March 21, 2019

Innovation’s Late, Great Champion


American innovation leadership owes a tremendous debt to United States Senator Birch Bayh (IN), who passed away on March 14, 2019.  Together with Senator Robert Dole (KS), Birch co-sponsored the eponymous Bayh-Dole act. The Act assigned the property rights to innovations born of federally-funded research to those entities that carried out the research.

The U.S. federal government funded $44 billion of basic research in 2017, according to the National Science Foundation; the vast majority of that research was carried out by American universities. What happens with the research that universities conduct on behalf of the federal government? With proper investment, that research has made the US the leading provider of medicines – but this wasn’t the case until 1980.

“Bayh-Dole” as the law is colloquially known was drafted in response to widely-held concerns about the commercialization of technology developed with public funds. That is to say, policymakers were concerned that federally-backed technologies were not being “commercialized,” i.e., developed into real products that could reach real people. Instead, discoveries sat on the shelf, caught in a trap between the basic scientific research funded by the government and the applied science or “research and development (R&D)” more typically carried out by the private sector. This trap became known as the Valley of Death.

Before Bayh-Dole, the rights to develop government-funded research were made freely available to the public through non-exclusive licenses. Available to all, it too often turned out, meant commercially valuable to none. This was because the basic scientific research funded by the federal government, while critical in reaching scientific breakthroughs, was insufficiently developed to produce a product in a form that could reach an end-user.

For that to happen, private sector investment in research and development was needed, often in substantial sums and with considerable levels of risk in unproven technologies. Only the re-assignment of private property rights through a licensing agreement between the researcher and the private developer could make that bet commercially viable. The case of the bio-pharmaceutical sector is exemplary – pre-Bayh-Dole, a Senate Judiciary Committee investigation found that not a single new drug was commercialized under the old system where the federal government staked claim post-discovery. Lacking the incentive of ownership rights, there was no mechanism to transfer discoveries from the basic science stage to the R&D and commercialization stages.  Consequently, more than 28,000 publicly-funded inventions remained on lab shelves – wasted potential to cure diseases, save lives, and fuel further innovation.

In response to this dilemma, the Bayh-Dole Act grants title and commercialization rights to inventions made with federal funds to the small businesses, universities, or other non-profit institutions that carried out the research. Additionally, a related presidential memorandum made all involved federal government contractors eligible of title as well. Granting rights to these organizations and individuals provided the critical incentive for continued investment in innovation where the federal funding left off.

Bayh-Dole has provided life-saving returns on this national investment. Since its enactment in 1980, over 200 drugs and vaccines have been developed and released through the public-private partnerships fostered under the Act. The benefits of these partnerships is evidenced through public universities who are keen on partnering with the private sector; 70% of their innovations fuel start-ups and small businesses.

Today, the relative share of U.S. basic research funded by the federal government is at less than 50 percent, with academia and business picking up an ever greater share; private business has long carried the bulk of the cost of the nation’s R&D and commercialization costs.  Nevertheless, critics who have forgotten the lessons of the past are calling for the government to step in and assert rights to the discoveries made through research funded by public dollars.

Those demands ignore the reality of the basic research-R&D-commercialization continuum. The federal government receives a return on its investment in basic research from the expansion of knowledge as well as strategic know-how and capabilities that are critical to the national and economic security of the United States.  In particular, as the largest driver and seed-funder of basic research, the United States government focuses the overall ecosystem in the direction of its own military, economic, environmental, and social priorities.

Federally-funded research plays another important role by “de-risking” areas of technological exploration, effectively channeling follow-on private sector investments to areas that may be ripe for commercial development. Those follow-on investments are anything but a sure bet, though – only one in ten new medicines developed by the private sector succeed upon entering clinical trials. The medicines that do make it to patients require an average 10 years of development and $2.6 billion invested – all after federal research has left off.

With this system in place, the United States ranks highest in global drug discovery and production, a title previously held by Europe.  American businesses are producing more than half of the new medicines available today, and American patients have access to more new medicines than patients anywhere in the world. The incentives provided by Bayh-Dole are hard at work and are necessary to guarantee that American researchers continue investing in cures.

Thank you, Senator Bayh, and Godspeed.

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