KUMC Policies, Procedures and Operational Protocols :

Institutional Conflict of Interest Policy

Effective April 17, 2002

POLICY

A formal plan to manage institutional conflict of interest related to technology transfer will be developed by the KUMC Conflict of Interest Committee, with concurrence by the KUMC Research Institute and the Vice Chancellor for Research.

BACKGROUND

Institutional conflicts of interest represent an area of growing concern for universities, federal regulators, and the public at large. Although federal agencies only recently have turned their attention to this area, professional societies such as the Association of American Universities and the Association of American Medical Colleges are encouraging universities to disclose and manage conflicts of their institution and its top decision-makers. Increasingly institutions around the country are recognizing the need to have written policies that govern research in which the university would benefit financially from a successful outcome. The purpose of this policy is to mitigate institutional conflicts and to avoid the creation of other personal conflicts with regard to the university’s equity holdings. Further background information is found in the Appendix to this policy.

PROCEDURES

The plan will adhere to the following principles, procedures and practices.

Disclosure and Responsibility for Monitoring:
1. Any material provided to the public, to scientific journals, or to professional organizations from the University, the KUMC Research Institute, or from their respective employees shall include the disclosure that the University, the Research Institute, and/or the inventor(s) have financial interests in the licensing company. The person providing the material is responsible for making such disclosures.
2. When the Research Institute takes an equity interest in a company, the President of the Research Institute shall file an Equity Disclosure Form with a Conflict of Interest Committee through the Director of Research Administration (or appropriate officer responsible for oversight of the Conflict of Interest process). The Equity Disclosure Form shall be signed by the President of the Research Institute and the Executive Vice Chancellor of the KUMC. Copies of the form shall be distributed to the appropriate department chair or director, and dean or vice chancellor.
3. When a research contract or grant is entered into by the University or the Research Institute with a company in which the Research Institute holds an equity interest, or when a research project is commenced dealing with a licensed product of a company in which the Research Institute holds an equity interest, the Vice Chancellor of Research shall inform the appropriate officials of the potential conflict of interest of any faculty member or other employee (“Researcher”) working on that research project. Notification shall be made to the department chair or director, to the dean of the school or appropriate vice chancellor, and to the Vice Chancellor for Research. The Vice Chancellor for Research, on behalf of the Executive Vice Chancellor, shall be responsible for monitoring the situation through a management plan, with special attention to resource allocation, employment practices, and graduate student assignments, and for informing the Researcher of this policy. At the discretion of a Conflict of Interest Committee, certain cases where the potential conflicts are significant, the Vice Chancellor for Research shall make annual written reports to the University’s General Counsel’s office, which will assist these persons in overseeing the disclosure and management of potential conflicts. A copy of the reports shall also be sent to the Executive Vice Chancellor’s office. In all cases in which the Research Institute has an ownership interest, any proposed changes in the license or research agreements involved or any potential sale of that interest shall be reported to the General Counsel’s office.
4. The financial interests of the University, KUMC Research Institute, and the Researcher must be disclosed during the consent process to any human research subject, with oversight by the appropriate Institutional Review Board.
Research:
1. Any clinical trials/product testing of a University licensed technology shall be disclosed to the Human Subjects Committee and is subject to management by the Conflict of Interest Committee.
2. Any research shall be designed to minimize researcher discretion in interpreting results. The researcher shall keep extensive notes to detail results and other issues that come up during the study.
Equity Decisions:
1. Research Institute staff, including directors and officers, shall not acquire an equity position in any commercial enterprise that has provided Research Institute an equity position as consideration under a license or other agreement. Additionally, Research Institute staff shall not acquire an equity position in any commercial enterprise in which the Research Institute has otherwise acquired an equity interest. A list of such equity positions shall be found in each Research Institute’s annual audit.
2. University department chairs, directors, deans, and vice chancellors (including associate and assistant administrators) shall not acquire an equity position in any such company when the respective department, center, or school may benefit financially from a license of University owned technology to the company or other agreement with the company.
3. The Research Institute shall divest its equity position as soon as practicable. Such a sale will be accomplished upon the advice of the Research Institute’s Finance Committee.
4. The prohibition on the acquisition of an equity position by individuals described in this section shall apply equally to immediate family members and members of those individuals’ household as well.

DEFINITIONS

Institutional Conflict of Interest: Institutional conflict of interest may occur when the university, members of senior administration (chairs, deans, vice chancellors, directors), or affiliated organizations have a financial interest in a company that is associated with university research. Examples of potential conflicts include investments in start-up companies associated with faculty inventions, ownership in companies that make significant contributions for facilities or endowed chairs, or stock ownership in companies that conduct research at the university.

Financial Interest: Financial interests include consulting income; value or potential value from stock shares, equity holdings, and royalties; and membership on a company’s Board of Directors.

GROUPS COVERED

University of Kansas Medical Center
University of Kansas Medical Center Research Institute, Inc.

EXEMPTIONS

None

CONTACT

John R. Finley, JD, MPH
Associate Vice Chancellor for Compliance
University of KS Medical Center
1040 Wescoe, Mail Stop 2014
3901 Rainbow Blvd.
Kansas City, KS 66160
Ph: 913-588-1206
FAX: 913-588-1224

Appendix to KUMC Policy on Institutional Conflict of Interest

Various conflicts of interest may arise when the University of Kansas Center for Research, Inc. or the University of Kansas Medical Center Research Institute, Inc. (each individually “Research Foundation”) holds equity in companies that license technology and/or support ongoing research at the University of Kansas (University). The Lawrence campus (KULC) and the Medical Center campus (KUMC) of the University of Kansas each have a conflict of interest committee (each individually “Conflict of Interest Committee”) for overseeing and managing the conflicts of interest for the respective campuses. This policy concerns conflicts of interest other than personal conflicts of interest that may arise when a faculty member or other employee stands to benefit financially from the results of his/her own research. The University has policies in place to deal with these conflicts. Basically, these personal conflicts are managed by requiring disclosure to the Chairperson/Director, Dean/Vice Chancellor, a Conflict of Interest Committee, and the Vice Chancellor for Research/Provost as appropriate. A management plan for personal conflicts is developed through a Conflict of Interest Committee and approved of by the Vice Chancellor for Research/Provost.

An institutional conflict may develop when the institution (such as a department, center or school, the applicable Research Foundation, or the University) stands to benefit financially from the outcome of research ongoing at the University to support a license or a research agreement. A Research Foundation, and/or units at the University, along with inventors, may receive future financial rewards by way of royalties or other fees if the product or service is commercially successful. Therefore, they have a financial interest in ensuring the success of the product. If the returns are in the form of royalties, there is a control, however. The market must buy the product or service and will judge it on its merits, not on earlier university actions. Otherwise, there are no royalties.

A Research Foundation may hold equity in licensees, most often equity taken in lieu of royalties or other license fees. In these instances the potential institutional conflicts become more likely for several reasons:

Equity markets are not perfect. Speculators reacting to information such as research results may cause substantial changes in market value. This may occur before any product sales.
Unlike royalties, owners of equity may cash in their shares prior to the product or service passing the market test of generating sales. This creates a situation where a Research Foundation and the inventor may enhance their positions relative to other shareholders by having superior or “insider” information.
A Research Foundation generally accepts a level of equity that could have substantial value if the product or service is successful. Therefore, the size of the transaction makes the potential institutional conflict even more serious.
The University and a Research Foundation, as well as the inventor, must avoid even the appearance of manipulating stock prices through issuing or using information that may later prove incorrect, such as promoting a drug discovery that later fails FDA tests. Such manipulation exposes these entities and individuals to significant criminal and civil liabilities.

Acceptance of equity in licensees of university technologies is within the overall mission of each Research Foundation. There are two compelling reasons:

Many technologies are best developed within a small entrepreneurial company. In such cases, cash held by these companies may be better employed in product development and marketing rather than paying a cash license fee.
The development of technologies in a small company may enhance economic development within the region, which is also of benefit to the University and the State of Kansas. By licensing to new companies that locate within the region, jobs are created. If the company is successful, many jobs may be created.

Hypothetical Situation:
To illustrate the issues involved in institutional conflicts of interest, consider the following hypothetical case. A Research Foundation licenses a drug developed at the University to a start-up biotechnology company (BIO). As an alternative to a license fee, a Research Foundation takes 100,000 shares of BIO stock that is 10% of the founders’ shares. The stock has no market value initially and is carried on the books at a value of zero. Suppose that after the license agreement is entered into, the entrepreneur is successful in a private placement and raises $5,000,000 for future research and development from venture capitalists at a price of $4 per share. Thus, a Research Foundation position has now effectively grown to $400,000 although there is no market for the stock. The venture capitalists that invested in BIO anticipate that if the drug goes through clinical trials, it will create a valuation at 20 times their investment. Thus, a Research Foundation looks at a potential stock price at a public offering of $80. A Research Foundation’s position would then be worth $8,000,000. Under current policy, a Research Foundation would sell the stock as soon as practicable when it becomes publicly traded. The revenues would be distributed to the inventor, the researcher’s department or center, and a Research Foundation according to University policy. Additionally, if the stock reaches this value, it is likely that there will be many millions in royalty income over the life of the patent. These funds will also accrue to the inventor, the department or center, and a Research Foundation.

With a potential $6 million from the sale of stock, plus future royalties coming to the University, there is a large incentive for units to make this technology successful. Developmental research may be the key to success. This is widely known by the financial community that will become very interested in research progress reports. If research continues on the invention at the institution, and particularly if that research is partially or wholly conducted by the inventor, conflicts of interest or the appearance of such conflicts may occur. (The following analysis is taken from the University of Florida Research Foundation Conflict of Interest Policy regarding Equity Holdings and borrows heavily from Ezekiel Emanuel and Daniel Steiner, “Institutional Conflict of Interest,” The New England Journal of Medicine, January 26, 1995.)

Examples of situations in which such conflicts may lead to decisions not in the best interests of the University or a Research Foundation are:

The inventor/researcher may elect to assign his/her graduate students to work on the project although this may not be in the best interests of the careers of the graduate students because of confidentiality reasons or simply the nature of the science or technology involved.
The researcher may inappropriately divert resources from research not funded by the licensee company (i.e., supported by a federal agency or another corporate sponsor) to development of the invention.
The department may assign excessive laboratory space or other resources to the project, crowding out more deserving science/technology in terms of research and educational value.
The department/unit, the school, and the University will have an incentive to keep the researcher on the faculty/staff and involved with the technology. This may conflict with normal tenure, promotion, and merit pay standards. For the same reason, the researcher may be allowed to enter into inappropriate consulting or other agreements with the company.
If future research involves clinical trials, there may be pressure on the institution to aggressively seek patients for these tests, to fail to inform patients of the potential conflict, and to ignore or minimize symptoms that suggest an adverse reaction to the drug.
There is a risk that the researcher will employ a research design or data collection that biases the study to obtain the desired results and that traditional institutional checks on the behavior will be ignored.
In reporting the results to the public or in other public relations activities, the University and the researcher have an incentive to portray research progress and the potential for the company in the best possible light to maximize investor interest in the company.
If another researcher at the institution invents an alternate therapy or product, which may be more efficacious for the patient or have more value for consumers, the University may not pursue further development or licensing because of economic competition with the existing invention.

We gratefully acknowledge information from the University of Florida Research Foundation in developing this policy and appendix.

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