Here’s how it works when someone in academia discovers The Cure for Cancer (or, to be accurate, A Chemical that Might Be a Slightly More Promising Treatment for Certain Types of Cancer):
Let’s say a researcher is studying something cancer related. Lo and behold, she happens to stumble across some novel chemical that happens to have a really strong effect – at least in a tissue culture kind of setting. First she’ll file a patent, likely before publishing the result. I believe large institutions will have their own patent lawyers on hand, but will also have some claim to patents on research that they hosted. (Here I’m rather ignorant of the details). Then she can simply license the treatment to an existing pharmaceutical company, if someone is interested. Most big pharma companies would rather not bet on something until it’s gone through some more thorough testing, however.
In that case, our intrepid researcher will create a startup to investigate medical applications (and possibly has to license the treatment from the original parent institution? Again I’m ignorant here). She finds some business partners to help out with financials and management, finds some venture capital, and starts a small company that will work on preliminary drug research. They might, for example, explore possible uses for the treatment, optimize it a bit, and see how well it works well in simple models (tissue culture, perhaps small animals like mice). The startup might go public at some point, to raise more money for research. The end result is that they have some good data backing up the new treatment, and maybe a few more related patents. This will take years, millions of dollars invested, and lots of work. The original researcher can be involved to different degrees – she could quit her academic position and work full time at her company, or she could just be a glorified part-time consultant that gets a nice cut at the end.
Now, the researcher (or more likely the business partners that are more savvy in this area) will shop around big pharma companies, looking for a buyer. Most of these startups aren’t lucky enough to get a buyer willing to pay more than investments, and just go bankrupt. The lucky ones get a nice deal from some big pharma company that thinks the new treatment is promising. The really lucky startups are bought out for huge amounts of money – see Sirtris, which was bought out for $720 million.
Now, our original researcher probably had a big chunk of stock in the startup, so she’ll get a big pile of stock (from the buying company) and a big pile of cash in the buyout.
The situation for our basement amateur is probably similar, but they’ll have a lot more work to get anyone interested in their cure.