Nothing Ventured, Nothing Gained

By Andy Fell

Ray Valentine (Photos: Debbie Aldridge)

“There has been a sea change in universities, especially in the University of California, in being more proactive in commercializing research,” Klein said. “I’m overwhelmed by the enthusiasm of our faculty.”

A sea change indeed. When plant geneticist Ray Valentine wrote a white paper in the late 1970s proposing an institute to spin off commercial products from campus research, the university wasn’t interested. And when he co-founded a company, Calgene, to exploit research in plant genetics, that lack of interest turned into a raucous campus dispute.

It began in 1975. Valentine, a young professor in the Department of Agronomy and Range Science at UC Davis, found himself invited to a meeting at the Asilomar Conference grounds near Monterey. The topic was the new field of recombinant DNA technology—the ability to take a piece of DNA, tweak it and put it into an organism, changing its genetic makeup.

Biologists were talking about making products such as insulin in ways that were safer and more productive than traditional methods. But fears about the technology were building. Would it create new and unstoppable diseases? Could it lead to an era of eugenics? Should scientists tamper with the stuff of life? The Asilomar meeting was called to debate the issues. Valentine had been invited to represent agricultural research.

“It was a big step for a farmer,” Valentine said. “There were all these Nobel Prize winners in the front row.”

At a loss for a topic for his talk, Valentine was walking along the shore when he noticed seedlings among the sand and leaf litter. Trees had dropped seeds that had sprouted in the winter rains. Valentine knew the trees were leguminous: They had root nodules housing bacteria that fix nitrogen from the air; microbiological factories that supplied this nutrient to the plant. Perhaps DNA technology could be used to transfer this nitrogen-fixing ability to other plants.

Valentine picked an armful of the seedlings and handed them out before his talk, inviting the delegates to examine the nodules. Then he wrote across the length of the blackboard: “Molecular Biology of Farming,” walked back and erased the middle words, leaving: “Molecular Farming.”

“They loved it,” Valentine said.

Back in Davis, Valentine wrote his white paper proposing a nonprofit institute to bring together genetics researchers and plant breeders to work on “molecular farming”: applying the recombinant DNA technology discussed at Asilomar to generate new inventions and commercial products.

The institute would have had a degree of autonomy from the university, allowing it to reinvest royalties and overhead monies from grants directly in research, said Charley Hess, dean of the College of Agricultural and Environmental Sciences at the time.

But the university’s response was cool.

“I was told the administration consensus was that it was not relevant to agriculture,” Valentine said.

“[Executive Vice Chancellor] Elmer Learn was very conservative about possible conflicts of interest,” Hess said.

Then, in 1980, two things happened. Congress passed the Bayh-Dole Act, giving public universities the freedom to protect intellectual property arising from federally funded research and spin it off to existing companies or start-up enterprises. And Norm Goldfarb went to see Ray Valentine.

When Goldfarb, scion of a family firm that had funded such start-ups as Genentech and Apple Computer, knocked on Valentine’s office door, he “wasn’t spoiled by knowing anything” about agriculture, Valentine said. But Goldfarb did know he wanted to start a company. He thought that biotechnology had a bright future, and he knew UC Davis was a powerhouse in agricultural research.

Goldfarb and Valentine began meeting on Saturday mornings, with Valentine tutoring Goldfarb in biology and genetics and Goldfarb talking about economics and financing. Within a few weeks, Goldfarb had quit his job at Intel and was ready to start his new company, Calgene. Valentine became vice president for research and development and formed a science advisory board from fellow scientists and other faculty members.

Calgene began working on genes for herbicide resistance. Eventually, this work would lead to genetically modified crops resistant to the broad spectrum weed-killer Roundup. Marketed by Monsanto, which purchased Calgene in 1996, Roundup-resistant crops such as soy beans, cotton and maize are now planted on millions of acres in the United States.

But that was a long way away in 1981, when Calgene’s researchers first began applying recombinant DNA technology to crop plants.

Roger Salquist

“Calgene was really the first ag biotech start-up. They had to do fundamental research that had already been done in the biomedical field,” said Roger Salquist, Calgene’s CEO from 1984 to 1996.

Meanwhile, some on campus and in the community were raising questions over perceived conflicts of interest between professors’ commitments to the university and to private companies and about the possible negative influence on the campus.

“The main point of contention was whether someone working in a university who makes findings should then start a business with the benefit of public funding,” said Emanuel Epstein, professor emeritus of plant nutrition, who expressed concerns at the time.

Some professors were also worried that graduate students’ work might be diverted to benefit a company, that companies paying higher salaries than academia would lure away promising researchers and students, and that potentially valuable work could be bottled up by a commercial sponsor.

According to Valentine, some faculty associated with the state-funded Agricultural Experiment Station believed Calgene was undercutting their role by doing applied agricultural research. Others resisted the entire concept of product-oriented research, whether carried out by the experiment station or by Calgene.

“I also have to say I believe it was fueled to some extent by faculty attitudes about Ray,” Hess said. “He is a master at communicating science, but sometimes that was seen as ‘blowing his horn.’”

Reflecting, Valentine also thinks he got on the wrong side of some faculty in the college.

“When you move fast, you don’t have time for politics,” he said. “We were like two bulls in a china shop. Norm could not imagine that there would be any impediments and was amazed not to get the red carpet treatment from the university.”

The issue came to a head when a group of faculty, including Valentine, won a $2.5 million grant from the Allied Chemical Corp. to study biological nitrogen fixation. But Valentine was also an investigator on a major National Science Foundation grant in the same area. And then it emerged that Allied Chemical had bought a 20 percent stake in Calgene. Valentine’s connection to Allied Chemical through both Calgene and as a university investigator did pose a real conflict of interest, because it appeared that work done on university time could be transferred to Calgene, Hess said.

“Although I had confidence in Ray, it was not uniformly shared by our faculty, and certainly the folks in the state legislature and in Congress were convinced they knew a conflict of interest when they saw it,” Hess said.

At the time, UC was engaged in a lawsuit with Genentech over rights to technology that the university claimed had been developed at UC San Francisco and improperly acquired by the company. (The lawsuit was settled in 1999, 20 years after the work in dispute was carried out.)

The controversy was also attracting wider attention. California Rural Legal Assistance, a local activist law firm, delivered a report to the state Fair Political Practices Commission naming several UC Davis professors as having conflicts of interest because of their consulting work with industry.
Worried about the appearance of a conflict of interest, Hess told Valentine he would have to choose between Calgene and his role in the Allied Chemical grant. Valentine pulled out of the research grant and resigned his position in the Agricultural Experiment Station, keeping his faculty position and his role on Calgene’s science advisory board.

Valentine feels that matters settled down after that. Hess drew up proposals to strengthen rules on conflict of interest. In 1982, Hess testified before Congress as part of a hearing on ties between university faculty and private industry. He recalls some particularly sharp questioning from a Tennessee representative named Al Gore.

Gradually, the academic community came to appreciate that Calgene scientists were doing high-quality research, publishing it in top journals and interacting with campus colleagues, Valentine said. But there was still more uneasiness about corporate links at UC Davis than at some other campuses, he said.

While Salquist says the controversy had little adverse effect on Calgene, describing it as “dysfunctional babble,” he’s sure the row dissuaded other faculty from similar ventures.

If the Calgene experience had gone more smoothly, it might have opened more opportunities for UC Davis faculty to start companies, Valentine said.

“It was not a comfortable situation back then. The campus has changed a lot since,” he said.

New attitudes

While the beginnings of that change go back to the 1980s, faculty and administrators involved with spin-off companies say the pace of change is now accelerating.

“The campus is supportive in ways that were unimaginable 10 years ago,” said Leo Chalupa, professor of ophthalmology and neurobiology and chair of the section of neurobiology, physiology and behavior. He is launching a company called Immunotox.

Jacquelyn Gervay-Hague

“Especially in the last year, I’ve felt a real change,” said organic chemistry professor Jacquelyn Gervay-Hague, co-founder of SialoGen Therapeutics in Davis.

Despite shifts in attitude since the Bayh-Dole Act, land-grant universities such as UC Davis have tended to be conservative in approaching commercialization, said Lynne Chronister, associate vice chancellor for research administration in the Office of Research. But a recent survey of 114 science and engineering faculty conducted by that office found that almost three-quarters had filed patents, were thinking of patenting an invention or expected to do so in the next two years.

There’s been an evolution of views at funding agencies, too. In 2003, National Institutes of Health director Elias Zerhouni released a “roadmap” for the future at the NIH. One of the three themes of the plan is getting basic research discoveries into clinical use.

Today the university aims to supply a continuum of services to support such faculty entrepreneurship, Chronister said, from the initial steps of preparing and filing patents through finding partners and investors, to setting up companies and taking them through the initial rounds of funding.

Until 1999, campus inventors had to file patents through the University of California’s Office of Technology Transfer in Oakland. That responsibility has since been shifted back to campus with the establishment of the UC Davis Technology Transfer Center headed by Larry Fox. The center helps faculty do what’s needed to protect their inventions and license them to existing or new companies.

Also in 1999, the campus launched UC Davis CONNECT to raise awareness among faculty of the possibilities of commercially developing their work. CONNECT provides networks for advice, mentoring and education to help them achieve that aim. Salquist, the former CEO of Calgene, now chairs the board of directors of the program.

The campus plans to provide space for start-up companies in a new 38-acre research park to be built along Old Davis Road. It will also accommodate other companies, public agencies and nonprofit organizations that want research ties with the university. The research park is expected to welcome its first tenants in 2005.

And in the Graduate School of Management, the annual “Big Bang!” business plan competition run by M.B.A. students and supported by local businesses and venture capitalists provides budding entrepreneurs with resources for mentoring, advice, financing and education, as well as a $10,000 first prize.

New ventures

The founders of SialoGen Therapeutics—Gervay-Hague; Frederic Troy, a professor in the UC Davis medical school; Sandra Reynoso, an M.B.A. student at UC Davis who also has a Ph.D. from the university; and Brian Rogers, adjunct professor in the Graduate School of Management—won the 2003 Big Bang! competition with a plan for a company based on the chemistry of cancer.

“I initially thought of it as an exercise, but it really opened up opportunities for us,” Gervay-Hague said of the Big Bang competition. “If it wasn’t for that, there would be no SialoGen.”

Invasive tumor cells coat themselves in a sugar-like chain molecule called polysialic acid. This seems to help them spread around the body. Polysialic acid is also found on normal cells in developing embryos, but disappears in adults except on a few specialized nerve cells in the brain.
Troy’s laboratory studies how cells make polysialic acid and has found ways to detect the process—a flag for cancer. Gervay-Hague has developed compounds that can block the process and that could have potential as anti-cancer drugs.

SialoGen’s founders are now looking for seed funding and have rented lab space in north Davis.

Leo Chalupa

Chalupa is starting his company, Immunotox Inc., with a former graduate student from his lab, Emine Gunhan-Agar, Ph.D. ’01, to commercialize an invention he describes as “permanent botox.”

The researchers have patented methods to permanently remove selected motor neurons, nerves that control muscles. The method could be used to treat neuromuscular disorders, such as spasms, tics and urological problems currently managed with botulinum toxin (botox) injections. Botox treatment is expensive because the injections need to be repeated every few months when the effects wear off.

“It’s a potential billion-dollar market,” Chalupa said.

Bruce Hammock, professor of entomology and an expert in toxicology, is also starting his first company, Arête Therapeutics, to commercialize products for treating high blood pressure and inflammatory diseases. Hammock’s UC Davis laboratory has invented a way to take a snapshot of a key biochemical pathway and use that information to find new drug targets. It’s a hot area for pharmaceutical companies.

“We have a small window where we are way ahead of big pharma,” Hammock said.

Like Chalupa and Gervay-Hague, Hammock is new to the commercialization business.

“My job for the last 30 years has been the generation of knowledge, but it’s disappointing to me when it sits on the shelf,” he said.

Arête Therapeutics has appointed a CEO, UC Davis alumnus John Hamer, Ph.D. ’87, a partner in Bay Area venture capital firm Burrill & Co. Associates. The company has also appointed a board of directors, including the ubiquitous Salquist, and is negotiating with the university to license the patents for Hammock’s inventions.

“We can have an absolutely major effect on human health,” Hammock said.

Continuing concerns

Entrepreneurial faculty such as Gervay-Hague, Hammock and Chalupa are now working through some of the issues around managing both a commercial enterprise and a university research lab. The kinds of objections that dogged Calgene still remain. Some feel that any collaboration with industry gives the appearance of a conflict of interest and a lack of commitment to students; that work done with public support should remain in the public domain and not be patented; that universities should stick to basic rather than applied research. There’s also a fear that commercial partners might influence the direction of university research or block results from being published.

Questions about how students are affected and about how faculty divide their roles between campus and corporation still come up, said Kit Lam, a professor in the UC Davis School of Medicine. Lam started his own company, Selectide, while he was a professor at the University of Arizona. Selectide was later acquired by Aventis Pharmaceuticals.

“There’s a culture of worrying about this here—that faculty won’t fulfill their research and teaching commitments,” Lam said. Professors starting companies need “do’s and don’ts”—guidelines to help them avoid these pitfalls, he added. He has worked with the Office of Research to prepare such a guide.

Some faculty take the view that anything developed at a university should be kept in the public domain and not patented. But that might actually hinder development of inventions that ultimately benefit the public, Gervay-Hague said, as investors are less interested in supporting start-up companies whose technology is available to competitors.

Intellectual property from inventions developed on campus belongs to the university, and companies have to pay appropriate fees and royalties to use it. UC Davis earned $16.5 million in fiscal year 2001–02 from this source. At the same time, investors are attracted by start-up companies that have their own intellectual property as a source of potential revenue. On the other hand, moving work too easily from campus to company could give the appearance that university resources are subsidizing a for-profit business.

“You need a clear understanding between all entities and investors,” Gervay-Hague said.

Emanuel Epstein

The distinction between “basic” and “applied” research is an important sticking point for many university faculty. Some institutions have to do blue-sky, purely curiosity-driven research, and public universities are the obvious place for that, Epstein said. “Time and again it has been exactly that sort of research that has eventually paid off in a big way.” But there is nothing to stop universities from pursuing both very basic research and research with a clearer route to commercialization, he added.

Those who have been involved with starting technology companies find no contradiction between pursuing basic research and for-profit activities.

“You can do good research and still have ideas with commercial utility,” Salquist said. “They are not mutually exclusive.”

To address these and other issues, campus policies and procedures need to be reviewed and strengthened in line with federal regulations, Chronister said.

“We have to be careful that the tail doesn’t wag the dog—that profit doesn’t become the driving force—and we have to be very careful about conflicts of interest,” Chalupa said, “but I think that can be done.”

The work ahead

While the climate at UC Davis is improving, Salquist believes it’s still too early to forecast fine weather. Regionally, the Sacramento/Yolo region is in the shadow of the thriving entrepreneurial culture of the Bay Area, where Stanford University and UC San Francisco have seeded start-ups in electronics, information technology and biotechnology.

Raising early rounds of funding is also harder than ever in the current economy, with investors looking hard at how likely they are to make their money back. Venture capitalists are usually looking for at least a tenfold return on their investment, knowing that many new companies will fail.

“Venture capitalists are conservative. They want to know, how successful was the last deal here?” Salquist said. “There’s no track record of start-ups from UC Davis, and they don’t like that.”

Salquist points to UC San Diego as an example of a campus that has successfully developed an entrepreneurial culture. UCSD flourished because it had great research, visionary leadership and a big early success with Hybritech, a medical biotechnology company founded in 1978, Salquist said. That early success spawned imitators and attracted investors to the area.

Salquist noted that so far Calgene is the only public company spun off from UC Davis. He says he wants to see at least three successful spin-off companies get started with exciting technology and make it through several rounds of funding. That would have a big effect on the opportunities for other businesses, he said.

One of those companies could be West Sacramento-based Lipomics Technologies. Salquist is a director of the company, started in 2000 by two UC Davis graduate students, Steven Watkins, Ph.D. ’98, and Jeremy Ching, ’96, M.S. ’99, who had the idea of applying their knowledge about profiling complex mixtures of fats and oils. Although Lipomics does not license any intellectual property from UC Davis, it is widely seen as a UC Davis spin-off, and a number of faculty members, including Bruce German, who supervised Watkins’ and Ching’s graduate work, sit on the scientific advisory board. The company turned a profit in the fourth quarter of 2003, Salquist said.

“We’re late to the game, but we can learn from the models that are already out there,” Chronister said.

“What we have is land and an incredible technology base. If we think big, this region can be the next Research Triangle,” she said, referring to the North Carolina research park that draws on the University of North Carolina and Duke University.

As for Valentine, he retired from UC Davis in 1991 but still has a lab bench at Calgene’s Fifth Street site, where he is studying essential oils found in both seaweeds and the mammalian brain and where, he says, “I have the luxury of thinking without interruption.”

Andy Fell writes about the sciences for the UC Davis News Service.