By Shelia Watson
Contributing Writer

Intellectual property has become a hot topic these days, particularly on research university campuses such as the Medical University of South Carolina.

“It’s one of the most important things that university technology transfer offices are engaged in,” said Robert Pozner, interim director of the MUSC’s Foundation for Research Development and director of technology transfer. “It’s become one of the major subjects at our professional meetings, and there are many workshops on it. Virtually every university technology transfer office has some activity in that area.”

Intellectual property allows individuals to own their creativity and innovation in much the same way physical property is owned. For research universities, it is a way to foster an investment environment for developing new technologies in both life sciences and other science areas.

Seeking low risk, high return

“Existing companies are looking for new products to put into their pipeline and are trying to outsource as much as they can to manage their costs,” Pozner said. “So what they’re doing is looking to universities and small companies to be sources of innovation.”

In order to minimize risk and investment, investors are pushing back on those sources of innovation to provide them with less risk technology, Pozner explained.

“They want the universities to provide them with innovation that has been proven. In the case of life science technology, therapeutics in particular, they want to see clinical data. They don’t want ideas that take a lot of research to support. They want to see what’s been developed further along,” he said.

And there lies the problem: Most of the funding that comes in to research universities is not directed toward technology development.

“When our scientists go to the National Institute of Health and submit a proposal, the NIH says ‘We fund basic research; we don’t fund clinical trials.’ So there’s a problem in creating the funding,” Pozner said.

While investor companies want something further along, traditional sources of funding do not support that kind of development work.

“There’s a question of how we take these early stage discoveries and get them to a point where venture capitalist are willing to look at them,” Pozner said. “The question was: How do we bridge that gap?”

One way is to start a small company that is eligible for federal money.

Twice a year, the federally funded Small Business Innovation Research program and the Small Business Technology Transfer program put out solicitations for proposals for funding for early stage technology. There is a review similar to a grant process, in which applicants receive ranked scores and the agency decides how many proposals they can fund.

By law, Pozner said, these U.S. government agencies must allocate 2 1/2% of their budgets to small businesses to undertake these kinds of activities.

“It helps level the playing field for small companies. All of this investment in tech is non-dilutive: You don’t have to have matching funds, and if you have something that meets the objectives of the agency and is ranked high enough, you can get this money almost as a grant. And the only way to get it is to have a small business as defined by the government,” he said.

First phase funding, usually for proof of concept, is about $75,000. The agencies allow research to be shared between the company and a university or a nonprofit research institution.

“It’s a way for a start-up company that doesn’t have a facility or a lot of expertise to collaborate with a university in order to prove the concept, which in most cases probably was developed at the university,” Pozner said.

If the first stage is successful, the company and partner can go back for phase two, which is about $750,000, to continue the development work. If phase two is successful, the company and partner move on to phase three, which is an award of about $2 million that can be directed to commercialization of the result.

“It’s a great way to bridge that gap from very early stage technology and bring it to the development stage where you can get an institutional investor or corporate partner who’s looking to access new technology but doesn’t want to put the early-stage money into it,” Pozner said. “It’s a good mechanism for carrying forward results of basic research toward commercialization.”

How IP partnering works

Partnering with MUSC gives faculty members more control over their intellectual property than if they go the traditional route of licensing their ideas to pharmaceutical companies, which may or may not be interested in investing and developing the concept seriously, Pozner said.

The university asserts ownership in three kinds of IP: patentable inventions, certain copyrighted works and tangible results of research. The ability to retain ownership at the university is established by policy and is a condition of employment or enrollment as a student. The creator of the property is obligated to assign IP rights to the university.

The patentable invention is based on federal legislation passed in 1980, commonly known as the Bayh-Dole Act. Prior to the legislation, the federal government owned rights to all IP created under government-funded research. Former Sens. Birch Bayh, D-Ind., and Bob Dole, R-Kan., requested a GAO study to determine whether there were any benefits that the public received as a result of the money being pumped into research institutes.

“The answer that came back was ‘not much,’” Pozner said. “A lot of papers were being published and a lot of information was being put out into the public domain, but basically the government didn’t have the resources and didn’t understand what to do with the IP that was created.”

Without rights to the IP and the protection it afforded, companies were not willing to make an investment.

“No company was going to put capital into technology that took so much to develop because it was such an early stage. Without protection, they wouldn’t be able to recover the investment and make a reasonable profit. If you don’t have some mechanism to keep competitors out of your marketplace, you might invest a lot of money and time in developing the technology and develop a market, and they can come in behind you without that investment, charge a lower price and undercut you.”

The legislation allowed the creators of the IP, or the research institute involved, to retain ownership of the inventions, but it also imposed obligations.

“First, the government must be allowed for its own purposes to use the invention without any payment of royalties, although it doesn’t mean they can sell it or grant other parties the right to use and sell it,” Pozner said. “Second, we’re required to make a good faith effort to develop and commercialize the intellectual property. Third, we’re required to compensate the creators of the IP in the event we ever make any money. It provides incentive and reward for them to continue doing it.”

At MUSC’s Foundation for Research Development, Pozner said, “Essentially what we’re doing is looking at distribution channels for the IP that’s created through the university. Some are well suited; some are not. It’s determined on a case-by-case basis taking into account the financial environment, the economy and the marketplace at the time.”

Working with small companies that acquire rights to MUSC’s intellectual property under the agreements is an ideal situation.

“The small companies have more reason to achieve success. With a big company, that piece of technology is part of a big portfolio and may become less and less important as they move forward. A small company is generally more willing to commit its resources.”

In addition, working with small businesses helps create jobs locally. “Most universities now have contributing to the local economic development as part of their mission statements. That’s a significant change in the way universities have been dealing with IP.”

During the past five years, approximately 20 companies have been formed to license IP from MUSC for development. About two-thirds are still in existence. If such a company closes shop, the rights to the IP revert back to MUSC, Pozner said.

“Our primary objective is to get the IP licensed and out there for the public good,” he says. “Times are significantly different now than when Bayh-Dole was enacted. Back then, biotech was just getting formed, and the big pharmaceutical companies were just starting to make investments in technology. It’s a different world today.”

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