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MIT experts propose a roadmap for easier passage across the Valley of Death


By Jesse Schwartz
Published: May 19th, 2021

A detailed article on a new model for calculating tech transfer’s impact, and a proposal for a consortium approach to licensing university life sciences IP, appears in the May issue of Technology Transfer TacticsTo subscribe access the complete article, or for further subscription details, click here. 

The typical life cycle of a drug from the laboratory to the clinic and, finally, to patients is long and fraught with obstacles. There is a significant bottleneck — known as the Valley of Death — when lack of funding prevents ideas from moving from the university into the market.

Andrew W. Lo is an economist by training and trade. While studying the drug discovery cycle for personal reasons, he was baffled by the concept of the Valley of Death. From the perspective of an economist, as he explains, “I always assumed that if there’s a medical need and if there’s a good rate of return for treating it, the money will flow. So, if there’s a bottleneck, it must mean that there just aren’t enough good opportunities.”

And yet, when he walked around Kendall Square and noticed all of the biotech companies popping up, or talked to MIT’s faculty in biology, chemical engineering, and bioengineering, he could see that there are “tons and tons” of new and exciting ideas for treating all sorts of diseases.

Finally, Lo realized that one of the key problems, particularly at the university level, was the lack of information about the risks and rewards of investing in early-stage drug discovery. “If we could somehow gauge the value of a portfolio of university discoveries, somehow communicate the risks and rewards, investors would end up being able to better assess those opportunities and more money would naturally flow into this area.”

Lo , professor of finance at the MIT Sloan School of Management, set out to calculate and document the value of early-stage drug research so that investors would be more willing to back these early-stage technologies. His vision was first to prove that this was possible with MIT data, and then get other universities to do the same. “Then we can start weaving a much broader narrative about the role of technology licensing in innovation, at least in the life sciences,” says Lo. “And once we focus on the life sciences, very quickly thereafter people will figure out that maybe they should study other fields as well.”

When Lo first proposed this to Lita Nelsen, then director of MIT’s Technology Licensing Office, she enthusiastically supported the idea. They agreed to focus on life sciences, an area in which MIT has many patents and could benefit from a focused analysis of the industry’s risks and rewards.

At first, Lo wanted to calculate the rate of return for each of MIT’s patents and for each patent’s investors. But very early on, reality intervened and changed the course of the research. To do this, says Lo, “you would have to trace the development of an idea from the university to the licensees and to the various investors that came along the way at different points in time, at different valuations, with different events, and different milestones. And no one has all of the necessary data to compute these returns.” Another obstacle is that much of the information is confidential. “So we settled for other indicators of impact,” says Lo.

The team looked at the Orange Book, which lists all FDA-approved drug products; companies that have licensed MIT IP to find out the amount of money raised; the outcomes of M&A activity; drug candidates discovered; drug approvals; and patents granted. None of these alternate indicators of impact were perfect, but as a whole, the authors believe they do present significant insight into how MIT patents have impacted industry.

The researchers gained significant insights into MIT’s licenses by examining S-1 financial filings, forms that U.S. companies file for a listing on a national exchange. They found that the proceeds from these companies indicated a robust level of growth in line with biotech markets in the past two decades.

They also investigated companies using MIT IP assets that were involved in mergers and acquisitions (M&A). They found that 23 of 76 MIT licensees were acquired through M&A, at a total value of $30.7B.

To track the R&D pipelines of MIT licensees, the researchers went through each company’s annual financial filings to the Securities and Exchange Commission (Form 10-K). They looked at the numbers of unique drug pipeline candidates, the highest stage of development for any indication, and the therapeutic areas involved.

The researchers also created a dataset of 281 drug candidates from 33 public MIT licensees, 51 of which were approved drugs. Lo and Nelsen then categorized these 51 drugs further to understand their origins and MIT licensees’ contributions.

“Overall, these results paint a pretty impressive picture,” says Lo. “Whether you’re looking at the number of approved drugs of these licenses, which is fifty-one, or you’re looking at the Orange Book citations or some of these other metrics, it shows that the university plays an incredibly important role in in the drug development process.”

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