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Startups, Jobs, Economic Impact: An Analysis of Commercialization at UW

Xconomy Seattle — 

Ever since a landmark law passed in 1980, universities have been able to reap financial rewards from federally funded technologies they develop by patenting them and selling licenses to companies large and small. Some universities have hit pay dirt, such as the University of Wisconsin with its anti-clotting drug warfarin and the University of Florida with Gatorade.

But tech transfer is a tough business. Most university commercialization efforts are actually unprofitable.  And even universities that have produced lucrative technologies can find themselves struggling when the patents run out. That’s why the business of commercializing university inventions is changing across the country. One trend has been a greater emphasis on nurturing startup companies based on university technologies. Universities want to show their communities that they are economic engines, creating new, high-potential companies and lots of local jobs. Another trend is encouraging entrepreneurship and innovation across campus and beyond. But funding these activities remains a challenge at a time of diminished state support for higher education and stiff resistance to tuition increases.

The University of Washington is confronting all of this at once. Its biggest technology licensing success—which returned almost $354 million over the last 24 years, helping pay for research and the UW’s commercialization activities, among other things—went off patent earlier this year. With goals of transferring university innovations to society, as well as increasing revenue and prestige, the university has been stepping up its efforts to spin off new companies. That accelerated when new president Michael Young challenged the university in 2012 to double its startup output.

So how is the UW doing?

Inslee at the UW startup celebration

Gov. Inslee at the UW startup celebration in July.

By some measures, the university appears to be hitting its commercialization stride. It recently announced a record of 18 new startup companies in the 2014 fiscal year.

But a closer look at the UW’s public statements reveals that the commercialization success may not be as impressive as the university claims. For example, the UW could provide little to substantiate statements that its startups have an historical average of 60 employees, though commercialization leaders say they are undertaking a larger study of economic impact now. Also, a committee convened by Young to advise him on commercialization policy reported to him last fall that efforts to generate more revenue from university intellectual property (IP) may be driving up transaction costs for licensing, thus hampering technology transfer and hindering startups.

The report, which was not released to the public, found systems that “inhibit commercialization,” a view that is at odds with the headline-grabbing startup numbers coming out of the UW in the last two years. It also called for a change in the culture of the institution to better encourage commercialization, something the UW appears to be taking to heart. (The full report can be found at the end of this article.)

And those startup numbers themselves raise thorny questions.

Xconomy examined the 18 new companies the UW said it “launched” last year and found that at least two-thirds of them had filed business registration paperwork prior to the start of the 2014 fiscal year, two of them several years earlier. The UW counts all of these as its own startups because they did license at least some technology from the university in 2014. Such claims follow the guidelines of the Association of University Technology Managers, which tracks commercialization through surveys of institutions across North America.

But the UW has failed to point out this distinction. Young asserts that this way of tracking startup activity actually results in a more conservative count. It also leaves out some companies that most people would consider UW startups.

Critics see signs that the startup numbers have been inflated at a time when the university is looking for outside support for its commercialization operations and new ambitions. Young vehemently denies this, insisting that it has little to do with money.

Still, it’s important to have a clear understanding of how the UW counts its startups and their economic impact at a time when scarce public funds—as well as private contributions—are being sought to support new and existing commercialization programs.

In an interview with Xconomy, Young acknowledged that the committee report points out some areas that need improving. (The full interview is here.)

“In the last few years we’ve made real strides,” Young said. “You can’t help but look at the data and say anything else. When you lead the nation in the number of licenses and active technology under license and when you’re in the top handful of universities in terms of spin-off companies, you’ve got to be pleased. But my view is you never should be so pleased, you’re not looking to improve.”

Vikram Jandhyala is charged with making improvements, as well as an ambitious agenda of initiatives around commercialization, entrepreneurship, and innovation that would reach far beyond the current UW technology transfer office, known as the Center For Commercialization (C4C). Jandhyala, a UW professor of electrical engineering and an entrepreneur himself, was appointed this summer to the new position of vice provost of innovation. His goals include exposing undergraduates across the campus to new resources and education models meant to encourage entrepreneurship, and supporting redevelopment of the University District neighborhood, which UW leaders envision as an “innovation district” where technology companies would tap university expertise and provide opportunities for students.

These broader ambitions require more funding, however, at a time when the university is staring at the bottom of its once-in-a-generation technology licensing jackpot.

The Hall patents: A rare home run

In the early 1980s, UW professor Benjamin Hall discovered a method for producing recombinant proteins in yeast. Patents around this discovery created an important building block of the biotech industry, licensed by GlaxoSmithKline for its hepatitis B vaccine, among others. The Hall patents are on the scale of other technology transfer outliers like Gatorade, warfarin, and Stanford search technology licensed by Google, that return hundreds of millions of dollars to the universities where they were invented. Former UW vice provost of commercialization Linden Rhoads referred to the April day that the Hall patents expired as “Black Tuesday.” … Next Page »

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