The University of MinnesotaâÄôs research community will be out of a big chunk of spending money as patents on a blockbuster HIV drug expire.

The school has made more than $350 million off a drug invented on campus in the 1980s, but as the patents expire, those royalties are dwindling toward zero. And that means fewer investments into research.

The HIV drug Ziagen was a prime example of what commercializing research âÄî called âÄútech transferâÄù âÄî can mean for a university. Ziagen, which prevents the HIV virus from reproducing, has made the University and inventor Robert Vince a combined $524 million since 1999.

When University research discoveries spin off into lucrative drugs or other technology, the schoolâÄôs Office for Technology Commercialization handles patents, royalties and other tech transfer business.

But patents donâÄôt last forever. Those protecting Ziagen are expiring in stages, opening the market for cheap, generic copies. The first patent expired in 2009, and theyâÄôll continue to expire through 2013.

Royalties from these patents have made a big mark on the University.

Yearly tech transfer revenue was as low as $4.1 million back in 1998, before Ziagen hit the market. It peaked in 2009 at $95.2 million.

This money went right back into research.

Three million dollars in royalties went to a supercomputer. Another $7 million went toward relocating a major magnet lab to mitigate light-rail disruption. Twelve million dollars went to investments into research infrastructure.

But those kinds of big buys will be rare for the University in a few years. Just as the patents were responsible for the jump, they were also responsible for a revenue drop of $20 million in 2010.

For years, the royalties through a licensing agreement with pharmaceutical manufacturer GlaxoSmithKline generated up to 90 percent of tech transfer revenue.

Over the summer, Vice President for Research Tim Mulcahy commissioned three tech transfer experts to review the OTC.

The review left no doubts about the officeâÄôs accomplishments âÄî the OTC is spinning off startup companies on-par with Harvard, Columbia and Stanford universities, it concluded.

But in its report, the trio warned of trouble ahead and encouraged the office to find âÄúan alternative budget source.âÄù

The OTC stowed away some money to weather the next few years, but doesnâÄôt have an answer to how the University will invest in research without the yearly Ziagen allowance.

âÄúThere are always ways to âĦ figure out what to do once that revenue goes away,âÄù research spokesman John Merritt said. âÄúIt could be a mixed model, it could be a different model altogether.âÄù

Spending the money

Vince, the inventor, set up an endowment in 2000 for his Center for Drug Design, which was created with the first royalties that came to his department.

Now, the interest on that investment will cover the half of the centerâÄôs expenses that arenâÄôt covered by grants.

Royalties that come to the University from licensing agreements are split three ways: a third to the inventor, a third to the University department where the invention originated and the rest to the Office of the Vice President for Research.

With his personal share, Vince and his wife set up a foundation that distributes the money to various charities.

The College of Pharmacy has received about $42 million from the royalties over the past 12 years. The college used that money to set up an endowment for two new positions, which will be sustained by interest from the investments once Ziagen dollars are gone.

As with research, the infrastructure and renovation projects Ziagen paid for will âÄúobviously cease,âÄù said college spokeswoman Amy Leslie.

âÄòThe nature of the gameâÄô

Once the Ziagen patents expire, the drug will be just one in a pack as other companies copy the science and churn out generics.

The University and GlaxoSmithKline will lose their monopoly, and there arenâÄôt any other blockbusters in the foreseeable future.

Tech transfer is a notoriously unpredictable business.

For the past few years, Ziagen money has been stored to help the OTC leap from its current funding model to whatever happens next. OTC Executive Director Jay Schrankler calls it a âÄúquasi-endowment.âÄù

Beyond that, big investments into research infrastructure will be impossible. WhatâÄôs left is the royalty revenue from other products, which have generated between $4 million and $10 million annually since the mid-âÄô90s.

Any post-2013 investments will be much smaller, Merritt said.

The uncertainty and surprise of when the next blockbuster is coming can make budgeting hard for research departments.

Other college units can budget years down the road, but these offices canâÄôt predict what drugs will create revenue. âÄúPeople just look at us like weâÄôre oddities,âÄù said Robin Rasor, president of the Association of University Technology Managers.

âÄúItâÄôs the nature of the game,âÄù Schrankler said.

Still, among universities, blockbusters that bring in more than $1 million are rare.

At the University of Michigan, where Rasor is director of licensing, itâÄôs the opposite situation. About 10 agreements make up 80 percent of the $20 million to $40 million revenue annually.

The primary risk of the blockbuster patents is when schools donâÄôt plan for falling off the patent cliff.

âÄúIn the past, there have been a few schools where they shouldâÄôve known, and they kind of knew, but they didnâÄôt really plan, and âĦ the bottom dropped out,âÄù Rasor said.

There are always patents in the pipeline for continued revenue, she said.

âÄúIf you plan it right, you want to make sure that youâÄôre continuing to process, youâÄôre filing on the right things, youâÄôre trying to get licensed your new technology so youâÄôre not so dependent on one thing,âÄù Rasor said.

A success story

Rasor said many in the industry look to the University of WisconsinâÄôs tech transfer office as a success story. The office, the Wisconsin Alumni Research Foundation, is actually a nonprofit separate from the school.

In the 1920s, a University of Wisconsin researcher found a way to increase vitamin D in foods. It was successful, and brought the school about $15 million over a period of time.

The foundation never handed all of the money directly to the school, but rather, it created an endowment and invested it from the start.

The endowment is still helping the school 80 years later, said WARFâÄôs general counsel, Michael Falk.

 âÄúThatâÄôs allowed us to build up this nest egg and then pay the university on a steady rate as opposed to sort of a feast-or famine model where you bring in lots of money while itâÄôs on patent and then you have no money left after that.âÄù

But the University of Minnesota doesnâÄôt have a nest egg of its own.

The University has been really fortunate, Merritt said, in not needing to âÄúthink creativelyâÄù about ways to invest in research.

âÄúIt has been a huge benefit to have this source of revenue available for those kinds of investments,âÄù Merritt said, but âÄúthat is going away.âÄù

Federal reform act means changes for OTC

As Ziagen patents dwindle away by 2013, legislation will take effect thatâÄôll give the Office of Technology Commercialization another reason to increase its patent filings.

The America Invents Act, passed in September, will âÄúchange the way we do business a little bit,âÄù OTC Executive Director Jay Schrankler said.

But it wonâÄôt just change how the University does business âÄî itâÄôll change how all U.S. inventors operate. The law changes the patent system from âÄúfirst-to-inventâÄù to âÄúfirst-to-file.âÄù If two inventors independently invent the same product, the one who proves being the first to invent gets the patent. But proving it can be messy, because the research process is so long.

Now, the inventor who beat others to the patent office to file is the winner.

Schrankler said that while the OTC will be spending more money on risks, it will also increase the odds of getting successful patents.

âÄúItâÄôs often very difficult to determine precisely when someone has invented,âÄù University patent law professor Thomas Cotter said.

The âÄúpressure to fileâÄù sooner will heat up nationwide when the law takes effect in 2013, Cotter said.

âÄúIf somebody else beats you to the patent office, as long as they have independently invented and not stolen the idea from you,âÄù that person would get the patent, he said.

While the shift to first-to-file was one of the less controversial parts of the reform act, not all smaller companies favor it because they have fewer resources to patent more quickly, Cotter said.

âÄúIn other countries, thereâÄôs really something of a pressure to get your patent on file quickly, Cotter said. âÄúThat means that invention will be patented sooner rather than later, and a patent discloses the technology to the world, and thatâÄôs one of the benefits of the patent system.âÄù

Locally, this will mean more risk-taking at the OTC. The office will file patents on more inventions earlier in the game.

Hundreds of thousands of dollars are lost from patents that donâÄôt generate revenue, which is why the OTC isnâÄôt patent-happy.

âÄúWe already were patenting what we thought, after a thorough analysis, were the really best ideas,âÄù Schrankler said. But now, some ideas that may not have been seen as having as much of a chance will get a shot.

The cost of filing patents is borne completely by the OTC. But royalties are split three-way among OVPR, the college department where the research was conducted and the inventor.

âÄúIt allows one entity to manage the portfolio, to take the risks,âÄù Schrankler said.