At first glance, the 2019 Health Check report published by Grand Valley State University seems to suggest that medical innovation in Michigan and nationally slowed dramatically in recent years.
But health care and legal experts say the medical patent numbers in the report don’t quite reflect reality. They cite an array of factors that likely drove steep declines from 2014 to 2017 in the number of medical patents issued and assigned, both nationwide and in Michigan.
According to data in the 2019 GVSU Health Check report, medical patents issued to Michigan inventors by the U.S. Patent and Trademark Office plummeted 95 percent from 2014 to 2017, a declined mirrored nationally. Meanwhile, medical patents to assignees — a business that owns the patent — declined 93 percent in Michigan during the same period and 96 percent nationally.
Despite the drop in patents, industry insiders say that medical innovation remains as strong as ever.
“From our perspective, we still see quite a bit of activity and innovation happening, not only in Michigan but nationally,” said Jonathan O’Brien, chairman of the intellectual property practice at law firm Honigman LLP.
O’Brien attributes the GVSU findings that show otherwise “to a combination of a bunch of things.” Changes six years ago in patent law and an influx of startup companies that led to spikes in medical patents earlier in the decade are among the factors that “could account for a lot of the blip” in following years, he said.
According to the Health Check report, Kent County fared better than the state and nation in terms of the number of medical patents. From 2014 to 2017, medical patents issued to inventors in Kent County declined 79 percent, while patents issued to assignees locally dipped 77 percent, per the report.
While GVSU’s Health Check report does not interpret data or offer an explanation for the declines, it did call the trend “concerning.”
“Patented medical innovation in West Michigan has the potential to become a significant driver of regional economic growth, but continued R&D support is vital,” Health Check authors wrote in the 2019 report.
“This just points that spotlight on the fact that we might want to divert more R&D resources toward this area if we want future growth not only in innovations but also the economic benefits that might come from the R&D investments,” Sebastian Linde, an assistant professor of economics at GVSU’s Seidman College of Business, said during a presentation of the report at the monthly West Michigan Health Forum event in January.
Experts in medical innovation contacted by MiBiz offered a variety of explanations for the declines.
Michigan had a spurt of life sciences startup companies that formed in the early or mid 2000s as the state sought to build the industry, particularly following the waves of downsizing by Pfizer Inc. in Kalamazoo that put hundreds of researchers on the market. Those new companies contributed to driving up medical patents earlier this decade as they progressed in developing their innovations, said Phil Torrence, managing partner at Honigman’s Kalamazoo office.
As the startups matured, their early investors continued to support them, Torrence said. He expects that once those early startups mature further, more startups and medical patents will eventually follow.
“There might be fewer new companies that are coming together while we’re pulling our resources together to try to support these other companies to successful exits,” Torrence said. “If there are good exits, I anticipate the life cycle will continue and, boom, you will see a spike again in a few years.”
O’Brien also cites changes in U.S. patent law years ago that made it harder to patent biological materials, and favored innovators that were first to file, rather than first to invent. That first-to-file change likely led to a rush of filings prior to the rule taking effect and subsequently accounted for the mid-decade spikes in patents issued, he said.
Startups today also are much more cognizant of how fast they burn through investment capital, according to O’Brien. Many companies wait until they are further along in their development before deciding to go through the costly and lengthy undertaking of seeking patent protection, a process that can take several years, he said.
“I think people are just being a little more strategic about how they spend money and when they spend it,” O’Brien said. “The notion of what used to happen in the ’90s where you filed early and often and were very aggressive and broad (has changed). I’d say the trend now is that you’re more cautious and strategic and more surgical with the breadth of what you file, how you’re doing it, and when you’re doing it.”
Dale Grogan, co-managing director of Michigan Accelerator Fund I, a Grand Rapids-based venture capital fund, notes that the medical patent data in the GVSU report correlates to capital formation in Michigan. From 2010 to 2012, a period when medical patents rose, there “was a great deal of early-stage venture capital raised in Michigan. That meant that funds were available to exploit and further develop patent innovation,” Grogan wrote in an email to MiBiz.
Likewise, the recent decline in early-stage funding as investors moved to support later-stage companies corresponds to a decline in medical patents.
“As to why the drop off, if one were to correlate this to venture/institutional investing, the overall trend is drifting later, with less support of early-stage companies,” Grogan said. “The cycle thus spirals downward: If there is no funding for patent licensing, startup company activity dries up as well.”
Despite that, Michigan Accelerator Fund still sees plenty of opportunity to invest in medical startups.
“Deal flow continues to be strong,” Grogan said.
Fred Molnar, vice president of entrepreneurship and innovation at the Michigan Economic Development Corp., said he was “shocked” when data in the GVSU Health Check report was brought to his attention. Molnar noted the decline in Michigan correlates to what occurred nationally from 2014 to 2017, so “it’s not as though Michigan’s falling behind.”
From his perspective, Molnar has not noticed any downturn in innovation in Michigan, although that activity may not directly translate into medical patents.
“Innovation is going as gangbusters as it ever has,” he said.
One indication of that ongoing activity comes from the annual benchmarking report from the University Research Corridor, a group consisting of Michigan State University, the University of Michigan and Wayne State University.
The URC’s 2018 report from last spring shows the state’s big three research universities collectively ranked fourth among eight peer research clusters in the U.S. with 195 patents issued from 2012 to 2016. The URC ranked sixth with 621 invention disclosures from the three universities, and third in licenses and options issued for innovations.
The URC report does not break down patents by economic sector, although 53 percent of the URC’s $2.28 billion in research and development spending in the 2016 fiscal year was in the life sciences sector.
Brent Mulder, president of Spectrum Health Innovations in Grand Rapids, a division that works to vet and commercialize health care innovations, attributes the declines GVSU identified partly to a greater difficulty in obtaining a patent today. Patent office examiners have been giving more rigorous reviews to applications, which has caused the timelines for review to grow longer, Mulder said.
Over the last three to five years, angel and venture capital investors also have paid more attention to digital technologies, according to Mulder. That’s made it “that much harder” for medical innovators to compete for the capital they need to pursue product development to the point when they need patent protection.
Like others MiBiz contacted for this report, Mulder said Spectrum Health Innovations has not experienced any corresponding downturn in ideas to consider.
“I haven’t seen that decrease in the amount of innovation activity,” he said. “There’s just as much, if not more, innovation that’s happening.”