U. Minnesota’s research community will be out of a big chunk of spending money as patents on a blockbuster HIV drug expire.
The school has made more than $350 million off a drug invented on campus in the 1980s, but as the patents expire, those royalties are dwindling toward zero. And that means fewer investments into research.
The HIV drug Ziagen was a prime example of what commercializing research — called “tech transfer” — can mean for a university. Ziagen, which prevents the HIV virus from reproducing, has made the University and inventor Robert Vince a combined $524 million since 1999.
When University research discoveries spin off into lucrative drugs or other technology, the school’s Office for Technology Commercialization handles patents, royalties and other tech transfer business.
But patents don’t last forever. Those protecting Ziagen are expiring in stages, opening the market for cheap, generic copies. The first patent expired in 2009, and they’ll continue to expire through 2013.
Royalties from these patents have made a big mark on the University.
Yearly tech transfer revenue was as low as $4.1 million back in 1998, before Ziagen hit the market. It peaked in 2009 at $95.2 million.
This money went right back into research.
Three million dollars in royalties went to a supercomputer. Another $7 million went toward relocating a major magnet lab to mitigate light-rail disruption. Twelve million dollars went to investments into research infrastructure.
But those kinds of big buys will be rare for the University in a few years. Just as the patents were responsible for the jump, they were also responsible for a revenue drop of $20 million in 2010.
For years, the royalties through a licensing agreement with pharmaceutical manufacturer GlaxoSmithKline generated up to 90 percent of tech transfer revenue.
Over the summer, Vice President for Research Tim Mulcahy commissioned three tech transfer experts to review the OTC.
The review left no doubts about the office’s accomplishments — the OTC is spinning off startup companies on-par with Harvard, Columbia and Stanford universities, it concluded.
But in its report, the trio warned of trouble ahead and encouraged the office to find “an alternative budget source.”
The OTC stowed away some money to weather the next few years, but doesn’t have an answer to how the University will invest in research without the yearly Ziagen allowance.
“There are always ways to … figure out what to do once that revenue goes away,” research spokesman John Merritt said. “It could be a mixed model, it could be a different model altogether.”
Spending the money
Vince, the inventor, set up an endowment in 2000 for his Center for Drug Design, which was created with the first royalties that came to his department.
Now, the interest on that investment will cover the half of the center’s expenses that aren’t covered by grants.
Royalties that come to the University from licensing agreements are split three ways: a third to the inventor, a third to the University department where the invention originated and the rest to the Office of the Vice President for Research.
With his personal share, Vince and his wife set up a foundation that distributes the money to various charities.
The College of Pharmacy has received about $42 million from the royalties over the past 12 years. The college used that money to set up an endowment for two new positions, which will be sustained by interest from the investments once Ziagen dollars are gone.
As with research, the infrastructure and renovation projects Ziagen paid for will “obviously cease,” said college spokeswoman Amy Leslie.
‘The nature of the game’
Once the Ziagen patents expire, the drug will be just one in a pack as other companies copy the science and churn out generics.
The University and GlaxoSmithKline will lose their monopoly, and there aren’t any other blockbusters in the foreseeable future.
Tech transfer is a notoriously unpredictable business.
For the past few years, Ziagen money has been stored to help the OTC leap from its current funding model to whatever happens next. OTC Executive Director Jay Schrankler calls it a “quasi-endowment.”
Beyond that, big investments into research infrastructure will be impossible. What’s left is the royalty revenue from other products, which have generated between $4 million and $10 million annually since the mid-’90s.
Any post-2013 investments will be much smaller, Merritt said.
The uncertainty and surprise of when the next blockbuster is coming can make budgeting hard for research departments.
Other college units can budget years down the road, but these offices can’t predict what drugs will create revenue. “People just look at us like we’re oddities,” said Robin Rasor, president of the Association of University Technology Managers.
“It’s the nature of the game,” Schrankler said.
Still, among universities, blockbusters that bring in more than $1 million are rare.
At the University of Michigan, where Rasor is director of licensing, it’s the opposite situation. About 10 agreements make up 80 percent of the $20 million to $40 million revenue annually.
The primary risk of the blockbuster patents is when schools don’t plan for falling off the patent cliff.
“In the past, there have been a few schools where they should’ve known, and they kind of knew, but they didn’t really plan, and … the bottom dropped out,” Rasor said.
There are always patents in the pipeline for continued revenue, she said.
“If you plan it right, you want to make sure that you’re continuing to process, you’re filing on the right things, you’re trying to get licensed your new technology so you’re not so dependent on one thing,” Rasor said.
A success story
Rasor said many in the industry look to the University of Wisconsin’s tech transfer office as a success story. The office, the Wisconsin Alumni Research Foundation, is actually a nonprofit separate from the school.
In the 1920s, a University of Wisconsin researcher found a way to increase vitamin D in foods. It was successful, and brought the school about $15 million over a period of time.
The foundation never handed all of the money directly to the school, but rather, it created an endowment and invested it from the start.
The endowment is still helping the school 80 years later, said WARF’s general counsel, Michael Falk.
“That’s allowed us to build up this nest egg and then pay the university on a steady rate as opposed to sort of a feast-or famine model where you bring in lots of money while it’s on patent and then you have no money left after that.”
But the University of Minnesota doesn’t have a nest egg of its own.
The University has been really fortunate, Merritt said, in not needing to “think creatively” about ways to invest in research.
“It has been a huge benefit to have this source of revenue available for those kinds of investments,” Merritt said, but “that is going away.”
Federal reform act means changes for OTC
As Ziagen patents dwindle away by 2013, legislation will take effect that’ll give the Office of Technology Commercialization another reason to increase its patent filings.
The America Invents Act, passed in September, will “change the way we do business a little bit,” OTC Executive Director Jay Schrankler said.
But it won’t just change how the University does business — it’ll change how all U.S. inventors operate. The law changes the patent system from “first-to-invent” to “first-to-file.” If two inventors independently invent the same product, the one who proves being the first to invent gets the patent. But proving it can be messy, because the research process is so long.
Now, the inventor who beat others to the patent office to file is the winner.
Schrankler said that while the OTC will be spending more money on risks, it will also increase the odds of getting successful patents.
“It’s often very difficult to determine precisely when someone has invented,” University patent law professor Thomas Cotter said.
The “pressure to file” sooner will heat up nationwide when the law takes effect in 2013, Cotter said.
“If somebody else beats you to the patent office, as long as they have independently invented and not stolen the idea from you,” that person would get the patent, he said.
While the shift to first-to-file was one of the less controversial parts of the reform act, not all smaller companies favor it because they have fewer resources to patent more quickly, Cotter said.
“In other countries, there’s really something of a pressure to get your patent on file quickly, Cotter said. “That means that invention will be patented sooner rather than later, and a patent discloses the technology to the world, and that’s one of the benefits of the patent system.”
Locally, this will mean more risk-taking at the OTC. The office will file patents on more inventions earlier in the game.
Hundreds of thousands of dollars are lost from patents that don’t generate revenue, which is why the OTC isn’t patent-happy.
“We already were patenting what we thought, after a thorough analysis, were the really best ideas,” Schrankler said. But now, some ideas that may not have been seen as having as much of a chance will get a shot.
The cost of filing patents is borne completely by the OTC. But royalties are split three-way among OVPR, the college department where the research was conducted and the inventor.
“It allows one entity to manage the portfolio, to take the risks,” Schrankler said.