UW’s Gardasil Connection Generates Windfall for Research, Tech Transfer

2/23/09Follow @xconomy

One of the world’s best-selling vaccines, Merck’s Gardasil, is quietly producing some serious money for an unexpected beneficiary—the University of Washington.

Thanks to some hard-fought patent litigation from the 1990s that ended up strengthening and extending the lifespan of a critical piece of UW intellectual property, the university is now raking in a windfall of royalties on Merck’s cervical cancer vaccine. This product’s success has been a driving force that has caused the licensing income UW gets from the Washington Research Foundation to more than triple in the past three years, to $38 million in 2008 from $12 million in 2006.

I learned about this story from Ron Howell, the CEO of the Washington Research Foundation, the Seattle-based organization that manages some critical UW intellectual property from the 1980s. While $40 million a year might sound trivial to an institution that has a $1 billion-a-year research enterprise, it is actually a critical resource to the UW because the cash doesn’t come with a lot of strings attached, and can be used for things like recruiting and retaining star faculty, supporting entrepreneur-in-residence programs to commercialize university inventions, and purchasing state-of-the-art equipment, Howell says. It’s all been a boon to Linden Rhoads and her team at UW TechTransfer, who are on a mission to make UW better at spinning off innovations into the business world.

“What it means is that we’re going to be able to support more scholarship and research,” Howell says. The WRF particularly wants to aim its gifts toward faculty that are approaching “tipping points” where they just need a little more research support to enhance intellectual property that could be the basis for a company, Howell says.

So how did WRF come to be in this enviable position? The tale begins in the early 1980s, when UW researcher Benjamin Hall discovered a technique for making complex peptide molecules in yeast, one of the founding innovations of the modern biotech industry. This technique is today licensed to more than 50 companies, who use the method to make insulin, enzymes for detergents, proteins to make cheese creamier, or for modern vaccines.

This lucrative method was the subject of intense patent lawyering in the early 1990s, when a group of 10 companies from around the world challenged its validity in Europe, Howell says. The opponents included Novo Nordisk, the world’s largest maker of insulin for diabetes, Seattle-based ZymoGenetics, and Japan-based Takeda Pharmaceutical. “They knew the technology was valuable, and they scoured the earth to dig up dirt,” Howell says, to try to suggest that Hall and the UW didn’t really have a valid claim.

After about five years and millions of dollars of lawyering from both sides, the patent was overturned in Europe. But it was only a “pyrrhic victory,” Howell says, because all the investigation uncovered evidence that buttressed the UW’s claim in the U.S. to the point of making it “bulletproof,” Howell says. And, importantly, since this proceeding dragged on in legal limbo for so long, it meant that the Hall patent didn’t actually get issued until 1997, almost a decade after it otherwise would have under a normal review. That means it now remains valid all the way to 2014.

This is where Gardasil enters the picture. Merck won FDA approval in June 2006 for this vaccine against human papillomarivus, the first of its kind shown to protect women from getting cervical cancer. Many people recognize UW’s connection to the vaccine through the early research by epidemiologist Laura Koutsky, a champion of the vaccine’s development. But what fewer people realize is that Merck makes the vaccine in yeast, with a license to the Hall method.

The Gardasil story has had its share of controversy—through Merck’s aggressive lobbying to get states to require vaccinations—but it has ended up winning over the national public health authorities, who recommend it for all 11-12 year old girls in the U.S. before they become sexually active. The vaccine has now been given via more than 20 million injections to women worldwide. At $375 for a three-shot regimen over six months, that translates into a booming business, with $1.4 billion in worldwide sales in 2008. (There has been some weakening of demand lately as many girls have already gotten vaccinated. Sales dipped 16 percent in the fourth quarter of 2008 compared to a year earlier.)

Howell won’t disclose what the UW’s percentage slice of the Gardasil pie is, but many such deals typically involve 1 percent royalty streams. If that’s what Washington Research Foundation is collecting, that means it would get $10 million a year for every $1 billion a year in sales.

This means that for the next five years, the Washington Research Foundation has some greater flexibility to support the work of faculty with entrepreneurial potential, some endowed professorships, and building projects, Howell says. It’s also an important cushion to help the organization transition to life after the Hall patent expires, as WRF is morphing itself into what amounts to an endowed venture capital fund, that aims to support startups coming out of the UW and other state institutions.

Besides helping WRF, the Gardasil revenue that comes to the UW is also going a long way toward helping Linden Rhoads achieve her goal of transforming the UW’s Technology Transfer office into a catalyst for startup companies. I laughed at how ironic it is that Howell’s organization finds itself in such a fortunate position now, after years of uncertainty and legal face-offs, all while Merck continued to make progress with its vaccine.

“It’s hard to thank people for giving you a hard time, but we really have to. If we had been able to get the patent issued earlier, it would have expired by now,” Howell says. “It’s kind of ‘in your face’ time now.”

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