Are Universities Creating Too Many Biotech Startups?

2/20/14Follow @steen1969

Bruce Booth, the biotech venture capitalist known for his social media savvy, sent a Tweet last month that caught my eye. He tweeted in reference to the number of academic spinoffs reported in the 2012 AUTM Licensing Survey Report, “What % biotech? My bet, ~ half.”

Extrapolating from Top U.S. universities, institutes for life sciences in 2012 and AUTM data, perhaps 63 percent of academic startups formed in 2012 were biotech or in “life sciences.”  Working from a set of 639 startups, that would equate to 402 biotech startups formed in 2012.

A recent paper from The Brookings Institution noted “the top 80 universities by research funds control 89% of research expenditures and 92% of gross licensing revenue.”  This top-heavy distribution, the paper suggests, has led many of the smaller universities to try to compete with the big boys by nurturing more startup companies.

That may sound like a great idea, but in practice, it isn’t. In How many startups can university research support?, Jerry Paytas of Fourth Economy Consulting suggested that universities need at least $100 million in research expenditures to be anything but lucky in creating academic spinoffs.  Data from the AUTM 2012 survey suggests that, on average, it takes $90,863,347 in research expenditures at U.S. universities to create one startup.  I think these numbers work best in the negative.  For example, if an institution’s research expenditures are $150 million and they are creating 20 companies a year, it raises an eyebrow.

Are universities creating too many life science startups?

I tried to answer this question by doing some simple math based on data from the AUTM 2012 survey of U.S. universities and research centers. If you take the total research expenditures per university and divide by the average research expenditures per startup ($90,863,347) you can see the university’s projected number of startups per average research expenditures. Next, I looked at the actual startups created per university, minus the projected number of startups per average research expenditures, and gave an over/under score for each university. Taken together, I found there were 37 “too many” startups.  If 63 percent are life sciences companies, then U.S. universities created 23 “too many” life science startups in 2012.

Success in biotech is said to hinge on “Three basic factors:  science, demand and people.”  How many of the startups are based on proven reproducible science?  How many of the technologies have been “shopped” for industry interest?  Importantly, how many will be able to attract the talent to drive them forward?

According to AUTM, 79 percent of the startup companies formed had their primary place of business in the licensing institution’s home state.  Avoiding a specific biotech hub ranking, geographically, 333 of the startups were not formed in California or Massachusetts.  And of those, 263 did not move; meaning many of those startups are not formed in a biotech hub and don’t move to one.

In The spill-over theory reversed: The impact of regional economies on the commercialization of university science, Steven Casper of the Keck Graduate Institute of Applied Life Sciences essentially says that universities in regions that lack a significant industry presence—for example, a biotech anchor tenant— “will not develop extensive networks of ties linking academics with industry, and as a result will have lower commercialization output.”  Nevertheless, AUTM data indicates a significant number of startups are being formed in regions without a significant life science industry presence.

You can form and grow a successful life science startup outside of the hubs.  But, like it or not, … Next Page »

Andrew Steen is the vice president of business development for Metacyte Business Lab, a for-profit unit of the University of Louisville Foundation that seeks to stimulate life science startup activity. Follow @steen1969

Single Page Currently on Page: 1 2

By posting a comment, you agree to our terms and conditions.

  • http://thenextelement.wordpress.com/ scientre

    Nice write up Andrew.
    You advocate for universities to de-risk and then scale winners yet also note that talented senior management is strongly linked to success of biotech companies.
    Do have any thoughts you can share on how to structure (and fund) such an de-risking program within the confines of a university?

  • Kentucky BioAlliance

    Great article, Andrew. Do you suppose that the “extra 23″ startups are the results of working with averages? I’d be surprised if the number did NOT vary slightly either way from the “expected” number.

  • Cheryl Vickroy

    Very thoughtful and thought provoking – thanks Andrew. Does this beg for a more ‘virtual approach’ in which industry also plays a role? NIH is taking a step in this direction w/ their centralized Accelerators of Innovation. Much work remains to be done but bright minds are working on this issue!

  • Shawn Guse

    Good discussion to have, Andrew. Many technologies are developed at universities, but should universities be geared to pick winners and losers? And what, if anything, does our national research and commercialization ecosystem lose if our biggest scientific thinkers are worried about de-risking their work? I’d argue that problems with reproducibility of published research (see: http://www.economist.com/news/briefing/21588057-scientists-think-science-self-correcting-alarming-degree-it-not-trouble) is a far more confounding problem for our startup community than than lack of commercial expertise within universities. Developing commercial competencies within universities is a high-risk startup project; strengthening research and publication rigor is much lower-risk, process improvement.