Spring 2015 Bulletin

Replenishing the Innovation Pipeline: The Role of University Research

New Models for U.S. Science and Technology Policy

On February 3, 2015, John L. Hennessy (President of Stanford University and the Bing Presidential Professor), Ann M. Arvin (Vice Provost and Dean of Research, Lucile Salter Packard Professor of Pediatrics, and Professor of Microbiology and Immunology at Stanford University), Carla J. Shatz (Sapp Family Provostial Professor; David Starr Jordan Director, Stanford Bio-X; and Professor of Biology and of Neurobiology at Stanford University), and Peter S. Kim (Virginia and D. K. Ludwig Professor of Biochemistry at Stanford University and Member of Stanford ChEM-H) participated in a discussion at Stanford University about the role of university research in the innovation pipeline. The program, which served as the Academy’s 2015th Stated Meeting, included a welcome from Jonathan F. Fanton (President of the American Academy). The following is an edited transcript of the presentation.

John L. Hennessy

John L. Hennessy

John L. Hennessy is President of Stanford University, where he also holds the Bing Presidential Professorship. He was elected a Fellow of the American Academy in 1995.

The Academy has for many years played a major part in shaping the intellectual landscape of our country. The recent Academy report Restoring the Foundation: The Vital Role of Research in Preserving the American Dream is a call to action, presenting in clear terms the need for a sustainable and competitive investment in the research ecosystem in the twenty-first-century United States. The report begins with three important findings: The first is that the nation’s investment in science and technology was the dominant driver of economic growth, security, and vitality for the United States in the twentieth century. Second, the report showed that in just twenty years, from 1992 to 2012, the United States moved from second in the world among developed countries in R&D spending as a percentage of GDP to tenth. And the third major finding is that that declining investment has led the United States to lose its global leadership in science and technology research, creating an innovation deficit between the leadership position we aspire to and the weakened position we find ourselves in today. The question is: what can we do about it?

Restoring the Foundation answers with three prescriptions. The first prescription is to resecure America’s global leadership in science and engineering research by providing sustainable federal funding as part of a clear long-term government investment goal. In particular, the federal government needs to fund basic research, which, as we know, has been the source of many unintended, profound, and widely beneficial advances in our nation’s development. For the last two decades, adjusted for inflation, federal funding has remained stagnant. We need to return to the historical growth rates of between 3 and 4 percent of GDP invested in research and development. Second, the report prescribes that we ensure that the American people receive the maximum benefit from federal investments in research. We need to enhance the ability of our governmental organizations to tap into university and research enterprise knowledge to make better policy. We must also elevate science and technology issues in the minds of the American public, thereby increasing awareness of the negative consequences of federal disinvestment. The third prescription is to regain America’s standing as a leader in innovation by building a more robust research partnership between industry, government, and universities. We need to improve upon our intellectual property policies and remove the barriers that prevent industry from translating research breakthroughs into new technologies.

Today, we are going to talk about that research and innovation pipeline; how we can initiate the process of replenishing it; and the role of universities in the development and application of new technologies.

Ann M. Arvin

Ann M. Arvin

Ann M. Arvin is Vice Provost and Dean of Research, Lucile Salter Packard Professor of Pediatrics, and Professor of Microbiology and Immunology at Stanford University. She was elected a Fellow of the American Academy in 2012.

How can Stanford and other research universities be most effective in this effort to replenish the innovation pipeline? Research universities fill a unique role in the U.S. research and development enterprise. According to the National Science Foundation, university researchers perform 54 percent of the basic research, 19 percent of the applied research, and 2 percent of the development done in the United States. Clearly, the research university’s greatest contribution to the innovation pipeline is in basic and applied research. There is no substitute for the university’s commitment to individual faculty and their efforts to do discovery-based research. We need to trust the knowledge and creativity of our colleagues and create an environment that allows them both to take risks and compete for outside funding, which is what actually funds most university research. The corollary to that is that there really isn’t any substitute for federal research funding. There is no other source of money that can cover the needed investment.

What are some strategies for universities to contribute and support innovation? Investing in researchers at the earliest stages of their careers is a wonderful model for fostering innovation. As the report shows, young researchers face daunting challenges: the percentage of academic researchers under the age of forty who are funded by the NIH has steadily declined since 1980, while the percentage of funded researchers over sixty has steadily grown. Young researchers must have the independence and opportunities to take the risks that can lead to breakthrough research, afforded by obtaining their own research awards. This is one of the most important principles about research funding. Further, helping young researchers compete should encourage older researchers to maintain innovative programs: they cannot rest on their laurels and be assured continued funding. This competition and mixing of generations, achievable when the research investment is adequate, clearly drives the creativity that leads to research breakthroughs.

Additionally, we have seen at Stanford that encouraging research across disciplinary boundaries sparks innovation. (Carla will speak more to this strategy and our experiences implementing it at Stanford.) We also know that twenty-first-century science requires the university to invest in state-of-the-art shared facilities; the days of a single researcher at the bench, looking through his or her microscope and producing revolutionary science, have essentially passed. We need shared facilities to foster collaboration and to pool intellectual and funding resources. We must also improve on our efforts to engage students at the earliest levels and across diverse student populations. By demonstrating that people from all backgrounds can thrive as researchers, students who otherwise may not have considered research may be encouraged to pursue it; and the entire enterprise will benefit in the future from the diversity of their perspectives and contributions.

I believe that to replenish the innovation pipeline we need, above all else, to reinvest in the approaches and structures that we already know to be highly successful in fostering creative thinking. But what then of our partnership with industry? Stanford historically has never been an ivory tower. Apparent in the early documents of the university, Stanford’s mission has always been to transfer knowledge for the public good. And if the university is to do that, it is necessary to work with industry partners. Successful partnerships between Stanford and industry have included sponsored research contracts, funded collaborations, technology licensing, student internship programs, shared specialized facilities, industry affiliates programs, and faculty consultation with the private sector, which also transfers knowledge from industry back into the academy. So, in light of all of this, is there really much more that needs to be done?

Universities and private companies are fundamentally different. Universities are open environments that encourage free exchange of ideas via the publication process. Companies are closed; research in companies is proprietary. Universities are decentralized, whereas companies, by necessity, have a central control. In universities, faculty define the research agenda, and research is largely performed by trainees, who, in stark contrast to companies, are not employees. Research universities preserve their nonprofit status, while private-sector research is funded by the company and is therefore accountable to its shareholders. But these differences are strengths. University researchers ought not ask how they can make their industry counterparts more like them; just as industry researchers ought not think that academics are disorganized dawdlers. Rather, each group should have an appreciation for the need the other serves, and each should envision how they can best join forces to expand scientific discovery and its application – the foundation of which is communication and interaction.

How can we promote interactions? Convening in a neutral environment that invites people from companies to talk about science and technology topics, especially those of immediate concern to the private sector, certainly encourages informal and productive interaction. Universities can designate funds, as Stanford has, to help faculty bring their research closer to a proof of concept that would more readily attract companies. University contracting processes, intellectual property licensing processes, and other kinds of more formal interactions certainly can improve. We would also like to engage with companies about how they could better support basic research at universities. Our model for this is the Global Climate and Energy Project (GCEP), which is a consortium of companies that pools funds to be distributed to researchers based on peer review. The fund welcomes faculty-researcher applicants from beyond Stanford.

These are ways in which companies and universities might be able to think more broadly. Certainly the process will require us to go out on a few limbs, but to quote Will Rogers, “that’s where the fruit is.”

Ann M. Arvin

Carla J. Shatz

Carla J. Shatz is the Sapp Family Provostial Professor; the David Starr Jordan Director of Stanford Bio-X; and Professor of Biology and of Neurobiology at Stanford University. She was elected a Fellow of the American Academy in 1992.

In many ways, Stanford is quite lucky: it has established a framework that allows for remarkable innovation, often marrying fundamental research with both applied research/engineering and clinical research. These three areas are often isolated at universities; but when they intersect and become wedded to each other, incredible discoveries and public benefit can result.

That is the theoretical foundation of Stanford Bio-X, the interdisciplinary center I direct. As you may already know, the X in Bio-X is a variable: let X equal chemistry, physics, electrical engineering, computer science, medicine, psychology, or even law. It can encompass the life sciences, clinical sciences, and physical and engineering sciences. And Stanford is especially well-positioned to foster crossdisciplinary interactions: all these different academic disciplines physically neighbor each other on the same campus. Bio-X operates on the belief that maximizing interactions will maximize innovation. And we aren’t alone in that belief. Last year the National Academy of Sciences held a meeting on what they called convergence, which is, perhaps, the East Coast way of labeling the intersections of disciplines that Bio-X operates in. It’s an idea that is generating a lot of excitement.

Bio-X has a number of funding mechanisms to encourage innovation and interaction across disciplines, which brings us back to the idea of competition for resources. We have an open-competition fellowship program that awards funding to between ten and twenty PhD or M.D./PhD students every year. Fellows must work with at least two mentors across disciplines/departments, creating a network of mentorship and an expansion of training. We also have seed grants to fund about twenty teams of faculty researchers every other year. In an open and vigorous competition, about one hundred fifty teams usually apply for these seed grants, representing more than fifty departments across six schools within the university. And the applications are extremely diverse. Over the last fourteen years, we’ve held seven rounds of competition, awarding about one hundred forty of these seed grants. And over this period, the Bio-X collaborative seed grants have driven the number of interactions between faculty of different disciplines, between the schools, and between faculty and students to expand exponentially. The seed grants have constructed a horizontal web of interactions between faculty who would ordinarily be enclosed in their departmental silos. Of course, this model can only be as effective as the excellence of the faculty allows. But one builds on the other: great faculty enable fruitful crossdisciplinary interactions, and those interactions build stronger faculty.

So in what fields, specifically, can these methods help replenish the innovation pipeline? Let me give you an example. Wouldn’t it be amazing if, just by shining light on a cell or a few cells in your body, you could make those cells take action? For example, if you had diabetes, what if you could compel the pancreatic cells to release insulin just by shining light on them? Well, because of an amazing discovery made by Stanford faculty member Karl Deisseroth, we’re beginning to open up this incredible world. Karl figured out how to genetically engineer parts of certain proteins to be light-sensitive, just like the rods and cones in your eye. But the proteins do not merely capture the light; they transfer the information to the cells to make them do their job. When Deisseroth first conceived of this idea, he wrote two NIH grants in close succession, and the NIH reviewers replied, “Wow, that would be extraordinary if it worked, but it likely won’t work, so we’re not interested in funding it.” What could he, an early-stage assistant professor, do? Fortunately, Karl applied for one of the Bio-X seed grants; and we thought his application was amazing. Bio-X helped fund Karl during the riskiest stage of his research, and this work led to crossdisciplinary collaboration, which led to more collaboration, leading to student fellowships and crossdisciplinary training in engineering, medicine, and neuroscience, before he received significant NIH funding. By now I think Karl has founded a company to build off of and apply his work, and who knows where it’s going from there.

Karl’s story illustrates how investing a small amount of money – in this case, $150,000 over a two-year period, which might pay for a student or a postdoc and some lab supplies – can generate a legacy of amazing resources and launch the new field: optogenetics. The demand to learn how to do optogenetics is great, and Bio-X and Karl have launched an optogenetics innovation training lab where people not only at Stanford, but from all over the world, can come and learn the technology. Critically, the training lab is helping to spread the technique long before you can buy it off the shelf. And yet, in the traditional model, no one would have funded Karl’s work; they just didn’t think it was possible. A core purpose of Bio-X is to fund high-risk, high-reward projects. Many will fail, but if funders do not take these risks, society won’t benefit from the revolutionary few that succeed. Let me conclude with two questions: Who else will take that risk? And what could the future hold if the U.S. government were to apply this model, which Stanford has shown can succeed on a small scale, to the national research enterprise?

Peter S. Kim

Peter S. Kim

Peter S. Kim is the Virginia and D. K. Ludwig Professor of Biochemistry at Stanford University and a Member of Stanford ChEM-H. He was elected a Fellow of the American Academy in 2008.

I started out as a faculty member at MIT before moving to Merck, where I oversaw drug discovery and development for twelve years, and am now back in academia. I thought that I would begin by reflecting on my experiences and the interaction between academia and industry, which is so crucial to the third prescription of the Restoring the Foundation report: to regain America’s standing as a world innovation leader by establishing a more robust government-university-industry partnership. I will focus on drug discovery; but let me state upfront that there are, of course, many other types of interactions between industry and academia.

The first thing I’ll say is that discovering and developing a drug is incredibly hard. And it wasn’t until I actually went to Merck that I fully appreciated this essential point. Let’s put it in perspective: if you have a new mechanism of action, and you’ve tested that mechanism completely in animals, and you have a drug candidate that now passes all tests for toxicity, and you can apply this mechanism to a human being, the probability that your molecule will become a drug is still much lower than 10 percent. Such a high probability of failure means risk is inherent to the business. Further, the process of developing, testing, and releasing a drug takes about twelve years, which obviously is an enormous amount of time to invest into a project with a very low probability of success. Which leads to my third point: developing drugs is very expensive. According to the Tufts Center for the Study of Drug Development, if you include the cost of failure, it costs an estimated $2.5 billion to discover and successfully develop a single drug. In sum, the process is extremely risky, time-consuming, and expensive.

One major observation that I would make is that there’s a significant disconnect between the perceived value of discovery in academia and the value of discovery to drug manufacturers. In academia, we of course want to be the discoverer, the pioneer of a new program; and we believe that when we accomplish this very difficult task, we have contributed something of high value. But from the industry’s point of view, the probability of successful application of what you’ve discovered, ingenious though it may be, is stunningly low. And given that it takes twelve years to bring to market a successful drug, the one- or two-year head start you bought for yourself as discoverer is not that big of a deal. Further, the sort of chemistry that is addressed in most academic centers is really quite primitive compared to the medicinal chemistry undertaken by these huge departments in pharmaceutical companies that are expert at refining an initial small-molecule lead to make a drug molecule with desirable characteristics. So the initial leads are usually not considered to be of much value. Being first isn’t important, being the best is. To put that into perspective, Lipitor was the fifth drug to join the statin class of drugs; this multibillion dollar success for Pfizer was not close to being the first molecule to come to market in that category, but it prevailed. Clearly, the premium of being the discoverer, which is so important in academia, is much less important in industry.

What are the potential solutions to this disconnect? Well, one that I have seen with increasing frequency and that is really quite admirable is for academic researchers to carry their project further, past the point of discovery. Either in academia or through a start-up company, researchers can further develop and increase the value of their initial discovery, while at the same time taking on the risk of the high probability of failure. But I thought I would bring up another possible solution, which I tried to push when I was at Merck: to recognize that the value of a strong partnership is not so much in the initial discovery, but rather in gaining – through academia – the opportunity to work with the world’s experts in a particular field. Companies don’t employ the leading researcher in each and every field that their research and development happens to touch on. Thus, the deep and highly specialized subject-matter expertise of university faculty is valuable to a company attempting to develop a new product. The value of industry to academia, then, is to connect researchers with experts in fields in which they may not be familiar, such as medicinal chemistry, drug metabolism, animal toxicity, formulation science – topics often considered boring by the academy, but which are absolutely critical to bringing the product to bear.

And for these relationships to blossom, they must be true partnerships when it comes to intellectual property. Inventorship – meaning the people who are listed as inventors on patents – is defined by law. Thus, with intellectual property, you either have an inventor who satisfies the requirements for being an inventor, or you do not. Ownership of intellectual property, by contrast, is completely negotiable. The best university-industry collaborations that I have had experience with specified that any new intellectual property would be co-owned, regardless of who came up with the invention. This eliminates any question of who will most profit from an invention. It also opens the doors of communication and reduces the incentive to be secretive with the other party

Finally, I would like to reflect on the issue of exclusivity versus nonexclusivity in the interactions between inventors and universities. I am not talking about broad-platform technologies; there are some inventions that we would all agree should be licensed on a nonexclusive basis so that the whole world can benefit from their uses. But sometimes it’s not so clear, as with specific enabling technologies; or in the case of drug discovery, with specific drugs or specific targets. Understandably, universities want to maximize the value they get from the invention, while also ensuring that the invention doesn’t get buried or stuck because it has been exclusively licensed to a party that, for whatever reason, does not or cannot develop it. These considerations would appear to favor a nonexclusive licensing strategy. But I want to stress the importance of capitalizing on a highly motivated inventor. A highly motivated inventor can really push an invention forward with very positive consequences for the university, investors, and society. And oftentimes, the best way to capitalize on a highly motivated inventor is to grant an exclusive license. Which begs the question, how do you structure an exclusive relationship that is responsive to the perfectly legitimate concerns of all involved parties? It is a difficult question to answer; I note that university offices of technology licensing do try to carve out a specific area of exclusivity, allowing alternative licensing options to the university. Less common are diligence clauses with real teeth, specific enough to allow a university to take aggressive action if the licensor does not actually invest appropriately, or if the investor does not hit certain milestones.





John L. Hennessy


Ann and Carla, you both touched on innovation and the willingness to take risks, and there is a broadly held feeling that NIH has become much more conservative over time, and that they are failing to invest adequately in young people. What can we do about that fundamental problem?


Ann M. Arvin


I think the core issue is that there is not enough money to support the whole research enterprise. If you create a situation in which peer review is no longer relevant, essentially because a study section is reviewing one hundred proposals, five of which it can fund, it becomes impossible not to become more conservative and selective. Funders are forced to look for the sure thing, or whatever comes closest. So I think the conservatism that we’re seeing is a direct consequence of the pressure that is put on the peer-review process by limitations in funding.


Carla J. Shatz


Universities are trying to supplement the funding of young faculty who are just getting started; we see this in the escalation of start-up packages that allow young investigators to take off. When it comes to discovery-based fundamental research, which is often the beginning of the innovation pipeline, we rely on research entities like the Howard Hughes Medical Institute or, in Europe, the Burroughs Wellcome Fund and Max Planck Institute, which actually reward people for taking risks – it is part of their tradition. But they can only fund a few hundred investigators. And Ann has outlined the limitations of NIH. So there seems to be a need for another resource, a competitive resource that could fund the kind of discovery-based research that we believe is necessary for the beginning of the innovation pipeline.


Peter S. Kim


The NIH Director’s Pioneer Award is a good example of funding high-risk, high-reward research; it’s very limited, but it’s a step in the right direction. In fact, NIH could shift toward a more Howard Hughes–like funding model, in which the investigator, not the project, is judged and funded or not.


John L. Hennessy


One of the most stunning graphs in Restoring the Foundation shows the doubling of the NIH budget, followed by a precipitous drop. Essentially, over the last fifteen years, the doubling made no difference in terms of federal basic research investment as a share of GDP. Given such reversion and long-term failure, do we need a new national policy for research investment? Wouldn’t we be better off with a national policy that grows the country’s investment in basic research in proportion to GDP growth, at sustainable and competitive growth rates? Do we actually benefit from dramatic funding surges if regression is inevitable?


Carla J. Shatz


I think we could all agree that a long-term plan would be good. The idea of trying to run a research enterprise without knowing what your budget will be next year, even if you have a five-year commitment from the NIH (which at any year may be cut due to budgetary problems), is absurd. You can’t run a high-quality, sustained research enterprise with such unpredictable and oscillating funding. You certainly would not run a business that way. And junior researchers especially suffer from this instability. Without career-development awards, young researchers struggle to even get started; yet we know early researchers often contribute some of the most important work in their fields.


John L. Hennessy


Peter, you spoke about the low probability of success on the long timetable of developing drugs; and there has been much discussion about the valley of death in drug development (the period between initial funding and first returns of revenue) and the fact that it is increasingly difficult to adapt an academic discovery to a commercial product. Given the data you have offered, investors are acting much as I would want them to act with my money: they are logically recognizing that the high risk and the long wait for any potential return calls for conservative investment. The market logic is clear, but from a wider viewpoint, the probability for breakthrough developments is lowered substantially. How can we combat this problem?


Peter S. Kim


That’s a really hard question. Investors are acting rationally. These are people who actually run the numbers and invest accordingly. Again, given these numbers, I think that it would be helpful for academics to be more realistic about the value of their initial discoveries. The value of their research is nil if it doesn’t get picked up. But I also think that we all need to ask if there are creative mechanisms for the university to protect and increase the value of research discoveries.


Ann M. Arvin


I do believe that we can help academics, and as I mentioned, Stanford has put resources toward getting selected works closer to a proof of concept. But I do not think that we as academics are in any way capable of commercializing anything. Some of our colleagues feel otherwise, arguing that they are prepared not only to see the venture through but to do it right here at Stanford. To me, that is an inappropriate use of our resources, including our students and staff, colleagues, and facilities. Moreover, we academics just don’t know how to do it. Instead, we should move things as quickly as possible, transferring the opportunity to the people who can evaluate whether a project deserves to be pushed forward and who know how to do it. And to return to diligence clauses, we do have them in our university contracts. But how would it appear if Stanford elected to sue a faculty-created company, which is struggling to hang on to its last dollars of venture capital investment, because it missed a month’s progress report? It is a tricky field to navigate, but the university is talking about it and is actively looking for ways to improve.

© 2015 by John L. Hennessy, Ann M. Arvin, Carla J. Shatz, and Peter S. Kim, respectively.