Section 18.1. The Rise of Modern Biotechnology

18.1. The Rise of Modern Biotechnology

The success of the Manhattan Project brought university research to national attention at the end of World War II. Recognizing the economic and defensive value of this work, the project's director, Vannevar Bush, produced a report for President Roosevelt titled "ScienceThe Endless Frontier," encouraging greater federal support for public research. This document led to the creation of both the National Institutes of Health (NIH) and the National Science Foundation (NSF), now the main agencies that support life science studies.

Through the late 1960s, biological science was conducted almost exclusively within academia and had few ties to business. The commercial value of biology was unrecognized. Drugs were chemicalsand pharmaceutical innovation had stalled in the absence of new targets. Chemistry and engineering, not biology, represented the majority of industry partnerships. Where university-industry relationships did exist, activity was generally low. Technology transfer occurred primarily via corporations hiring university graduates or academic consultants.

In the early 1970s, a new generation of life science companies began to appear, with some focused on developing DNA technologies. Although DNA was discovered in 1953, it had remained a curiosity of chemists. The amino acids (the fundamental building blocks of proteins) corresponding to genetic code were not determined until 1965, and few techniques existed to "read" or edit the chemical instructions. A breakthrough came in 1973 when biologists Stanley Cohen (Stanford) and Herbert Boyer (UCSF) developed a practical way to manipulate DNA constructs. Their method for recombinant DNA technology, published in the Proceedings of the National Academy of Sciences later that year, described how fragments of DNA could be directly cloned and expressed in other cells.

With recombinant techniques, snippets of the molecule could be "cut" from one genome and "pasted" into the DNA of another with enzymatic tools. Common microbes like the gut bacterium Escherichia coli could be transformed into miniature factories, able to make biochemical products difficult or impossible to synthesize using standard chemistries. DNA created an efficient way to develop biologicals, including vaccines, viral components, or even complex proteins like hormones or antibodies. Heavily touted in the scientific and popular media, genetic engineering created great expectations for the future.

News of this technology reached Neils Reimer, the director of Stanford University's patenting and licensing efforts. Earlier, Reimer had developed a novel IP capture scheme intended to grow licensing revenues. Under his plan, IP was solicited proactively, with any resulting royalties split equally (¹/₃ each) between the submitting researcher, the researcher's department, and the university. With scientists benefiting directly, IP submissions increased significantly. Pleased with the results, Stanford went on to create a formal IP development service, the University Office of Technology Licensing, one of the first dedicated technology transfer offices in the country.

Reimer recognized how attractive the new DNA technology would be to industry. Cohen gave his permission to proceed with a patent, but true to academic principles, disavowed any personal share of proceeds. Reimer's application to the U.S. Patent and Trademark Office (USPTO) became the center of scientific and public controversy. Apart from the safety of genetic engineering, concerns included opposition to the patenting of a general research method, questions over the patentability of life forms and genes (eventually affirmed by the Supreme Court in Diamond v. Chakrabarty), and how university commercial activities might threaten free inquiry. Complicating matters, government policies that addressed the ownership of inventions made using federal funds were vague.

Eventually, commercial interest outweighed safety and regulatory concerns, and U.S. patent 4,237,224 was granted to the two universities in December of 1980. Two other applications related to the technology, collectively known as the Cohen-Boyer recombinant DNA cloning patent, were also issued and describe some of the fundamental tools for the sciences of molecular biology and genetics.

Commercial biotechnology began with a handshake deal. In 1975, venture capitalist Robert Swanson met Boyer at a bar near the UCSF campus. Over drinks, they formed a plan to create a company to sell gene-based medicines. They incorporated Genentech (Genetic Engineering Technology) the following year, with each making an initial investment of $500 in the firm. Two years later, the company had successfully cloned and expressed the gene for human insulin, a remarkable achievement for the day. When Genentech shares soared at IPO in 1980, they initiated a wave of speculative activity that carried another dozen biotechnology firms to the market over the next 24 months.

The biotech boom quickly transformed the congenial, open world of biological research into a genetic gold rush. Overnight, academic scientists were thrust into the role of executives and businessmen. Naïve, brash, and fueled by VC cash, they competed against each other to identify and express medically important genes. Still skeptical of the technology, pharmaceutical companies watched from the sidelines as Genentech cemented its early lead, licensed insulin to Eli Lilly, and brought recombinant Human Growth Hormone to market independently in 1985. In less than a decade, a credible threat to established chemistry-based pharmaceuticals had emerged from nowhere.

In virgin commercial space, biotechnology grew rapidly, along with a host of supportive companies. Firms scrambled to identify and characterize new genespotential drug targets and a scarce, nonrenewable resourcefunneling millions into parallel research streams. With a new tool for dissecting cellular biochemistry that allowed the molecular basis of human disease and health to be explored with precision, academic research also flourished. Other genetic technologies soon followed in the wake of recombinant DNA, including polymerase chain reaction (PCR)a method of amplifying minute amounts of DNA. The rate of innovation in life science moved closer to that of the semiconductor industry.

New legislation was created to streamline the transfer of IP between the public and private domains. Significantly, the Bayh-Dole act of 1980, drafted to encourage private investment for the commercial development of academic discoveries, allowed institutions to file patents on inventions resulting from federally funded research. Research became a new source of revenue for universities. Schools established or expanded technology transfer offices, which grew from 25 or 30 throughout the country in 1980 to more than 250 today, and began to actively seek commercially attractive ideas. Biology figured prominently in this search. According to recent statistics, currently 10 of the top 25 holders of U.S. DNA-based patents are universities, research institutions, or the U.S. government itself.

How to best manage biotech IP was an open question. With gene sequences potentially worth billions, and the validity of biotech patents untested, aggressive IP capture was encouraged, if only as a defensive measure. This position has been reinforced over time, and is now widely reflected in industry practices and statistics. According to a survey of biotech patenting trends published in the October 2004 issue of Nature Biotechnology, only 42 DNA-based patents were approved by the USPTO in 1981; by 2001, this figure had swollen to 4,463although numbers have fallen back to roughly 3,500 since this peak. The Biotechnology Industry Organization (BIO) maintains that strong IP is essential not only to the success of biotechnology companies, but also to their survival.

Biotechnology delivered on its promise to bring new innovation and wealth. Today more than 200,000 people are employed directly by the industry, and companies have appeared to fill every technological and market niche. Biotechnology has led to many new medicines, diagnostics tools, and consumer products, including food, textiles, and enzymes. It has also stimulated new innovation in the traditional pharmaceutical and agricultural companies, all of which today incorporate biotechnologies into their research and development programs.

Universities also participated in the prestige and economic rewards of biotech. Biological research has blossomed throughout the academic world. By helping the first biotech startups get their footing, universities have formed close relationships with these now-established firms. These alliances were seeded in part by the nonexclusive licensing of Cohen-Boyer methods, eventually leading to more than 400 companies' purchasing rights. Licensing proved a rich source of university discretionary funds, with Cohen-Boyer alone returning about $250 million to UCSF and Stanford over the 17 years the patents remained in force.