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Growth
without sprawl
U.Va.'s research boosts biotechnology, an inudstry that
preserves the area's rural charm.
Related
link:
Publisher's profile:
Hantzmon, Weibel & Co.
by
Jack Milligan
For Virginia Business
December 2003
Deep
in the heart of the Piedmont’s horse and hunt country
is a growing industry that seems tailor made for an
area that wants the economic benefits of growth, but
not the sprawl. After all, in Charlottesville and surrounding
Albemarle County, residents cherish their pastoral views,
winding country roads and small town way of life. They
don’t want the kind of over development that has
gobbled up rural areas in other parts of the state.
So
what could be better than an industry that attracts
few outsiders, requires little space, preserves those
beautiful Blue Ridge vistas and utilizes the community’s
most important resource — the University of Virginia?
About 50 biotechnology companies have sprouted in recent
years, byproducts of some of the university’s research,
making Charlottesville one of the most dynamic biotech
magnets in the state.
This growing reliance on the commercialization of research
has produced companies such as Adenosine Therapeutics
LLC, a leading developer of adenosine compounds used
to prevent inflammation associated with heart attack
and vascular disease. Founded in 1999 by U.Va. professor
of cardiovascular medicine Joel Linden and entrepreneur
Robert S. Capon, the company illustrates the economic
potential of biotech. In 2000 it partnered with pharmaceutical
giant Dupont Pharmaceuticals Co. to pursue the development
and use of its compounds in the diagnosis of coronary
artery disease, one of the nation’s biggest killers.
Then in September, the company received an undisclosed
amount of venture financing from Rockville, Md.-based
Emerging Technology Partners. The money provides two
years of capital and will enable it to conduct clinical
trials on two of its compounds.
With
biotech a growing sector in Virginia’s economy
— the state is home today to 170 life science companies
that have attracted nearly $1 billion in investment
over the past two years — Charlottesville’s
decision to push biotech seems right on the money. The
beauty of the strategy is that it preserves one of the
community’s greatest assets — the tranquil
beauty of its rural countryside — while leveraging
another, the world-class research coming out of U.Va.
In an “ideal world,” muses Robert De Mauri,
executive director of the Charlottesville-based Thomas
Jefferson Partnership for Economic Development, research
ideas coming out of the university would be commercialized
by firms that would stay in the Charlottesville area.
“It would be a long-range model for building the
[local] economy from within,” he says.
Yet,
even in an imperfect world, U.Va. is driving the development
of a biotechnology industry. Through its University
of Virginia Gateway program it helped start the Virginia
Piedmont Technology Council, which has about 150 member
organizations. Recently, it opened a second research
park eight miles north of Charlottesville in Albemarle
County. This facility — known as the University
of Virginia Research Park — has two buildings,
including a 41,000-square foot laboratory called the
Emerging Technology Center. Recently the university
relocated a surplus nuclear magnetic resonator to the
facility — a great boon to researchers there.
Of all the growth strategies, however, perhaps none
is more important than the university’s Patent
Foundation, which helps faculty members become entrepreneurs.
Under Executive Director Robert MacWright, the foundation
has labored to build a system that distills research
into living, breathing companies.
During
fiscal 2002, the foundation filed more than 150 patent
applications, negotiated 37 licensing deals and collected
over $3.8 million in licensing fees and royalties. Of
this amount, $846,974 was returned to U.Va.’s faculty
inventors and $1.3 million to the university itself.
Once
a member of U.Va.’s faculty discloses an invention
to the foundation, MacWright’s team performs a
patent search and evaluates its commercial potential,
then files a provisional patent application, which protects
the technology for one year. Eventually the foundation
may license the invention to a company that will develop
a commercial application. With nearly 60 percent of
the university’s inventions coming from its medical
school, biotech accounts for the foundation’s single
largest sector. “I think Adenosine Therapeutics
is a very nice example of what happens if we provide
support to young companies,” says MacWright.
Since
its inception in 1978, the foundation has generated
nearly $58 million in licensing revenue and returned
$27 million to the university — a modest sum for
an institution with a 2003-2004 budget of $1.5 billion
and an endowment of $1.7 billion. More important, perhaps,
is the $11 million in royalties the foundation has paid
faculty inventors over the same period. It’s the
price every major university must pay to attract top
research scientists. “It’s an ordinary part
of academic life today to think about whether your research
could be patented and commercialized,” says MacWright,
a patent attorney who also has a Ph.D. in biochemistry.
“Having a program like this is important in faculty
recruiting and retention.”
Since
his arrival five years ago, MacWright has had to win
over a hostile U.Va. faculty, which thought the foundation’s
policies were too rigid. “The source of his intellectual
property is his professors,” says Virginia Piedmont
Technology Council Chairman Brian Wright, who is also
a local patent attorney. “I see evidence that he’s
trying to build a better relationship with them.”
Wright says the foundation has become more flexible
under MacWright, although one criticism he still hears
is that it demands too big a royalty — 5 percent
or more — when it negotiates licensing deals. This
causes problems later when the company seeks venture
capital, since many VC firms see this royalty as a strain
on their cash flow, and walk away. “The Patent
Foundation needs to change a little more in this regard,”
says Wright.
Indeed,
many faculty inventors aren’t content to sit back
and collect royalties, but want to form companies to
commercialize their technology. “As we started
to do this, we pretty quickly realized that the faculty
didn’t know where to begin,” says MacWright.
Often the foundation found itself helping faculty members
write business plans, raise seed money and find attorneys
and accountants. So two years ago MacWright formed a
for-profit subsidiary — Spinner Technologies —
to assist faculty with the business aspects of licensing
their technology. Rather than a fee, Spinner receives
equity in companies it helps start.
Recently
the foundation spent $150,000 to build two 1,000-square-foot
labs at the Emerging Technology Center. Two small biotech
companies, including Adenosine Therapeutics, have located
there. They pay the base rent set by the research park.
The foundation — which is amortizing the cost of
building the labs over a 10-year period — levies
an additional charge equal to one year’s amortization.
The companies don’t actually pay the charge in
cash, but carry it on their balance sheets as debt.
MacWright hopes that other U.Va.-spawned companies will
locate there.
Charlottesville’s
biotechnology industry will grow faster if a significant
number of companies decide to relocate there. Yet some
knowledgeable people don’t believe the area has
the necessary infrastructure for that to happen now.
“We don’t have all the things these companies
need to flourish,” says Wright. “And I don’t
think that the university can provide all of that.”
Charles E. Hamner, chairman of the Patent Foundation
and former head of the North Carolina Biotechnology
Center — which focuses on economic development
and education in that state’s Research Triangle
—says these basic elements must be in place for
a biotechnology industry to thrive: a strong research
university, abundant funding through a company’s
entire life cycle and service companies that sell supplies,
run clinical trials and fix things when they break.
“The stronger the infrastructure, the better off
you are,” says Hamner, who is advising the university
on its biotech effort. “And you need a complete
infrastructure to make it work.”
In
his opinion, service and financing are the weakest elements
of Charlottesville’s infrastructure. “It’s
hard for smaller communities to have all the service,
support and venture capital funding that they need,”
he says. The community, however, is making progress.
Virginia Gateway Executive Director David Kalergis says
a local network of service and support companies is
beginning to take root in Charlottesville. As examples,
Kalergis points to Biotage LLC (recently acquired by
the Swedish research company Pyrosequencing AB), which
provides small-molecule drug discovery purification
systems to the pharmaceutical industry, and Upstate
USA Inc., a supplier of reagent products and services
to scientists doing cell-signaling research.
“The
infrastructure is here more than people think it is,”
says Kalergis. “If someone wants to build a biotech
company here, they can.”
A stronger flow of deals out of the university would
give a significant boost to the community’s biotech
industry. Although there are venture capital firms located
in Charlottesville, most of their funds go elsewhere.
More deals would entice them to look closer to home,
while stimulating growth in the service sector.
MacWright
remains optimistic, and is encouraged by discussions
about the university, providing Spinner with funding
that it can disperse to help start-up companies. And
he continues to build bridges with U.Va. faculty. “I
think Charlottesville can be as successful as Boston
and Silicon Valley, but in proportion to its size,”
he says. “I tell people that my goal is to license
every invention that comes out of U.Va. without making
a toll call.”
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