Q&A: How WARF Plans to Stay Relevant in Lean Times for Tech Transfer
Quick, name one of the oldest—if not the oldest—university tech transfer institutions in the country.
If your brain automatically took you to a spot in New England or sunny California, think again. It’s the Wisconsin Alumni Research Foundation, or WARF, which was founded nearly 90 years ago in 1925.
What would become WARF started when Harry Steenbock, a University of Wisconsin biochemistry professor, discovered a way to increase the vitamin D content of food, which could eliminate rickets, a crippling bone disease in children caused by a deficiency in that vitamin. Quaker Oats offered him $900,000—worth almost $12 million today—for the rights to his invention.
But Steenbock believed that the university should benefit from research he had conducted there. And so, he began to petition regents to set up a foundation composed of alumni that would manage patents from university research, and license the inventions to people in the business world who could make them into useful, profitable products. Any royalty income from the products would flow back to the foundation, and be put back into additional UW research, creating what WARF founders envisioned would be a virtuous cycle.
Two years later in 1927, WARF completed its first licensing agreement, with Quaker Oats, which used Steenbock’s irradiation process to fortify breakfast cereals. The foundation also licensed the process to pharmaceutical companies to develop a medicinal preparation of vitamin D called Viosterol. And UW-Madison started to see some income from its earlier inventions.
The passage of the Bayh-Dole Act of 1980 created a uniform patent policy across the country, which enabled universities to retain commercial rights to the inventions they created using federal research dollars. That law sparked universities around the country to patent more of their inventions, and create tech transfer offices much like the one developed at WARF decades earlier. But most of those offices are managed by on-campus administrators, and just a handful of those are set up as separate foundations like WARF. Today, the Wisconsin foundation has an endowment of $2.4 billion, a portfolio of 1,500 patents, and almost 1,000 patent applications pending. Since 2000, administrators say, about 50 WARF companies, most of them startups that were spun out of UW-Madison research, have attracted about $900 million in investment capital.
Even in such a crowded field, WARF stands out from its tech transfer peers. “None of them have the financial strength that WARF has,” says Carl Gulbrandsen, the foundation’s managing director (who’s an Xconomist.). “I think our success is attributed to the fact that we had an independent board of people who have been successful business leaders. We have the ear of industry.”
Still, a tight federal funding environment and a shrinking pipeline for the earliest stage of capital, has meant that WARF has recently partnered with other organizations or created new programs within itself to better boost fledgling entrepreneurs at the university.
In recent years, UW-Madison got the spotlight for innovations in stem cell research by James Thomson, the director of regenerative biology at the Wisconsin Institutes for Discovery. Back in the ’90s, Menlo Park, CA-based Geron (NASDAQ: GERN) licensed Thomson’s technology, and worked for years to start its first clinical trial of embryonic stem cells in patients with spinal cord injuries. Two years ago, as Geron brought in new management, it opted to stop that program and focus on cancer drug development.
Thomson co-founded another company, Cellular Dynamics, which develops induced pluripotent stem cell technologies for drug and therapeutic development. Cellular Dynamics (NASDAQ: ICEL) went public earlier this year.
I spoke recently with Gulbrandsen and Leigh Cagan, WARF’s chief technology commercialization officer, about the foundation’s efforts, including a new $30 million IT-focused venture fund. Here is an edited version of our conversation.
Xconomy: Tell me about the evolution of the process of tech transfer. It seems like WARF, with its nearly 90-year history, has a unique perspective on this.
Leigh Cagan: Universities were rightly seen as great centers of innovation and resources for new breakthrough ideas with potentially high economic value. When I got out of business school in the mid ’80s, I helped to start a computer company at Yale, and we got top-notch venture money from the Northeast [investors]. Today, it would be nearly impossible to start that company. Investors want to take on new technologies that have lower risks than what you typically find in the university setting. They want to see a working prototype. They’d want to see you take a new drug to Phase 1 or even through Phase 2 clinical trials for FDA approval.
In most of the history of tech transfer, it was possible years ago, to license only a target for a drug to engage in a discussion with a pharma company. Now, you need a unique chemical identity with a family of compounds that are patent-protected, with early animal data or Phase 1 or higher clinical trials underway or completed.
You’re seeing a broad effort on the part of investors to step away from that risk. But that means somebody has to fill that hole if there’s going to be a pipeline of compelling innovation that can lead to a breakthrough.
X: So what are you doing at WARF to fill in this gap?
LC: We created the WARF Accelerator Program four years ago, under which we will grant dollars to projects that are still inside the university to specifically and narrowly improve their potential to be commercialized. It’s not just money for basic research. It’s milestone-driven funding that directly relates to the value proposition of a startup. This can be used for building prototypes, industrial design, analyzing a path to an FDA approval. Our experts in the program help us to understand the best use for a modest amount of dollars in a particular point of time. There is no question that in some cases the right amount of money at the right time can transform an idea, to go from an abstract arrangement to a working prototype.
The idea is to really target this fund very carefully to do proof of concept in a way that is commercially viable. Pharma, med devices, IT, cleantech, and food sciences, those are all areas where we have deep pipelines of world-class innovation. If we can improve the potential pipeline, there will be money downstream. In each of these areas of focus, we are able to recruit six to 10 outside experts whom we call catalysts who will offer guidance to researchers. Four startups have been formed, the fifth in the next couple of weeks. We have a couple of license opportunities with brand-name companies you would recognize immediately signed in the coming months. It’s a bet on our part, but it’s what we have to do if we’re going to take things far enough forward.
Carl Gulbrandsen: Large companies have gotten out of research and discovery. Bell Labs did a lot of R&D but were shut down. [The companies are] more concerned with their bottom lines, more pure marketing companies. When that happens, they’re expecting someone else to do that R&D and take that risk. I don’t know how many universities are set up to do that. But [big] companies are out of that business.
X: Last month, you and the university launched the “Discovery 2 Product” initiative. How does that complement or strengthen what you are doing at WARF?
LC: This is done jointly with the university with a single function on campus: Be a champion for entrepreneurship through the senior leadership group across campus. What are the resources currently missing that will help move ideas? Or what are the best ideas on campus where people have an entrepreneurial interest? Once it’s fully staffed, it will have a full-time director, mentors-in-residence with people in industry. They will help with building a business plan, vetting an idea, and seeking connections. This is intended to provide continuity, on campus and off campus. There is a good, rich set of resources that support entrepreneurs but it has a little bit of a patchwork quality. They haven’t been well connected; you kind of have to go knocking on the doors to understand who does what. They will have mastered that landscape and can connect the prospective entrepreneur on campus to outside mentors or to the accelerator program.
X: There is also the new Advocacy Consortium for Entrepreneurs (ACE). How does this fit in?
CG: This is a group of faculty that has actually started companies and are successful, who are trying to work together to help the campus foster entrepreneurship. It’s an adjunct to D2P. We are creating a 501(c)(4) advocacy group that may have some ability to lobby the state legislature to help make them a little bit more cognizant of the needs in these areas.
X: WARF has also partnered with the State of Wisconsin Investment Board on a $30 million micro VC fund focused on IT companies.
LC: There is $15 million from WARF and the investment board each. It’s a big step forward from a capital base that is quite small compared with Silicon Valley and Boston—but multiple orders of magnitude for us. [Companies in] the state [received] $100 million last year in venture capital and Silicon Valley had over $10 billion. There is a scale of difference there. But that money is the fuel that startup companies need to grow. When you look long-term at the record, WARF has been in the top three to five institutions from the standpoint of long-term generation of IP income from the licensing of tech to industry. Most of this comes from licensing to established companies rather than startups.
One licensee, Cellular Dynamics, went public in late summer. Before that, we had a radiation therapy breakthrough. Others have been acquired by Roche. Our single most valuable partner has been Abbott (NYSE: ABT), with a renal disease breakthrough that has brought many hundreds of millions of dollars back to the university. We’ve generated about $1 billion in IP income, which is hugely beneficial to the university, also in terms of our ability to support grants for ongoing research.
X: In which sectors have you had the most successful transfer deals? Is there a specific niche, or niches, that have emerged?
LC: As a general rule, this maps to where the research funding is focused from the federal government, two-thirds on life sciences, one-third on the physical sciences. We have a great portfolio of IP in both of those areas. We’ve had a long-time partnership with GE in medical imaging, MRI, CT scans.
We have a startup building breakthrough motors and generators. We don’t know if that will be a success, but if we see something that represents an exciting new idea in an area that’s big, and widely used, those are the kinds of things we try to back when we can. Those are disruptive technologies. We try to capitalize that innovation all across the value chain. That’s what we try to do. It’s a long-term game and what you want to have is a diverse portfolio, different opportunities at different stages of development. We hope to, over time, get a good number of winners and a pipeline of new opportunities.