Merchant Scientists: Deal Structuring and Pavement Pounding Are Part of Technology Transfer

Richard Gill Richard Gill runs the biosciences division of a global technology transfer company, calling himself "a mercenary technologist." It's an aggressive line of work--mining unsung discoveries at universities, drug companies, and eccentric inventors' garages; obtaining licensing agreements; and getting finished product out into the marketplace. "I use harsher language to describe what I do than 'merchant scientist,'" the popular moniker for his job, says Gill, the senior vice president and general manager of biosciences at BTG International Inc., Gulph Mills, Pa. "When we [employ] folks, we're looking for someone who understands technology, but is not a technojock. We want someone to drive the technology into product." A United Kingdom-based company, BTG holds more than 8,500 patents in 250 different technologies. Gill is one of a team of 40 scientists, patent attorneys, and finance and business people at BTG in the United States (the London office has 140), all of whom scour the technology landscape to find that one-in-a-million idea with patent potential and commercial appeal. Gill says his company has an astonishing success rate: "About 10 percent of what we develop makes it big. But that's only 3 to 5 percent of what we see." The company is like an investment banker for technology patents, acquiring intellectual property rights from corporations, labs, and inventors, then licensing them to companies (or sometimes creating development firms themselves) capable of bringing the technologies to market. Among BTG's big successes: BeneFix, a hemophilia drug, sold by Genetics Institute, part of American Home Products; cephalosporin antibiotics; Idoxifene, a drug developed by London's Institute of Cancer Research, now promising in clinical trials for osteoporosis; new varicose vein treatments; and magnetic resonance imaging technology. BTG also has separate portfolios in electronics, automotive transmissions, and even low-tech items such as baby soothers. "We unashamedly cherry-pick, building large portfolios of technology and often finding new applications [for orphaned drugs] in different markets," Gill explains. Though BTG isn't unique, it is part of a very exclusive club of commercial technology transfer organizations demanding the services of "switch-hitting" scientists--part entrepreneur, part researcher, part licensing expert. Founded in 1949 as technology watchdog for the British government, BTG was privatized in 1992 and floated publicly in 1995, using a '96 stock split to raise $35 million in operating capital. Since then, BTG has expanded in North America and attracts many senior-level scientists and engineers, some with as many as 25 years of bench experience. The company still operates at a loss--with very high stock prices nonetheless--due to heavy investments (and lots of shareholder confidence) in new technologies. BTG anticipates "positive profit" by 2001. Gill characterizes his international firm as a "one-stop shop"--a full-service, cradle-to-grave technology discovery and licensing house that employs a phalanx of scientific talent covering the waterfront of scientific disciplines. There are other technology firms operating along leaner lines than BTG--examples include Research Corporation Technologies (RCT), a Tuscon, Ariz., firm that uses institutional partners (known as "relations groups") to source new inventions and help develop a plan for managing and marketing them. "We try to fill the venture gap," says Gary Munsinger, economist and president of RCT, which now boasts 50 specialists, most of them in business and licensing. "People in our institutional relations groups, such as Milestone Medica in Canada and RCT Bioventures in Cambridge, Mass., each have the responsibility of working with specific institutions [to] screen sources." Promising inventions that pass an initial screen come to a central RCT "commercialization group" in Tucson, where legal and business experts identify a commercialization strategy. "We do all the assessment of the competition and identify whether the intellectual property has commercial value," Munsinger explains. "In most cases it's increasingly difficult to get someone to license a drug for which there are limited studies for efficacy and safety, so it requires venture capital." RCT kicks in money "to fill the venture gap," much of it raised from royalties from past successes. (The firm's portfolio is heavily weighted in the life sciences and pharmaceuticals). "Alternately, we find a partner to carry it forward or license it to create a development company [around the new invention]." Royalty arrangements vary: Some transfer firms split royalties evenly or close to that with inventors or research institutions, but many pay nothing unless the invention ultimately yields a revenue-producing commercial product. "You have to have bright and inquisitive people who are constantly learning [to make technology transfer work]," Munsinger says. "They also have a business side--people who are excited about having something new to deal with all the time, working on multiple ideas and projects." Even with the best combinations of scientific talent, legal acumen, and marketing expertise, "profitability is a problem in our business," comments Mike Novak, a patent attorney and general counsel for Competitive Technologies Inc. (CTI), a publicly traded technology transfer management boutique based in Fairfield, Conn. Now with $3 million in revenues and only 14 staffers, CTI follows a much leaner paradigm than BTG, one that uses a "virtual network" of scientific consultants rather than employing large numbers of full-time researchers. "If we're looking at a particular technology and we don't have expertise in house, we go out and get it on a case-by-case basis; that's a little more cost effective," says Novak, who adds that most of the staffing talent in his firm is legal and financial; some have biology backgrounds. The company has made most of its money on long-term investments in a University of Illinois group of gallium arsenide patents designed for laser diodes, plasma display technology, and a successful vitamin B-12 assay (invented at the University of Colorado), among others. "The gallium arsenide inventions were made back in the middle '80s," Novak explains. "It takes commerce a long time to bring some inventions to fruition." "It's a tough business," affirms Frank McPike, president of CTI (once known as University Patents). "On the equity side, lots of different venture capital groups are interested in making investments in later stage developments. But there are not many interested in making really early-stage investments. Also, to nurture a discovery is a fairly labor-intensive process." Many technology transfer firms started with university or government roots, but increasingly have gone to farming technology from "corporates," including small and large biotech firms. CTI, for example, began in the 1960s as an offshoot of the University of Illinois, became a company known as University Patents, and then in the '90s, downsized and reengineered to focus on getting technology from corporates. "We changed our name from University Patents to Competitive Technologies Inc. in 1994 to go after corporate opportunities," says McPike. Many of those involved in technology commercialization start out in basic or applied science research, only to find that the demands of client-driven business change their role. For example, Walter Leps, the general manager of biotechnology at the Alberta Research Council (ARC), an organization that performs contract R&D work, began as a University of Wisconsin Ph.D. in microbiology. "I started at the Research Council 18 years ago as a research scientist. But by the mid to late 1980s we started focusing more on development than research." A contract with Weyerhauser led to project management responsibilities. "What I discovered was that it's very different from basic science, in that I could see a final result," Leps explains. "I liked working with the project manager from the other company, and getting the gratification of an immediate outcome." After the Weyerhauser experience Leps became the head of the ARC biotech department and was "responsible for financial success, marketing, and business development." A career crossroads had come: Instead of doing research, Leps was directing others in a profit-driven environment. "When I made the transition, at first I did miss the laboratory and lived vicariously through the other scientists. But it's not as big an adjustment as I thought it would be," he observes. Leps' skill sets have altered with the job. He now understands the basics of patents and licensing, managing others who manage portfolios. He helps with marketing brochures and structures deals. "I've learned to become a lot more outgoing. I've learned how to delegate jobs and look at the opportunities. My biggest contribution is bringing the biotech department to where it is now, from a research unit to a commercially focused client-driven unit. We're close to profitable, and over the last two years, we've become very bottom-line driven." Richard DiRocco, now an associate vice president of biosciences and product development at BTG, is a "classic bench scientist," according to Gill. With 25 years of neuroscience research in stroke and central nervous system, DiRocco joined BTG a year and half ago without substantial business experience. "They didn't discount me because of that," he says. "The thought was, let's use his broad scientific experience--we can teach him business development." After an intensive orientation and training program that included several two- to three-day seminars in finance, sales, and patent law (some of these conducted at BTG headquarters in England), DiRocco began work as a sourcing scientist--specifically to develop such product lines as cephalosporin antibiotics. Some scientists become so familiar with patent law that they can pass the patent bar without benefit of a formal law degree. Understanding the patent process is something akin to making a scientific discovery, DiRocco adds. "Patents follow the idea that discovery is inductive or spontaneous," DiRocco explains. "A patent requires an idea to have novelty--the serendipitous quality of discovery and invention--when that light bulb goes off." The scientists who become successful hit up colleagues and friends for new ideas, talk to inventors, review patent applications, and learn how to structure deals. "For example, we look at old drugs [that] have new uses. We view these technologies with fresh eyes." DiRocco believes a certain amount of intellectual vigor comes from moving away from narrow bench science. "When I review these patents, I get to gratify my curiosity. The world is my laboratory. There are jewels out there, and BTG tries to find them and deploy them in new applications." For those who succeed, the financial compensations are considerable. The company acknowledges that at least a dozen millionaires have been created from the rise in BTG's stock price, and sourcing scientists can look at a generous compensation package that consists of salary, profit sharing, a discretionary director's bonus, and team bonuses to licensing groups who do an attractive deal. "We reward one or two of the best teams each year," says Gill, a former agricultural scientist who specialized in the hormonal functions of ruminants. "The rewards are significant, and there's a large upside potential." DiRocco goes further: "This is the most entrepreneurial environment I've ever worked in. It's the best job I've ever had." Arielle Emmett is a freelance writer in Wallingford, Pa.

Merchant Scientists: Deal Structuring and Pavement Pounding Are Part of Technology Transfer

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