UVA Inc.

They called it an incubator: the upstairs of the Charlottesville Tomorrow building on West Main Street, space leased to University faculty whose ideas no longer quite fit the contours of academia. To move into one of the six offices subsidized by UVA’s Patent Foundation signaled progress for a new biotech company. It meant that early-phase experiments had flourished in their Petri dishes. They called the space an incubator because, here, ideas conceived in a University research lab took another baby step on the long march to becoming products.

That was just a few short years ago, but if you want to keep pace today you don’t walk, you run. Somewhere along the way, the incubator became an accelerator. The offices are vacant now. The new start-up space is a “wet lab” complete with plumbing. It’s situated nearer to the University’s main research labs, sharing the Corner Building on West Main Street with the Patent Foundation’s venture capital arm, Spinner Technologies, Inc. From here it’s just a stroll to campus, and with time and luck, the beaten path from University to accelerator may now become the fast track to the Research Park.

Completed last spring, the 530-acre North Fork complex, also known as the Center for Emerging Technology, is proximate to the airport, suggesting even further possibilities.

From humble office incubator to a $4.4 million research center, UVA has clearly set its sights on becoming a big biotech player. Broadly, biotechnology refers to any technique that uses living organisms or parts of them, such as DNA, to make products. In fact, some believe UVA could jumpstart the whole region, bringing jobs and new companies—if it only had the labs to attract the researchers to draw the investors. When the single UVA start-up to hit the NASDAQ skipped town, it was time to add some real estate.

 

If that sounds a wee commercial for the ivory tower, in fact an entrepreneurial spirit is “the new model” for universities everywhere. It’s been 23 years since Congress passed the Bayh-Dole Act, which gave universities the right to patent Federally funded research, and the vision continues to expand. As one speaker advised at the Governor’s Biotech Advisory Board meeting last fall—attended by many UVA employees—the goal of a university is no longer “just the creation of knowledge, but creating potential spin-offs.”

To that end arose Spinner in 2000, meant to aid faculty in all facets of starting a company. General Manager Andrea Almes explains why the term incubator has given way to “accelerator,” saying that in the 1970s, when the first wave of biotech rippled through the universities, incubators became synonymous with “cheap lab space.” Getting ideas into the commercial pipeline, or what’s called technology transfer, hinges on more than just real estate, she says.

Finding affordable lab space is one of many hurdles along the road from campus to market. First, a researcher has to pop the question to the Patent Foundation: Will it fly?

Many of the biotech discoveries that find their way to the Patent Office can be categorized as engineered proteins destined to become drugs. Diagnostic tools and kits, like a home fertility kit, for instance, make up another segment, according to Foundation Director Bob MacWright. The Foundation’s breadwinner, Adenocard, is used to stabilize heart attack victims.

But of the 135 ideas proposed by faculty last year, according to MacWright, only about half will ultimately receive patents. Even then, not all patented discoveries lead to a start-up, and not all start-ups will produce a “real revenue-generating platform technology.” Finally, no matter how good the idea, it still takes about seven years to get to market.

Of the drugs that go into clinical trials, for instance—and the biomedical portion of the bio-pie makes up the largest share of inventions—most don’t make it, according to Michael Wormington, director of UVA’s human biology program.

Clearly, biotech—a term coined by The Wall Street Journal some 20 years ago—is a high-risk venture. True, say supporters, but it can also carry a high pay-off: nothing venture capitaled, so to speak, nothing gained.

Many shoulder the burden, banking on the benefits. There are the various investors and drug companies, faculty and universities, the Federal government, which underwrites much of the research—and taxpayers, whose funds, after all, support potential cancer and arthritis drugs, as well as dogs like the deadly diet drug combo Fen-Phen.

Whether Central Virginia will reap great rewards from this risky business is debatable. Even as biotech is on the rise in urban areas, it’s still in its nascent stages here.

In the meantime, committees and organizations from Virginia Gateway to the Virginia Biotechnology Association monitor vital signs. There’s promise locally, they say, but there are also many roadblocks. It was noted during the fall Governor’s biotech advisory board meeting that the State’s colleges and universities are lagging in several areas. A long list of shortcomings was drawn: There’s too little research space, faculty attracts less funding than their national peers, more venture capital is needed, and so on.

Obtaining venture capital is one of many of Spinner’s goals, and the waiting list of faculty seeking services leaves Almes confident that one day Charlottesville will experience the surge of biotech.

MacWright is more skeptical. “It’s a worldwide market,” he says. “Charlottesville is a small town. What happens here won’t be as dramatic.

“But I look forward to the day,” he continues with a laugh, “when I can license every technology without making a toll call.”

These days just about every research university has a technology licensing office, as well as funds set aside to bankroll commercially promising projects. For the most part, the profits of the enterprise—if there are any—further the enterprise.

“The bulk of it goes back to the inventor’s lab,” says Dave Hudson, associate vice president for research. That is, after the inventor has received his share as personal income and the Patent Foundation taken its slice, most of the revenues go back to the inventor’s lab for another round of R&D.

While a percentage of profits is earmarked for an inventor’s particular school, that doesn’t kick in until after the first $100,000 in royalties come in, and it’s a system of diminishing returns overall.

In all of this, the nonprofit Patent Foundation remains outside the University’s budget. It’s one of 24 foundations launched by UVA with the expectation that they would become self-supporting (the Patent Foundation has done that). Both UVA and the Patent Foundation are shareholders in its for-profit subsidiary, Spinner.

And while the revenues can be substantial in some cases, the costs are steep: between $30,000 and $50,000 just to acquire and maintain a single patent for its 20-year lifespan.

Yet the purpose of the Bayh-Dole Act was to enrich a wider sphere than the university. The point of commercializing university inventions was to boost the economy.

To a certain degree that has happened with UVA’s biotech operations, except the economy that has been assisted is not Charlottesville’s. Even though roughly 200 patented inventions have poured forth from UVA labs and 30 start-up companies are listed with the Foundation, much of the biotech money is being made—or collected—elsewhere.

 

One UVA faculty start-up, now in the Corner Building, is ContraVac, Inc., a company started by cell biologist John Herr. Herr emphasizes the role of biotech in creating jobs here, yet big pharmaceutical companies outside the area primarily fund ContraVac, which produces a contraceptive vaccine, among other things.

“When you license to big pharma,” says Herr, using the industry slang for pharmaceuticals, “someone else benefits.”

The limiting factor here, according to Wormington, who was once involved in a biotech start-up, is a skilled work force, that is, the kind of technicians who can do everything from setting up lab equipment to collecting data. “We’re, in essence, an academic town. It’s difficult to see biotech expanding here,” he says.

Techies might be missing, but since the Patent Foundation came into being in 1978, business savvy is not. The Foundation was established specifically to address the lack of business know-how among academics.

They needed a lot of help, according to MacWright. After all, most had never developed a business plan or filed for a patent.

There were other problems, too, says inventor Doris Kuhlmann-Wilsdorf, an engineering physics professor who joined the faculty in 1963. Now 80, Kuhlmann-Wilsdorf is one of the few women who have ventured a start-up (Although they comprise more than half the University’s full-time teaching and research faculty, women are noticeably absent among UVA’s biotech entrepreneurs).

With several successful inventions to her credit, she calls herself “a habitual offender.” One of the biggest challenges she faced with her early innovations involved Small Business Innovative Research grants.

“There was not a mechanism in place then,” says Kuhlmann-Wilsdorf, her German accent precisely honing each syllable. Laws favored the small company that had applied for the grant and subcontracted work to the University. When the job was done inventors were left with nothing, while the company assumed the rights to their inventions. “I call it the so nice to have known you syndrome…” says Kuhlmann-Wilsdorf.

Herr expresses a similar sentiment. “You write a paper, you pour yourself into it, and the lifespan of that impact is a decade or so—but all the knowledge becomes incorporated into others’ work,” he says. “One soon realizes the paper is not the end.”

Herr belongs to a small number of faculty, maybe 15 percent, involved in “translational” research. This entails designing proof-of-concept experiments and other methods that further basic ideas down the road to application.

But nothing can be applied to anything else without basic research. In short, basic research asks how something works, while the applied realm asks how it can be made to work. The two may cross-pollinate, but applied research generally refers to the development of discoveries arising from basic investigation.

“If we only did applied research, we would still be making better spears,” says George Smoot on the website of Lawrence Berkeley National Laboratory. According to Smoot, the importance of basic, undirected research is that “People cannot foresee the future well enough to predict what’s going to develop from basic research.”

This is why universities are regarded by investors as “idea factories,” which keep the well from drying up. While today, some scientists say the line between basic and applied research is blurry, other critics go further, calling it “muddy.”

 

One concern that scientists talk about off the record is that with increased industry sponsorship, University research will become increasingly product-driven. In other words, it will be limited to the research questions likely to get the greatest funding.

The majority of funding now continues to flow from Federal sources—UVA receiving about 66 percent of its research budget from the Federal government—but these grants are often shared with industry. Additionally, corporate sponsorship is growing.

The government has also allotted considerable funding for product-geared study, and enabled it with tax breaks, strong enforcement of intellectual property laws, and a heavy reliance on self-regulation over state intervention.

Self-regulation, as has become apparent in other lines of business, is something industry should not be left to handle alone. It could mean the house will burn while no one’s looking. Regulation interferes with profit.

A March 2000 article in Atlantic Monthly attributed the same sorts of problems to institutions of higher learning, saying, “Universities have been very unsuccessful in developing conflict of interest policies.”

With the passage of Bayh-Dole, a myriad of problems has arisen that could be subject to so-called self-regulation. They include factors such as faculty entrepreneurs’ financial interests in their companies or the companies sponsoring their work; the university’s related investments; potential for bias, and so on. But neither the state nor the Federal government has come up with uniform policies that would apply to universities across the board. Instead, there is ample room for case-by-case consideration.

Dave Hudson, who is the Chief Compliance Officer for research at UVA, says, “I would agree that there are problems coming up with great, concise policies, but we’re aided by a carefully crafted State statute. It clearly speaks to issues of contracts in which faculty have direct financial interest.”

Yet Virginia imposes no absolute limits on the amount of equity faculty can have in a company. In some cases, it’s 100 percent; in others, merely 3 percent will trigger the review process. That process calls for disclosure of the financial interest and then approval from various committees.

Since the university’s interests can be financial, you might say there’s another layer of potential conflict; an incentive to allow exemptions.

According to Jennifer Washburn, reporting in the Atlantic article, only 55 percent of self-regulation policies nationwide even required disclosure of conflict-of-interest from all faculty. The piece concluded with a series of recommendations for safeguarding objectivity. One of these was that universities be “banned from investing in companies sponsoring their professors’ work, as well as other start-up companies founded by their professors.”

 

When the whole biotech craze began, faculty members who started their own companies left the academy. This is far less likely today. Wormington is one of those who took a yearlong leave of absence in order to pursue a start-up venture. Some colleagues at other universities have done the same, he says.

While Bayh-Dole gave universities new incentive to hold onto their researchers, some in biotech feel the incentives could be better. They believe there should be new standards of promotion and tenure based not on scholarship—the number of papers published, for example—but the number of products that reach the marketplace.

Others are concerned that teaching has begun to suffer due to changing priorities.

In a UVA Online interview last spring with AIDS Clinic Director Brian Wispelway, who is widely considered a great teacher and clinician, he said, “I have a genuine concern about how we’re going to pay for the commitment to teaching when everything else is being rewarded.”

In the 23 years since Bayh-Dole opened the doors of the ivory tower and The Wall Street Journal named a new branch of scientific commerce, the University is still sorting it all out…how to preserve academic freedom, how to be an economic engine, and now more than ever as it faces the worst State budget crisis in Virginia’s history, how to fund itself in the entrepreneurial age.

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