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University-Indust~y Relations The commercialization of genetic engineering has created new ties and new tensions between industry and the university. Major cor- porations were caught largely unprepared by the rapid advances in biotechnology, having neither the expertise nor staff to enter the field. To do so, they have drawn heavily on the resources of the university, either through establishing consulting or contracting agreements with individual researchers or research partnerships with the university. By contrast, academic researchers were among the first to realize the vast economic potential of the new genetic technologies. In the mid- 1970s, some university scientists launched their own biotechnology firms where they could translate their ideas into products and profits (see Starting a Biotechnology Company, p. 65~. These firms were often To- cated a stone's throw from the university, enabling the researchers to divide their time between their industrial anct academic laboratories. Some scientists left the university altogether. Others remained in the university but assumed managerial or equity positions in the new bio- technology firms. Originally, there were fears that the best scientists would be lured away from the university by the promise of vast profits. Although such fears have lessened, universities now face strong com- petition in filling faculty openings in these areas. These new research partnerships offer advantages to both parties. For universities, they offer funds for research and instrumentation in a time of slack federal support. In return for their investment, industry gains access to scientific expertise, a training ground for industrial scientists and, usually, rights to any patentable discoveries. Society, too, gains, for such collaboration can accelerate the pace of technological innovation. Nonetheless, many in the academic community are concerned that this new infusion of corporate dollars will divert the university from its 60
UNIVERSITY-INDUSTRY RELATIONS 61 primary mission of fundamental research and teaching. Yet, as Gilbert Omenn, dean of the School of Public Health and Community Medicine at the University of Washington pointed out, corporate funding of uni- versity research is not new. Incleed, industry was the largest source of outside funds for the university before the fecleral government assumed that role following World War Il. Some institutions, such as Stanford University and the Massachusetts Institute of Technology, have a long history of close ties to industry. At these and numerous other univer- sities, faculty members have long consulted for or obtained research grants from industry. These new relations, however, differ in some key ways. For one, most of the previous arrangements involved faculty in engineering and busi- ness not in basic biology. Moreover, the sheer size of some of these new agreements sets them apart from those that preceded them. Hoechst AG, a West German chemical firm, is spending $70 million over the next 10 years to develop a department of molecular biology at Massa- chusetts General Hospital, a Harvard University affiliate. Washington University has a 5-year, $23.5 million contract with Monsanto Co. for research on peptides and proteins. University Concerns The central fear is that the open communication among professors and between professors and students will be stifled by the need to protect proprietary information. Some wonder if graduate students whose professors are supported by corporate funds will be forbidden to present their research results at seminars or conferences. Others wonder if there will be a subtle reorientation of values when an entire department is supported by a corporation. Patent rights pose yet another concern. In the past, universities have profited from patent and license arrangements the University of Wis- consin Alumni Research Foundation is one example. However, the granting of exclusive rights to one company which seems to be req- uisite in some new university-industry partnerships- conflicts with uni- versity tradition of open dissemination of information. According to Richard S. Caldecott, clean of biological sciences at the University of Minnesota, universities will confront a number of choices and will un- doubtedly come to different solutions. They must decide who will hold the patent, the university or the industrial sponsor, as well as how royalties will be assigned to the department, the university, the in- vestigator, or all three. They must clecide when and if to grant an exclusive license to an industrial sponsor. To assure its claim to exclusive
62 GENETIC ENGINEERING OF PLANTS rights, an industrial sponsor may insist that its funds be kept separate from any other support for the laboratory. There is concern that federal and private funds may sometimes be comingled. To Omenn, the "people problems" are of the greatest concern "the delicate, crucial, and rather complicated relationships between the in- dividual faculty member and the university the difficult matter of avoiding conflict of interest and protecting the intellectual property of all colleagues involved in an academic enterprise." Another concern is that scientists who hold equity or managerial positions in a commercial venture may neglect their students to perform more lucrative projects for their industrial sponsor. When a professor has two employers, graduate students and postdoctoral fellows are par- ticularly vulnerable. For instance, when profits are involved, the problem of ensuring that students receive proper credit for their work may be further aggravated. "The only way to deal with the potential conflicts of interest is open- nessfull disclosure," Omenn said. "The students and faculty members should know the kinds of external relationships other faculty members are engaged in." Already, several universities have adopted conflict-of-interest policies that require full disclosure of faculty arrangements with outside cor- porations. Some universities prohibit fulI-time faculty members from holding equity or managerial positions in a commercial firm. Many of the potential conflicts can be avoided if terms are thoroughly and clearly defined in the contract. For example, many of the recent agreements require that the researchers submit an article to the corporate sponsor for review prior to submission to a journal. Cornell University has taken a slightly different tack. According to Theodore HulIar, the university's director of research, in an effort to safeguard open com- munication and protect the rights of students, Cornell contracts specify that if a graduate student is involved in corporate-sponsored research, those results can be discussed in any seminar on campus. Industry Concerns In the debate over university-industry relations, said Reuven M. Sacher, director of biological research at Monsanto Co., it should not be forgotten that industry also has an interest in preserving academic values. The strength of the university stems from its freedom to pursue ideas wher- ever they lead, without pressure to meet practical goals. Moreover, a strong research effort is an essential part of training of future scientists and engineers on which industry depends. To sacrifice the quality of
UNIVERSITY-INDUSTRY RELATIONS 63 research to meet short-term goals would be killing the goose that lays the golden egg. Joint university-industry ventures do involve some risk, largely to the universities, Sacher conceded. Yet, that risk is manageable and out- weighed by the benefits of such collaboration to the university, industry, and society. As economist Vernon Ruttan stated, "a rapidly expanding MAINTAINING THE COMPETITIVE EDGE The following comments are excerpted from the presentation of Reu- van Sacher, director of biological research at Monsanto Co. "How can we insure that American industry remains commercially and technologically competitive in the field of biotechnology? Looking at our own company, Monsanto has approximately $7 billion worth in sales in 120 countries, and we spend more than $300 million a year on research and development on nearly 3,500 scientists and engineers in our corporation. Surely Monsanto should be able to compete against Eli Lilly or du Pont in developing biotechnology products. I believe we can. But Monsanto's competition is not merely the du Ponts and the Eli Li ~ jays. Monsanto also has to compete with entire countries i n the field of biotechnology. "The Japanese government has declared biotechnology a national scientific and commercial goal. Japan's Ministry of Trade and Industry has established a consortium of 14 major Japanese companies that will cooperate with the government and universitites in developing bio- techno~ogy. The government has set aside $100 mi ~ ~ ion for that purpose. In addition, in 1982 Japanese companies spent more than $200 million apiece in the biotechnology area. "In the United States, antitrust laws prevent Monsanto, Eli Lilly, and du Font from conducting research together in most cases. Thus, while Japanese companies are encouraged to cooperate, U.S. companies are enjoined from doing so. Since we cannot cooperate with our 'com- petitors,' who can we cooperate with? The answer is simple: with Amer- ican universities. We feel that the research talent in American univer- sities is immense. If you couple that with the development ski ~ Is of American industry in general, I think we can keep the United States on the leading edge in biotechnology. I think this cooperation can give rise to jobs, useful products, and new ways to meet basic human needs throughout the wor~cl."
64 ~ ~ --- - r GENETIC ENGINEERING OF PLANTS private sector role in biotechnology research and development is essen- tial if any significant impact of biotechnology on crop yields is to be achieved over the next 20 years." Close collaboration between the uni- versity and industry facilitates the transfer of ideas into useful products. Sacher emphasized that collaboration may also be the key if U.S. in- dustry is to maintain its competitive edge. While Sacher advocated increasing industry support for university research, he cautioned, as did Hardy and others, that corporate funds cannot make up for any shortfall in federal support for university re- search. In 1981 industry provided 4 percent (about $250 million) of the $6.6 billion spent on university research, Sacher said, adding that it is "inconceivable" that industry support will exceed 6 or 7 percent. The rest must come from government. Three-Way Collaboration Recognizing the economic benefits that can accrue from a strong bio- technology industry, several state governments have launched new ef- forts to increase collaboration between the universities and industries. Huliar, who sees great promise in these three-way partnerships, de- scribed one such effort in New York state. Through legislative mandate, the state established a public-benefit corporation, the New York State Science and Technology Foundation. Its board of directors includes the presidents or research vice-presidents of the major corporations headquartered in the state including East- man Kodak, General Electric, IBM, Xerox, and Corning Glass Works as well as state leaders in public policy and finance. As one of its functions, the foundation identified eight promising technologies and establishecT a collaborative research center for each. After a competition with other universities and institutions throughout the state, Cornell University was designated by the New York foun- cation as its Center for Biotechnology in Agriculture. The university had to demonstrate that it aIreacly had excellence in the field and that it could raise industry funds to match the state contributions. Other requirements were that the research have industrial relevance and that the university have an outreach program to the state. At the same time, Cornell established its own partnership with in- dustry in the state, called the Cornell Biotechnology Institute. Four corporations have already joined, and each will contribute $2.5 million over six years. The institute provides an opportunity for industry sci- entists to take up residence in a university laboratory for a year, per-
UNIVERSITY-INDUSTRY RELATIONS 65 forming fundamental studies not directly related to their corporate pur- suits. All research at the institute is basic and nonproprietary, ant! the university's standard patent policies apply. STARTING A BIOTECHNOLOGY COMPANY Within a few years of the pioneering gene-splicing experiments, some 200 biotechnology firms were launched to exploit this new commercial potential. To date, the field has attracted nearly $1 billion in invest- ments. These firms range from small entrepreneural ventures to larger companies such as Genentech, Cetus, Biogen, and Genex. Some we~- established corporations have developed their own internal genetic en- gineering laboratories, while others have invested] in the smaller venture capital firms or contracted with them for research. As an example of some of the factors to be faced in starting a bio- technology company, Anthony Faras spoke at the convocation about Molecular Genetics, Inc., a firm he founded with Frank Pass in 1979 in Minneapolis, Minnesota. While the individual details of each bio- technology venture are unique, their futures all depend on a business plan that includes capital, research personnel and facilities, and poten- tial products to generate revenues. Faras described the first four years at Molecular Genetic, Inc., or MGI specifically the scientific and economic considerations that have guided the company's development. A Business Plan Both Faras and Pass were professors at the University of Minnesota when they decided to start MGI. Shortly after founding the company, Pass left his position in the dermatology department at the university to become president of the new firm. Faras kept his position as a micro- biology professor while simultaneously serving as cochairman at MGI. In 1979, MGl's first priority was to raise enough money to build a laboratory and hire a staff. That depended on developing a business plan to attract venture capital. Faras and Pass decided to begin by developing veterinary products specifically vaccines, monoclonal antibodies, and antitoxins to fight infectious diseases, as well as some growth hormones. They planned to expand later into plant biotech- nology. They started with veterinary products for two reasons, Faras said. First, in view of stiff competition from other biotechnology firms, they
66 GENETIC ENGINEERING OF PLANTS wanted to get a product on the market quickly. Since they both had expertise i n i nfectious cl iseases, they real ized they cou Id progress more quickly with vaccines than they could in crop improvement. They also avoided human health care products, in large part because of antici- patecl regu Oratory constrai nts. The second reason was market potential. "Though there are a number of different antibiotics and other types of bio~ogicals used widely, viral and bacterial infections sti ~ ~ cause a high proportion of mortal ity, both in swine and cattle. Equally important, in terms of economic losses, are the morbidity problems." If they could develop an improved prod- uct, substantial sales seemed certain. There is also a vast potential market for genetically engineered crops, though the development time is far longer than that required for vaccines or pharmaceuticals. Once MGI was established in the veterinary area, Faras ancl Pass reasonecl, they wou Icl begi n work on plants, specifica~ fly on improving the protein content and feed quality of corn. In addition, Faras said, the agricultural focus of MGI fitted well with the communityMinnesota is a large agricultural producer. That might help in raising capital. Perhaps more important, they knew there was a good source of local talent at the university's veterinary ancl agricul- tura~ schools. /nitia/ investors Business plan in hand, they attracted four investors. "What we got was $1.2 million to develop our first facility and to hire our initial group of scientists. What the venture capitalists got was a lot of stock very inexpensively and, of course, the risk of whether we would be able to make it both scientifically and economically," Faras said. They hired a dozen staff members, inclucling four Ph.D.s, ancl by 1980 they were worki ng on thei r fi rst vacc i nest At the outset, they realized that $1.2 million was not enough to become "an effective player" in agricultural biotechnology, Faras said. To increase their revenues they entered into an agreement with Amer- ican Cyanamid Co. Under a contract and licensing arrangement, MGI would develop agricultural products for American Cyanamid, which did not have an in-house biotechnology effort. American Cyanamid bought an eq u ity position i n MG I for $5 .5 m i ~ ~ ion ancl provided more than $3 million for research contracts that would range over four years. With these funds MGI was able to build a new laboratory facility and expand the staff to about 70, inclucling over two dozen Ph.D.s ancl veterinarians.
UNIVERSII~Y-INDUSTRY RELATIONS The Scientific Staff MGI initially looked for scientists who could develop veterinary vac- cines and other bio~ogica~s. They needed a team of scientists with ex- pertise in molecular biology, immunology, and the chemistry of proteins and nucleic acids. Product development would require isolating the appropriate viral or bacterial genes and inserting them into a bacterial host that would then produce the vaccine protein. v, , , To produce a commercial product, vast amounts of a vaccine protein are necessary, which means that genetically modified bacteria must be grown on a large scale in fermenters. Inside the fermenter, the bacteria express the foreign gene and produce the vaccine protein. Then that protein must be separated out of the mixture at relatively low cost. For these tasks, MGI needed staff ski ~ led in biochemical engineering and fermentation technology. Clinical testing of the genetically engi- neerec] vaccine is also needed. When MGI began to move a couple of years ago into plant crop improvement, they also assembled a team of plant molecular biologists. Financial Prospects At first, MGI was content to develop products for other companies, such as American Cyanamid, under a contract and licensing arrange- ment. "It was quite attractive; it gave us a nice net cash flow from contract research. The problem is that down the line you have to share the royalties, if you are a contracted, your share of the royalties is not always that goocl," Faras saicl. "If you want to become a viable commercial entity, you have to think about producing and marketing those products yourself. To that end, we have started to hire marketing and sales distribution staff." MGl's first product has recently passed clinical and field trials and is now being marketed in Canada. It is a monoc~ona~ antibody for scours, or neonatal diarrhea, in calves. Other vaccines and monoc~ona~ anti- bodies are now undergoing trials in the United States. The scours antibody is bringing MGI "our first authentic sales reve- nues," Faras said. The company has also raised capital in other ways. In June 1982 it had its first public stock offering, followed by a second] in March 1983. As separate ventures, MGI has also entered into a research and clevelopment limitecl partnership and a consortium ar- rangement with Martin Marietta, Inc. From these activities, MGI has raised about $45 million since June 1982. This had helpecl to abate the "sea of reel ink," as Faras jokingly 67
68 GENETIC ENGINEER OF PLANS described the financial ~tuaBon attributed to new biotechnology firms. ah new revenues' the amount of losses we are incurring ~ Iooklng better each month./ OveraH' the biotechnology boom seems to be reaching equilibrium of sops. Some companies' like ~Cl' are marketing their fast products. Others have already faded. Liven the numerous sclentEic uncertainties/ some of the /'survivors'' may still drop out of the field.
