The Science of Success: Research Means Revenues for Texas(1)

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Medical Economics Feature  - May 2000

By Johanna Franke
Associate Editor

This is no educated guess. It's a sure thing. Like cattle, agriculture, and oil before it, health care research is taking Texas' economy by storm.

The state's development of pharmaceuticals, medical devices, and laboratory and research services has created new products, companies, and jobs. With a foundation built by Texas' academic health science centers and nurtured by business and government leaders, the state, through research, not only has the potential to add to the economic prosperity of Texans but also to save the lives of people all over the world.

State the question

What does health care research mean to Texas? The Texas Healthcare and Bioscience Institute (THBI), a nonprofit self-described "quasi-think tank" that tracks trends for policymakers, has pinned down the scientific method to this research madness .

"We are right at the cusp of really beginning to see some dynamic progress here in the state," said THBI President Tom Kowalski. "What we are dealing with is an emerging industry cluster that has an impact on people's lives through cutting-edge research that's turning into ideas that are turning into commercialization that is turning into products."

One of THBI's reports, completed in 1997 by the Texas A&M Center for Business and Economic Analysis, estimates that Texas' health care technology industry encompasses:

  • About 500 companies with $6.5 billion in annual sales;
  • Nearly 49,000 private sector jobs with an average annual salary of $40,000;
  • Average company research and development expenditures of $3.1 million a year; and
  • At least 396 new products in development.

The state's health care technology industry has four major regional concentrations: Austin, Dallas-Fort Worth, Houston, and San Antonio. While the Austin and San Antonio regions have the highest concentrations of workers, Dallas-Fort Worth has the most health care technology workers in Texas, and Houston workers earn the highest pay, according to THBI's 1998 Index of the Texas Healthcare Technology Industry.

The industry also includes specialized resources such as universities, talent pools, and venture capital, as well as a significant number of companies that sell their products and services nationally and internationally.

On the job front, the Texas health care technology industry is ahead of state averages in both employment growth and wages, according to THBI's index. The index also includes the following employment figures:

  • From 1990 to 1997, cluster employment grew 23% -- an annual average rate of 3%. During the same period, overall annual employment growth statewide and nationwide was 2.9% and 1.7%, respectively.
  • In 1997, THBI determined that for each job it adds directly, the industry generated at least two additional jobs. THBI also found that 1 of every 20 health care technology jobs in the nation was in Texas.
  • In 1997, the industry employed nearly 49,000 people statewide, and the state accounted for 5.1% of total US employment within the industry. The largest segment was laboratory and research services (52% of employment), followed by medical devices (36%) and pharmaceuticals (12%).
  • The industry provides a wide range of occupational opportunities, with 42% of jobs related to production and 24% related to science and engineering.
  • THBI 1998 survey respondents estimated more than 4,400 new hires would be made during 1999 and 2000.

Certain dynamics had to come together to create an environment attractive to this new industry and those who specialize in it, Mr Kowalski says.

"What we have going for us now is that all the pieces of the pie are fitting together," he said. "Appropriate tax credits, a strong workforce, world-class research engines, the ability to raise capital, an all-time high on patents, and Texas' can-do entrepreneurial spirit all contribute to create the proper environment for health care research to thrive."

Form a hypothesis

Hypothesis: Without the state's academic health science centers, health care research would be nonexistent in Texas today. These institutions attract the faculty, develop the focus, and involve the community in order to be the industry's most important sources of new ideas.

"Texans and the Texas economy deserve to be major beneficiaries of the impending revolution in biomedicine," William B. Neaves, PhD, executive vice president for academic affairs at The University of Texas Southwestern Medical Center at Dallas, said in testimony before the Senate Health Services Committee in November. "The foundation for success is in place, both in the research programs of the state's academic and health-related institutions and in the business sector."

During fiscal year (FY) 1998, Texas' public universities and health-related institutions spent more than $700 million on research in medical sciences, biology, and other life sciences, according to the report "Expenditures for Research and Other Sponsored Projects" published by the Texas Higher Education Coordinating Board in April 1999. Nearly 60% of this $700 million came from federal grants and contracts, while slightly more than 15% came from state appropriations. Adding Baylor College of Medicine to the public university mix increased research spending to $900 million. Approximately 40% of that $900 million was spent at Baylor and UT Southwestern.

UT Southwestern's research expenditures have doubled in the last decade from less than $90 million to more than $180 million in FY 1999. Benefits to these expenditures include new drugs such as Mevacor, Zocor, Urocit-K, Citracal, Proscar, and Propecia, as well as a boost to the Texas economy by spending more than 170 million non-state-appropriated dollars on research in FY 1999. The majority of these dollars came from Washington, DC.

The University of Texas M.D. Anderson Cancer Center, known for interdisciplinary research projects that enhance the understanding of what causes cancer and leads to more effective methods for treating many forms of the disease, ranked first last year in the number of grants awarded by both the National Cancer Institute and the American Cancer Society. Total research funding topped $163 million, says Margaret L. Kripke, PhD, senior vice president and chief academic officer at M.D. Anderson. That included $70.2 million in research grants and contracts, $25.8 million in philanthropic and unrestricted gifts, $16.6 million in private grants and contracts, and $13.4 million in legislated general revenue.

In 1998, Baylor submitted 342 grant applications to the National Institutes of Health (NIH) and received funding for 118, a 35% success rate, says Jim Patrick, PhD, vice president and dean of research at Baylor. "That's pretty good. I think NIH usually funds 25% of the applicants," he added.

During FY 1999, The University of Texas Health Science Center at San Antonio (UTHSC-San Antonio) submitted or negotiated 1,317 grant proposals, of which 834 (63%) were funded, says John P. Howe III, MD, UTHSC-San Antonio president. These grants came from all five UTHSC-San Antonio schools (medical, dental, nursing, the Graduate School of Biomedical Sciences, and the School of Allied Heath Services), says Dr Howe, a former Texas Medical Association president who also served as founding president of the Texas Society for Biomedical Research and as a member on the Southwest Foundation for Biomedical Research Board.

"The awards included 262 new and renewal competing grants, and our funding rate on these proposals was 31%, which is very good in today's competitive climate," Dr Howe said. "The health science center also was classified as an 'emerging institution' by NIH."

NIH has formed the basis for how modern US research is conducted by holding peer-reviewed competitions that promote individual research rather than institutional research. "NIH is the gold standard of research funding, and the reason it's the gold standard is because it is peer reviewed," Dr Patrick said.

To compete on this level, academic health science center experts must have strong research faculty, Dr Howe says. "The bottom line is people," he said. "They generate the ideas and the enthusiasm."

Dr Patrick agrees that the quality of a research institution is measured by the quality of its faculty. Baylor continues to support the independence of individual scientists. "In keeping with the great American tradition of democracy, everybody goes their own way, and it is our job to support the very best," Dr Patrick said. "I think it's been a great success."

UT Southwestern takes a more communal approach to research by adopting a "healthy underdog attitude in which researchers help each other for the purpose of advancing the entire institution rather than just their individual careers," Dr Neaves said. "Not only does their work thrive, but also they become, in the process, almost impossible to recruit away from here."

Other keys to UT Southwestern's success include focusing its research and planning carefully to stay on the right track. "It would have been very difficult for UT Southwestern to have succeeded in rising quickly to national prominence if it had not focused its efforts and resources to make a difference in important areas of biomedicine," Dr Neaves said. The academic health center stays on target through planning sessions to prioritize research topics.

"We try to focus on the very fundamental understanding of how the human organism works so that disease can be prevented rather than just treated," Dr Neaves said. "Southwestern realized early on that Baylor was dominant in the state, and, in some respects, the country in pioneering better ways of coping with arteries that are clogged by engaging in coronary bypass surgery. So UT Southwestern scientists elected to focus on solving the underlying problem with the frank objective of putting coronary surgeons out of business."

Besides faculty and focus, academic health science centers look for community support to enhance their research programs. The City of Dallas and the Dallas Chamber of Commerce have partnered to help stimulate the biotechnology industry in Dallas -- thanks in part to UT Southwestern's four Nobel Prize winners.

UTHSC-San Antonio makes a point of giving back to the community that gives to the medical school. "Our new South Texas Center for Biology in Medicine, where researchers will study diseases that disproportionately affect the region, is the perfect expression of our commitment to the people we serve," Dr Howe said. "Community support enables us to leverage the grants we receive, and the goal always is to assist the region by finding solutions to the issues facing it."

What good is successful research developed with the proper people and plans if it cannot reach the public? Academic health science centers have found a solution for that, too.

Do experiments and collect data

Through trial and error, Texas' medical institutions gradually have become more proficient at getting their research findings out to the public and making sure they are compensated appropriately. Their solution: technology transfer offices on their campuses (see " Technology Transfer Organizations ").

"For Texas to enhance its position as a leading center for health care technology, corporations, universities, and the state must aggressively translate research and development investments into patents, licenses, and commercial products and services," Mr Kowalski said.

THBI's index reports the following data:

  • The number of health care technology patents issued to state residents increased steadily from 195 in 1990 to 375 in 1997.
  • Texas ranked second behind New Jersey and ahead of California and Massachusetts in the rate of citing the latest life sciences research of its own academic institutions in 1997. Texas health care technology patents cite Texas research at nearly 3.5 times the expected rate.
  • In 1997, the number of new intellectual properties developed by public health-related institutions in Texas reached a high of 113. Intellectual property generated $12.4 million in income for Texas health-related institutions in 1997, up from only $4.2 million in 1993.

UTHSC-San Antonio reported a licensing income of $2.15 million during FY 1998, as it received income from 23 licenses. The center's faculty received 8 US patents and filed 26 US patent applications in the same year. UT Southwestern's intellectual property income during FY 1999 reached almost $5 million. Both centers, along with The University of Texas-Houston Health Science Center and UT M.D. Anderson, have technology transfer offices incorporated into their campuses.

Unlike the other academic health science centers, Baylor went a slightly different route in creating a technology transfer subsidiary in 1983.

"The little twist that makes us different is the fact that Baylor chose to establish BCMT [BCM Technologies] as an off-campus, for-profit corporation, whereas everyone else operates as an on-campus office," said Steve Banks, BCMT president.

Over the last 5 years, BCMT has kept Baylor in the top 25 universities for licensing income as measured by the Association of University Technology Managers Annual Licensing Survey.

BCMT also has been active in the formation of new companies called spinouts. In the last 4 years, BCMT portfolio companies have raised more than $168 million of capital from investors with biotechnology and medical technology expertise, including venture capital firms, corporations, and high-net-worth individuals. The tech transfer company's current portfolio consists of 14 companies that have been founded on faculty-led inventions. The latest of their companies to go public is Lexicon Genetics, Inc, which was established in The Woodlands in 1995 as the premier mouse genomics company.

Even with these money-making ventures, Texas' health care research industry wouldn't mind a little help from some legislative friends.

Interpret data and draw conclusions

"If the state didn't do anything to nurture Texas' research engines, those engines still would be humming 24 hours a day and creating new technologies," Mr Kowalski said.

But legislators realize the potential the industry holds for Texas, both medically and economically.

"As policymakers and stewards of public tax dollars used to treat diseases, I believe we have a responsibility to support this lifesaving movement and to ensure that it occurs in a safe and timely manner," said Sen Jane Nelson (R-Flower Mound), chair of the Senate Health Services Committee. "We also need to make sure that our health care networks are ready for these medical breakthroughs and are prepared to deliver them once they become available."

THBI continues to feed information to legislators on Texas' health care technology cluster by developing a "roadmap" with a 6- to 7-year shelf life, Mr Kowalski says. "It will be a very well-thought-out blueprint that will look at long-term goals for the industry, commercialization and innovation, and public policy initiatives," he said. "The exciting part about it is we're the only state in the country doing this roadmap process right now with the biotech industry."

In the meantime, researchers want practicing physicians to know that they "feel an important responsibility to put more effective tools into their hands so that they can take care of their patients by preventing as many expensive diseases as possible," Dr Neaves said.


Technology transfer organizations
Research on the Web
Expanding the frontiers: The economic and human dynamics of Texas medical research
Research in Texas
Careers of discovery
Following through: Public health research takes science out of the labs and to the people

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