When Professors Take to the Private Market

To a life scientist who has emerged from a struggle to master a recalcitrant compound, an elusive ion flux, or an important gene sequence, launching a company might seem not just simple, but also natural. Think up a catchy name, take the CEO title, and shepherd a discovery from the laboratory to the market where profits lie. After all, don't thousands of folks—even those who think mass spectrometry may be a technical point in football—run companies and make millions from other people's ideas? Actually, the business side of science is much more complicated than it might appear, according to biotechnology experts. Tension between a faculty member who comes up with an idea and the institution that owns it complicates the future of companies born in universities. "It's not easy anywhere," Jonathan Kaufman says. "Starting a company is a lot of work." A former academic researcher, Kaufman is now science director of Pittsburgh-based LaunchCyte, a firm that creates new biotechnology ventures. "There are faculty that consider themselves to be at odds with their institutions," he observes. "They might think, 'The university is going to get this big cut, so I'll go outside and do it on my own.' That is a pitfall." Unlike university technology-transfer officials, most scientists lack established relationships with patent lawyers and marketing specialists. It is also rare for scientists to know as much as the officials do about negotiating the tangle of multiple private and public funding streams. Academic technology transfer offices added more than $40 billion to the US economy and supported 270,000 jobs through licensing products in 1999, according to the Association of University Technology Managers. Companies born in the creative cradle of academia, in contrast, must overcome many handicaps. Entrepreneurs and technology-transfer specialists recommend that academicians with a yearning for the marketplace follow a few simple steps to avoid the worst mishaps. STEP ONE: Know the rules. Locate the agreements signed without reading when you were hired, applied for grants, or signed on to projects. Read them. Learn the university technology transfer arrangements, the conflict-of-interest policies, any stipulations attached to funding streams, and even state and federal laws. For example, some states restrict the amount of equity that public university employees can own in outside firms; others require financial reporting. Courtesy of Katherine KuKathy Ku STEP TWO: Know the technology transfer officials. Talk to other scientists who have relationships with officials and check the office's track record. To determine the prevailing philosophy, bypass the Web site folderol and follow the money. A university that invests millions in biotechnology incubators clearly favors startups. One that collects most research funding from the National Institutes of Health and other public sources may make for rough going among startups. Stanford University, for example, keeps a tight rein on commercial connections. "We don't want the university faculty to be used to benefit a company," says Kathy Ku, director of the office of technology licensing. "We don't want this perceived pipelining effect where we become the research arm of a company." STEP THREE: Understand private-public boundaries. Don't use university facilities, property, or time, to spark or nurture the flame of a new company. Rent, lease, or borrow, but keep it off-campus. And no fudging, warns Monica P. Medina, a Washington attorney whose practice includes life sciences. "I honestly think being forthright, as scary as that may be, is the best bet," she says. LaunchCyte specializes in helping generate companies from academic research. Businesses can sometimes pay to use university laboratory resources, but both parties draft the arrangements with care, explains Tom Petzinger, the company's chief executive officer. These deals usually call for an independent audit just to make sure no one crosses ethical boundaries. Courtesy of Gary E. DeanGary E. Dean STEP FOUR: Examine your motives. Gary E. Dean, associate professor at the University of Cincinnati School of Medicine, helped launch a startup in 1996 called Protein Express. He says if your desire is to be in business, get off the faculty; if a faculty position is the goal, don't take charge of a business. Dean did not want either. He just didn't want to lose a postdoc and hotshot at protein expressions who was intent on forming a company. Dean's academic research takes priority. He works mostly as a technical adviser for Protein Express, and his academic laboratory buys nothing from the company. Despite such caution, Dean says that developing a business is an experience not to be missed. "We started out not having a clue," he adds. "All of us were scientists with zero training in business." STEP FIVE: Learn from history. Figure the odds of successfully launching a company from an academic laboratory. "Faculty are faculty for all the right reasons," says Louis P. Berneman, managing director of technology transfer at the University of Pennsylvania. "These are scientists and other inquiry-driven people whose agenda is to create, store, and transmit knowledge for knowledge's sake. Companies or commercial entities are interested in the exploitation of knowledge for profit's sake. These two goals and agenda are incompatible within the same organizational construct." Berneman says he has been involved with 35 to 40 startup ventures. Only 3% of the hot discoveries presented to the university by academic researchers have resulted in startup companies. Most, says Berneman, are doomed. "There are far too many people who believe that every faculty idea is a startup venture," the executive says. "The fact is that only a few ideas will support a company and the vast majority of those will never be successful in the marketplace." If visions of stock offerings still are hopping in your head after taking all the precautions, you may be an entrepreneur. Just as scientists have an innate curiosity, entrepreneurs have an inbred confidence that helps them overcome a lack of business acumen. "A person who is an entrepreneur has an intrinsic drive," explains Daniel Shelly, an Ohio scientist who studied academic and commercial ventures while earning an MBA. "It doesn't matter what they know or don't know. If they need to know something, they go find out about it." STEP SIX: Get help. Stanford's Ku urges scientists to fall back on experience applying for grants when writing business plans. Check out the mini-MBA programs that universities aim at biologists, physicians, and other life scientists. Six to eight months of focused business training produces researchers who know the basics of balance sheets, market research, and other business tools. Make the rounds of the technology transfer officers, venture capitalists, incubators, and consultants, and pick up pointers. But remember, everyone gets paid, in fees, equity (ownership of shares), or influence (e.g., board seats). STEP SEVEN: Don't spend money before you get it. In the early stages of Protein Express, Dean and his postdoc collected a so-called kitchen cabinet of retired corporate pharmaceutical executives who acted as consultants. They came from a world where spending $10,000 on new stationery made sense. The little startup with $80-some dollars in the bank could not always bankroll the board's suggestions. Beware the posh incubator facility. While off-campus space is essential, nurseries for new companies that opened their doors during the halcyon days of 1999 and 2000 may be too pricey for a young company's purse. Make sure officials quantify, in writing, all promises of technical aid and assistance. Money is crucial right from the start. Few, indeed, are the scientists who can cough up $25,000 to $50,000 just to get a provisional patent in place, let alone $50,000 to $100,000 for a full-blown patent application. The technology transfer office owns all ideas generated at the university for product development. The scientist who spawns an idea may have to compete against veteran biotechnology companies to license the technology from the transfer office. "We try to do what is best for the technology," Stanford's Ku says. "That does not mean it will go to the laboratory researchers who created it. We market the technology to as many different parties as we can." Brace yourself for some tough licensing negotiations, even with the university itself. The institution may have invested tens of thousands of dollars in intellectual property and marketing work, an investment it will want to recoup. When the entrepreneurial bug bites, remember: nobody, least of all the university technology transfer office whose job it is to turn science into business, sides with the scientist with a business bent. "He or she should definitely be aware that they are on their own," Medina says. "I don't mean that universities are evil, but as an institution and primary employer, they are bound to look out for their own interests, which includes making sure people honor the primary obligation that comes with working for a place." Peg Brickley (dbizpeg@hotmail.com) is a freelance writer in Philadelphia. When Students Work for Professors Professors' biotechnology companies may attract postdoctorate and graduate students, but they must follow many of the same rules their professors follow. Collaborations with adjunct faculty members, and working as employees of outside companies with university appointments can satisfy a student's urge for a commercial connection without risking the rules. But Stanford technology-transfer executive Kathy Ku says the university gets "very nervous" about the possibility that faculty-connected companies could take advantage of enthusiastic students eager to prove themselves. "Usually we are concerned about graduate students being involved in faculty companies," she says. "We don't want faculty to be their bosses in and outside the university." —Peg Brickley

When Professors Take to the Private Market

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