Forbes study finding: “The average drug developed by a major pharmaceutical company costs at least $4 billion, and it can be as much as $11 billon.”

Without strong, reliable patents the risk and expense of biomedical development simply cannot be justified, causing the benefits of billions of dollars of taxpayer R&D to go to waste. That would be an unforced error of catastrophic proportions for world health and the U.S. economy.

Many now question the value of our patent system as they did in the 1970’s when Congress and the media often viewed patents as anticompetitive, unfair roadblocks which drive up consumer prices. It took the shock of seeing the U.S. economy tank to rediscover the value of the patent system spurring passage of the Bayh-Dole Act, support for the PTO and creation of the Court of Appeals for the Federal Circuit. In the 1980’s these actions launched a renaissance of American ingenuity that soon reestablished our technological leadership across the board.

This brings us to the article by former USPTO Director David Kappos, The Patent System is a Boon—Not a Drain—To The American Economy, Forbes 6/10/14.

Kappos cautions against the folly of listening to the chorus arguing that frivolous patent litigation justifies weakening the US patent system. He makes a critical point: “Patent law aims to deter the act of infringing valid patents, period.”

“Surely concerns about frivolous patent cases cannot justify curtailing patent enforcement generally along with the risk to innovators who would be unable to protect their technology investment. Can we afford to give non-innovators free license to reap what they have not sown? It sets a dangerous precedent to reflexively accuse an inventor of litigation abuse or, worse, label it a “troll” merely because it chose to assert the rights granted it by our legal system.”

Well said. If entrepreneurs lose faith in the patent system to fairly protect their discoveries from endless administrative attacks and litigation by infringers our system no longer provides “the fuel of interest to the fires of genius” that created the wealthiest nation in history. And we would have no one to blame but ourselves.

Now for the anecdote. Recently I visited a Congressional office with a friend who led technology transfer at a public institution located in a mid-level city not normally associated with innovation. By skillfully using the authorities of Bayh-Dole and the patent system combined with good business judgment the program was very successful in start up formation and licensing, making it a driver of the regional economy. The Congressional staff were effusive in their praise of the results, which are well known in the state, vowing to do everything they could to support continued success. However, just before the meeting my friend confided that their new leadership made it clear that they did not consider technology transfer a profession requiring special skills and experience. The staff that labored so long and hard building the program got the hint and was leaving. Luckily their achievement is recognized by other institutions that are happy to snap them up. Unfortunately, the economy of the area they left behind will pay a high price for this boneheaded mistake.

When the Pirates lose because of some blunder (like the time our leftfielder dropped what should have been the last out of a crucial game while showing off) I feel bad for a day or so. If the U.S. chooses to squander its technological dominance by undermining our patent system or not appreciating those who create our wealth, the pain will be a lot more intense– and will last a long, long time.

No one feels sorry for those who lose because of unforced errors. As the other team circles the bases on their way to score the winning run you may detect a sly smirk of derision for those who carelessly gave them the game.