February 7, 2003

San Francisco Business Times
Daniel S. Levine

With unfriendly financial markets forcing many biotechnology companies to shelve promising early stage projects, a program through the University of California is offering a means to help fund such work.

UC Discovery Grants leverage funds from UC and the state of California with funds from private industry to conduct basic research. The program is accepting proposals for research from the biotechnology industry through Feb. 14.

In the past year the program, which proponents say is unique among examples of university-industry cooperation because of the way it directly ties university researchers to industry, funded $60 million in research in areas including telecommunications, digital media, electronics, information technology and life sciences.

"The university is absolutely key to the economy of the state. Historically, people have always thought in terms of the graduates of the university and how they feed into the economy, but the research the university has been involved in over the past 20 years has been the building blocks for hundreds of companies," said UC President Richard Atkinson, who created the Industry-University Cooperative Research Program that oversees the grant.

"If you talk to most of these high-tech companies, they are not going to do most of the fundamental research that leads to new products and discoveries. But they can rely on the university for being the backbone for ensuring these ideas get out there and then can be developed," Atkinson said.

Since the launch of the program in 1996, it's funded more than 1,000 collaborative research projects totaling $225 million. UC's contribution to the grants has held at a level of $3 million annually and the state of California in recent years contributed $17 million annually. Industry funded the balance. At a time when biotechnology companies are straining to slash their burn rates and stretch their dollars, the program provides a valuable means for funding research.

"Right now, it's probably one of the tougher capital markets. This allows some research that would not get contracted for independently to be realized," said Hollings Renton, chairman, president and CEO of Richmond-based Onyx Pharmaceuticals Inc., which has a multi-year contract with UCSF for research relating to the way one of its therapeutic viruses works to fight cancer.

"Biotech companies, whether they are private or public, have to have more interactions with academia because there are just fewer opportunities to get funded through the capital markets today," Renton said.

Unfortunately, biotechnology companies are not alone in their belt-tightening. The state's budget problems are hurting the UC Discovery Grants too. This year the state cut its contribution to the program by $1.7 million, and some fear additional reductions could follow.

"They are not finished yet. We are likely to take another cut. But currently we have $18.3 million to invest right now and we want to see a lot of proposals come in," said Susanne Huttner, UC associate vice provost for research and executive director of the Industry-University Cooperative Research Program. "There's nothing that will impress the state Legislature more than the private sector's interest and willingness to invest in this program."

Under the program, a UC faculty member submits a proposal to conduct research at the university. A company has to be formally committed to the proposal before it is submitted and pay for half of the direct costs of the project, in addition to any indirect costs.

If the project is awarded a matching UC Discovery Grant, the industry sponsor signs a research agreement and gets a right of first refusal to license any intellectual property that results.

The collaboration allows industry participants to gain immediate leverage for its research and development money and provides the company access to the talent and expertise of faculty and students, as well as facilities largely paid for by state and federal money. Industry participants also qualify for a 24 percent tax credit for investment in research at California universities.

Students also benefit by gaining insight into future career paths and being able to see the relevance of their field of study to industry.

And, if all goes well, the state enjoys the benefit of strengthening its economy.

"It's a neat way of linking public investment to the economy. Since we don't turn things into products, we partner with companies and help them access the new knowledge and then they turn them into products," said Huttner. "The good thing for the economy is as those companies become more competitive, their sales go up, they add more jobs, they pay more taxes and it helps the local economy. That's the basic idea."

Geron Corp., Chiron Corp. and Tularik Inc. are among a long list of biotechnology companies that have participated in the program in the past. Many companies that participate in the program, though, are small, early stage companies looking to leverage limited resources.

Gabor A. Somorjai, a professor of chemistry at UC Berkeley, is working on a four-year, $700,000 project with The Polymer Technology Group, based in Berkeley. The project will study the surface of materials used in medical implants to see how to make them more compatible with the blood to avoid problems of clotting and rejection by the body.

"Working with small companies is a dream because they have a need and their products have to have some science to be able to prove that they work. I can provide the science," he said. "If it's important enough, they hire my students so they create new jobs."

Daniel S. Levine covers biotech for the San Francisco Business Times.