New rule lets Hopkins, faculty invest

TRADING IDEAS FOR EQUITY

September 25, 1992|By Liz Bowie | Liz Bowie,Staff Writer

A chart that appeared Monday in the Business section incorrectly stated the amount of corporate funding the Johns Hopkins School of Medicine received for research in 1991. The correct figure was nearly $12 million.

The Sun regrets the errors.

Research from the Johns Hopkins University is likely to spawn several new companies in the coming months, largely because of a change in the rules that allows the university and the faculty to invest in those companies.

For the university and faculty members, the payoff could be big profits from companies founded on faculty research and more corporate funding for its research labs.

FOR THE RECORD - CORRECTION

For the region, the rule changes that became effective during the summer will help cash-poor start-up companies latch on to groundbreaking technology they couldn't otherwise afford and help build the region's small biotechnology industry.

Already there are five proposals before the university to form new companies based on Hopkins research.

The proposals remain confidential, but Scott L. Sherman, director of the office of corporate liaison at the School of Medicine, said four of them involve companies that would be in the Baltimore area.

"We understood this was an area of explosive growth," said Joseph Cooper, provost and vice president for academic affairs at the university. "I don't know if we expected it to happen this quickly."

However, as Hopkins shakes off its ivory tower image and begins a new era of cooperation with business, it will be walking a fine line in trying to preserve its role as a premier research institution untainted by commercial motives.

The previous, long-standing rules essentially prohibited the faculty and the university from owning stock in a company that sought to commercialize products resulting from university research.

Instead, the university relied on patents. If a professor invented a medical device or produced research that led to a new drug, the university could patent the technology. Once it had a patent, it could license the technology to a company and receive royalties.

The technique worked, but most licenses were granted to large or well-established companies outside Maryland. Start-up companies often don't have the cash to make deals that required paying royalties while they developed marketable products, Mr. Sherman said.

Under the new rules, the university and the inventor can give a company ideas or new technology in exchange for an equity stake. In some cases, a faculty member also is permitted to serve as a consultant to the company and have his research funded by the company.

The new rules encourage the formation of small companies financed by venture capitalists and based on Hopkins research. Though the risk to Hopkins is greater if it decides to invest its technology in a company rather than licensing a patent, the financial rewards also could prove greater.

"It is no secret that holding stock in a company in some cases is a powerful incentive to invent and to improve inventions on behalf of a company," Mr. Sherman said.

The change at Hopkins, which began more than a year ago when the university's leadership shifted, is considered a major step for a university that five years ago had far fewer inventions coming out of its laboratories than did other major research institutions.

A report for the Greater Baltimore Committee published a year ago showed that for every $18 million spent on research in the life sciences at Hopkins, one licensing deal resulted. At Stanford University, it was one licensing deal for every $2 million spent.

Meanwhile, the pressure for change was building.

"It is government policy to urge institutions to get the product of their research into the marketplace," said Robert M. Rosenzweig, president of the Association of American Universities.

And Hopkins receives more federal money for life sciences research than does any other institution in the United States. The medical school alone received $131 million of its $192 million in research money from the federal government.

"We do more biotech research than any other university in the United States," said William Brody, a professor at Hopkins, "so there must be the volume of research here that there is at Stanford or Harvard."

But traditionally, Stanford and the Massachusetts Institute of Technology have produced more patents, licenses and start-up companies than Hopkins has.

In addition, local business people have complained for years that under its previously restrictive policies, Hopkins has hampered the region's economic development.

They think biotechnology companies formed on research at the National Institutes of Health, Hopkins and the University of Maryland could be the basis for growth in the Maryland economy.

But Hopkins' new rules also mean that the university, like others across the nation, will be walking through an ethical mine field.

Hopkins has recognized the potential for research to be biased, for one department to be favored over another because it has produced more revenue for the university, and even for an unethical faculty member to try to influence the market for a product.

To guard against that, the university has created safeguards, including a requirement that faculty members disclose their relationship and financial holdings in a company when they publish research in academic journals.

Faculty members also must seek approval from a university conflict-of-interest committee before they can establish a relationship with a company. And the university will not be able to sell its equity in a company until a predetermined date.

Several officials of academic associations said no national norms have been established for conflict of interest. Each university appears to be struggling with the issue and developing its own guidelines, Mr. Rosenzweig said.

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