Gates on Basic Research

In his recent lecture to the senate, Bill Gates emphasized the need for the U.S. government to increase spending on basic research. Gates calls for an annual increase of 10% for the next seven years; doubling the amount spent on basic research. He feels that this is crucial in order that the U.S. remain a global technology leader.

Gates points out that industrial R&D has increased dramatically over the past 30 years, now making up for two-thirds of total R&D in the U.S. Microsoft itself invests over $6 billion in R&D annually. To a large extent this has been encouraged by the R&D tax credit, a credit which expires at the end of 2007 but which congress will most likely extend. This is of course a federal subsidy of industrial R&D.

Gates' implication is that the government pay for and manage basic research and industry manage applied research with a subsidy from the government. He states that the U.S.' current technological position as a global heavy weight is the result of investments in basic research make years ago. Although there is no doubt that the federal government spends billions in support of basic research and that industry spends twice as much on applied research, how much is actually transferred between the two? Will the transfer of ideas between academia and industry increase proportionally by doubling federal spending in basic research?

Gates' wish is that the U.S. find and commercially develop new and innovative products. His solution is to improve education, loosen immigration policy and increase R&D spending. All in the effort to produce maybe one Google. Meanwhile, Microsoft CEO Steve Ballmer is calling Google "insane" in its efforts to double their staff in the next year. Maybe, but perhaps Google is simply doing in-house what Gates is proposing the U.S. government do with tax-payer funding. Google or the government, you choose.

Bayh Defends His Act

The Bayh-Dole act changed the environment of university intellectual property when it was introduced in 1980. The act gave U.S. universities control of inventions resulting from federally funded research, gave them the right to license these inventions and earn royalties from those licenses. As a result of the act, Technology Transfer Offices at the major universities sprang up to manage and out-license the IP developed at those universities.

Some very notable tech transfers recently include Google's licensing of Stanford IP which resulted in a windfall for Stanford. This and other very lucrative deals have enticed universities into the commercialization arena, the impacts of which are receiving notice, not all of them favorable.

In an article in the January issue of The Scientist entitled The Trouble with Tech Transfer, Ed Silverman describes the tension between industry and academia with the tech transfer offices alternating between solving and causing the problems. With pressure on the TTOs to generate revenues for the university and to sustain themselves, they are often driving industry away with inflated valuations of their IP. University inventors often have exaggerated expectations; the TTO is expected to develop, commercialize and sell an idea from a single invention disclosure.

In a recent article in GenomeWeb News, one of the original sponsors of the act, former senator Birch Bayh of Indiana came to the defense of his act. Although not citing the source Bayh claimed that criticisms of the act included:

• Universities and researchers should not be entitled to financial reward because they don't manufacture anything


• It motivated universities to ignore basic research and be driven by patent royalties


• IP should not be exclusively licensed because the research is taxpayer-funded

Bayh said that before the act as much as 96% of patents were never licensed resulting no commercialized return on $30 billion in taxpayer revenues.

University TTOs are caught in the nether world between academic socialism and industrial capitalism. Before the Bayh-Dole act, the two worlds had only limited interaction; students received an education, performed some research and then went into industry never to return. With incentives to generate revenues from IP, universities are confronting the same problems confounding the former communist countries; just exactly what is the market value of IP, what is required to commercialize it, and who are these so-called competitors who are trying to devalue our ideas?

ARCA Discovery and LabCorp

Early stage PGx company ARCA Discovery and mega-lab LabCorp have announced a deal to develop and commercialize a genetic test to aid in prescribing bucindolol, a drug now under development at ARCA. As a pharmacogenomic drug, bucindolol will be prescribed only to a select patient sub-group who have shown a benefit from using the drug. Although bucindolol has yet to receive FDA approval, such an approval will be contingent upon both the efficacy of the drug in the selected patient sub-group and the ability of the diagnostic test to select those patients. Bucindolol has already undergone extensive phase III trails where was shown to be ineffective over an unfiltered patient population. However, in a subsequent substudy it was shown that patients with certain genetic variations showed significant improvement on the drug.

It's interesting to see the progression of this idea from the universities where it was first discovered, to a start-up company where its commercial potential was analyzed and promoted and now to a large diagnostic company where its commercial potential will (hopefully) be realized. It is a classic example of technology transfer and how it can be done.

Commercialization

After explaining our new software platform to Dr. James Wasmuth, a post-doc at the Hospital for Sick Children in Toronto, he asked me how we could compete with a university that may write a similar software application and offer it free as open source software. His view of the situation was that people would rather use free software than pay for software with the same functionality. His is a common view of software that is based on the assumptions that:

1. the technology is the product
   
2. the value of software is in the code

If a university group, funded by a grant, developed code that could reproduce the feature set that we as a for-profit company had also developed, they would have technology that would be comparable to ours. But technology per se does not have value in the market. Only by commercializing that technology through a product development process can you deliver value to the market. Although the university group may have employed certain commercialization methods; a snazzy user interface, documentation, etc. it is doubtful that they would have employed enough of these methods to make the software truly commercial. Universities neither cultivate the skills nor fund the efforts of commercialization and thus any attempts at commercialization would tend to fall short.

With that in mind, the simple answer to his question was "we don't." Our intent is to provide a commercial software product to the market. A product that has the full suite of commercial features such as proper documentation, high reliability and customer support and training to name a few. If we came across a university group that was developing a similar technology our strategy would be to collaborate; there must be something that they have that our product does not which could lead to licensing their technology in our product.

The second assumption is the old "factory model" of software production; software has the value characteristics of a typical manufactured good. This concept has been thoroughly debunked by Eric S. Raymond in his seminal book on open source software: The Cathedral and the Bazaar. Because software is in constant flux; expanding, adding new features, fixing bugs and adapting to new environments, it is never really "finished," you simply use a single version of a process that will continue on into the future. The value of a single static version of that code is small, what is of much more value is the ability to have access to the continuing process of development.

Applied Research

In contrast to basic research, applied research is directed toward a specific goal; a solution to a problem. Whereas basic research's mission is the advancement of knowledge, applied research is intended to answer more specific questions. Nevertheless, applied research is still "research" in that it is required to explore new areas of knowledge in order to fulfill its stated goal. Applied research does not imply that the target solution will be found; there are often unforeseen obstacles in reaching the target. However, with a specific target directing the effort there is a higher likelihood of obtaining the goal than with a basic research project.

Applied research fits between basic research and an engineered project. An engineered project has much of the obstacles well defined before the project begins. Although a bridge may never have been built in a certain area, the bridge building technologies and processes have been well developed and don't usually involve large amounts of unexplored territory. Drug development can be considered applied research because it starts with the target of creating a certain response in humans but may also have many unknown effects which are found along the development process.

Basic research is conducted primarily by non-profit research organizations, i.e. government labs and universities which do not require a commercial product as the end result of their efforts. Government agencies may fund basic research at for-profit companies, however, for-profit companies often find it difficult to fund basic research since the profit motive precludes the unfettered advancement of knowledge in favor of advancement of knowledge about an area that may discover a profitable product.

Non-profit research institutions often engage in applied research, sometimes as an extension of knowledge or experience gained through basic research. Because of the experience gained though their basic research, the institution is many times the best qualified to carry out the applied research. However, although they are both considered "research," the skills and processes involved in carrying out basic and applied research are quite different and an institution adept at one may be equally inept at the other. Institutions that are skilled at basic research can resolve this deficiency by transferring their technology to a commercial enterprise who will direct the knowledge obtained from the basic research toward a commercial product. Again using drug development as an example; a research institution may discovery a technology, biological target, novel compound or gene through basic research and transfer this knowledge to a company that will use this knowledge to develop it into a drug for treating disease. Although the discovery of the knowledge is a critical part of the process, it is by no means a certain commercial success. Conversely, a company adept in moving an existing discovery through the drug development process in an efficient, consistent manner may spend many years and millions of dollars trying to come up with a single new discovery. This points to one of the many instances of where creativity and productivity often clash.

Basic Research

This is where is all begins; from the creative minds of scientists allowed to pursue their ideas, hunches, dreams, etc. The main mission of scientific research institutions is to conduct basic research; research whose goal is the advancement of knowledge. It is a creative and exploratory process that is motivated by the curiosity of the researcher. Basic research is conducted without a targeted end point; it proceeds from one discovery to the next without a firm idea of what the next discovery will be. Nevertheless, basic research often uncovers new inventions that may have practical applications, applications that may even become commercial.

The process of conducting and funding basic research at an academic institution follows a cyclic pattern: the generation of ideas, grant submission and funding, research, publication of results which leads to the generation of more ideas and the cycle continues. Due to the close relationship between university research labs and the government granting organizations, and the entrenched processes the support the cycle, this cycle can continue as a virtually closed system. The bill, however, is picked up by the taxpayer, a taxpayer who may be interested in where all this money is going. This leads to two ways out of the virtuous (vicious) cycle:

1. The government granting organizations want to provide some sort of metric for demonstrating the benefits of their work.
2. The research organizations want to generate revenues from sources other than the granting organizations.

Although numbers of publications and/or patents are metrics that are often used to measure the productivity of research, they fall a bit flat to the general public. What the public seems most interested in are: jobs and products. If research can generate jobs and the corresponding revenues and/or produce products that are useful to society, the general public will support the spending programs.

The virtuous cycle of grant writing, research and publication is well trod and fairly reliable, the path of technology transfer is much less so. Although there have been attempts to provide ways of funding this path, it is nevertheless fraught with risk. And, for most researchers, embarking on the tech transfer path may mean a reduction in their research productivity; something most researchers that have worked hard to build a reputation are loath to do.

Technology Transfer I

Technology transfer is the process of transferring a body of knowledge or specific technology from one entity to another. No big deal, this happens every second of every day, in fact it is happening now as the knowledge of this blog is transferred to your brain (or, if you're a Web crawler, this is being transferred to a search engine's database). However, in the official definition, tech transfer is the transfer of technology developed at a scientific institution as the result of their research efforts, to a commercial organization for the purposes of commercializing the technology into a product or service that has value to a larger market. Fundamental to this process is the concept of core competency; a scientific institution's core competency is research and a commercial company's core competency is developing and marketing products and services for profit. Since many scientific institutions are non-profit, employing commercialization resources is not within their mission and therefore must be outsourced.

Exactly where this division between research and commercial is is not clearly defined; during economic periods of growth research can be transferred at an earlier stage of development than during periods of slow growth. This amounts to the ability of the commercial entity to accept risk; during periods of slow growth the capital markets are tighter and have a lower tolerance for risk. Research laboratories that receive the majority of their funding from government sources are not as sensitive to economic cycles, in fact their funding usually increases during periods of slow growth (recessions) due to government fiscal policies.

In general the capital markets determine the point at which the technology is commercializable. Research laboratories use a variety of methods to promote their technologies including forming relationships with entrepreneurs, venture capitalists and spinning off their own entrepreneurial efforts. Some university systems have technology transfer offices set up to facilitate this process. The bottom line is; no one has a formal process at this point, it's much more an art than a science. One thing is clear: research organizations in the U.S. are sitting on huge amounts of valuable intellectual property; their ability to translate this property into capital rests on their ability to successful transfer the technology.