🧬⚛ What mRNA vaccines and nuclear fusion teach us about America's innovation system

Startups are a link of growing importance between university research and the broader economy

The Deep Magic of American prosperity can be found in the country’s free enterprise system. The American people have the liberty and opportunity to own economic resources — land, equipment, ideas — and use them to create and sell goods and services for profit. It’s a beautiful thing, whether that freedom and opportunity is used to run a bodega or Amazon.

But it’s no simple thing, this system. After all, America has a $21 trillion economy that operates at the technological frontier of 21st-century civilization. And key to the success of that economy is the process of turning early-stage scientific research into commercial innovations that fuel economy-wide creative destruction.

The relationship among commercial innovation, science research at universities, and economic growth is the subject of the new NBER working paper “Of Academics and Creative Destruction: Startup Advantage in the Process of Innovation” by Julian Kolev of the US Patent and Trademark Office, as well as Alexis Haughey, Fiona Murray, and Scott Stern, all from MIT’s Sloan School of Management. (The researchers will typically be referred to as KHMS from here forward.) Before I dig in, here’s the paper’s abstract (bold by me):

What is the role of startups within the innovation ecosystem? Since 2000, startups have grown in their share of commercializing research from top U.S. universities; however, prior work has little to say on the particular advantages of startup ventures in the innovation process relative to more traditional alternatives such as academia and established private-sector incumbents. We develop a simple model of startup advantage based on private information held by the initial inventor, and generate predictions related to the value and impact of startup innovation. We then explore these predictions using patents granted within the regional ecosystems of top-25 research universities from 2000 to 2015. Our results show a significant startup advantage in terms of forward citations and outlier-patent rates. Further, startup innovation is both more original and more general than innovation by incumbent firms. Moreover, startups that survive to become “scale-ups” quickly grow to dominate their regional innovation ecosystems. Our findings have important implications for innovation policy.

In short, the paper examines the role of startup ventures as the bridge between university research and commercial innovation that diffuses into the economy. The researchers illustrate this critical role through three brief case studies of emerging-technology startups — all of which are super interesting. Two important themes that you’ll see highlighted in these examples are that of “vision” (or the “ability of startups to pursue high-risk, high-payoff outcomes where they have private information”) and “creative destruction” (or the pursuit of “disruptive technologies that would undermine the competitive advantages of existing incumbents”).

And the big statistic you want to keep in mind here concerns the commercialization of university-created technologies: The share of patenting licenses granted by the top-25 research universities going to startups rose to 29 percent in 2019 from 17 percent in 2001 — with a corresponding decline in the share going to large incumbent companies.

 “Of Academics and Creative Destruction: Startup Advantage in the Process of Innovation”

Now let’s take a look at the case studies of biotech drug firms Modern and BioNTech, nuclear fusion company Commonwealth Fusion Systems, and low-carbon cement manufacturer Sublime Systems. I told you they are interesting!

➡ Moderna (US) and BioNTech (Germany). The life-saving mRNA coronavirus vaccines developed by these two decade-old firms didn’t start from scratch in 2020. They continued and built upon research lines, the paper notes, “undertaken in a range of different academic research laboratories around the world, most notably at the University of Pennsylvania. … The first demonstration of mRNA coding for ‘therapeutic proteins’ in a mammalian setting took place in 1990, and the problem of delivery in vivo into cell lines was overcome only in the mid-to late2000s (and even then, only in lab-based experiments in research mice).” So after the first breakthrough, there was years of work that needed to be done before people started getting jabs.