Fostering tomorrow’s innovation

Part of ensuring a future in the state for the often-intertwined industries is building a climate in Rhode Island where there are serial entrepreneurs, said Geoffrey Davis, a partner at Ropes & Gray law firm and chairman of the board for the Slater Center for Biomedical Technology.

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Speaking as part of a four-member panel at a Providence Business News Rhode Island Summit on Nov. 12, Davis was joined by Dr. Richard Besdine, who has served as interim dean of medicine and biological sciences at Brown Medical School for the past year and a half; Moses Goddard, a consultant and one of the founders of CytoTherapeutics Inc. and Nicholas Papastavros, a partner at Nixon Peabody who has been litigating technology and patent issues for more than a dozen years.

The following is an edited transcript of the panel discussion, which was moderated by Michael Pare, editor of Providence Business News:

Pare: I want to give our panelists just a couple of minutes to introduce themselves and give a little feedback on what they bring to the table today.

Davis: Sure, I think that in addition to my legal work in this area, my real reason I’m here today is because I’m chairman of the board of Slater Center for Biomedical Technology, one of the state’s four Slater Centers. And we’ve been fortunate enough with strong support over the past five or six years now to have been instrumental in seed funding on more than 25 companies here in the state. So I’m very glad to be here wearing both hats – the Slater hat and my legal hat.

Papastavros: I’ve been litigating technology-related issues for the last 10 to 12 years in particular both in New York and up this way in New England. And I’ve seen a lot of changes in the field in the last few years and glad to report on some of them today. And I think the changing world of patents, trademarks, copyrights and trade secrets continues to evolve, and there are changes even this year and into the future that we can anticipate. So I’m glad to report on some of that.

Besdine: I think the most important thing to say is that I’m here representing Brown Medical School as interim dean. I think serving as dean for a year and a half, having come to Rhode Island late in life in the sense that it’s a wonderful place. But I came here in 2000 to build an aging program, the university and the medical school. In my role as the interim dean, we are doing a major restructuring to strengthen the medical school. And regarding biotechnology, it’s my view that it’s the translation of health-related research into useful products for the community. In particular, commercialization of intellectual property from faculty research is part of the continuum of productivity in academic medicine and fulfills our responsibility to the public.

Goddard: I just like to add a couple of things as long as I’m here in part representing Rhode Island Hospital. Probably of interest to this group is that I think I’m actually the only person who endured the entire lifecycle of CytoTherapeutics, at least in Rhode Island. In that experience, I spent a number of years doing clinical trials with biotech products. And I think it gives me a certain amount of insight into how this process gets started and maybe a little more on how this process can end as biotech evolves.

Pare: In 2003, the Rhode Island General Assembly passed legislation that’s expected to dramatically enhance the ability of professors at the state universities to commercialize their research.

Davis: The underpinning of the biotech industry nationwide and certainly in Rhode Island as well is the fact that the federal government exercises some considerable wisdom. It devotes literally millions of dollars to research. And Rhode Island each year is the beneficiary thanks to the ability of Brown, URI and other places to attract first-rate research to attract a lot of that funding. In part, most of that research is true research and will never be commercially directed. But some significant portion of it should be. And so people like Moses Goddard and others have been successful over the past 20 years in forming companies based on the research they were doing in the lab. One of the things that has been a problem in this state has been that a perfect example of the law of unintended consequences that when we adopted a very strong ethics statute, the Legislature didn’t take into account – because nobody ever really raised the issue – the problems that would be posed by a state employee who was a principal investigator or a scientist working at URI who had some very commercialized technology but couldn’t because of the way the ethics statutes worked for a company based on that technology.

Pare: Moses, you bring a connection here from Rhode Island Hospital, a teaching hospital. What can you tell us about Rhode Island Hospital and about the medical scene here?

Goddard: Sure, well I think it’s actually sort of an evolving scene. I think it should sort of start with the mission of the hospital which for years has been patient care, education and additional research. So as a result of that, the hospital has actually been very productive over the years with research, which I would call basic research. I think there’s a different term for it, a pure research which is research that really isn’t necessarily directed toward the development of products and from a business point of view has only relatively distant value and may not even have value locally.

Pare: Are you starting to recognize more whether it’s the commercial connections to these types of innovations or research or at least a potential impact, a positive impact on our economy? It seems like something we’ve avoided for a long time or at least not looked in that direction.

Goddard: Well, I think it has definitely become part of the federal mission for funding now. And I’m sure Dr. Besdine can speak to that probably better than I can. But there are a number of different opportunities at the federal level actually directed specifically toward businesses. That’s not really what I’m talking about here, but it certainly is available. It’s the beginning of a long process really.

Pare: You raise an interesting point about something being in its infancy. And doctor, that’s what I want to ask you about Brown Medical School. It’s younger than we may think, isn’t it? Have we not seen what we’re going to see in terms of impact on the economy?

Besdine: Well, the first thing to say is Brown Medical School is not yet 30 years old. We graduated our first class in 1975. Since then we’ve graduated 600 physicians, two-thirds of them have stayed in Rhode Island. We are responsible for about 40 percent of the physicians in Rhode Island having done their graduate training at one of our teaching hospitals.

Pare: Geoff Davis, tell us a little bit about this Slater Center for Biomedical Technology and how it relates to this discussion.

Davis: Well, I think obviously I have a personal bias. But I think that the Slater Center program is one of the most positive stories for economic development in the state. The legislative leadership for many years now – the past six years — has supported the Slater program and the Carcieri administration has really taken it up one level further beyond that. What the Slater Center for Biomedical Technology is, is an independent nonprofit corporation. We have a board of directors that we’ve been able to recruit. It includes both outstanding scientists from the local community – representatives of the hospital, representatives at Brown and also I think most importantly representatives of some of the very best venture capital firms in the Northeast.

Pare: We’ve had stories recently about venture capital, and they’re having some signs recently that there’s a little more activity out there in the past year. What do you need to explain to someone? What do you need to show them?

Davis: The most important thing that a venture capitalist is looking for is an entrepreneur to invest in. Good venture capitalists will tell you they don’t invest in technology; they invest in an entrepreneur that has good technology to carry forward. There is capital here to invest, but it’s not being invested through locally managed venture funds. One of the challenges that we’re working with at Slater is that we provide these sort of initial seed catalyst money to get a company started. But if you’re going to carry a company forward to commercialize a drug today, there are very different estimates of that. We’re typically making investments initially of $75,000 to $100,000 maybe with a follow-on investment of another $200,000 in some cases. So you need to find that early-stage venture money.

Pare: Considering the staggering expense of litigation, how can an inventor or even a reasonably sized company economically enforce its intellectual property right?

Papastavros: What you’re seeing now is different types of entities entering into the realm of litigation. You’re seeing companies willing to fund litigation, fund enforcement campaigns in return for payout down the road where you didn’t see them. It’s quite a speculative investment if you want to call it an investment. But you’re seeing a lot more of that coming into play. You’re seeing more law firms taking contingency types of situations in the technology sector where before they weren’t doing it. And I think for those inventors and companies as well, a lot of times there are different ways to do it.

Pare: Dr. Besdine, talk a little bit about external research funding that’s been attracted to the medical school lately. We’re seeing more of that, aren’t we?

Besdine: We’ve had just a sensational run over the last decade. We’ve seen a tripling of money from both federal sources and private foundations that fund research come into the medical school. And let me be sure to say when I talk about the medical school, I talk about the faculty of the medical school that includes faculty based on campus and faculty based at our affiliated hospitals. Last year that research capture exceeded $120 million for teaching hospitals in Rhode Island and Brown. So that’s kind of stunning news when you think that the medical school is very young, and the faculty also tend to be relatively young. The impact of those funds of course is setting aside potential commercialization and intellectual property. But the impact of that money on expenditures, on jobs, on attracting other scientists to the faculty and to the hospital is a powerful magnet. And it puts us on everybody’s radar screen.

Pare: I don’t want to go too far along without asking Moses Goddard to share a little bit of his experience. In the late ’80s of course you and a couple of colleagues got together and formed CytoTherapeutics. Maybe you can just talk a little bit about that process if you boil that down in a few minutes.

Goddard: It’s always interesting to me that Rhode Islanders have not yet forgotten CytoTherapeutics. I guess the question you’re really asking is to focus on the business side and how this occurred. And it’s a long story of how you – you know, just start marching through the venture capital groups and so forth. As a university professor, they throw him into the pool of sharks and so forth. You’re really clueless.

Pare: But with venture capital, the clock is always running, right?

Goddard: The clock is running incurably and very fast. And one of the things that you have to deal with is that the venture capitalists are constantly looking at their investment in light of what else they can put it on. So if the IT sector gets hot, all of a sudden they want their money back so that they can put it somewhere else. And you’re still looking at a five-year timeline before you can get any profit at all. And on top of that, there’s all sorts of disappointments that you run into. You’ll probably get into it a little bit later. But it’s a very difficult time to go.

Davis: Moses and I know each other very well because I was the lawyer for CytoTherapeutics for all of the time that they were growing very rapidly in Rhode Island and in fact still represent the company. They’re now located in California. But the point I would make about CytoTherapeutics is that while they were here and growing – and they grew to about 150 employees I guess at the top – the company raised over I think $150 million that was largely spent here either at the company itself or in sponsored research at Brown. And the legacy of the company is really very, very critical to the future pathway for biotech here. The most important legacy of the company candidly is the individuals here who have expertise in encapsulated cell therapy who continued to work in that area.

Pare: We’re not enjoying a very good economy at the moment. Does that present its own types of challenges?

Goddard: Well, yeah, of course it creates enormous challenges. And I think in some cases it’s simply prohibited. You know, clearly if you look back in 1980s, early 1990s, you could start a company and do almost anything really at will. And that’s clearly not the case now. Even if you have a good idea, it’s hard to get a relatively high value assigned to it such as it will attract the interest of venture capitalists. And then it’s hard to put it on the ground. You know, unfortunately you just have to wait. And all good ideas in this state are waiting right now because of that situation. I don’t think that there’s a fix for it to dig a way out of here. You have to have good technology. You have to have good people in the group and so forth.

Besdine: I would only say that we are hoping that there are glimmers, that the worst is behind us and perhaps not as rapid a recovery as we’d like to see but at least moving in the right direction. And I think that the comment that venture funds maybe loosening up a bit is one sign that that’s actually occurring. And I think just to say a great idea has legs almost at any time.

Pare: Nick, you must have to get into dealing with your clients more specifics of getting them through these hurdles when the economy isn’t so good.

Goddard: I don’t know what the most significant message here is. I think I get back to something that Geoff actually mentioned about critical mass and looking at that in view of the experience with CytoTherapeutics. I bring it up with sort of a relatively mundane point to make which is what are the issues that face somebody starting a biotech in Rhode Island. When he or she starts to recruit people from wherever – nationally or the Boston community or whatever – and I think what you find very quickly is that one of the major sources of insecurity for those people who are thinking about coming and joining the company is that there is relatively little in the way of biotech around them when they arrive in Providence or wherever it is that they go to. And I think that that’s one aspect of this critical mass that we need to overcome. And I think we’re making tremendous progress on it.

Besdine: I have to talk about two spin-offs that we have from Brown. The first is Cyberkinetics, John Donoghue’s company. They are preparing to go to the FDA for the BrainGate, an implantable device that may in fact eventually allow paralyzed people to, with their thought, activate through computers robotic arms as well as communication skills.

The second one and the group’s company, EpiVax using contemporary genetics and genomics techniques to bring vaccine rapidly available to newly identified pathogens. The SARS experience just tells us what an incredibly powerful and important set of tools this is. And those examples are two companies that happened in the sleepy old Brown. In this new environment I’m very optimistic that we will be major players not just in our small state. And let me say one thing about our small state. People apologize for how small Rhode Island is. It’s an incredible opportunity. Hardly anybody leaves. There’s one newspaper. There’s one highway that goes through the state. You can reach a million people with anything that is worth bringing to them and show that it can be done. And I think we’ve not taken sufficient advantage of that resource as well.

Papastavros: Just to recap I think, and as Richard said, there’s always room for a great idea. I think it’s more so even now than the last several years. And it’s important even while there are ups and downs in the economy and the months to come to recognize that venture capitalists are starting to look for ground zero type of investment opportunities, and it’s important to think optimistically and think that there will be funding out there rather than think about the lessons that some people have learned in the last couple of years because the tide turns and then you’d rather not be on the wrong side of the cycle.

Davis: I would just say that I think that the most important thing we can do is to encourage individuals to act to form new companies because in the long run it’s going to be entrepreneurs plus hopefully some additional capital that we can finalize to (inaudible) that are going to create the future for this industry here. And it’s my fond hope that 20 years from now the kind of corporate leadership that was shown in this state for many years by Fleet and other large banks which have left will be filled by someone who has created a Genzyme or an Amgen with corporate headquarters in a wonderful building that’s been built right in the Jewelry District. That would be my vision.