Archive for Saturday, January 24, 2004

IRS questions K.C. research plan

Stowers Institute provides $60 million for technology venture

January 24, 2004

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— In a plan designed to eventually commercialize its scientific discoveries, the Stowers Institute for Medical Research has provided $60 million in capital for a new technology transfer venture.

However, the Internal Revenue Service has questioned the legality of the plan, forcing the institute to seek a change in laws governing how nonprofit institutes such as Stowers can use the discoveries made by their researchers.

That has not kept Stowers from continuing with its plan to use most of the $60 million to fund BioMed Valley Discoveries Inc., a for-profit corporation set up to patent, develop and market the discoveries of Stowers and its prospective biomedical partners. The funding is part of Stowers' long-range plan, called the BioMed Valley Partnership, to transform the Kansas City area into a center of biomedical research and development.

That plan envisions a collaboration among the Stowers Institute and future partners, including Kansas University and the University of Missouri-Kansas City, whose chancellors were informed of the commercialization plan's details last week.

In exchange for ceding their intellectual property rights to BioMed Valley Discoveries, the research partners would receive substantial endowments to support their basic cell and molecular biology research.

"The only way to assure continuity of research is to have an endowment that creates a steady and predictable flow of income that scientists can count on," said Richard W. Brown, who was named earlier this month to head BioMed Valley Discoveries and its nonprofit parent, BioMed Valley Corp.

The idea is for BioMed Valley Discoveries to lure investors enticed by its commercial prospects. BioMed Valley Corp., which owns BioMed Valley Discoveries' stock, in turn would use the investors' money to establish endowments providing permanent funding for the scientific research partners.

However, Stowers must make sure the venture's for-profit status does not jeopardize the tax-exempt status of $280 million in bonds used to finance construction of Stowers' facility. Facilities built with tax-exempt bonds are barred from private use.

"The IRS believes that a long-term exclusive contract between Stowers and BioMed Valley and BioMed Valley Discoveries would constitute private use of the facilities," said Stowers attorney David Welte, "even though any profit from BioMed Valley Discoveries can only go to the endowments for the benefit of nonprofits."

Stowers' efforts to have Congress change that law might take two to four years, Welte said.

Failure to obtain Congress' blessing would not doom the plan. But it would prevent Stowers and its research partners from committing all of their future intellectual property discoveries to BioMed Valley Discoveries at one time. Instead, rights to each discovery would have to be transferred individually, making for a cumbersome process that, in turn, would make it more difficult to attract the investments contemplated under the plan.

The idea is that, at some point in the future, BioMed Valley Discoveries' stock would be offered to the public, with the potential to create billions of dollars in economic value. Those billions would then be used to increase the research partners' endowment accounts.

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