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Dr. Rox Anderson says business doesn't affect his work. |
Hospitals create fund to boost inventions
Ties to business draw criticism
Boston's largest Harvard-affiliated hospitals are setting up a $35 million venture capital fund, an aggressive effort to push their inventions out of the laboratory and into the market.
Massachusetts General Hospital and Brigham and Women's Hospital, through their nonprofit corporate parent, Partners HealthCare, launched the Partners Innovation Fund this year with an initial installment of about $3 million and plan to reach the target size within 10 years.
The first investment the fund made was small, between $200,000 and $500,000, and in a product of modest medical importance: removable tattoo ink. Partners says investments in drugs and devices targeting disease will follow.
"The main goal is to get the technology to the right place faster and not have early science languishing because you can't find $200,000," said Christopher H. Colecchi, vice president of research ventures and licensing at Partners, who oversees the venture fund.
The Partners fund is part of a trend at US research hospitals, many of which are hunting for ways to bring nascent medical technology to market. Venture funds operated by hospitals have multiplied from a handful 10 years ago to several dozen now, specialists said.
Critics said the fund and others like it inappropriately blur the lines between academia and business, create economic incentives that could undermine researchers' objectivity, and expose the assets of nonprofit hospitals to a high degree of financial risk. But hospitals say they can prevent conflicts of interest through disclosure and limits on what researchers can do if they hold stakes in companies.
Large venture funds are already being operated by nonprofit institutions such as Baylor College of Medicine in Dallas, Cleveland Clinic, and Ascension Health, the Catholic healthcare chain based in St. Louis that is the nation's largest nonprofit hospital system.
The trend is born of necessity, say hospitals, because funding has grown scarce. Pharmaceutical and medical device companies are less likely to gamble on unproven concepts. Venture capital firms that have historically provided seed money, meanwhile, are less interested in small deals. And public investors, burned too many times, have diminished interest in early-stage IPOs.
"In the early '80s, if you had some cancer data on a couple of mice, you could go public. You can't do that any more. Now you need to take it a lot further," said Mark P. Carthy, general partner at Oxford Bioscience Partners, a Boston venture capital firm.
So, some nonprofit hospitals are filling the breach by assuming investment risk themselves in for-profit ventures, which use the hospital funding to push inventions along and make them more attractive to outside investors. Often they continue pre-clinical drug research on a drug or medical device, expand trials in animals, or begin building a safety profile.
The first investment from the new Partners venture capital fund was in Freedom-2 Inc., a company that plans to market a removable tattoo ink that was partly developed at Mass. General. The ink can be removed with cosmetic lasers that were invented at Mass. General.
"It really is the beginning of a new era of partnerships between the corporate world and the university world, which has heretofore had many firewalls," said Martin Schmieg, CEO of Freedom-2. "I think we're really seeing universities opening up to these new corporate collaborations, and I think it's going to be good for all parties."
Mass. General's lead doctor in the development of cosmetic laser systems, Dr. Rox Anderson, has earned tens of millions of dollars for Mass. General in royalties paid by
"I have a full-time day job, which is called taking care of people, I'm not a businessman," he said.
But some ethicists say hospitals should leave the commercialization of inventions to others.
"There are many times when overlapping boundaries can pose conflicts of interest," said Tufts University professor Sheldon Krimsky, who studies corporate influence on academia. Financial motives could influence the selection of treatment, while giving short shrift to alternatives, he said.
The risks were perhaps most glaringly illustrated in 1999, when an Arizona teenager died during an experimental gene therapy trial at the University of Pennsylvania. The university's star gene therapy researcher, James M. Wilson, held equity interests in a company that funded Wilson's experiments, which caused the death of Jesse Gelsinger. The university and Wilson said they had taken steps to mitigate conflicts of interest, but the financial motive behind Wilson's work was criticized by ethics specialists after Gelsinger's death. Penn paid a US Department of Justice settlement of $517,000, and Penn, Wilson, and others reached an undisclosed civil settlement with Gelsinger's family. "Academic medical centers are supposed to be in the position of acquisition of knowledge, not getting into profit-making business," said Adil E. Shamoo, a biomedical ethicist at the University of Maryland who cofounded an advocacy group with Gelsinger's father. "You are influencing everybody to move into the gray zone of what is ethical and what is unethical."
Financial risks, too, have been an issue in such investments in the past. Krimsky recalled when Boston University sunk $85 million into a Cambridge biotechnology start-up called Seragen in the 1980s and 1990s; the university agreed to stop investing and reduce its stake in the company under pressure from then-Attorney General Scott Harshbarger -- who said it was imprudent for a nonprofit institution like BU to invest so heavily in a risky biotech company.
The head of Harshbarger's division of public charities at the time, Richard C. Allen, said the small size of the Partners Innovation Fund investments, particularly in relation to its massive endowment of more than $1 billion, puts it in much safer territory.
"BU got itself into a majority holding of one speculative venture," said Allen, who is a partner specializing in nonprofit corporations at the Boston law firm Casner & Edwards. "By being the majority holder, they couldn't get out, and they had to keep pouring in more money," he said.
Partners said it can safely manage potential conflicts of interest, and that it is only investing small amounts of seed money to help spinoff companies get going. Mass. General and Brigham and Women's do not permit doctors to oversee clinical trials if they or their hospital own an equity stake in the commercial sponsor.
Hospitals, companies, and government have long hunted for the best ways to bring medical innovations out of academia and into the marketplace -- what industry executives describe as moving treatments from "bench to bedside."
The federal Bayh-Dole Act, passed in 1980, gave universities, medical schools, and inventors control of the intellectual property rights of inventions that were discovered using federal grant money, including money from the National Institutes of Health. Boston's academic medical centers collectively lead the nation in NIH grants, with about $1.3 billion a year. Mass. General and Brigham and Women's are the two largest recipients in Boston, with $540 million.
Traditionally, the most common way to transfer NIH-funded discoveries to private companies under Bayh-Dole has been through licensing deals, which result in fees and royalties being paid to hospitals by companies that manufacture and market the products. Hospitals also commonly have taken equity stakes in start-up companies, but usually in lieu of accepting licensing fees and royalties. Such arrangements have been common for spinning off potential products at Beth Israel Deaconess Medical Center, Harvard's third teaching center in Boston, as well as the Partners hospitals. To infuse spinoffs with cash, Beth Israel also has matched outside investors and philanthropists with specific projects, said Mark Chalek, Beth Israel Deaconess chief of business ventures.
"We look at it as a 'venture philanthropy' approach," Chalek said. Beth Israel does not invest venture capital in start-ups, which is a rarer approach, he said.
The Baylor College of Medicine in Dallas has operated a venture fund, BCM Technologies, for more than two decades and lists a long string of spinoff companies on its website. Caroline Popper, president of BCM Technologies, said she doesn't see any greater potential for conflicts of interest just because a scientist and a hospital own equity in a firm, instead of simply receiving consulting fees or licensing royalties.
"Who's to say if someone has a conflict because they are getting cold, hard cash through licensing, or if they want potential stock value?" she said. "These are serious issues, and they require serious management."
Christopher Rowland can be reached at crowland@globe.com. 
© Copyright 2007 Globe Newspaper Company.
