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EQUITY EQUALS SUCCESS: Universities can help start-up ventures by reducing demands for cash, explains licensing officer Mike Martin. A recently issued report has provided new evidence that federal support of basic research in universities earns significant paybacks in the form of jobs created and taxes paid by companies created to exploit research findings. Many institutions have been convinced that they could successfully stimulate start-up companies without losing their academic purity and character. Some have put in place administrative systems to facilitate technology transfer by encouraging faculty members and alumni to form companies based on technologies developed in their academic research. Critics of the process, however, wonder whether university authorities have gone too far in their attempt to cash in on their researchers' success. The report, prepared by the economics department of BankBoston (E. Moscovitch et al., MIT: The Impact of Innovation, Boston, BankBoston, 1997), demonstrates the nationwide job-creation power of the Massachusetts Institute of Technology (MIT). It tells a compelling tale. "If the companies founded by MIT graduates and faculty formed an independent nation, the revenues produced by the companies would make that nation the 24th largest economy in the world," the report states. "The 4,000 MIT-related companies employ 1.1 million people and have annual world sales of $232 billion." PROOF POSITIVE: MIT's Ed Roberts was pleased with a recent study that gave evidence of the job-creation power of his institution. Published in March, the report is a component of continuing efforts by BankBoston-one of New England's major banks-to monitor economic conditions in the United States. It has given supporters of federal funding for research universities a powerful new argument to make to politicians. MIT president Charles Vest and others are using the focus on jobs to appeal to politicians, who "want to position themselves as having provided jobs for their constituents," explains Ed Roberts, a professor in MIT's Sloan School of Business. "Until recently we haven't had evidence like that." The majority of companies started by MIT alumni focus on products and services related to the physical sciences. However, life science is rapidly emerging as a source of startups. According to the BankBoston report, 6.9 percent of the MIT-related companies involved pharmaceuticals, biotechnology, or medical products. "Biotechnology, recombinant DNA, and genetic engineering all originated in research universities, in which virtually all research was supported by federal dollars," says biochemist Arthur Kornberg, a professor, emeritus, at Stanford University. "To this very day, the source of personnel to populate those ventures is the collection of research universities funded by the federal government." Kornberg, a Nobel laureate in physiology or medicine, has seen both sides of the academic-industry relationship. He cofounded Palo Alto, Calif.-based DNAX Institute of Molecular and Cellular Biology, a biotechnology venture bought by Madison, N.J.-based Schering-Plough Corp. a year after its formation. A report issued by MIT in December 1995, entitled "MIT, the Federal Government and the Biotechnology Industry: A Successful Partnership," amplifies the transition of federal dollars into successful start-up ventures. "The development of the U.S. biotechnology industry is the result of a partnership of the federal government, research universities and biotechnology companies," it states. "The government provides crucial funding for basic biological research in universities, approving research proposals based on scientific merit and peer review. University research, in turn, provides the scientific basis for the development of life-saving medical products by biotechnology companies." The 1995 report outlines MIT's contributions to the biotechnology industry, through basic research financed by $80 million in NIH funds, technology transfer via licensed patents, scientific expertise, and invention of manufacturing technologies, as well as the creation of companies by entrepreneurs trained at the institution. It also provides advice on the process of transferring discoveries with commercial promise into market reality. One key to a university's success in stimulating start-up companies, asserts Roberts, is the effectiveness of its industrial liaison office, office of sponsored research, or whatever other department it designates to make direct contact with industry. "The licensing office must understand what it's doing in its dealings with industry," he maintains. Many major universities and teaching hospitals have failed to move research discoveries into the market because they haven't understood the process of commercialization, Roberts contends. Investors, who have the money, enthusiasm, and knowledge to finance start-up companies, play a significant role in the exploitation of research. They keep a close eye on the qualifications of individuals working for universities' industry liaison offices. "When you see universities advertising for technology-transfer people with industry experience, you know they're getting serious," notes Steve Banegas, who founded Dominion Bioscience Inc. of Blacksburg, Va., to exploit agricultural technologies developed at Virginia Polytechnic Institute and State University (Virginia Tech) and Pennsylvania State University. Several technology-transfer offices provide a wide range of services to scientists who want to commercialize their discoveries. "Whenever somebody wants to start a company, we will advise them on finding a CEO, finding investment, finding a lawyer, and other needs," says Bill Otturson, director of Connect, which provides an interface between industry and the University of California, San Diego. "We refer to our work more as technology marketing than technology transfer," he explains. "Our main transfer is of the brains of students trained in the university who find jobs in new companies." Another sign of serious intent for investors is a university's willingness to take an equity position-shares in a company rather than up-front cash-in a commercial venture that stems from technology developed within its ivory towers. That willingness eases the cash-flow problems that can dog any start-up business. "If the university can reduce its demands for cash, that will increase the chances for success" of any commercial venture, comments Mike Martin, executive vice president of Virginia Tech Intellectual Properties (VTIP), the licensing office at Virginia Tech. VTIP agreed to take an equity position in Dominion Bioscience when it was founded five years ago. "Sharing rewards as well as the risk means that VTIP works more closely with entrepreneurs," Martin says. As an investor in technology developed by academic laboratories, Banegas concurs: "If you spend more time and money on license fees, it detracts from your time for research [to improve the fledgling company's products]." Willingness to accept an equity position is not entirely new. According to Roberts, MIT decided several years ago to be paid speculatively in the stock of newly formed companies. However, it does not take seats on the companies' boards. The institution, continues Roberts, "essentially says: 'This is a hand-off. Don't create conflict in our role.'" The potential for conflict between a university's academic role and its efforts to start new businesses has caused several institutions to exercise extreme caution in permitting faculty members to develop their discoveries into marketable products. "There is a number of instances in which a discovery leads not to an extension of the discovery but to a start-up company," explains Kornberg. "I'm concerned there's an increasing frequency with which that might occur." RUSH MONEY? The trend toward commercialization keeps many researchers from talking about new findings in the lab, contends Georgia State's Paula Stephan. Kornberg worries that the possibility of commercializing discoveries may interfere with the traditional openness of academic science. That worry appears well grounded. "When you interview scientists, they talk about how much less people talk in their labs," says Paula Stephan, a professor of economics and associate dean of the School of Policy Studies at Georgia State University. Even undergraduates are aware that they should not talk about new finds in laboratories where they work, Stephan claims. A recent study, entitled "Withholding of Research Results in Academic Life Science," by David Blumenthal of Massachusetts General Hospital, expresses the concern in numerical terms (JAMA-Journal of the American Medical Association, 277:1224-8, 1997). Almost 20 percent of 2,167 life science faculty reported that publication of research results had been delayed by more than six months in the previous three years. Those delays were mostly for reasons related to commercialization of their work. STRICT AND CLEAR: When it comes to commercializatiom, MIT's Lita Nelson stresses that "universities do eed very clear policies on conflict of interest. Leaders in the effort to move discoveries out to the market acknowledge the possibility that commercial considerations might outweigh the search for new knowledge. But they contend that they have structures in place to retain the university's academic purity (K.Y. Kreeger, The Scientist, March 31, 1997, page 1). "We're not selling out to industry. We're moving research out without compromising our own academic mission," says Lita N, MIT's director of technology licensing. "Universities do need very clear policies on conflict of interest. Ours are stricter and clearer than those of most universities in the country. That opens the way for the technology-transfer process." For success, the technology-transfer process must be user-friendly-and open, she adds. "It's not a dirty little secret, but a key to the mission." Once researchers have decided to exploit a technology without fear of compromising their academic credentials, they must find capital. That's often an almost insurmountable barrier. Competition for investment capital is fierce, and not only among U.S. universities. According to Banegas, the Scottish Agricultural College is a strong player in the game of exploiting academic work in the life sciences. The source of the technology that Edinburgh-based PPL Therapeutics used to clone Dolly the sheep, the college has aggressively sought collaborative projects with industry. N pinpoints two favorable factors attracting investment. The first is location. That's important, she says, because venture capitalists like to fund companies where they live or where they frequently visit. Next comes name recognition. "In biotechnology, there is a whole lot in name recognition of individual faculty members," N points out. "It's useful to have someone recognized as truly world-class among the founders" of a start-up business. The unavoidable absence of those two factors does not doom an enterprise. For Banegas, the crucial quality of academic collaborators is the desire to see their technology commercialized and to help the company to achieve that goal. Banegas will work with less committed individuals who simply want to hand over their technology "only if that technology is so clear that you can write it down and pass it on"-a rare occurrence in life science. The desire to be involved in the commercialization process should not blind scientists to the realities of business life. Martin warns such individuals to avoid falling foul of three myths of commercial life commonly believed in academic circles. First, scientists often think that venture capitalists give grants just like NIH; in fact, they always expect a return on their investment and will pressure companies they fund to guarantee that. A second myth is that business is easy. In fact, says Martin, it is difficult, because it's all about relationships, making a sale more than once, and obtaining funding. Finally, many scientists believe that they can run their academic department and their business. Anyone who tries to do both, warns Martin, will soon discover that one pursuit becomes a mere hobby. IMPORTANT LESSON: When starting his company, Tracy Wilkins learned "how to sell and avoid being too much in love with technology. Tracy Wilkins, director of Virginia Tech's Franklin Biotechnology Center, has learned those lessons in the six years since he, postdoctoral student David Lyerly, and two other scientists founded TechLab Inc. The Blacksburg, Va.-based company develops and manufactures immunological tests based on research in Wilkins's laboratory. The fledgling company had to bootstrap itself from one paying project to another simply to stay in business. "Many times we thought we were going to go broke," recalls Wilkins. "You wake up in the middle of the night in a cold sweat, worrying how you're going to pay your employees. You have to be ready to take high risks all the time. And you don't pull profits out; you put them back in." Now co-owned by Wilkins and Lyerly, TechLab Inc. has more than 70 employees and $2.3 million in annual sales. It also has a full-time manager: Lyerly, who left his academic career. "Good scientists often make good managers, as they've often handled money and dealt with budgets," explains Wilkins. "The problem is understanding how to satisfy the marketplace. You have to learn how to sell and avoid being too much in love with the technology." Academic life scientists who enter industry must always remain aware of the differences between the two pursuits, and the compromises that a double life entails. Nobelist Kornberg diagnoses the problem in The Golden Helix: Inside Biotech Ventures (Sausalito, Calif., University Science Books, 1995). "The industrial sector must be reminded that the concepts, techniques, and practitioners of biotech ventures . . . all came from basic academic research," he writes. "The competitive rush to the marketplace leaves little time and no resources to ensure that the foundations for novel technologies will be built for the next generation." On the other hand, he continues, "Industry gave employment to scientists. It developed the technologies that accelerated basic science and strengthened public sympathy for it by contributing to the visible benefits that accrue from research." Peter Gwynne, a freelance science writer based in Marstons Mills, Mass., can be reached online at PGwynne767@aol.com.

Report Shows Basic Science Creates Jobs

May 11, 1997

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