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5 Public-Private Partnership Models for NBTF The previous chapters have documented the need for a dedicated national accelerator facility, primarily for the production of isotopes for research in the life and physical sciences. There will also be commercial components of this facility, because some radioisotopes produced by a National Biomedical Tracer Facility (NBTF) will become important in the private sector. Indeed, the Committee was specifically asked to address the possibility of some sort of public-private partnership in its deliberations on the best use of the capabilities of each sector. The variety of benefits from the envisioned NBTF coupled with the technical complexity of the facility argue for the formation of a partnership among industry, national laboratories, and universities to operate it. The purpose of this chapter is to review existing examples of such partnerships and to provide a preliminary description of a possible model for operating NBTF. We expect that other models of this general form will be provided by the five grantees now preparing detailed NBTF Project Definition Phase proposals for DOE, and do not wish to imply that the version presented here is the only acceptable one. The recent failures of the Isotope Production and Distribution Program (IPDP) of the U.S. Department of Energy (DOE), in contrast to the previous long-term successes of U.S. isotopes research programs, are discussed here. The passage of the Energy and Water Development Appropriations Act of 1990 (Public Law 101-101) required the change of that isotope production and distribution be done on a full cost recovery basis, which contributed to the decline of isotope sales and profitability. The difficulty for a DOE operation to function in a standard business mode has led to the suggested involvement of the private sector in a future facility that would include the sale of isotope products and related services. The very successful partnership between the private company, Nordion
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International, Inc., and the Canadian Tri-University Meson Facility, (TRIUMF), impressed the committee, and the committee suggests the establishment of such a partnership in the United States. There are a variety of existing partnerships involving industries, national laboratories, and universities. The establishment of the national laboratories after World War II led eventually to intimate partnerships, first with universities and, more recently, with private companies. The use of national laboratory facilities by faculty, staff, and students at universities has been very strong in the last 30 years, and these facilities have been established on a peer-reviewed basis with no use charges. Industries also have access to these facilities on a cost-reimbursement basis. In addition, there has been an emphasis on the transfer of technology from the national laboratories to the private sector. Since 1989 a new emphasis has been on cooperative research and development agreements (CRADA), by which the cost of cooperative research at a national laboratory is shared by the facility and the private partner. CRADAs not only bring new sources of joint endeavors and funds to national laboratories but also shift the emphasis from new technology being ''pushed" to the private sector to technological advances being "pulled" from the laboratories to industry according to proprietary needs. The legal basis for the isotope program and related issues are reviewed (and discussed more extensively) in Appendix B. It is clear that public laws have led to the difficulties that DOE experiences in competing with industry for the sale of materials, and it is important to consider their background and full implications. The desired benefits of NBTF, combined with the legal and operational constraints on DOE, led to the suggestion that an industry-national laboratory-university partnership is important for the operation of NBTF. A university partner is important for leading the educational functions; the technological infrastructure of a national laboratory would greatly benefit the construction and operation of such a highly technical facility; and the industrial partner would take the lead on the marketing, shipping, and sales of those radioisotopes that are commercially attractive. Such a model is discussed below. THE DOE ISOTOPE PRODUCTION AND DISTRIBUTION PROGRAM The production, supply, and sale of isotopes have been longstanding activities of DOE and its predecessors, the Atomic Energy Commission and the Energy Research and Development Administration. Even though the production of and the research conducted with a wide variety of isotopes were strictly adjuncts of nuclear physics research, defense, and nuclear power development programs, these isotopes programs are among the best examples of technology transfer from government research to commercial application. The very existence of certain entire industries, the $2 billion a year field of nuclear medicine among them, is
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attributable to basic research with and the continued production of isotopes at DOE's national laboratories. Some isotopes and related services are still provided only by DOE by virtue of both its unique facilities and its tradition and interest in promoting the research and development of new isotopes and applications not yet to the stage where they appear lucrative to commercial producers. Prior to 1989 responsibility for the management of isotope production and distribution was spread across the Office of Energy Research and several other organizations at DOE headquarters, and actual operations were carried out at a half dozen or more DOE facilities widely scattered throughout the United States. None of the entities supporting work on isotopes was responsible for the entire program, so many problems of supply, cost, delivery, or prioritization went unsolved or were at least not solved to the satisfaction of many of the customers created by the early and widespread success of the work. In 1989, DOE established a single central office within the Office of Nuclear Energy with responsibility for managing the entire isotope enterprise except that for uranium: IPDP. In its 1990 budget request, DOE requested, and U.S. Congress concurred, the establishment of a revolving fund for isotope production and distribution in lieu of annual appropriations to the array of programs and facilities previously funding such work. Public Law 101-101 provided a little more than $16 million as initial capitalization for the fund, and both Congress and DOE envisioned that revenues from sales would subsequently balance expenditures from the fund for production and distribution costs. This statutory requirement for self-sufficiency was apparently based in large measure on the prior year's $15 million in isotope sales, but it was not until after passage of the act that DOE was required to report on the details of such matters as the condition of production facilities and plans for their replacement, expected requirements in the areas of environmental and waste treatment expenses, and detailed financial plans for achieving full cost recovery of isotope production and distribution. Despite optimistic projections, the IPDP's operating expenditures have consistently exceeded sales revenues (Arthur Andersen & Co., 1993; KPMG Peat Marwick, 1992). In addition, IPDP has spent $11 million on process development for new products (e.g., molybdenum-99, the reactor product that accounts for 30 to 40 percent of the world radioisotope market). As a result, the revolving fund has been depleted and IPDP had to borrow $8.5 million from the U.S. Treasury in fiscal year 1992 and $5 million in fiscal year 1993. The IPDP program director's analysis of the reasons for the program's inability to recover its costs include undercapitalization (the aforementioned lack of detailed financial plans), preexisting DOE policies preventing competition with domestic industry, little control over production costs and schedules because of reliance on manufacturing facilities with missions unrelated to isotope production, competition from foreign suppliers with government subsidies, government bureaucracy, and poor business management practices. A U.S. General Accounting Office (1992) study also identified foreign competition and high operating costs as key factors in the
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inability of IPDP to sustain itself. IPDP subsequently contracted with Arthur Andersen & Co. for a comprehensive business management study and asked for recommendations for making the program efficient and sustainable. The Arthur Andersen & Co. report (1993) identified four crucial conditions for IPDP success: (1) reliable access to production facilities, (2) reasonable and predictable operating costs at these facilities, (3) reduction in unprofitable capacity, and (4) separate funding for research-oriented isotopes. The report makes the important observation that it is the longstanding research mission of DOE's national laboratories and the deeply ingrained culture that that mission has engendered that has made it impossible to achieve these conditions. The Arthur Andersen & Co. report also provided an extensive series of recommendations for making the IPDP operation more businesslike. The committee believes that although the cultural conflict identified by the Arthur Andersen & Co. report is on target, the solution is not to attempt to transform the national laboratories into efficient businesses but to allow these research and development laboratories to focus on what they do best and leave the conduct of efficient business to efficient businesses. Isotope production itself has grown up as an adjunct of the admonition of the Atomic Energy Act of 1954 for the Atomic Energy Commission to "insure the continued conduct of research and development … and assist in the ever-expanding fund of theoretical and practical knowledge in fields relating to nuclear processes and the theory, production and use of atomic energy, including specifically, medical, biological, agricultural, health, industrial, and commercial uses." The Energy and Water Development Appropriations Act of 1990 (Public Law 101-101), which established the revolving fund and required full cost recovery by IPDP, does not explicitly change the mission of IPDP and makes no distinction between the production and the distribution of isotopes to the research community and supplying high-volume, commercial-use isotopes to the private sector. To date IPDP has tried to remain faithful to the research mission and culture in which it arose, despite the clear implication of Public Law 101-101 that the production of high-cost, noncommercial isotopes would have to be curtailed or eliminated and facilities operating at less than full capacity would have to be dropped from the program. There is thus a real conflict within IPDP between the practical policies for the production and distribution of isotopes for the research community (in which full cost recovery can hardly work) and the sale of isotopes to commercial users in the private sector (in which such a policy is appropriate). (See Appendix B for a fuller discussion of these and other relevant statutes.) Although there may be some ambiguity of mission within the IPDP itself, Public Law 101-101 nowhere specifically addresses the implications for the national laboratories on which IPDP depends for isotope production. IPDP still uses production facilities whose main mission is not isotope production but research in physics, nuclear power, radiation effects, and a myriad of other topics. The laboratories are designed, staffed, and operated as research institutions rather than
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efficient manufacturing plants. The costs of operating these facilities are apportioned to the programs that use the facility (reactor, accelerator, etc.) on a pro rata basis, and priority for use of the facility is based on the laboratory director's assessment of scientific and research needs. As a result, IPDP cannot readily reduce its costs, and it may find them rising uncontrollably because of changes in other programs that share the facility. Business success by IPDP, that is, selling more isotopes, may actually result in a profit-erasing rise in fixed overhead, since more production will require more hours of reactor or accelerator use. As a result, the IPDP finds itself unable to negotiate long-term supplies and prices with customers, which are the keys to any successful business. Without more control over operating costs and use of the manufacturing facilities, internal changes in the operation of IPDP will be insufficient to allow for the consistent recovery of the full costs of isotope production. Recognition of these problems is not unique to this committee. In fact, it was precisely this problem of the lack of control of costs and facility use that underlay the proposal by the Society for Nuclear Medicine for a stand-alone, DOE-supported accelerator facility dedicated to the production and distribution of medical isotopes. NBTF. This committee is in agreement with the underlying assumption of that proposal that the existing DOE national laboratory system cannot be, and perhaps should not be, turned on its head to support a successful product of its research, that is, nuclear medicine. The committee had reservations, however, about simply endorsing a new federally owned and operated facility and explored the possibility of a public-private partnership of the type that the committee observed in Canada. CANADA'S TRIUMF The relationship between TRIUMF, Canada's national laboratory for meson research, and Nordion International Inc., a private for-profit company that produces and markets radioisotopes, appears to be a successful marriage, mutually beneficial, and perhaps an admirable model for a U.S. NBTF. Representatives of the committee visited the TRIUMF campus in Vancouver, British Columbia, Canada to investigate this partnership. The TRIUMF-KAON Ventures Office (recently renamed the TRIUMF Technology Transfer Office) was set up in 1990 to formalize and optimize technology transfer and to generate income for TRIUMF beyond federal funding restricted to research and development and cyclotron operation. These objectives are accomplished by: (1) consulting to industry, (2) using industry-funded rotation of staff to and from industry, (3) providing license agreements to the industries to produce and sell products developed at TRIUMF, (4) creating joint ventures, and (5) creating start-up companies with former TRIUMF staff. The Technology Transfer Office itself was initially funded by a grant from the province of British Columbia, but it is expected to become at least revenue neutral via royalties and salary recovery for TRIUMF staff on loan or consulting to industry. In fiscal year
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1992–1993, TRIUMF received nearly $800,000 in royalties from approximately $20 million in industry sales and about $900,000 in salary recovery. Located on the campus of the University of British Columbia, TRIUMF operates its 520 million electron volt (MeV) cyclotron with a staff of 370 (supplemented by up to 200 visiting scientists and technicians during experiments, 40 Nordion employees, and perhaps a few employees of other industry-commercial partners). Annual operating costs of about $37 million Canadian dollars are borne by the Canadian National Research Council ($31 million) grants from various funding agencies, mostly federal ($5 million), and royalties from the commercialization of technologies ($1 million). NORDION AND ISOTOPES Nordion International has an exclusive 30-year (1989 to 2019) technical support agreement with TRIUMF, making it the sole commercializer of isotopes from TRIUMF and making TRIUMF in turn the exclusive supplier of accelerator isotopes to Nordion. Nordion owns and operates two cyclotrons, a CP-42 (42-MeV) cyclotron and a TR-30 (30-MeV) cyclotron, on the site in the Chemistry Annex, a structure built by Nordion and shared with TRIUMF staff, which also receives CP-42 beam time as part of the technical agreement. During the committee visit, staff from TRIUMF as well as Nordion all insisted that Nordion pays all operational costs for such services, including power, and in addition pays royalties to TRIUMF on all products sold. The committee was unable to obtain a summary statement of those charges for services rendered, although royalties were reported to be $700,000 in 1993 and were expected to reach $900,000 in 1994. In return, TRIUMF contributes world-class expertise in the operation and maintenance of cyclotrons. TRIUMF apparently charges Nordion a somewhat more than nominal salary and benefits when they make official use of this expertise (interactions at the watercooler and coffeepot are still free). Most likely, Nordion is charged in a manner comparable to that recommended by the Arthur Andersen & Co. Report for the federal U.S. IPDP, that is, incremental overhead. The Nordion site manager gave the committee's representatives a brief history of the Nordion-TRIUMF relationship, which began in 1978 while what was to become Nordion International, Inc. (Radiochemical Company) was still part of Atomic Energy of Canada Limited (AECL), processing and selling reactor isotopes produced by the Research Company of AECL at the Chalk River (NDU) reactor. The CP-42 cyclotron was installed in 1982 and commercial-scale production began. Not until 1987 did the business turn to profit, at which point the Radiochemical Company, renamed Nordion, was sold to MDS for $165 million, the present 30-year agreement was signed, a radiopharmaceutical program was begun, and a second cyclotron was commissioned. Although Nordion has access to TRIUMF's 520-MeV cyclotron, the majority of Nordion's production is accomplished with the smaller cyclotrons (see Chapter 4).
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The TRIUMF long range plan requests some $700,000 for a new, highly automated Radiochemistry/Isotope/Pharmaceutical Laboratory for the separation of radiochemicals from targets, the preparation of new radiochemicals that mimic chemicals used in metabolism, and experiments, including animal tissue preparations, that will indicate the suitabilities of these chemicals and associated radiopharmaceuticals. The justification offered is a desire to continue the isotope research that has been so successfully brought to market by Nordion. A strongly held belief of both partners in this relationship is that the symbiosis that emerges is a result of the complementary relationship between government-supported high-technology scientists pursuing basic research (not limited to isotopes or medicine) and profit-oriented, market-driven people in the private sector. A purely private NBTF would very likely sacrifice this mixture, as would a purely nonprofit facility, government or private. UNIVERSITIES AND NATIONAL LABORATORIES IN RESEARCH DOE's national laboratories have had extensive collaborations with universities and university research groups. Several of these laboratories are actually run by a university or an association of universities under contract to the DOE—for example, Argonne National Laboratory (University of Chicago), Brookhaven National Laboratory (Associated Universities, Inc.), and Lawrence Berkeley, Lawrence Livermore, and Los Alamos National Laboratories (University of California). One of the functions of the DOE national laboratories is the operation of large, generally one-of-a-kind user facilities such as those employed for research in high-energy and nuclear physics and in condensed-matter and materials research. This is a model that has not been used as frequently in radioisotope production and biomedical research as in the physical sciences. Such facilities are open to researchers from the United States and abroad, typically through a peer-reviewed mechanism that selects the most outstanding research programs. The research teams that use these facilities are often composed of individuals or groups from within the DOE laboratory in collaboration with researchers from one or more universities. Other collaborations may involve a single university group or a collection of university groups, with no in-house research team. In this case, the university groups depend on the laboratory to operate the facility for them. In some cases, a complex national user facility is not required, but rather the appropriate laboratory space (e.g., chemistry labs and hot cells) needed to carry out the research efforts (most of this activity would be in collaboration with an in-house person of a research group). Finally, in many instances, individuals have joint appointments with the university and the national laboratory, which can facilitate the research process. A rich history of close collaboration between universities and the DOE national laboratories exists. With regard to a future biomedical isotope facility, such
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as NBTF, such cooperation will be required wherever it is located. To facilitate a successful marriage between the university community and the laboratory hosting NBTF, cooperative arrangements and agreements would have to be put in place at the earliest possible time, even before a final site is selected. This will help to ensure that such a facility will be designed and operated to the standards and goals of the national user community. DOE LABORATORY AND UNIVERSITY PARTNERSHIPS WITH COMMERCIAL VENTURES Radiation Therapy at Brookhaven Several existing and planned joint ventures involving federal laboratories provide further encouragement for emulating the TRIUMF-Nordon partnership for a U.S. NBTF. Brookhaven National Laboratory (BNL), for example, has been involved in a for-profit radiation treatment facility operated jointly with the State University of New York at Stony Brook (SUNY-SB). This is a simple contract for services SUNY-SB and the DOE contractor that operates BNL, Associated Universities, Inc. (AUI). In this case, AUI-BNL provides the building and support staff whereas SUNY-SB staff operate the commercially purchased machine and provide the cancer patients who are treated there. Although AUI's only monetary stake in this partnership is reimbursement for expenses, the arrangement also provides patients for clinical research and, in addition, a professional attraction for AUI, BNL, and SUNY-SB scientists. Along the same lines, plans for a slightly more ambitious venture are also under way at BNL. The plans center around a currently unused beam line from the linear accelerator. According to BNL officials, capital for a proton therapy treatment center on the BNL campus is being sought from a consortium of medical centers, including SUNY-SB and the private sector. The laboratory envisions a contract for services similar to the existing one with SUNY-SB, but encompassing refurbishment of the BNL-owned facility as well as actual operations. Continuous Electron Beam Accelerator Facility (CEBAF) Somewhat more complicated and closer to the Canadian model could be an evolving network of partners associated with the Continuous Electron Beam Accelerator Facility (CEBAF), which is nearing completion in Newport News, Va. Scheduled to begin its nuclear physics experimentation in late 1994, this DOE-owned, contractor-operated facility has been managed to date by the 41-member Southeastern Universities Research Association. Two additional partners have emerged during the course of planning and construction: the city of Newport News, which has donated a guest house valued in the range of $700,000, and the Commonwealth of Virginia, which has contributed an estimated 5 per-
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cent of construction costs in the form of in-kind assistance and promised $1 million a year for 5 years for professional personnel in the form of faculty appointments at elite universities. Eight commonwealth professorships have been established. Like TRIUMF, CEBAF has made technology transfer an integral part of its mission. An Industrial Advisory Board (IAB) composed of representatives of local and national industries was formed in 1991, long before the anticipated start of operations, to identify technology transfer opportunities and to provide advice from an industrial perspective. IAB, for example, identified the potential utility of some of CEBAF's X-ray sources to industrial firms specializing in the nondestructive testing of materials like oil pipelines and aircraft wings, and after announcing its intentions in the Federal Register, CEBAF has transferred the technology to a local company. IAB also noted the potential of CEBAF's superconducting radiofrequency cavities as a driver for a high-power, free-electron,monochromatic, tunable laser useful to industry in applications ranging from making antistatic coatings for carpets and bonding plastic auto parts to developing synthetic skin and blood vessels. As a consequences, a Laser Processing Consortium has formed. The consortium includes DuPont, IBM, 3M, AT&T, Newport News Shipbuilding, a regional technology development center, CEBAF, and several universities. Funds are being sought to use three spare radiofrequency cavities as the key components of a 1-kilowatt free-electron laser for industrial users. This exciting technology transfer opportunity does, however, illustrate a problem common to public-private partnerships involving highly technical processes: the need for a large capital investment. Funds in the vicinity of $30 million are needed for the construction of this industrially oriented spin-off facility at CEBAF. The private sector is not willing to make such a large capital investment until it can use such a facility to test the applications from the stand-point of their technical and financial feasibilities. If the federal government were to make this investment, industry would test these issues and later construct a scaled-up free-electron laser facility at much higher power. The director of CEBAF does not envision this joint venture as anything more than an efficient means of making optimal use of CEBAF research and development capabilities, but the possibility of significant royalty streams is obvious. Technology Transfer and Cooperative Agreements DOE supports 9 multipurpose laboratories (so-called national laboratories) and in addition 12 major and 8 to 11 smaller single-purpose laboratories. The total budget for these many laboratories is $6.6 billion per year (Schacht, 1993). These laboratories represent a tremendous technology infrastructure and source of research and development in the United States. The primary mission of these various DOE laboratories is research and development according to the defined priorities of the department. Another mission, perhaps more recent in emphasis,
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is technology transfer of the products of past research and development work. This involves the transfer of existing technologies from the laboratories to the private sector. The term commonly used for this process is technology push, in which innovations developed as a result of mission-oriented research and development are pushed to the private sector if there is an eventual need in the market-place. Historically, the emphasis has been on technology push, since the laboratories have, in general, been forbidden from competing with the private sector and can offer help and assistance only when it is not available elsewhere. The laboratories' emphasis is still on the research and development mission, and so different forms of technology transfer must support but not interfere with this basic mission. Since the late 1980s, a new emphasis concerning technology transfer has arisen within the federal government (Schacht, 1993). Reflecting the change in emphasis, the DOE fiscal year 1993 budget statement emphasized the "strategic" use of the national laboratories through the transfer of technology to the private sector. Through this statement, technology transfer is to be a priority mission of every DOE research and development program. This was further refined in the fiscal year 1994 budget statement from DOE, because it emphasized the full integration of the technology transfer mission to all aspects of DOE research and development. These emphases reflect an attempt to change the technology transfer direction within DOE laboratories from the classical technology push to a perhaps more modern technology pull. DOE is struggling with the ways in which the research and development programs of the laboratories might be positioned through contacts with the private sector, to pull a desired technology from DOE work into a need of industry. Such an emphasis on technology pull is, however, fraught with difficulties, because it seems to require at least some adjustments in the stated missions of DOE laboratories. If the needs of particular private-sector enterprises are considered in the program of research and development work in DOE laboratories, then questions arise as to which industries have priority, whether the selection of one company over another would lead to market distortions, and whether the goals of the federal government and the private sector can really coincide in such intimate detail. Another concern is whether public sector needs would be neglected if too much emphasis at DOE facilities is put upon the technology desires of the private sector. These questions lead to the issue of redefining the mission of the federal laboratories to include assistance to industries as a basic goal. These issues are being debated within the federal government. Despite this continuing debate over the technology transfer mission, large changes in the mechanisms of the cooperations have occurred in the past 5 years. CRADAs were established through the Federal Technology Transfer Act of 1986, (Public Law 99-502; see Appendix B) as a mechanism for government and industry to be able to work together. The authorization to establish CRADAs at government-owned contractor-operated facilities was established by the fiscal year 1990 Defense Authorization Act, (Public Law 101-189). CRADA is a vehicle for
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cooperative work between an industry and a government laboratory, with a sharing of the costs. The laboratory may accept funds and services from the private-sector partner and may provide personnel and services (but not funds) to that partner. BNL, for example, currently has a CRADA with a private-sector partner and the goal is the development of small radiolabeled peptides for thrombus and inflammation detection. At the moment, the private-sector partner provides candidate compounds and BNL's Medical Department does the laboratory and imaging studies necessary to establish potential utility. The terms of the agreement call for the private-sector partner to provide additional personnel (or funds for such personnel) and instrumentation in the event that a promising compound emerges. A similar CRADA between the Lawrence Berkeley Laboratory and a private partner (SOMATIX) will evaluate new methods of gene therapy by positron emission tomography (PET) monitoring. Intellectual property issues are settled at the inception of CRADA. For example, inventions made by an employee of the participating laboratory may, by agreement, be granted to the participating private-sector entity. CRADAs are also sometimes used to formalize collaborations between national laboratories and private research industries for research and development funded by the Small Business Innovative Research program. In such cases, called funds-in CRADAs, it is not necessary for either party to provide direct financial support, since the projects can be totally funded through the Small Business Innovative Research program. An example of such a CRADA is one between Argonne National Laboratory and AccSys Technology, Inc., of Pleasanton, Calif., for accelerator development. A goal of this particular program is to develop linear accelerator structures on the basis of superconducting radiofrequency techniques that would lead to more cost-effective, compact machines that produce isotopes for PET. Since the development is also relevant to future DOE programs, it is mutually beneficial. The establishment of CRADAs came slowly after the legislation was passed, because the DOE took too long and wrote far too many regulations for the establishment of CRADAs (Arthur Andersen & Co., 1993). Common complaints were that the establishment of a CRADA was far too difficult and took far too long for industries to be very interested in this possibility. This criticism has led to an attempt to streamline the CRADA mechanism by DOE, to shorten the time of approval, to give more authority for CRADA establishment to the laboratory director, and to designate more DOE funds to be available in support of CRADAs. By June of 1993 nearly 400 CRADAs between DOE facilities and partners from the private sector had been signed, and the average length of the approval time was 32 weeks (Schacht, 1993). The establishment of new CRADAs accelerated in 1994. For example, Oak Ridge National Laboratory, has now entered into 130 approved CRADAs representing research and development totaling $200 million. The incentive for the laboratories to enter into CRADAs is demonstrated by
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the availability of DOE funds to support the laboratory portion of the cooperative work. In a time of shrinking budgets for basic research, the availability of funds for ''strategic" research via the CRADA mechanism is quite important. POSSIBLE MODEL FOR NBTF The earlier sections of this report have documented in detail the needs for an NBTF. The report has also discussed the difficulties that DOE has in the marketing and sale of isotopes currently produced at its national laboratories. The current DOE operation for isotope production (stable and radioactive) is not commercially self-sufficient because DOE cannot compete with the private sector, negotiate prices freely with customers, commit to long-term supply and pricing, and even control its costs. It is clear that the commercial aspects of NBTF (i.e., the marketing, distribution, and sale of radioactive isotopes) must be handled by a private company. However, it is also clear to the committee that the research and educational aspects of NBTF must be operated by a not-for-profit institution, that is, a university, a national laboratory, or some combination. This judgment comes from a concern that a private company could not dedicate its personnel and facilities sufficiently to nurture these research and educational activities, since its top mission is to realize a profit. This dichotomy leads the committee to the conclusion that a public-private partnership is essential for the operation of NBTF. As discussed in previous sections, it is not clear that current DOE regulations, the definition of its missions, and the interpretation of public laws actually allow for the establishment of a public-private partnership for education, research, and the production and sale of materials. The committee is drawn to the Canadian model, in which the private sector company, Nordion has its own facilities (cyclotrons and associated equipment) on-site at the TRIUMF facility (a national laboratory) in Vancouver. Nordion uses both its own cyclotrons and also the large 520-MeV TRIUMF cyclotron for the production of radioisotopes to be sold to their customers. Nordion not only pays the Canadian federal government for the use of space, support, and federal equipment but also returns a royalty to the national laboratory on the basis of isotope sales. This relationship is mutually beneficial, and the interchange of personnel between the two entities is amazingly seamless. The committee proposes such a public-private partnership for the operation of NBTF. Among the factors in judging a successful bid, DOE would consider the nature of the partnership with a certain national laboratory or university, the market expertise of the company in the production and sale of radioisotopes, and the proposed return of royalties from the profits on the sales to NBTF. In this partnership scenario, DOE would assume the cost of construction of NBTF, and would not seek reimbursement for this from the private-sector partner. At least as it is now envisioned, the main emphasis of NBTF is to produce isotopes not available from other sources for research, which makes it impossible to ask for
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construction funds from the private sector. NBTF would be a facility dedicated primarily to the production of a wide variety of isotopes unavailable from commercial sources, with the anticipated sale of produced radioisotopes whenever a market opportunity occurs. DOE would fund (in whole or in part) the operation of research isotope production and the educational program as part of its public research and development mission. It is clear that these research and teaching elements are crucial to the future health of the field of nuclear medicine, both in the education of new leaders and i the evolution of new techniques and radioisotopes. This funding for teaching and research on isotopes would flow from DOE through the not-for-profit partner of the collaboration. It is anticipated that royalties from the sales of materials by the private-sector partner would contribute to the operation of DOE programs. In this model, the private-sector partner would handle and be financially responsible for the production, packaging, marketing,pricing, and sales of radioactive isotopes. The for-profit partner would pay the not-for-profit partner the cost of producing any radionuclide to be sold commercially. Also, the two partners would agree on special pricing (at less than full cost) for radioisotopes produced for research at NBTF or elsewhere. The researchers themselves would of course pay some portion of those costs through their grants, as they do now, with prices most likely negotiated on a case by case basis. It is anticipated that there would be a migration of radioisotopes from the research category to the commercial product category. By this arrangement, most or all constraints that affect DOE efforts in these areas would be absent. Because of the multiple users of NBTF (in-house researchers, extramural researchers, and commercial customers), there would be an agreement between the public- and private-sector partners on the use of the beam time for the production of radioisotopes necessary for approved research programs, for the development of new techniques in approved research projects, and for the production of material for commercial uses. To make such a partnership function on a mutually profitable basis, there would need to be a strong management board that oversees the complete operation, approves the distribution of beam time, understands the financial aspects of the commercial activities, monitors the return of royalties from the private-sector partner to the not-for-profit partner, and sets the board policies for the operation of the facility. Although such a complex partnership would initially be difficult to operate, the committee believes that the model is not only necessary for the goals of NBTF but also important as a model for other federal facilities in different fields of endeavor. CONCLUSIONS The current DOE operations for isotope production (stable and radioactive) are not commercially self-sufficient because the leaders of these operations cannot:
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negotiate prices freely with customers, commit to long-term supply and pricing, compete with the private sector, or control their costs (e.g., avoid new DOE regulations with respect to waste management and remediation). The revolving fund provision of The Energy and Water Development Appropriations Act of 1990 (Public Law 101-101) has hindered rather than helped the establishment of a reliable and affordable domestic isotope supply. The TRIUMF-Nordion model in Canada is a model of a public-private partnership that is mutually beneficial to both partners. In the United States, a healthy set of partnerships exists between national laboratories and universities, primarily involving research. Successful partnerships between national laboratories and industries in research and development have also been estab NBTF is not likely to be financially self-sufficient if sales from isotopes and related services are the sole sources of funding. NBTF could be operated by a partnership of for-profit and not-for-profit organizations. Solicitations for a successful bidder from the private sector could be based partially on the proposed return of part of the profits as royalties. In this partnership DOE would pay for the cost of construction of NBTF which would be a dedicated facility; the private-sector partner would be responsible for the production, packaging, marketing, pricing, and sales of radioactive isotopes; DOE would subsidize the production of research isotopes as well as fund the operation of the production research and education programs, in whole or in part, via the not-for-profit institution; there would be an agreement distributing beam time of NBTF between production of commercial products and production of the radioisotopes necessary for approved research programs; and there would be an management board that oversees and approves the distribution of the beam time and the return of royalties from the private-sector partner to the not-for-profit partner. RECOMMENDATIONS NBTF should be operated as a user facility in the mold of current operations at national laboratories primarily in the physical sciences. The construction of this dedicated facility should be financed by government funds through DOE. DOE should encourage a partnership between one or more for-profit institutions and at least one not-for-profit institution (university, national laboratory,
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or some combination) to operate NBTF. The Canadian model of TRIUMF-Nordion is one that could be emulated in the United States. The requirement that NBTF be financially self sufficient should be removed.* Production of these promising but as yet unprofitable isotopes as well as the in-house programs of research and education should be supported primarily by DOE funds and competitive grants, with some contribution from royalties from the private partner. However, it is clear to the committee that the commercial potentials of these particular radioisotopes are limited for the foreseeable future and are certainly not large enough to allow NBTF to be supported by commercial profits. The commercial aspects of NBTF cannot be fully understood at this time. As discussed in this report, some radioisotopes produce by NBTF would be attractive to the commercial market. Others will come in the future as new nuclear medicine techniques evolve. The private-sector partner should be charged with making this determination, producing, marketing, and selling isotopes for the commercial market. Proposals for NBTF from national laboratories should be reviewed along with those from universities and the private sector. The national laboratories offer a tremendous technical infrastructure that would benefit the construction and operation of NBTF. An evolving interest and expertise in new models of cooperation with the private sector would make this potential a reality. REFERENCES Arthur Andersen & Co. 1993. U.S. Department of Energy Isotope Production and Distribution Program Management Study. Washington, D.C. KPMG Peat Marwick. 1992. Department of Energy Isotope Production and Distribution Program. Independent Auditors' Report on Financial Statements. Washington, D.C. Schacht, W. H. 1993. Department of Energy Laboratories: A New Partnership With Industry? CRS Report to Congress, No. 93-844 SPR. Washington, D.C.: Congressional Research Service, Library of Congress. U.S. General Accounting Office. 1992. DOE's Self-Supporting Isotope Program Is Experiencing Problems. Washington, D.C. * The Energy and Water Development Appropriations Act for 1995 (passed after the writing of this chapter) stipulates that the Secretary [DOE] may henceforth set fees for isotopes and related services without regard to the provisions of P.L. 101-101.
Representative terms from entire chapter: