Addressing the Innovation “Valley of Death:” It’s the Products, Stupid!

Opinion

Several articles published in the press this past year have emphasized the importance of technology innovation in creating high-paying jobs and fueling our nation’s economy. Janet Rae-Dupree’s aptly titled New York Times piece, “Innovation Should Mean More Jobs, Not Less,” makes the case that investing in innovative technologies is critical to the future of the United States economy. In their New York Times op-ed columns, Thomas Friedman (“Start Up the Risk-Takers“) and David Brooks (“The Protocol Society“) describe the importance of investing in innovation to stimulate entrepreneurship and job creation. These articles (and many others) reiterate that our country’s leadership position in the global innovation economy is dependent on our sustained investment in research and its translation into innovative products.

Historically, the majority of innovative products (many of which stem from federally funded research) were entirely developed by large, fully integrated corporations. This model was highly successful until the 1970s, when certain business practices were introduced that eventually stifled innovation.

[Editor’s note: This post was adapted from The Distributed Partnering Model, an article co-authored by Pedro Cuatrecasas, an adjunct professor at UC San Diego, published yesterday by the Ewing Marion Kauffman Foundation]

Fortunately in 1980, adoption of the landmark Bayh-Dole Act allowed universities and non-profits to gain ownership of intellectual property (IP) derived from research funded by federal grants. This led to the formation of many start-up companies, which were built around a license for the research-based discoveries and primarily financed by venture capital (VC). During the 1990’s and the early 2000s, this VC start-up model transformed our economy through the creation of major high-tech and life sciences clusters around the US. But over time, the VC model has been increasingly challenging to maintain. It has proven difficult to fund start-up companies and achieve a sustainable and acceptable return on investment based solely on an early stage discovery. As a result, many of these research discoveries reside in the so-called “Valley of Death” because they lack the necessary financial support and skilled management team to progress into the “proof of relevancy” phase. To address this gap, foundations and advocacy groups have stepped in to try to provide funding. However, these investments are generally insufficient to carry these startups to follow-on VC funding.

If this investment gap is not addressed, the US could lose its comparative advantage in commercializing innovative discoveries, which has been the base of our strong economy over the past several decades. Due to increasing global competition, it is imperative that we create a more sustainable investment model that will offer acceptable investor risks and rewards to finance the translation of early research discoveries into commercial products.

A New Approach?

To address this funding challenge, I worked with retired Warner-Lambert pharmaceutical R&D executive Pedro Cuatrecasas to propose a … Next Page »

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Duane J. Roth was Chief Executive Officer and board member of CONNECT, the San Diego nonprofit organization that fosters entrepreneurship by catalyzing, accelerating, and supporting technology and life sciences innovation. He founded Alliance Pharmaceutical, and was a longtime life sciences industry executive. Follow @

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