Commercialization of University Intellectual Property & Biotechnology Jerry Thursby Professor of Management Marie Thursby

Incentive Issues in Commercialization of University IP Majority of inventions embryonic Risky investment in development Technical and market uncertainty Need for licensee to appropriate returns from investment Need for faculty cooperation on technical issues Tacit knowledge Moral hazard issue—how to get cooperation Bayh-Dole Provisions Exclusive licenses of federally funded inventions Royalties must be shared with inventor University must file for patents March-in rights of federal government

Incentive & Development Issues Exclusive contracts address appropriability But exclusivity has risk of shelving by licensee Bayh-Dole march-in—never exercised Contracts with annual fees & milestones can address Contracts with milestone payments and output royalties address moral hazard Faculty may prefer research to development Shared royalties, sponsored research, consulting Troublesome issues Multiple objectives within universities Lengthy negotiation of contracts—particularly sponsored research Another issue is lengthy development Particularly in health & biotechnology Example—Cures Acceleration Network

University Inventions Generally in an Early Stage University inventions at the time of a license are generally at a very early stage of development (embryonic).   Survey Percent Stage University Business Proof of concept (no prototype) 45 38 Prototype (only lab scale) 37 36 Preclinical stage 26 15 Clinical stage 10 5 Manufacturing feasibility known 9 Ready for practical or commercial use 12 7 Source: Thursby & Thursby surveys, 1996 & 1998

Early Stage Inventions High failure rate 72% failure rate for “proof of concept” and “lab scale prototype” 43% failure rate for “ready for commercialization” Percent Reason 46.5 Failure of the technology 26.3 Lag time to market too long 17.6 Failure of the inventor to help 12.6 Technology would infringe on others IP 11.1 Other Source: Thursby & Thursby industry survey, 1998

STAGE OF DEVELOPMENT & INVENTOR EFFORT (Business Survey) Percent Faculty Involvement Proof of Concept 38 55 Lab Prototype 36 54 Manufacturing Feasibility Known 9 15 Ready for Use 7 15 Why faculty involvement?

When faculty needed for further development, what is the reason? Percent Faculty have specialized knowledge 66.9 faculty development cheaper than in-house 16.7 Time constraints on company research staff 27.5 Company lab specializes in late stage development 14.3 Establish working relationship for future technologies 22.7

Different Stakeholders and Multiple Objectives Measures of Licensing Success: % of respondents indicated “extremely important” TTO Faculty Administration Royalties/license fees generated 70.5 41.0 69.4 Sponsored research funds 34.4 75.4 48.4 Number of licenses/options signed 49.2 11.5 24.2 Number of patents awarded 16.4 16.7 14.5 Number of inventions commercialized 60.7 36.1 32.8 Lengthy negotiations a problem--TTOs arguing for royalties over unlikely event of major commercialization success on individual license Some firms only sponsoring research under umbrella agreements Some universities introducing express license

This portion of talk deals with the technical and market uncertainty faced by biotechnology firms that have licensed university IP and the extreme difficulty in anticipating outcomes.

Pharmaceutical Firms Rely on External Technologies Overall, 60% of drug approvals were dependent upon external technologies/patents. Source: Ceccagnoli, Graham, Higgins, Lee (2010)

Introduction Almost all drugs with biotechnology origins come from university research. These findings demonstrate the critical importance placed on the supply of technologies through the earlier stages of the external research value chain. Our focus is on this flow of technologies from universities to biotechs to pharmaceuticals with an emphasis on the underlying characteristics of these inventions. Universities Biotechnology Pharmaceuticals

Flow of Technology: Determination of ‘Success’ ~ 3.34 years 835 unique patents 357 licenses University 232 unique patents 100 licenses Biotechnology 15 approved products identified in ReCap IP and FDA Orange Book ($16.5B sales through 08) Pharmaceutical Focus of ‘success’ is the flow of products that make it to the second license : We are interested in the supply of potential products available to the pharmaceutical industry. Most biotechnology firms lack the downstream assets to develop, manufacture, distribute & market a new drug (Haeussler and Higgins, 2010) ~ 6.1 years Data source: Deloitte ReCap, 1985 - 2006

Definitions An “initial license” is a license between a university and a biotechnology firm A “sublicense” is a license of the same technology, but it is between the biotechnology firm and a pharmaceutical firm (or another biotechnology firm) The sublicense takes place after scientific development by the biotechnology firm

Paths can be straight forward Emory University Patent: 5807884 (priority Oct 1992) License: Jan. 1995 Stage: ??? Disease: Cancer AtheroGenics License: Oct. 1999 Stage: Phase II Disease: Cardiovascular Schering-Plough

Or paths can be more complex Stanford Rigel Janssen Pfizer Novartis Cell Genesys 12/1998 Discovery Cancer 1/1999 Discovery Allergic, Respiratory 5/1999 Discovery Autoimmune/Infl., Transplantation Patent: 6365344 License: 10/1996 Priority: 1/1996 Stage: Discovery Disease: Other/Misc. 9/1999 Discovery Cancer

Or Paths Can Be Even More Complex MIT 4280954 4418691 4505266 4947840 4638045 4806621 5041138 5128420 Integra Life Science - 1993 - Discovery - Dermatologic 4280954 4418691 4505266 4947840 Adv. Tissue Science - 1992 - Lead Molecule - Dermatologic 4638045 4806621 5041138 5128420 Reprogenesis - 1996 - Lead Molecule - Genitourinary - Gynecologic - Transplantation  Priority: 1975-1987 Multiple inventors, not all inventors on each patent

Or Paths Can Be Even More Complex 4280954 4418691 4505266 4947840 4638045 4806621 5041138 5128420 Smith & Nephew - 1996 - Phase III - Endo. & Metabolic - Dermatologic MIT 4280954 4418691 4505266 4947840 4638045 4806621 5041138 5128420 Adv. Tissue Science - 1992 - Lead Molecule - Dermatologic 4280954 4418691 4505266 4947840 4638045 4806621 5041138 5128420 Medtronic - 2001 - Lead Molecule - Cardio./CNS - Endo. & Metabolic - + 4947843  Priority: 1975-1987 Multiple inventors, not all inventors on each patent

Or Paths Can Be Even More Complex MIT Integra Life Science - 1993 - Discovery - Dermatologic Ethicon - 1999 - Distribution - Dermatologic - + 4947842 4280954 4418691 4505266 4947840 4280954 4418691 4505266 4947840 Reprogenesis - 1996 - Lead Molecule - Genitourinary - Gynecologic - Transplantation 4638045 4806621 5041138 5128420  Priority: 1975-1987 Multiple inventors, not all inventors on each patent

Stage of Development Patent/License Pairs Pairs as % of Initial License Sublicense Total Initial Licenses Sublicenses Discovery 283 112 395 28.4% 27.7% Lead Molecule 368 54 422 36.9% 13.3% Preclinical 45 52 97 4.5% 12.8% Phase I 15 4 19 1.5% 1.0% Phase II 39 29 68 3.9% 7.2% Phase III 9 20 0.9% 4.9% BLA/NDA filed or Approved 8 12 0.8% 3.0% BLANK 158 75 233 15.8% 18.5% Formulation 72 47 119 11.6% 997 405 1402 100.0%

Patents Found in Both Initial and Sublicense Initial License Stage Sublicense Stage Disc. Lead Mole. Preclin. Phase I&II Form. BLANK Total Discovery 77 24 1 4 106 Lead Molecule 9 36 7 2 54 Preclinical 37 3 5 51 Phase I PhaseII 12 8 33 Phase III 13 16 BLA/NDA Filed or Approved 6 Formulation 49 25 10 30 70 131 137 18 59 45 395

Disease Category Initial License Sublicense Total Cancer 235 85 320 Central Nervous System 154 66 220 Cardiovascular 126 64 190 Infectious 140 50 Endocrinological & Metabolic 22 87 109 Dermatologic 54 42 96 Autoimmune/Inflammatory 26 76 Hematologic 46 7 53 Renal 12 33 45 Respiratory 19 24 43 Psychiatric 15 41 Transplantation 32 39 Bone Disease 16 28 Ophthalmic 4 Dental/Oral 17 21

If the initial license indicates central nervous system, what diseases are in in the sublicense? Initial License Disease(s) Sublicense Disease(s) CNS, Cardio CNS CNS, Psychiatric CNS, Dermatologic Total 7 CNS, Cardio, Endoc & Metab, Renal 210 CNS, Psychiatric, Respiratory 18 Endoc & Metab 42 Dermatologic, Other 12 Autoimmune/ Inflammatory 2 Other Psychiatric   266 4 295

If the sublicense indicates central nervous system, what diseases are in in the initial license? Initial License Disease(s) Sublicense Disease(s) CNS CNS, Cardio CNS, Dermatol BLANK Psychiatric Cancer Dermatol, Renal Gastroint Total 7 24 2 33 CNS, Cardio, Endocrin & Metab, Renal 210 CNS, Cardio, Endocrin & Metab, Other 54 CNS, Cancer 18 CNS, Psychiatric, Respiratory CNS, Psychiatric 16 CNS, Cardio, Psychiatric 6 CNS, Autoimmune/ Inflammatory   42 357

Initial License Disease(s) If the initial license indicates cancer, what diseases are in the sublicense? Initial License Disease(s) Sublicense Disease(s) Cancer Cancer, Infectious Total 38 8 46 Cancer, CNS 18 Cancer, Autoim/Inflam, Endocrin & Metab, Transplantation 5 Ophthalmic 2 Transplantation 1 Cardiovascular Infectious   65 10 75

If the sublicense indicates cancer, what diseases are in the initial license? Initial License Disease(s) Sublicense Disease(s) Cancer Cancer, Infect. BLANK Auto/ Infl, Infect. Auto/Infl Hema. Infect. Endocrin & Metab Other Total 38 8 3 2 53 Cancer, Infectious 10 20 Cancer, Central Nervous System 18 Cancer, Cardiovascular, Auto/Infl, Endocrin & Metab Cancer, Cardiovascular, Auto/Infl 9 Cancer, Auto/Infl, Endocrin & Metab, Transplantation 5 Cancer, Cardiovascular, Infectious   61 19 118

In Summary: University Biotechnology IP Process slow even after leaving university 3.3 years from initial to sublicense (IF sublicensed) Tremendous uncertainty even after biotech development 80% still preclinical or earlier Current data consistent with very basic university research in biotechnology Very common for the disease indication to change between the initial license (from the university) to the sublicense (biotech to pharma)

A Word of Caution Our purpose is exploratory rather than normative -- we provide neither causal modeling nor policy prescriptions. Our analysis shows that the process of discovery to market is quite complex—the process from universities to biotechnology to market is not simple or quick. As we have argued elsewhere, there is a strong cautionary message: Taking too simplistic a view of the interface between fundamental scientific discovery in universities and the marketplace can be quite misleading (Thursby and Thursby, 2010).