Like at most universities at the time, tech transfer at U-M was an afterthought, a low priority enterprise usually staffed by people with little or no industry experience.
But after witnessing the success of Stanford University and the Massachusetts Institute of Technology, the U-M began mining its intellectual property vaults for potential gold.
“We’ve always been a great research university,” says Nisbet, executive director of OTT. “We had all of this great stuff. But they don’t always translate into commercial opportunities. Being in the Midwest, we have to try a little harder.”
That extra effort has paid off. Under Nisbet’s leadership, the university has spun off 93 companies and generated about $168 million from royalty/equity income, including the sales of startups like HandyLabs and HealthMedia. The U-M enjoys a strong reputation from venture capitalists inside and outside of Michigan.
In the past “universities were difficult to work with,” says Koleman Karleski, the managing director of Chrysalis Ventures in Kentucky, an investor in HealthMedia. “But over the years, schools have become sophisticated in undestanding their technology and figuring how to structure intellectual property so it leaves the university. I think it’s clear that the University of Michigan has picked up on that.”
At the same time, the U-M faces long term questions over whether it can, or even wants to, be a commercialization powerhouse on par with elite institutions on the coasts. The school’s $1.2 billion in research expenditures is among the highest in the country yet its tech transfer output is relatively modest compared to other schools who spend far less on research.
“The U-M has done a fabulous job,” says Marc Weiser, managing director of RPM Ventures in Ann Arbor, who works closely with the university. “But I think it can do much better.”
Having lived in Boston, Seattle, Minneapolis, and Michigan, and having reported on technology across the country, I’ve observed an ambivalance towards tech transfer in the Midwest that’s not as prevelant on the coasts.
With the exception of the University of Wisconsin, Midwest research institutions like the University of Minnesota and Mayo Clinic don’t seem to have really embraced the aggressive entrepreneurship that could fully maximize the economic potential of their IP.
Nisbet also takes a measured approach to converting university IP into cash.
“We’re not trying to maximize revenue,” Nisbet says. “We’re trying to maxmize deployment of technologies and sometimes it’s leaving that last nickel on the table.”
Still, “we love to have huge exits,” he says.
U-M has certainly invested quite a bit of time and money positioning itself to be an economic powerhouse. Last year, the school debuted its Venture Accelerator, a 16,000 square foot maze of offices and wet lab space at the former Pfizer reseach and development facility on the north campus. The accelerator already houses three university spinoffs with two more on the way.
Nisbet has hired professional staff to vet technologies and recruited local entrepreneurs to advise startups. He also wants to tap the university’s 400,000 strong alumni network around the country to help out.
“We do all of this because we’re not Boston,” Nisbet says.
But could it be? In 2009, the U-M spent $1.02 billion on research, topping schools like Harvard University, California Institute of Technology, and Stanford University, according to report by the Association of University Technology Managers (AUTM). Out of the 150 schools or so surveyed, only MIT ($1.4 billion) and John Hopkins University ($1.24 billion) spent more on research.
Not all research has commercial value but it’s reasonable to expect a university to generate a healthy return on billions of dollars worth of investments.
Here’s where the U-M has some work to do.
From 2007 to 2009, the university spent $2.7 billion on research, according to the AUTM report. It generated an adjusted cumulative gross income of $52.3 million, a number that pales in comparison to schools like New York University ($1 billion), Wake Forest University ($256 million), and University of Florida ($154 million) that spend far less on research.
To be fair, some of these numbers from competing schools reflect revenue from a few blockbuster products or exits. But that also implies U-M is not yet producing deals of that magnitude.
Here’s another way to look at it. The University Research Corridor (URC), an alliance of U-M, Michigan State University, and Wayne State University, commissioned a report that compared the economic impact of these schools to other research university clusters, including Northern and Southern California, Illinois, Massachusetts, North Carolina, and Pennslyvania.
The report, written by Anderson Economic Group, attempted to evaluate how well each cluster converts its research expenditures into licensing income. From 2005 to 2009, the URC generated $31.8 million in licensing revenue, or just 2.1 percent of total R&D spending in 2008. By comparison, Illinois boasted a 16.9 percent conversion rate, followed by Northern California (8.7 percent), Massachusetts (6.4 percent) and Southern California (2.4 percent).
The U-M is certainly aware of this. For example, the medical school, which is responsible for the vast majority of the university’s research spending, recently created its own business development office to better connect companies with its doctors and researchers, though OTT would still be responsible for licensing and developing startups.
Investors have said the U-M has made remarkable progress in a relatively short period of time. The question is whether the school can take tech transfer to the next level.
The U-M has enjoyed some nice exits in recent years, Weiser of RPM Ventures says, which includes the $300 million sale of HandyLabs to Benton, Dickinson & Co. (BD) in 2009, HealthMedia to Johnson & Johnson in 2008, and Arbor Networks to Textranoix Communications last year. (Terms of the last two deals were not disclosed.)
“But as a venture capitalist, you would like to see more,” Weiser says.
Accuri Cytometers, another U-M spinoff, recently agreed to be sold to BD but the school does not own equity in the startup.
The school, after all, has spun off a remarkable 93 companies over a ten year span, or about nine a year. About three quarters of those companies are still alive and three quarters of them still reside in Michigan, mostly in Ann Arbor, Nesbit says.
However, startups are only one piece of a puzzle that includes talent and capital, says Jeff Bocan, managing director of Beringea, the Detroit-based venture capital/private equity firm.
Are these university-bred companies a “major economic driver?” Bocan says. “No. They do not make a short term impact. But over the long term, they could help diversify our economy. But you can’t flip a switch and diversify overnight.”
Weiser acknowledges the university faces “impossible expectations.” That’s what happens you’re Michigan’s top university spending over $1 billion a year on research at a time when the state continues to struggle with a depressed economy and 11 percent unemployment rate.
Can the U-M meet those expectations? Does it even want to? That’s the $1.2 billion question.
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