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HEALTHCARE

Technology Transfer Strategies Maximizing the returns from new technologies

Steven Seget


Steven Seget Steven Seget is Principal at Delphi Pharma, and provides independent strategic consulting services to the pharmaceutical and biotechnology industries. Steven previously managed the strategic healthcare consulting function at Datamonitor and has an MBA from the London Business School. sseget@delphipharma.com

Delphi Pharma provides strategic, financial and market–based solutions to clients, focusing primarily on the portfolio management, licensing and pricing and reimbursement functions. Delphi Pharma combines an extensive research network, applied analytical expertise and an established track record to deliver high value results and measurable impact to its clients. www.delphipharma.com

Copyright Š 2008 Business Insights Ltd This Management Report is published by Business Insights Ltd. All rights reserved. Reproduction or redistribution of this Management Report in any form for any purpose is expressly prohibited without the prior consent of Business Insights Ltd. The views expressed in this Management Report are those of the publisher, not of Reuters. Reuters accepts no liability for the accuracy or completeness of the information, advice or comment contained in this Management Report nor for any actions taken in reliance thereon. While information, advice or comment is believed to be correct at the time of publication, no responsibility can be accepted by Business Insights Ltd for its completeness or accuracy. REUTERS and dotted and sphere logos are the house trade marks of Reuters Limited in more than 25 countries world-wide.

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Table of Contents Technology transfer strategies

Executive Summary

10

An introduction to technology transfer

10

Technology transfer trends

11

Geographical differences

12

Structuring the function

13

Bridging the funding gap

14

Chapter 1

An introduction to technology transfer

16

Summary

16

Introduction

17

Defining technology transfer

17

A brief history

19

Key issues Geographical differences Structuring the function Bridging the funding gap

20 21 22 22

Chapter 2

Technology transfer trends

24

Summary

24

Introduction

25

Technology transfer funding trends US Europe Canada

25 25 27 29

Technology transfer outcome trends US

31 31

iii


Europe Canada

38 39

Technology transfer return on investment trends US Europe Canada

41 41 43 45

Technology transfer league tables Healthcare measures Technology transfer trends Trends by research budget Trends by age Trends by office size

47 47 53 55 57 59

Key trends Geographical differences Structuring the function Bridging the funding gap

61 61 62 63

Chapter 3

Geographical differences

66

Summary

66

Introduction

67

Country-level regulations IP ownership Technology transfer

67 68 69

Institutional location

70

Technology transfer in the US IP ownership Technology transfer

72 73 74

Technology transfer in Europe IP ownership Technology transfer

75 75 76

Technology transfer in the rest of the world Japan Canada Australia

77 77 78 78

Recommendations

79

Chapter 4

Structuring the function

82

Summary

82

Introduction

83

iv


Structural issues Commercial returns Operational effectiveness Culture and process Independence

83 85 86 88 90

In-house, non-profit model Case study: University of California Case study: K.U.Leuven Case study: City of Hope

91 92 94 96

Independent, non-profit model Case study: Wisconsin Alumni Research Foundation Case study: Arizona Technology Enterprises Case study: Isis Innovation

97 97 100 101

Independent, for-profit model Case study: IP Group Case study: Fusion IP Case study: IPSO Ventures

103 103 105 106

Recommendations

108

Chapter 5

Bridging the funding gap

112

Summary

112

Introduction

113

The funding gap Technology transfer start-ups

113 115

Bridging the gap Translational research University seed capital Alternative venture capital

116 117 117 119

Recommendations

120

Chapter 6

Appendix

124

Research sources

124

Bibliography

124

v


List of Figures Figure 1.1: Figure 2.2: Figure 2.3: Figure 2.4: Figure 2.5: Figure 2.6: Figure 2.7: Figure 2.8: Figure 2.9: Figure 2.10: Figure 2.11: Figure 2.12: Figure 2.13: Figure 2.14: Figure 2.15: Figure 2.16: Figure 2.17: Figure 2.18: Figure 2.19: Figure 2.20: Figure 2.21: Figure 2.22: Figure 2.23: Figure 2.24: Figure 2.25: Figure 4.26: Figure 4.27: Figure 4.28: Figure 5.29:

The technology transfer process 18 Average research expenditure for US Universities, Hospitals and Research Institutions, 1997-2006 26 Average US Technology Transfer Office staffing levels, 1997-2006 27 Distribution of European Technology Transfer Offices by staffing levels, 2006 28 Average research expenditure for Canadian Universities, 1996-2006 29 Canadian venture capital investments and fundraising, 2003-2006 30 Average number of invention disclosures received by US Technology Transfer Offices, 1997-2006 31 Average number of patents processed by US Technology Transfer Offices, 2001-2006 33 Average number and value of US Technology Transfer licenses, 2004-2006 35 US Technology Transfer licenses by exclusivity, 2006 36 US Technology Transfer licenses by size of partner, 2006 37 Average change in European Technology Transfer outcomes, 2004-2006 38 Average number of innovation disclosures and patents processed by Canadian Technology Transfer Offices, 1996-2006 39 Average license revenue received by Canadian Technology Transfer Offices, 20002006 40 Rate of return for invention disclosures received by US Technology Transfer Offices, 1997-2006 41 Rate of return for patents processed by US Technology Transfer Offices, 2001-2006 42 Rate of return for US Technology Transfer licenses, 2004-2006 43 Rate of return for innovation disclosures and patents processed by Canadian Technology Transfer Offices, 1996-2006 45 Rate of return for Canadian Technology Transfer licensing, 2000-2006 46 Surrogate outcomes for the top 10 US university technology transfer offices ranked by research budget, 2006 55 Technology transfer outcomes for the top 10 US university technology transfer offices ranked by research budget, 2006 56 Surrogate outcomes for the top 10 US university technology transfer offices ranked by year established, 2006 57 Technology transfer outcomes for the top 10 US university technology transfer offices ranked by year established, 2006 58 Surrogate outcomes for the top 10 US university technology transfer offices ranked by office size, 2006 59 Technology transfer outcomes for the top 10 US university technology transfer offices ranked by office size, 2006 60 Technology Transfer Office services provided to European universities, 2006 84 Technology Transfer Office services provided to other European public institutions, 2006 85 IP Group’s academic partners 105 The technology transfer ‘funding gap’ 114

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List of Tables Table 2.1: Table 2.2: Table 2.3: Table 2.4: Table 2.5: Table 2.6: Table 2.7: Table 3.8: Table 4.9: Table 4.10: Table 4.11: Table 4.12: Table 4.13: Table 4.14: Table 4.15: Table 4.16: Table 4.17:

Milken Institute University Biotechnology Publication Rankings, 1998-2002 48 Milken Institute University Biotech Patent Rankings, 2000-2004 49 Milken Institute University Biotechnology Publication and Patent Rankings, 19982004 50 Top 20 universities by healthcare US patent grants, 2006-07 51 Top 10 hospital and research institutions by healthcare US patent grants, 2006-07 52 Top 10 US university technology transfer offices by research expenditure, 2006 53 Top 10 US hospital and research institution technology transfer offices by research expenditure, 2006 54 Cross country technology transfer survey results 68 University of California technology transfer summary, 2008 92 K U Leuven technology transfer summary, 2008 94 City of Hope technology transfer summary, 2008 96 Wisconsin Alumni Research Foundation technology transfer summary, 2008 98 Arizona Technology Enterprises technology transfer summary, 2008 100 ISIS Innovation technology transfer summary, 2008 102 IP Group technology transfer summary, 2008 104 Fusion IP technology transfer summary, 2008 106 IPSO Ventures technology transfer summary, 2008 107

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viii


Executive Summary

9


Executive Summary An introduction to technology transfer ‰

Technology transfer is a term used to describe a formal transfer of rights to use and commercialize new discoveries and innovations resulting from scientific research to another party.

‰

The traditional technology transfer process involves funded research, innovation disclosure, patents, licensing and sometimes new start-up ventures. Returns from technology transfer are primarily in the form of licensing royalties, but also include sponsored research, one-off transactional fees and new venture equity.

‰

The 1980 Bayh-Dole act established a uniform patent policy in the US enabling non-profit organizations to retain title to inventions made under federally-funded research programs. As a result, universities and other research institutions were able to file patents and collaborate with commercial concerns in order to utilize inventions arising from research.

‰

University campus and institution-based technology transfer offices are impacted by the geographical context in which they find themselves. National and regional innovation policies impact on technology transfer success along with the network effects resulting from close proximity to key resources, such as potential partners, funding and human resource.

‰

The mechanisms through which technology transfer offices offer incentives, form relationships and establish culture have a significant impact on future success. However, a perhaps greater driver of future success is past success – whereby licensing revenues are made available for reinvestment in the technology transfer function.

10


‰

Securing sufficient funding at the right time during a biotechnology’s long research and development lifecycle is essential for generating future returns from early-stage innovations.

Technology transfer trends ‰

The average number of new licensing agreements signed by US technology transfer offices increased from 24.0 in 2004 to 26.2 in 2006. Over the same period average deal values increased from US$301,000 to US$375,000, despite a contraction in average deal values in 2006.

‰

On the whole, average technology transfer outcomes in Europe have increased between 2004 and 2006. However, while the number of licensing agreements increased over the period, licensing revenues decreased slightly by -0.4%.

‰

The number of new technology transfer licensing agreements ‘earned’ by each US$1bn of research expenditure has fallen between 2004 and 2006, from 115 to 109. However, the rate of return for licensing revenues per US$1m of research expenditure has increased from US$34,806 in 2004 to US$40,837.

‰

European universities spent an average of US$3.5m on research to produce one invention disclosure in 2006. Each new granted patent cost the equivalent of US$18.0m in research and each US dollar of licensing income cost US$88.4. European universities appear to be more efficient with their research expenditure than other research institutions in terms of generating invention disclosures, startups, research agreements and licensing income.

‰

There appears to be some relationship between the level of research expenditure and technology transfer outcomes for the top 10 US university technology transfer offices. However, there are some outliers, including Stanford and Wisconsin Universities that outperformed their peers relative to their research expenditure.

‰

There appears to be a relationship between the size of technology transfer office and technology transfer outcomes for the top 10 US university technology transfer 11


offices. However, the relationship may be inverse, whereby successful outcomes result in greater technology transfer budgets and more staff.

Geographical differences ‰

Average research expenditure for US institutions is more than double that found in leading European institutions and significantly greater than research budgets in the UK, Canada and Australia. The efficiency of technology transfer outcomes varies across the major regions with the UK producing the greatest rate of invention disclosures, licensing agreements and new start-ups. The US produces the greatest rate of new patent grants, while Canada generates the greatest rate of new patent applications. US institutions generate the greatest technology licensing returns from its research investments, followed by Europe, Australia, the UK and Canada.

‰

The key differences between technology transfer practices in key geographies can be explained by the size of respective research budgets and the age of the technology transfer function. On average, technology transfer offices in the US benefit from larger research endowments and have had more time to develop than their European, Canadian and Australian counterparts.

‰

The quality of technology available is a function of the quality of research undertaken by the university or institution in question. Certainly Ivy League and Russell Group universities are likely to produce higher quality research than their peers, based on years of academic progress and success. However, technology quality is also impacted by the availability of funds, talent and potential collaborative networks which are influenced by location.

‰

An analysis of the geographical differences between technology transfer practices provides three key recommendations: benchmarking to similar regions and locations; incorporating selective lessons from other geographies; and maximizing geographical reach.

12


Structuring the function ‰

A recently established technology transfer office will find it hard to demonstrate value. It can take a technology ten years before any royalties are earned and therefore a five-year-old technology transfer office is unlikely to show any returns. However, once a technology transfer office has become established it will be self financing.

‰

Achieving operational effectiveness in the technology transfer process is a critical element for maximizing the returns from new inventions. It could be argued that after the ‘low hanging fruits’ are exploited technology transfer activity should suffer from diminishing returns. However, it can also be argued that the function can always stand to benefit from operational productivity gains.

‰

Amongst all the frustrations felt by industry in its dealings with technology transfer offices, the most common complaint is the lack of understanding as to the needs of the industry customer. Technology transfer executives tend to be PhDs not MBAs, and as a result often better understand the merits of good science over good commercial solutions.

‰

A major reason for establishing an independent technology transfer office is to generate a more commercial environment for technology transfer that would otherwise be restricted by a university or research institution’s public research remit. Critically, independent technology transfer offices are able to deliver the right pay and rewards for their professionals, not being hampered by parallel benchmarks established for academic research professionals.

‰

A consideration as to the most appropriate structure for technology transfer offices provides three key recommendations: best practices are established over time; professionalism needs to be balanced against respecting the unique positioning of the technology transfer office; and while there is no one size-fits-all best practice model, there are some basic rules of thumb.

13


Bridging the funding gap ‰

The technology transfer funding gap has been around for some time, but was magnified after the stock market and venture capital downturn in 2001. Generating a successful initial public offering (IPO) exit for a biotechnology venture capitalist has become more difficult, which in turn has put increased pressure on associated royalty rates and spin-out terms. As venture capitalists have become more conservative, moving new technologies from federal funding to proof of concept has become more challenging.

‰

Industry and venture capitalists have become more risk averse with respect to technology transfer. As a result, start-ups and translational research funding have become more effective vehicles with early stage funding drying up.

‰

An analysis of the ‘funding gap’ and the various ways in which technology transfer can bridge the gap provides three key recommendations: channeling research funds to conduct ‘translational research’; accessing challenge funds and internal seed capital to generate spin-off ventures; and utilizing alternative sources of venture capital to compliment additional research and/or spin-off companies.

14


CHAPTER 1

An introduction to technology transfer

15


Chapter 1

An introduction to technology transfer

Summary ‰

Technology transfer is a term used to describe a formal transfer of rights to use and commercialize new discoveries and innovations resulting from scientific research to another party.

‰

The traditional technology transfer process involves funded research, innovation disclosure, patents, licensing and sometimes new start-up ventures. Returns from technology transfer are primarily in the form of licensing royalties, but also include sponsored research, one-off transactional fees and new venture equity.

‰

The 1980 Bayh-Dole act established a uniform patent policy in the US enabling non-profit organizations to retain title to inventions made under federally-funded research programs. As a result, universities and other research institutions were able to file patents and collaborate with commercial concerns in order to utilize inventions arising from research.

‰

University campus and institution-based technology transfer offices are impacted by the geographical context in which they find themselves. National and regional innovation policies impact on technology transfer success along with the network effects resulting from close proximity to key resources, such as potential partners, funding and human resource.

‰

The mechanisms through which technology transfer offices offer incentives, form relationships and establish culture have a significant impact on future success. However, a perhaps greater driver of future success is past success – whereby licensing revenues are made available for reinvestment in the technology transfer function.

‰

Securing sufficient funding at the right time during a biotechnology’s long research and development lifecycle is essential for generating future returns from early-stage innovations.

16


Introduction Technology transfer has long been an established part of early-stage research in the pharmaceutical and biotechnology industries. However, technology transfer offices have traditionally been associated with inefficiency and a lack of commercial judgment. While recent trends have shown increases in staffing and expertise and improved levels of services the technology transfer function has been impacted by a new challenge relating to a gap in funding for promising new technologies.

Both sides of the science-industry partnership stand to benefit from finding a solution to the current disconnect between the current depth of research on offer and the level of research required by investors and industry partners. However, the contextual differences that exist across locations, along with the lack of an established model for effective technology transfer function, make the challenge of finding a solution more complex.

Defining technology transfer According to the Association of University Technology Managersi:

“Technology transfer is a term used to describe a formal transfer of rights to use and commercialize new discoveries and innovations resulting from scientific research to another party.�

Technology transfer offices typically protect and then license new innovations to industry. The process includes the disclosure of innovations, patenting innovations,

i

The Association of University Technology Managers website: www.autm.net

17


publishing scientific research and licensing an innovation’s commercial development rights to industry. Recently, it has become more common for technology transfer to involve spin-out enterprises involving venture capital.

The traditional technology transfer process begins with some sort of interaction between the technology transfer office and research faculty resulting in an invention disclosure. Prior to that point the technology transfer office would have been monitoring and consulting with faculty as funding was awarded and research completed. Following receipt of an invention disclosure the technology transfer office evaluates the likely commercial value of the invention before pursuing a new patent application and subsequently any international patent applications. Once an invention is patented, or at least applications have been filed, the technology transfer office looks to actively exploit the invention for commercial development through licensing agreements and alliances with industry. Fees, milestones and royalties emerging from successful licenses form the basis of the financial returns from technology transfer.

Figure 1.1: The technology transfer process

Oversight by technology transfer office

Securing funding

Completing research

Technology transfer returns

Core function of the technology transfer office

Innovation disclosure

Licensing agreement

Fees/ royalties

Spin out venture

Equity/IPO/ trade sale

Patent application

Business Insights

Source: Author’s research and analysis

18


Over the last 10-20 years it has become increasingly common to pursue an alternative path towards commercialization of new innovations. Where appropriate, technology transfer offices have spun-out innovations into stand-alone start-up ventures with the help of external venture capital funds and/or internally-generated seed capital. Exits from the spin-out model include public offerings and/or licensing income from subsequent licenses.

A brief history Technology transfer, in one form or another, has been around for more than 50 years. Iowa State University, Kansas State University, Massachusetts Institute of Technology (MIT), University of Wisconsin and Washington State University all have technology transfer functions that predate the second world war. However, the technology transfer function only established real teeth in 1980, following the enactment of the Bayh-Dole Act in the US.

The Bayh-Dole act established a uniform patent policy across the various federal agencies that fund research to enable small businesses and non-profit organizations to retain title to inventions made under federally-funded research programs. Along with retained title, universities and other research institutions are able to file patents and collaborate with commercial concerns to utilize inventions arising from federal funding.

In 1948, the UK government established the National Research Development Corporation in order to provide technology transfer for innovations arising from publicly funded research. This public organization was not considered to be an effective model for technology transfer – it infamously declined the opportunity to patent monoclonal antibody technology – and was replaced by a non-statutory body called the British Technology Group in 1981. UK universities were no longer obligated to use the services of a national technology transfer body and were thus able to begin commercial exploitation of their innovations independently. 19


Technology transfer has benefited the pharmaceutical industry in two major ways. Firstly, it has helped to successfully produce new technologies and more importantly new pharmaceutical products. The leading HIV therapy Emtriva (emtricitabine) was invented by Emory University scientists in 1996 before Gilead Sciences and Royalty Pharma purchased the intellectual property rights for a record US$525m in 2005. The neuropathic pain drug Lyrica (pregabalin) was originally discovered by scientists at Northwestern University who received a one-off royalty settlement from Royalty Pharma of US$700m in 2007. Secondly, some of the industry’s biggest companies have become established having started life as a university spin-out. Genentech emerged from the University of California while Biogen (now Biogen Idec) emerged from MIT and Harvard.

Key issues A detailed analysis of technology transfer for biotechnology conducted by the Milken Instituteii summarized five key factors influencing the successful commercialization of university derived innovations: ‰

National innovation policy;

‰

Clusters of biotechnology;

‰

University technology transfer mechanisms;

‰

Commercialization success: patents and licensing;

‰

Funding and venture capital.

ii

Mind to Market: A Global Analysis of University Biotechnology Transfer and Commercialization.

Ross DeVol and Armen Bedroussian. Milken Institute. September 2006

20


National innovation policy and clusters of biotechnology relate directly to differences in geography influencing technology transfer success. University campus and institution-based technology transfer offices are impacted by the geographical context in which they find themselves. National and regional innovation policies will impact on technology transfer success along with the network effects of close proximity to relevant resources, such as potential partners, funding and human resource.

University technology transfer mechanisms and commercialization success relate to the impact that the function’s structure can have on eventual success. The mechanisms through which technology transfer offices offer incentives, form relationships and establish culture have a profound impact on future success. However, a perhaps greater driver of future success is past success – whereby licensing revenues can be reinvested into technology transfer functions in order to deliver greater returns in the future.

Finally, funding and venture capital relates to the influence the availability of funds can have on successful technology transfer. Securing sufficient funding at the right time during a biotechnology’s long research and development lifecycle is essential for generating future returns from early-stage innovations.

Geographical differences The impact of geographical differences on the technology transfer function is discussed in more detail in chapter 3. The key questions relating to a technology transfer function’s geographical location include: ‰

How do intellectual property rights differ by geography?

‰

How does the availability of funding differ by geography?

‰

How does the availability of potential collaborators and licensing partners differ by geography?

‰

How does the availability of human resources differ by geography?

21


Structuring the function The degree to which structure influences successful technology transfer is analyzed in greater detail in chapter 4. The key issues relating to structuring the technology transfer function include: ‰

What are the core objectives for technology transfer?

‰

What are the key measures of success?

‰

What are the alternative models for delivering technology transfer?

‰

What impact does each model have in commercial returns?

‰

What impact does each model have on operational effectiveness?

‰

What impact does each model have on culture and process?

‰

What are the key learnings from current technology transfer best practices?

Bridging the funding gap Basic research and early target discovery are funded by government grants and through philanthropic research funds. However, in-between target discovery and proof of concept a ‘funding gap’ is evident, where government and philanthropic funds begin to run out, but where the technology’s risk profile currently discourages venture capital and licensing investments. The challenge of bridging the funding gap that exists between current university innovations and the requirements of industry licensors is discussed in detail in chapter 5. The key questions relating to technology transfer’s current funding gap include: ‰

What is the significance of the technology transfer funding gap?

‰

How does the funding gap impact on the returns from technology transfer?

‰

What internal strategies are available to help bridge the funding gap?

‰

What external mechanisms are available to help bridge the funding gap? 22


CHAPTER 2

Technology transfer trends

23


Chapter 2

Technology transfer trends

Summary ‰

The average number of new licensing agreements signed by US technology transfer offices increased from 24.0 in 2004 to 26.2 in 2006. Over the same period average deal values increased from US$301,000 to US$375,000, despite a contraction in average deal values in 2006.

‰

On the whole, average technology transfer outcomes in Europe have increased between 2004 and 2006. However, while the number of licensing agreements increased over the period, licensing revenues decreased slightly by -0.4%.

‰

The number of new technology transfer licensing agreements ‘earned’ by each US$1bn of research expenditure has fallen between 2004 and 2006, from 115 to 109. However, the rate of return for licensing revenues per US$1m research expenditure has increased from US$34,806 in 2004 to US$40,837.

‰

European universities spent an average of US$3.5m on research to produce one invention disclosure in 2006. Each new granted patent cost the equivalent of US$18.0m in research and each US dollar of licensing income cost US$88.4. European universities appear to be more efficient with their research expenditure than other research institutions in terms of generating invention disclosures, startups, research agreements and licensing income.

‰

There appears to be some relationship between the level of research expenditure and technology transfer outcomes for the top 10 US university technology transfer offices. However, there are some outliers, including Stanford and Wisconsin Universities that outperformed their peers relative to their research expenditure.

‰

There appears to be a relationship between the size of technology transfer office and technology transfer outcomes for the top 10 US university technology transfer offices. However, the relationship may be inverse, whereby successful outcomes result in greater technology transfer budgets and more staff.

24


Introduction Trends in funding, outcomes and return on investment vary across different technology transfer offices. General trends can be isolated at the country, institution type and individual institution level. As a result, trends by location, office structure and funding level can be isolated in order to inform on technology transfer’s geographical differences, functional structures and funding gap. Key sources of data for technology transfer trends include the annual surveys completed by key technology transfer associations (AUTM, ASTP and UNICO) and economic impact reports such as the Milken Institute’s Mind to Market 2006 report.

Technology transfer funding trends Technology transfer funding trends and their impact on technology transfer office developments have been analyzed for institutions in the US, Europe and Canada.

US External research funds provide the benchmark for making comparisons across technology transfer offices. These funds provide the catalyst for innovation and discovery in universities and research institutions. Although the technology transfer office is rarely involved in the research application process, they play an important monitoring role in tracking and exploiting research funds.

Research expenditure provides the first step in the technology transfer process. Research funds result in completed research, which in turn may or may not result in an invention disclosure. Invention disclosures may result in a new patent application and subsequently a patent grant. In turn, patented intellectual property may result in licensing agreements, start-ups and eventual licensing income.

25


Average research expenditure by the institutions that are supported by technology transfer functions has increased from US$137m in 1997 to US$240m in 2006. As shown in Figure 2.2, the level of research expenditure supported by the average technology transfer office has almost doubled over the last 10 years, increasing at a CAGR of 6.5%.

Figure 2.2: Average research expenditure for US Universities, Hospitals and Research Institutions, 1997-2006

Average research expenditure (US$m)

300 240

250

221 208

200 167 150

137

147

152

1998

1999

178

186

194

100

50

0 1997

2000

2001

2002

2003

2004

2005

2006

Year

Source: AUTM US Licensing Activity Survey, FY2006

Business Insights

Research expenditure in the US is primarily drawn from US government agencies. Industrial sources (sponsored research) account for the next largest share, and together with federal research funds the two sources accounted for 75% of all research funds in 2006.

As shown in Figure 2.3, the average staffing levels for US technology transfer offices have increased over the last 10 years from fewer than 6 in 1997 to just under 10 in 2006, a compound annual growth rate (CAGR) of 6.4%. The number of licensing

26


executives per US technology transfer office has almost doubled over the 10 year period, while the number of other support staff has increased more slowly. The staff increase in 2006 is the greatest for five years. In 2006, half of all US university technology transfer offices had six or fewer staff members.

Figure 2.3: Average US Technology Transfer Office staffing levels, 1997-2006

Average full time equivalents (FTEs)

10 Other FTEs

9

Licensing FTEs

8 7 6 5 4 3 2 1 0 1997

1998

1999

2000

2001

Source: AUTM US Licensing Activity Survey, FY2006

2002

2003

2004

2005

2006

Business Insights

The oldest technology transfer office in the US is the Wisconsin Alumni Research Foundation (WARF), established in 1925. However, the foundation of technology transfer offices in the US really gained traction in the 17-year period between 1983 and 1999. More than 70% of all technology transfer offices were established in this period.

Europe Average research expenditure for a European university or research institution in 2006 was US$117.2m, with an average number of research personnel of just under 2,000. Universities have an average of 30% more research personnel than other research institutions. In 2006, 11.9% of research expenditure is funded by contract/sponsored

27


research, with a slightly higher share of university expenditure funded by companies (12.8%) compared with other research institutions (9.7%).

University technology transfer offices are older than their research institution peers with an average age of 10 years compared with 9 years. Older technology transfer offices tend to have more staff members than younger offices.

As shown in Figure 2.4, around 50% of European technology transfer offices have 4 staff or less, with only 20% of technology transfer offices having more than 10 members of staff. Non-academic research institution technology offices tend to have slightly higher staffing levels than university offices. The average technology transfer office had 8.1 staff members in 2006.

Figure 2.4: Distribution of European Technology Transfer Offices by staffing levels, 2006

Cummulative proportion of institutions

100% 90% 80% 70%

Universities

60%

Other public institutions

50% 40% 30% 20% 10% 0% 0

5

10

15

20

25

30

Number of technology transfer staff Business Insights

Source: The ASTP Survey for Fiscal Year 2006

28


Canada The average research expenditure in Canadian universities did not increase at the high rate of growth found in US universities and research institutions over the past 10 years. As shown in Figure 2.5, the average institutional research expenditure associated with technology transfer offices in Canada increased from CAD$83.3m in 1996 to CAD$124.3m, a CAGR of 4.1%.

Figure 2.5: Average research expenditure for Canadian Universities, 19962006

Average research expenditure (CAD$m)

140 119.6 117.6

124.3

120 98.3 100

90.6 83.3

82.6

103.1

97.6

98.9

2001 2002

2003

87.8

80 60 40 20 0 1996

1997

1998

1999

2000

Source: AUTM Canadian Licensing Activity Survey, FY2006

2004

2005

2006

Business Insights

In Canada, federal research funding accounts for just under half of all university research expenditure. Other major sources of funding include provincial and regional incentives, followed by sponsored/contract research agreements. However, following the downturn in the high-tech industry in 2001, Canadian company research and development investment fell, and as a result their investment in sponsored research also declined.

29


As shown in Figure 2.6, venture capital and fundraising for existing ventures both remained relatively flat in Canada over the past four years. After an increase in 2005, new fundraising funds contracted sharply in 2006, while new venture capital remained flat over the period.

Figure 2.6: Canadian venture capital investments and fundraising, 2003-2006

Venture capital investments and fundraising (CAD$bn)

4.5 4.0 3.5 3.0 1.97

1.78

2.22 1.64

2.5

New fundraising New investments

2.0 1.5 1.0

1.69

1.84

1.68

1.69

2003

2004

2005

2006

0.5 0.0

Source: AUTM Canadian Licensing Activity Survey, FY2006

Business Insights

The average age of Canadian university technology transfer offices was 12.2 years in 2006. Staffing levels have increased steadily over the last five years, reaching an average of more than eight full time equivalent staff per technology transfer office in 2006.

30


Technology transfer outcome trends Technology transfer outcome trends have been analyzed for institutions in the US, Europe and Canada. Key outcomes include surrogate outcomes, such as invention disclosures, patent applications, patent grants and licensing agreements, and valuebased outcomes, such as new start-ups and licensing income.

US The results of a successful sponsored research project usually come to the attention of the technology transfer office through presentation of a new invention disclosure. The disclosure is the first step of the intellectual property management process. The technology transfer office evaluates the invention disclosure through the critical tests for being novel, non-obvious and useful. This provides the first stage for initiating parallel intellectual property and licensing processes.

Figure 2.7: Average number of invention disclosures received by US Technology Transfer Offices, 1997-2006

Average invention disclosures received

120 99.9 100

91.0 84.9

80 67.2

69.1

68.7

71.7

1997

1998

1999

2000

74.7

76.6

78.3

2001

2002

2003

60

40

20

0

Source: AUTM US Licensing Activity Survey, FY2006

31

2004

2005

2006

Business Insights


As shown in Figure 2.7, the average number of new invention disclosures received by technology transfer offices in the US increased from 67.2 in 1997 to 99.9 in 2006. Growth in invention disclosures has increased significantly over the past three years with a CAGR of 8.4% for the period 2003-2006.

New US patent applications usually correspond with the intellectual property management process for a single new invention disclosure, although two or more invention disclosures may be combined into a single new US patent application. A single invention disclosure can also result in more than one US patent application. There may also be a time lag whereby a US patent application is made in the year subsequent to the receipt of a new invention disclosure.

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The average number of new US patent applications by US technology offices has increased significantly over the past three years from 40.0 in 2003 to 61.5 in 2006. However, as shown in Figure 2.8, the average number of new US patents granted to US technology transfer offices has fallen consistently over the last six years, from 20.9 in 2001 to 17.2 in 2006.

Figure 2.8: Average number of patents processed by US Technology Transfer Offices, 2001-2006

70 61.5

Average number of patents

60

54.8

53.8

50 40

37.6

38.7

40.0 New patent applications filed US patents issued

30 20 20.9

18.5

19.9

19.2

2002

2003

2004

10

17.2

17.2

2005

2006

0 2001

Source: AUTM US Licensing Activity Survey, FY2006

33

Business Insights


The ratio of new US patent applications to invention disclosures received has increased as technology transfer offices mature. In 1992 the ratio was 27%, increasing to 62% in 2006. The ratio of new US patent applications to total patent applications (including refilled patent applications) has also increased as technology transfer offices mature, increasing from 65% in 1992 to 73% in 2006.

It is clear that there is no valuable reason to patent an invention unless there is a possibility of licensing the technology. However, it is important to recognize that a significant number of licensing agreements do not involve patented inventions. ASTP Survey data shows that around 40% of licensing income does not involve a patent. ‰

Licenses are the most common mechanism for transferring rights to a technology to another organization.

‰

Licenses are the most common kind of transaction that technology transfer offices retain sole responsibility for.

‰

Licenses provide the technology transfer function with a means for capturing, protecting and managing intellectual property.

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As shown in Figure 2.9, the average number of new licensing agreements signed by US technology transfer offices has increased from 24.0 in 2004 to 26.2 in 2006. Over the same period average deal values (a function of total licensing revenues per new licensing agreement) have increased from US$301,000 to US$375,000, despite a contraction in average deal values in 2006.

Figure 2.9: Average number and value of US Technology Transfer licenses, 2004-2006 30

600 25.6

500 394

20

375

400

301 15

300

10

200

5

100

0

Average value of licensing deal (US$000)

Average number of licensing deals

25

26.2

24.0

0 2004 Number of licenses

2005

2006

Average license value (US$000)

Source: AUTM US Licensing Activity Survey, FY2006

Business Insights

Technology transfer licenses are either exclusive or non-exclusive. While nonexclusive licenses dominate licensing activity, exclusive licenses are often required by licensees who must invest substantial resources in order to bring a new technology to market. Non-exclusive licensing occur where a new technology is likely to become a standard, used as part of existing technologies or developed with freedom to operate.

As a share of all licensing agreements, exclusive licenses make up around half of all agreements for US university transfer offices. As shown in Figure 2.10, exclusive

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technology transfer licenses account for less than 40% of all agreements involving US hospitals and research institutions.

Figure 2.10: US Technology Transfer licenses by exclusivity, 2006 100% 90% Number of licensing deals

80% 2,099

416

70% 60%

Non-exclusive

50%

Exclusive

40% 30% 2,051

260

20% 10% 0% US Universities

US Hospitals and Research Institutions

Source: AUTM US Licensing Activity Survey, FY2006

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Business Insights


Technology transfer licensees involve three partner types: start-ups, small companies and large companies. As shown in Figure 2.11, the greatest proportion of all technology transfer agreements for US universities involve small companies. Conversely, almost half of all US hospital and research institution agreements are with a large company partner.

Figure 2.11: US Technology Transfer licenses by size of partner, 2006 100% 90%

Number of licensing deals

80%

1,325 321

70% Large Company

60%

Small Company 50% 40%

Start-up 2,127 289

30% 20% 10%

698

66

0% US Universities

US Hospitals and Research Institutions

Nb. Large company is defined as having more than 500 staff, a small company as having fewer than 500. Source: AUTM US Licensing Activity Survey, FY2006

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Business Insights


Europe In 2006, 77% of European technology transfer offices worked with institutions that owned all of their intellectual property rights. 12% of institutions shared intellectual property rights with the inventors and 11% of institutions had no rights, with all rights held by the inventor.

On the whole, average technology transfer outcomes have increased between 2004 and 2006. As shown in Figure 2.12, the greatest increases were found in new patent grants, which increased by 16.1% over the last two years. Other strong growth was achieved in the number of licensing and R&D agreements and the number of new start-ups. However, while the number of licensing agreements increased over the period, licensing revenues decreased slightly by -0.4%.

Figure 2.12: Average change in European Technology Transfer outcomes, 2004-2006

Average change in outcomes, 2004-06

18% 16.1%

16%

14.6%

14.5%

14% 11.3%

12% 10%

7.5%

8% 6%

3.9%

4% 2% 0% -0.4%

-2% Patent grants

License agreements

Start-ups

R&D agreements

Invention disclosures

Patent applications

License income

Business Insights

Source: The ASTP Survey for Fiscal Year 2006

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Canada The average number of new innovation disclosures and new patent applications processed by Canadian technology transfer offices both increased over the last ten years. As shown by Figure 2.13, new patent applications filed increased by a CAGR of 6.3% over the ten years between 1996 and 2006. Over a shorter period, new invention disclosures have increased by a CAGR of 3.2% between 2001 and 2006.

Figure 2.13: Average number of innovation disclosures and patents processed by Canadian Technology Transfer Offices, 1996-2006

Average invention disclosures and new patents

50

45.6 43.1

45 40

41.9 38.4

37.7

36.4

34.6 35.6

39.8

40.4

19.0

18.1

2005

2006

35.6

35 30 Invention disclosures received 25 New patent applications filed

20 15

15.4

10 5

16.8

9.8

11.9

10.7

10.8

11.4

1997

1998

1999

2000

12.8

11.8

2002

2003

0 1996

2001

Source: AUTM Canadian Licensing Activity Survey, FY2006

39

2004

Business Insights


As shown in Figure 2.14, average license revenues for Canadian technology transfer offices have remained relatively unchanged over the past seven years. Aside from a one-off peak in 2001, average office license revenues have remained between CAD$1.5m and CAD$1.7m over the last five years. A total of 14 different Canadian technology transfer offices generated licensing income in excess of CAD$1m in 2006.

Figure 2.14: Average license revenue received by Canadian Technology Transfer Offices, 2000-2006

Average license revenues (CAD$m)

3.0 2.4

2.5

2.0 1.7

1.6

1.6

1.7

1.7 1.5

1.5

1.0

0.5

0.0 2000

2001

2002

2003

Source: AUTM Canadian Licensing Activity Survey, FY2006

2004

2005

2006 Business Insights

For the third year in succession there was a decline in the average number of start-up companies formed per technology transfer office. The 31 new companies created in 2006 meant that the number of new start-ups per technology office fell below one for the first time. One of the reasons for this recent fall in start-up activity is the availability of federal and provincial government funds for early-stage technology validation inside universities, such as the Natural Sciences and Engineering Research Council’s (NSERC) Ideas to Innovation and Ontario’s Market Readiness funds.

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Technology transfer return on investment trends The return on investment for technology transfer activity has been analyzed for institutions in the US, Europe and Canada. Key technology transfer outcomes have been assessed relative to size of research budget.

US The number of new invention disclosures ‘earned’ by each US$1bn of research expenditure has decreased over the past ten years from 491 in 1997 to 416 in 2006. However, as shown in Figure 2.15, the rate of return for new invention disclosures has begun to slowly increase from 2003 onwards.

Figure 2.15: Rate of return for invention disclosures received by US Technology Transfer Offices, 1997-2006

Invention disclosures per US$bn research exp

600

500

491

472 452

429

421

411

403

408

411

416

2001

2002

2003

2004

2005

2006

400

300

200

100

0 1997

1998

1999

2000

Source: AUTM US Licensing Activity Survey, FY2006

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Business Insights


As shown in Figure 2.16, the number of new patent applications ‘earned’ by US technology transfer offices per US$1bn of research expenditure has increased over the past seven years, from 212 in 2001 to 256 in 2006. However, over the same period the number of patents granted per US$1bn of research expenditure has fallen significantly, from 118 in 2001 to 72 in 2006.

Figure 2.16: Rate of return for patents processed by US Technology Transfer Offices, 2001-2006

Patents per US$bn research expenditure

300 263

256 243

250 208

212

206

200 150 118 99

102

100

92 77

72

50 0 2001

2002

2003

New patent applications filed Source: AUTM US Licensing Activity Survey, FY2006

42

2004

2005

2006

US patents issued Business Insights


The number of new technology transfer licensing agreements ‘earned’ by each US$1bn of research expenditure has fallen between 2004 and 2006, from 115 to 109. However, as shown by Figure 2.17, the rate of return for licensing revenues per US$1m research expenditure has increased from US$34,806 in 2004 to US$40,837.

Figure 2.17: Rate of return for US Technology Transfer licenses, 2004-2006

Licensing deals per US$bn research

120

115

116 109 45,556

100

60,000 50,000

40,837 80

40,000

34,806

60

30,000

40

20,000

20

10,000

Licensing revenue per US$m research

70,000

140

0

0 2004

2005 Number of licenses

2006 License revenues

Source: AUTM US Licensing Activity Survey, FY2006

Business Insights

Europe The top five European technology transfer offices accounted for 91% of all licensing income in 2006, but just 40% of total new licensing agreements. This has been achieved despite the top five institutions accounting for just 31% of total research expenditure.

European universities spent an average of US$3.5m on research to produce one invention disclosure in 2006. Each new granted patent cost the equivalent of US$18.0m in research and each US dollar of licensing income cost US$88.4. European

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universities appear to be more efficient with their research expenditure than other research institutions in terms of generating invention disclosures, start-ups, research agreements and licensing income. However, university technology transfer offices perform less well when measured by new patent applications, patent grants and licensing agreements.

The age of European technology transfer offices does appear to be positively correlated with the number of invention disclosures, patent applications, patent grants, start-ups, license agreements and licensing income. However, this relationship breaks down when looking at the efficiency of research expenditure in generating technology transfer outcomes.

Comparing results between the US and Europe it appears that US technology transfer offices are more efficient in generating invention disclosures, new patent applications and new patent grants than their European peers. However, European technology transfer offices appear to require a smaller level of research expenditure to generate new licensing agreements and start-ups than their US peers.

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Canada The number of new invention disclosures ‘earned’ by CAD$1bn of research expenditure has decreased over the past eleven years from 437 in 1996 to 325 in 2006. Over the same period the rate of return for new patent applications per CAD$1bn of research has increased from 117 in 1996 to 145 in 2006.

Figure 2.18: Rate of return for innovation disclosures and patents processed by Canadian Technology Transfer Offices, 1996-2006

Invention disclosures and new patents per CAD$bn research expenditure

600 476

500

508

437

430

463

400

365

335

360

321

338

325

300 200 117

131

129

124

149 116

131

119

141

162

145

100 0 1996 1997

1998 1999 2000

2001 2002 2003 2004

Invention disclosures received

Source: AUTM US Licensing Activity Survey, FY2006

45

2005 2006

New patent applications filed

Business Insights


As shown in Figure 2.19, the amount of licensing revenue ‘earned’ by Canadian technology transfer offices for each CAD$1m investment in research fell from CAD$17,057 in 2000 to CAD$13,956. However, the rate of return for licensing revenues has been increased between 2004 and 2006.

Licensing revenue per CAD$m research expenditure

Figure 2.19: Rate of return for Canadian Technology Transfer licensing, 20002006

25,000

23,375

20,000 17,057 15,989

16,666 13,864

15,000

13,956 12,494

10,000

5,000

0 2000

2001

2002

2003

Source: AUTM Canadian Licensing Activity Survey, FY2006

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2004

2005

2006

Business Insights


Technology transfer league tables While healthcare research provides the single largest share of technology transfer activity in most institutions a number of healthcare specific measures can be used to identify trends across institutions and locations for technology outcomes. More general technology transfer outcomes can help identify trends in the return on investment across institutions and locations.

Healthcare measures The number of publications and citations provides an important measure of scientific research. The Milken Institute’s biotechnology publication rankings use statistical data to compare and evaluate the research output of universities as measured by the quantity and quality of published research. Specifically, each institution’s publication activity is measured across three criteria: ‰

Number of publications;

‰

concentration of activity by subfield;

‰

quality of impact by subfield.

As shown in Table 2.1 the leading university by the Milken Institute’s biotechnology publication ranking was Harvard University for the period 1998-2002. Harvard is credited with 11,098 biotech publications in the period and scores highly on concentration of activity and quality of impact. While the top 20 included 14 US universities, the Universities of Tokyo and London were ranked second and third respectively. California universities hold five of the top 25 rankings.

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Table 2.1: Milken Institute University Biotechnology Publication Rankings, 1998-2002

Harvard University University of Tokyo University of London University of California, SF University of Pennsylvania University of California, SD Johns Hopkins University Washington University University of Washington University of California, LA Yale University Stanford University Rockefeller University University of Wisconsin University of Cambridge Baylor College of Medicine University of Oxford Duke University Osaka University Kyoto University

Country

Score

US Japan UK US US US US US US US US US US US UK US UK US Japan Japan

100.0 83.3 83.1 79.6 72.9 71.2 70.8 69.4 68.4 67.0 66.7 65.7 65.3 64.0 63.1 62.9 62.9 61.5 61.4 61.2

Source: Mind to Market, September 2006 – Milken Institute

Business Insights

Between 2000 and 2004, the number of US patents granted to universities increased by 77%, a CAGR of 17.4%. Four criteria were used in compiling the Milken Institute’s biotech patent rankings: ‰

The absolute number of patents;

‰

the impact of patents on biotechnology developments;

‰

the average number of science papers referenced in the patent;

‰

the technology cycle time measured by age of patent citations on patent.

The leading university by the Milken Institute’s biotech patent ranking was the University of Texas, followed by the University of California, San Francisco and Johns Hopkins University for the period 2000-2004. The University of Texas System,

48


comprising nine campuses and six health institutions, and the University of California, San Francisco were both granted 219 US biotechnology patents during the period. As shown by Table 2.2, the top ten universities ranked by biotech patenting were all USbased. The highest placed university based outside of the US was the UK’s University of London and Israel’s Hebrew University of Jerusalem. Other non-US based universities in the top 20 include Canada’s McGill University and Australia’s Melbourne University.

Table 2.2: Milken Institute University Biotech Patent Rankings, 2000-2004

University of Texas University of California, SF Johns Hopkins University Stanford University Cornell University Columbia University University of California, B University of California, SD University of Wisconsin Harvard University University of London Hebrew University of Jerusalem University of Michigan McGill University University of Pennsylvania Rockefeller University California Institute of Technology Yale University University of Melbourne Thomas Jefferson University Source: Mind to Market, September 2006 – Milken Institute

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Country

Score

US US US US US US US US US US UK Israel US Canada US US US US Australia US

100.0 94.8 86.6 70.3 63.4 63.2 62.7 60.4 59.6 58.9 58.9 57.4 56.6 56.1 54.7 54.2 52.6 51.5 49.1 48.2 Business Insights


By combining the biotech publication and patent rankings it is possible to arrive at an overall ranking to identify the leading institutions for biotechnology research for the period 1998-2004. As shown in Table 2.3, the leading university for biotechnology research was the University of California, San Francisco, followed by Harvard University and Johns Hopkins University. The only non-US university ranked in the top 10 was the UK’s University of London in fourth place.

Table 2.3: Milken Institute University Biotechnology Publication and Patent Rankings, 1998-2004

University of California, SF Harvard University Johns Hopkins University University of London Stanford University University of California, SD University of Pennsylvania University of Wisconsin Rockefeller University Yale University

Country

Publication score

Patent score

Overall score

US US US UK US US US US US US

79.6 100.0 70.8 83.1 65.7 71.2 72.9 64.0 65.3 66.7

94.8 58.9 86.6 58.9 70.3 60.4 54.7 59.6 54.2 51.5

87.2 79.5 78.7 71.0 68.0 65.8 63.8 61.8 59.8 59.1

Source: Mind to Market, September 2006 – Milken Institute

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Business Insights


Table 2.4 shows the top 20 universities by number of 2007 US patents relating to the human life sciences (biotechnology, pharmaceuticals, diagnostics and medical equipment and devices). The top 20 universities were all US-based and were led by the University of California, which generated 144 US healthcare patents in 2006, falling to 125 in 2007. In second-place was the independent technology transfer office of the Wisconsin Alumni Research Foundation (WARF) with 61 US health patent grants in 2006, followed by the University of Texas System with 43.

Table 2.4: Top 20 universities by healthcare US patent grants, 2006-07

University of California Wisconsin Alumni Research Foundation The University of Texas System University of Florida Leland Stanford Junior University Cornell Research Foundation University of Pennsylvania New York University Johns Hopkins University Massachusetts Institute of Technology University of Michigan Columbia University Duke University California Institute of Technology Harvard College University of Utah The University of North Carolina University of Minnesota Michigan State University University of Washington

Country

US Patents 2006

US Patents 2007

US US US US US US US US US US US US US US US US US US US US

144 50 64 36 36 37 33 18 32 31 31 29 32 17 17 13 8 16 10 16

125 61 43 33 30 26 26 24 21 21 20 20 18 18 17 16 16 15 15 14 Business Insights

Source: Delphi Pharma Patent Database

The leading research institute by number of healthcare patent grants in 2007 was the US Department of Health and Human Services, primarily through the National Institutes of Health (NIH), which generated 64 new patents. As shown by Table 2.5, other leading generators of US healthcare patent grants included India’s Council of Scientific and Industrial Research, the US Army and Japan Science and Technology.

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Other leading hospital and research institutions include France’s Institut Pasteur and the National Research Council of Canada.

Table 2.5: Top 10 hospital and research institutions by healthcare US patent grants, 2006-07

Country Department of Health and Human Services Council of Scientific and Industrial Research The US Army Japan Science and Technology Institut Pasteur National Research Council of Canada Mayo Foundation for Medical Education and Research The Scripps Research Institute Societe De Conseils De Recherches Et D'Applications Scientifiques (S.C.R.A.S.) The Salk Institute for Biological Studies

US India US Japan France Canada US US France US

US Patents 2006

US Patents 2007

101 50 30 22 26 8 18 33 22

64 33 28 27 20 20 19 18 15

17

15 Business Insights

Source: Delphi Pharma Patent Database

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Technology transfer trends As shown in Table 2.6, the leading US university technology transfer office ranked by university research expenditure was that of the University of California System in 2006, with a research budget of more than US$3bn. Other universities with research expenditures in excess of US$1bn include Johns Hopkins University, the Massachusetts Institute of Technology (MIT) and the University of Texas System. Despite a research budget of just US$699m in 2006, tenth placed Stanford University was ranked second and third respectively for license income and US patent grants.

Table 2.6: Top 10 US university technology transfer offices by research expenditure, 2006 Research Licenses/ expenditure Program Licensing US options (US$m) start FTEs patents executed Univ. of California System 3,036 Johns Hopkins Univ. 1,757 Massachusetts Inst. Of 1,213 Technology (MIT) Univ. of Texas System 1,113 Univ. of Washington 936 Univ. of Wisconsin 832 Univ. of Illinois 808 Univ. of Michigan 797 Research Foundation of SUNY 725 Stanford Univ. 699

License Start income -ups (US$m)

1979 1973 1940

95 14 15

270 82 121

226 75 121

39 6 23

193.5 13.9 43.5

1985 1983 1925 1981 1982 1979 1970

21 16 22 19 7 12 13

81 37 69 41 79 34 118

113 155 159 80 97 44 109

12 10 7 9 9 12 7

24.9 36.2 42.4 10.2 20.4 10.8 61.3

Source: AUTM US Licensing Activity Survey, FY2006

Business Insights

The leading US hospital or research institution technology transfer office by research budget was Massachusetts General Hospital with US$528.6m in research expenditure in 2006. As shown in Table 2.7, Massachusetts General Hospital also has the oldest technology transfer program with the greatest number of licensing staff in 2006, generating the greatest number of new US patents and licensing agreements. As a result, Massachusetts General Hospital received licensing income of US$318.6m, more than the rest of the top ten US hospital and research institution technology transfer offices added together. The vast majority of Massachusetts General Hospital’s

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technology transfer licensing revenue in 2006 came from a buy-out of royalties attributable to the rheumatoid arthritis therapy Enbrel (etanercept), a drug discovered based on protein fusion technology licensing in 1997.

Table 2.7: Top 10 US hospital and research institution technology transfer offices by research expenditure, 2006 Research Licenses/ expenditure Program Licensing US options (US$m) start FTEs patents executed Massachusetts General Hos Mayo Fdn. For Medical Education and Research Brigham & Women's Hospital M.D.Anderson Cancer Ctr. Sloan Kettering Inst. For Cancer Res. Fred Hutchinson Cancer Res. Ctr Beth Israel Deaconess Medical Ctr. Cleveland Clinic Fdn. St. Jude Children's Research Hospital Dana-Faber Cancer Inst.

License Start income -ups (US$m)

528.6 448.0

1976 1986

21 12

56 29

131 92

8 9

318.6 25.9

413.1 409.7 294.8

1986 1987 1981

8 5 7

27 25 22

41 24 28

4 2 5

9.2 6.3 43.3

276.2

1988

5

3

31

1

3.4

202.0

1997

4

13

18

3

1.0

196.6 191.0

1989 1995

9 3

13 8

25 33

3 0

6.2 2.3

187.5

1981

6

20

37

2

4.7

Source: AUTM US Licensing Activity Survey, FY2006

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Business Insights


Trends by research budget As shown in Figure 2.20, there appears to be some relationship between the level of research expenditure and technology transfer outcomes for the top 10 US university technology transfer offices. There are some outliers, including Stanford and Wisconsin Universities that outperformed their peers relative to their research expenditure.

Figure 2.20: Surrogate outcomes for the top 10 US university technology transfer offices ranked by research budget, 2006

2006 surrogate outcomes

1,400

Invention disclosures

1,200

New patent applications

1,000

US patents Licenses/options executed

800 600 400 200 0 600

900

1,200

1,500

1,800

2,100

2,400

2,700

3,000

3,300

2006 research expenditure (US$m) Source: AUTM US Licensing Activity Survey, FY2006

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Business Insights


There appears to be some relationship between technology transfer outcomes measured as licensing income and new start-ups relative to research expenditure. Figure 2.21 shows that the relationship is dominated by the strong performance of the University of California technology transfer office. The main outlier is Johns Hopkins University, which performed more poorly than its peers.

Figure 2.21: Technology transfer outcomes for the top 10 US university technology transfer offices ranked by research budget, 2006

2006 technology transfer outcomes

250

License income (US$m)

200

Start-ups 150

100

50

0 600

900

1,200

1,500

1,800

2,100

2,400

2,700

3,000

3,300

2006 research expenditure (US$m) Source: AUTM US Licensing Activity Survey, FY2006

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Business Insights


Trends by age As shown in Figure 2.22, there appears to be no discernable relationship between the age of technology transfer office and technology transfer outcomes for the top 10 US university technology transfer offices. The main outlier is the top performing University of California, which has a technology transfer office of broadly average age.

Figure 2.22: Surrogate outcomes for the top 10 US university technology transfer offices ranked by year established, 2006

2006 surrogate outcomes

1,400

Invention disclosures

1,200

New patent applications

1,000

US patents Licenses/options executed

800 600 400 200 0 20

30

40

50

60

70

80

90

Technology transfer office age (years) Source: AUTM US Licensing Activity Survey, FY2006

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Business Insights


There appears to be no discernable relationship between technology transfer outcomes measured as licensing income and new start-ups relative to technology transfer office age. Figure 2.23 shows that the major outlier is the strong performance of the University of California technology transfer office that has an average age amongst its top 10 peers.

Figure 2.23: Technology transfer outcomes for the top 10 US university technology transfer offices ranked by year established, 2006

2006 technology transfer outcomes

250 License income (US$m) 200

Start-ups

150

100

50

0 20

30

40

50

60

70

80

90

Technology transfer office age (years) Source: AUTM US Licensing Activity Survey, FY2006

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Business Insights


Trends by office size As shown in Figure 2.24, there appears to be some relationship between the size of technology transfer office and technology transfer outcomes for the top 10 US university technology transfer offices. However, here the relationship may be inverse, where successful outcomes result in greater technology transfer budgets and more staff.

Figure 2.24: Surrogate outcomes for the top 10 US university technology transfer offices ranked by office size, 2006

2006 surrogate outcomes

1,400

Invention disclosures

1,200

New patent applications

1,000

US patents Licenses/options executed

800 600 400 200 0 0

20

40

60

80

100

Technology transfer office size (licensing FTEs) Source: AUTM US Licensing Activity Survey, FY2006

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Business Insights


There appears to be some relationship between technology transfer outcomes measured as licensing income and new start-ups relative to technology transfer office size. However, as shown in Figure 2.25, the relationship may be inverse, where successful outcomes result in greater technology transfer budgets and more staff.

Figure 2.25: Technology transfer outcomes for the top 10 US university technology transfer offices ranked by office size, 2006

2006 technology transfer outcomes

250 License income (US$m) 200

Start-ups

150

100

50

0 0

20

40

60

80

100

Technology transfer office size (licensing FTEs) Source: AUTM US Licensing Activity Survey, FY2006

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Business Insights


Key trends Technology transfer trends by outcome and return on investment vary by location and institution. However, key trends can be summarized under three main headings: ‰

Geographical differences;

‰

structuring the function;

‰

bridging the funding gap.

Geographical differences Average research budgets and technology transfer outcomes vary across the key geographical regions. Technology transfer offices in the US are likely to be endowed with a greater research budget and as a result generate greater levels of technology transfer outcomes than their European and Canadian peers. In turn, European institutions produce greater results from higher research budgets than Canadian technology transfer offices.

The distribution of technology transfer returns on investment in research across the major regions is less clear cut. While US technology transfer offices generate the greatest number of invention disclosures, patent grants and licensing income from their investment in research, European offices generate the greatest number of license agreements and start-ups and Canadian offices the greatest number of patent applications.

Finally, the leading institutions by technology transfer outcomes and returns on investment tend to be located in areas associated with significant external research and funding activity. Leading universities such as Harvard University and the Universities of California and Texas Systems are all located in research clusters that involve

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multiple research institution, hospital and industry networks providing strong links with external partners and investors.

Structuring the function Technology transfer outcomes and the rate of returns from investment appear to increase as the size of the technology transfer office increases. However, this is in part a function of institutions with large research budgets allocating part of those funds to staffing a technology transfer process. Despite the correlation between size and returns for technology transfer offices, a number of institutions appear to outperform their peers, including Stanford and Wisconsin Universities.

There is no real evidence that age of a technology transfer office has a significant impact on its associated outcomes and rates of return. However, it is clear that institutions with very young technology transfer offices, such as the Universities of Alabama and Nevada at Las Vegas, initially find it hard to secure budget to develop an effective technology transfer function due to the lag in returns on investment.

Finally, it appears that there could be some argument to support the strategy of structuring the technology transfer office as an independent function to the research institution. The first evidence of this are the returns generated by the University of Wisconsin and Arizona State University, the only two US universities to operate technology transfer offices independently of their institutional research programs. Both offices produce rates of technology transfer returns from investment in research far above the average of their US university peer group. Similar evidence can be found in the UK, where the leading universities appear to out perform their European peers with respect to technology transfer returns on investment. On average, UK university technology transfer offices tend to operate more independently of the academic research program management than is the case in Europe. One caveat needs to be noted with respect to the relationship between strong outcomes and technology transfer independence – it may simply be the case that it is those technology transfer offices

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that are most successful that eventually make the case for greater independence rather than the other way round.

Bridging the funding gap While the average number of invention disclosures and patent applications per US technology transfer office has increased steadily over the past five or six years, patent grants and licensing income has remained more flat. In Europe, licensing income fell between 2004 and 2006, while average licensing income for Canadian technology transfer offices has remained flat for the last five years. Increases in research budgets and new inventions has failed to materialize into increased licensing revenues for technology transfer offices, suggesting a current disconnect in time and funding for the transfer of new technologies.

Despite a down turn in the availability of funding and venture capital, the number of new start-ups resulting from European technology transfer offices has increased significantly between 2004 and 2006. This trend suggests that European universities and research institutions are finding it increasingly difficult to find licensing partners for their technologies and are instead progressing their technologies through start-up capital in advance of attracting industry partners.

Conversely, the situation in Canada shows a down turn in start-up activity for technology transfer. Instead, technology transfer processes have turned to additional research funding made available through provincial and regional funds in order to advance technologies and subsequently attract and secure an industry licensing partner. While the Canadian and European examples provide two dichotomous strategies for tackling the downturn in available licensing revenues, the both highlight a movement away from the simple disclosure – patent - license model to include start-up venture and/or translational research funding to bridge the gap.

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CHAPTER 3

Geographical differences

65


Chapter 3

Geographical differences

Summary ‰

Average research expenditure for US institutions is more than double that found in leading European institutions and significantly greater than research budgets in the UK, Canada and Australia. The efficiency of technology transfer outcomes varies across the major regions with the UK producing the greatest rate of invention disclosures, licensing agreements and new start-ups. The US produces the greatest rate of new patent grants, while Canada generates the greatest rate of new patent applications. US institutions generate the greatest technology licensing returns from its research investments, followed by Europe, Australia, the UK and Canada.

‰

The key differences between technology transfer practices in key geographies can be explained by the size of respective research budgets and the age of the technology transfer function. On average, technology transfer offices in the US benefit from larger research endowments and have had more time to develop than their European, Canadian and Australian counterparts.

‰

The quality of technology available is a function of the quality of research undertaken by the university or institution in question. Certainly Ivy League and Russell Group universities are likely to produce higher quality research than their peers, based on years of academic progress and success. However, technology quality is also impacted by the availability of funds, talent and potential collaborative networks which are influenced by location.

‰

An analysis of the geographical differences between technology transfer practices provides three key recommendations: benchmarking to similar regions and locations; incorporating selective lessons from other geographies; and maximizing geographical reach.

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Introduction Geographical differences in regulations and locational contexts have a significant impact on technology transfer practices and results. Country-level regulatory differences are a result of varying intellectual property (IP) legislation and countryspecific developments impacting on the evolution of technology transfer disciplines. The location of a technology transfer office, either at the country, region or city-level, has a significant impact on technology transfer as a result of associated network and cluster effects.

Country-level regulations Technology transfer practices vary across the major regions. As shown in Table 3.8, average research expenditure for US institutions is more than double that found in leading European institutions and significantly greater than research budgets in the UK, Canada and Australia. The efficiency of technology transfer outcomes varies across the major regions with the UK producing the greatest rate of invention disclosures, licensing agreements and new start-ups. The US produces the greatest rate of new patent grants, while Canada generates the greatest rate of new patent applications. US institutions generate the greatest technology licensing returns from their research investments, followed by Europe, Australia, the UK and Canada.

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Table 3.8: Cross country technology transfer survey results US

Europe

UK

AUTM 2004 197 83%

ASTP 2004 101 73%

UNICO 2004 106 94%

AUCC 2003 91 79%

CofA 2002 124 31%

Average research expenditure (US$m)

209

96

38

38

27

Outcomes per US$bn research Invention disclosures Patent applications Patent grants Licenses executed Start-ups per US$bn research

407 334 89 115 11

359 167 33 138 22

707 218 35 346 56

329 364 55 123 5

248 152 43 152 20

19,672

16,051

12,969

18,872

Source Fiscal year Total respondents % universities

Returns on investment per US$m research License revenues 34,776

Sources: AUTM, ASTP, UNICO, AUCC, Commonwealth of Australia

Canada Australia

Business Insights

IP ownership The 1980 Bayh-Dole Act set the standard, but ownership of IP from research can still be complicated by the impact of ‘professor’s privilege’. In some countries, IP rights are retained by or shared with the inventor, and are not owned 100% by the university or research institution. Recent changes in European country regulations have resulted in several countries moving away from ‘professor’s privilege’, notably Germany in 2002 and Finland in 2007. However, Italy changed its IP rules in 2001 to join Sweden as the two leading European countries to employ a system of ‘professor’s privilege’.

The Italian and Swedish systems are different, but have a common theme whereby the researcher owns the rights to publicly funded research results. In Italy there is an obligation on the researcher to patent an invention, but universities and research institutions retain a right to a proportion of the profits deriving from the invention’s exploitation. In Sweden, ‘professor’s privilege’ largely relates to copyright with research institutions retaining no residual rights over an invention.

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Institutional IP ownership comes in two main forms. Pre-emption rights give research institutions the right to ‘claim’ the rights to an invention within a given time period, usually subject to some form of compensation for the inventor. The German public research generated IP market operates under these conditions. Automatic ownership makes the research organization the first owner of any resulting IP, often without any reversion or compensation rights for the inventor. Public-funded IP rights in the UK and French operate under this system.

Technology transfer The key differences between technology transfer practices in key geographies can be explained by the size of respective research budgets and the age of the technology transfer function. On average, technology transfer offices in the US benefit from larger research endowments and have had more time to develop than their European, Canadian and Australian counterparts.

Larger research budgets tend to result in more licensing opportunities for technology transfer offices to work with. As well as economies of scale effects, a greater number of licensing opportunities increases the chances of funding successful projects that will attract licensing partners. Reputational effects for successful technology transfer offices can also attract a greater number of potential partners for future projects.

The technology transfer function involves significant time-lags, with returns a function of significant R&D lead times. It is only as technology transfer offices are given the time to develop and mature that they begin to generate sustainable income streams and as a result are able to justify further investment. The ability to build strong relationships with both university faculty and external commercial partners also benefits from time and experience.

Technology transfer outcomes are also a function of commercialization strategies. Licensing provides the most common mechanism for technology transfer but spin-out companies have become an increasingly popular exit strategy for technology transfer.

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Licensing agreements tend to work best in established technology transfer offices with access to well-funded research projects. Whereas spin-out ventures tend to be more prevalent in markets where research funds are more limited and where commercial licensing partners are less willing to share risk on academic research discoveries.

Ashley Stevens, Executive Director of Technology Transfer at Boston University, outlined the different technology commercialization strategies employed in the US and elsewhere:

“The quantitative data for technology transfer shows that there is a greater emphasis on licensing in the US than in other major markets. In the UK, Canada and Australia there is a greater emphasis on spin-out companies.�

Largely as a result of context, technology transfer offices have developed different organizational structures relative to their associated research institutions. The degree to which a technology transfer office operates independently of the university or research institution is a function of evolution. Where independence serves the goals of the technology transfer function it is exercised but where closer ties with campus faculty and investigators are considered critical the function is more integrated.

Institutional location Technology transfer results are a function of the quality of the technology and of its transfer. The quality of the technology is entirely determined by the institution and its research program. The quality of the transfer is the result of the technology transfer office and its ability to select the best technologies and attract the best licensing partners. However, the quality of both technology and transfer is hugely influenced by location.

The quality of technology available is a function of the quality of research undertaken by the university or institution in question. Certainly Ivy League and Russell Group universities are likely to produce higher quality research than their peers, based on 70


years of academic progress and success. However, technology quality is also impacted by the availability of funds, talent and potential collaborative networks which are influenced by location. In general, US research is characterized by greater levels of secured funding, more entrepreneurial talent and established business and interacademia networks for the advancement of technologies. It can be further argued that certain States within the US, such as California and Massachusetts, have even greater endowments of funds, talent and networks than their US peers.

Despite high public research expenditure, the European paradox describes the ability of the region to translate this research into visible commercial benefits. The share of licensing revenue as a percentage of research expenditure for university technology transfer is around 1% in the UK and Europe but closer to 3% in the US. One explanation for the lower licensing returns is a greater reliance on start-ups in the UK and Europe, which in turn is largely a consequence of the ‘funding gap’ explained in greater detail later in this report. However, high start-up activity and relatively low licensing activity in Europe is also a function of lower royalties available for academic inventors in Europe compared with the US.

Recent measures to improve European technology transfer in line with US, include subsidies to establish technology transfer offices, changes in IP regulations encouraging universities to patent and license inventions, and requirements for universities to source a greater share of research funding from private sector.

The location of technology transfer start-ups is a key issue. If the start up is not based in an appropriate network or cluster than it can be difficult to find management teams and funding. In the US, individual states try to step in to provide funds while individual universities may also provide the start-up seed capital or gap funding through the technology transfer office.

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Christopher Rand, Manager of New Venture Development at Vanderbilt University, illustrated the impact location can have on the availability of technology start-up funds and talent:

“Nashville, for example, is often referred to as the “Silicon Valley of Healthcare”. The wealth and management expertise that was created as a result of the success in this industry makes it easier to start a healthcare services company in Nashville, relative to a high-tech/life sciences company. Finding management and venture funds for early stage technology companies is more difficult here than it might be in the states of California or New Jersey for example, where there is a history and ecosystem for high-tech companies.”

One way of extending capabilities beyond a technology transfer offices immediate location is to open a ‘sales’ office for technology transfer in an alternative location. Wisconsin Alumni Research Foundation compliments its technology transfer work in Wisconsin with a sales function based in California. In this way the technologies produced in Wisconsin can be effectively show cased for partnering or funding from the biotech and technology cluster found across different parts of California.

Technology transfer in the US The National Science Foundation and National Institutes of Health reinforce university commitment to research in the US. The National Institutes of Health (NIH), part of the federal Department of Health and Human Services, is the main agency for conducting and supporting medical research, including academic research.

The US is the world’s leader in biotech venture capital and California the leading state. California has strong biotech centers in San Francisco, San Diego, San Jose, Los Angeles and Orange County and is followed by second and third-place states Massachusetts and Pennsylvania.

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San Diego provides a good example of cross-institutional, interdisciplinary biotech clustering. The Scripps Research Institute, the Salk Institute for Biomedical Studies, the Burnham Institute and the University of California, San Diego provide a strong knowledge base for the region. This is complemented by a disproportionate share of locally produced Ph.D.s attracted to the industry rather than academic research, a key success factor for technology transfer.

IP ownership There is no system of ‘professor’s privilege’ in the US. Prior to the 1980 Bayh-Dole Act, the US Federal government retained ownership of all patents granted as a result of publicly funded research. Universities, non-profit institutions and small businesses are now entitled to elect to retain rights to inventions generated through federal research grants. In practice, the inventor-employee owns the rights to inventions in the US, but in practice employment contracts (defined or implied) assign ownership rights to the employer. Given the high level of importance patent income has in many universities, most US institutions have long-standing ownership and remuneration (royalty) policies for researchers.

Federal law ensures that universities share royalty income with their scientists. Technology transfer revenues, net of associated costs, are generally divided equally between the scientist (one third), the university department (one third) and the university’s overall research fund (one third).

At the University of Virginia scientists can earn greater royalty shares subject to a tiered approach to distributing royalty income. The inventor’s share starts at 50% of gross revenues and is dependent on the amount of cumulative royalties paid. The inventor’s royalty share is then determined by a patent family approach where money is shared for products involving different patents from different patent families.

US university policies generally require that all research results generated by the university are publishable and assigned to the university. In return industry sponsors

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receive an exclusive (or non-exclusive) option to license patents resulting from research that they sponsor. Where joint private-public funding is involved the industry partner’s rights are subject to the university’s obligations to government.

Technology transfer In the early 1980s, neither prestigious nor large public universities generated a significant number of patents. As latecomers to technology transfer, this group of universities only created formal technology transfer offices in the late 1980s. However, these institutions have subsequently shown dramatic improvements in technology transfer rankings as well as significant improvements in academic reputation.

Little more than one in 10 licensed technologies are actually ready for commercialization. Most transferred technologies require significant development work and ongoing cooperation from faculty to achieve commercial success.

Around a quarter of all scientists that receive National Cancer Institute funding use the funds to start a new company. New start-up ventures continue to provide a popular route to funding industrial research projects, particularly for biotechnologies.

On the whole, US university technology transfer offices are run as an integrated function within the research faculty. The major exception to this rule is the Wisconsin Alumni Research Foundation, which acts as an independent non-profit technology transfer office for the University of Wisconsin at Madison. The only other example of independent technology transfer in the US is the Arizona State Universities whollyowned non-profit technology transfer company Arizona Technology Enterprises.

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Technology transfer in Europe The UK technology market provides the focus of European biotechnology and associated venture capital funds. Cambridge has produced 185 biotech companies, with the region providing a quarter of Europe’s public biotech companies and 20% of the world’s Nobel Prize winners in medicine and chemistry. Germany has also achieved a good reputation in life sciences research.

Europe’s biotechnology sector has a similar number of companies as the US. However, the US biotechnology industry employs approximately twice as many people, spends three times as much on R&D and has access to around four times as much funding.

University R&D funding varies across European countries. In countries such as Switzerland, Sweden and Germany, more than 60% of university R&D funds are generated from industry partners. However, in countries such as Italy and Austria the share of industry-derived R&D funding is less than 50%.

IP ownership Both Sweden and Italy operate under a system of ‘professor’s privilege’. Sweden has a long standing tradition of inventor-owned IP rights, whereas Italy moved to a system of ‘professor’s privilege’ in 2001.

Germany, Austria, Denmark and Finland operate a system of pre-emption IP rights. The researcher is the first owner of an invention, but the university or research institution has the right to claim the invention within a given time frame, often involving a predetermined scheme of remuneration.

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The UK, France, Spain and the Netherlands operate automatic ownership systems. The university is automatically the first owner of any research-derived IP, and usually has few obligations with respect to reversion and compensatory rights to the inventor.

Technology transfer Over the last 10-15 years, academic spin-off ventures have gained acceptance as a valid mechanism for technology transfer in Europe. In the UK, 30 university spin-out companies have successfully floated on the stock market since 2003, at a combined value of £1.7bn. Almost two-thirds of university spin-out companies formed in 2005 were funded through external investment finance.

The commercialization of university research is hampered by the European patent system that prohibits patents for work that has already been publicly disclosed, including academic publications. As a result faculty researchers must file for full protection before publishing related articles. In the US, researchers can file up to a year after any publication.

In the UK, the 2004 Lambert Review of Business-University Collaborations made a number of key recommendations for the promotion of better links between industry and universities. Amongst the recommendations were a set of model collaborative research contracts. There were five different model agreements: ‰

University owns the IP and grants a non-exclusive license for use to industry partner;

‰

University owns the IP and grants an exclusive license for use to industry partner;

‰

University owns the IP and grants an assignment option for the rights to industry partner;

‰

Industry partner owns the IP with rights reserved by the university to use results for academic purposes;

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‰

Industry partner owns the IP with no rights reserved for university to publish any results.

Technology transfer in the rest of the world Outside of the US and Europe, Japan operates the largest pharmaceutical market and invests the greatest amount of research funding in its universities. Other key country markets of interest to biopharmaceutical research are Canada and Australia that both have well-funded university research programs and established track-records in earlystage biopharmaceutical research.

Japan Japanese universities operated a system of ‘professor’s privilege’ for inventions arising out of corporate sponsored and faculty-assigned research until 2004. However, the 2004

University

Incorporation

Law

gave

national

universities

independent

administrative status, allowing them to require faculty to assign inventions to the university.

The 1999 Law of Special Measures to Revive Industry is known as the Japanese BayhDole Law. The law allowed Government ministries to let universities retain control over the inventions generated through Government research grants and contracts.

Japanese universities tend to license rather than assign their IP rights to partner companies. However, co-ownership resulting from joint research or co-invention is currently the dominant model for technology transfer in Japan.

The first laws establishing technology transfer offices in Japanese universities were passed in 1998. The technology transfer offices are supervised and financially supported by the Ministry of Education, Culture, Sports, Science and Technology

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(MEXT) for their first five years subject to reviews, after which they proceed to operate independently.

Joint research, as opposed to commissioned research, is the favored form for sponsored university research in Japan. As a result, university technology transfer offices are required to aggressively negotiate legal IP rights in order to successfully retain any control over their share of the returns from innovation.

Canada Toronto is home to around 40% of Canada’s biotech companies, and is one of the largest biotech clusters in North America. However, Quebec’s Montreal is the leading biotech cluster in Canada, with a strong focus on drug development. The area is home to more than 300 biotech companies and has the highest concentration of biotech startups in Canada.

In 1991, ownership of university IP was decentralized from federal government ownership and currently varies from university to university. Licensing revenues are divided between scientists and institutions based on fixed or highly negotiated terms. For example, Simon Fraser University in British Columbia operates an IP management system whereby 100% of licensing revenues are granted to the innovator.

Technology transfer offices largely follow the in-house model, integrating the function within the university research department. However, a number of universities operate their technology transfer offices as wholly-owned, stand-alone commercial entities. Established in 1987, PARTEQ Innovations is a nonprofit organization assisting Queen’s University at Kingston, Ontario with the commercialization of universitygenerated IP.

Australia Australia’s innovation policy is for federal and state governments to offer grants but not projects to companies. As a result, when a university research project runs out of 78


funds, the team often starts a company in order to apply for a grant to facilitate continued research. However, when the grant runs out companies have not always developed to the level that would attract venture capital investment and tend to fail as a consequence.

Around 20 universities are directly involved in pharmaceutical research, with one third located in each of Victoria and New South Wales. Victoria is Australia’s biotech capital with approximately 40% of the industry’s companies and employees based there. Amongst Victoria’s contribution to technology transfer has been the development of colony stimulating factors for protecting cancer patients from bone marrow damage caused by chemotherapy. The technology was discovered by the team of Professor Donald Metcalf at Melbourne’s Walter and Eliza Hall Institute of Medical Research.

Technology transfer licensing income is heavily concentrated in Australia. The country’s top three universities account for more than 80% of total licensing income. Around half of all technology transfer licenses originate from the biological sciences.

Like Canada, technology transfer offices largely follow the in-house model, integrating the function within the university research department. However, a number of universities operate their technology transfer offices as wholly-owned, stand-alone entities, such as NewSouth Innovations Pty Ltd at the University of New South Wales.

Recommendations An analysis of the geographical differences between technology transfer practices provides three key recommendations: ‰

Benchmarking to similar regions and locations;

‰

incorporating selective lessons from other geographies;

79


‰

maximizing geographical reach.

There are clear differences in technology transfer between key regions and locations. These are largely a result of local intellectual property and technology transfer rules and regulations. Other key differentiators between technology transfer offices are exposure to active networks and biotechnology clusters. As a result, benchmarks for technology transfer offices have to be mindful of these local differences, before any further filtering for institutions of similar type and size.

While geographical differences impact on local technology transfer practices, there are regional learnings that can help inform technology transfer more generally. The US market provides good benchmarks for effective technology transfer based on established technology transfer offices and strong integration with the university research department. In the UK, independent technology transfer offices provide good benchmarks for effective technology transfer based on a commercial technology transfer outlook and successful start-up activity.

While technology transfer offices are fixed by the location of their associated research institution, there are strategies that can be employed to help widen their geographic reach. For example, Wisconsin Alumni Research Foundation has broadened its reach by establishing a sales function in California to help exploit its stem cell research and other technologies. Another example is the West Coast Licensing Partnership, which brings together the technologies from seven different West Coast US universities to create value-added technology packages.

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CHAPTER 4

Structuring the function

81


Chapter 4

Structuring the function

Summary ‰

A recently established technology transfer office will find it hard to demonstrate value. It can take a technology ten years before any royalties are earned and therefore a five-year-old technology transfer office is unlikely to show any returns. However, once a technology transfer office has become established it will be self financing.

‰

Achieving operational effectiveness in the technology transfer process is a critical element for maximizing the returns from new inventions. It could be argued that after the ‘low hanging fruits’ are exploited technology transfer activity should suffer from diminishing returns. However, it can also be argued that the function can always stand to benefit from operational productivity gains.

‰

Amongst all the frustrations felt by industry in its dealings with technology transfer offices, the most common complaint is the lack of understanding as to the needs of the industry customer. Technology transfer executives tend to be PhDs not MBAs, and as a result often better understand the merits of good science over good commercial solutions.

‰

A major reason for establishing an independent technology transfer office is to generate a more commercial environment for technology transfer that would otherwise be restricted by a university or research institution’s public research remit. Critically, independent technology transfer offices are able to deliver the right pay and rewards for its professionals, not been hampered by parallel benchmarks established for academic research professionals.

‰

A consideration as to the most appropriate structure for technology transfer offices provides three key recommendations: best practices are established over time; professionalism needs to be balanced against respecting the unique positioning of the technology transfer office; and while there is no one size-fitsall best practice model, there are some basic rules of thumb.

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Introduction The structure of a technology transfer function differs by type of associated institution, by location, by age and critically by budget. Generating optimal returns and operational effectiveness, while balancing different cultures and objectives, has led to the emergence of technology transfer functions of many different shapes and sizes. While a best practice technology transfer model does not exist there are more general learnings that can be adapted from current success stories in order to help better tackle the key challenges associated with structuring the technology transfer function.

Structural issues Survey findings from European technology transfer offices provide a good summary of the range of services currently offered by technology transfer offices. As shown in Figure 4.26, 90% or more of European university technology transfer offices support licensing activities, IP protection and the negotiation of commercial consulting contracts. The majority of European university technology transfer offices also help in the creation and support of university start-ups and in the negotiation of government research contracts and grants. Around two in five university technology transfer offices provide incubator facilities to companies and one five manage a seed capital fund.

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Figure 4.26: Technology Transfer Office services provided to European universities, 2006

Licensing activities

91%

IP protection

90%

Negotiate consulting contracts with companies

90%

87%

Create/support start-ups Negotiate government research contracts & grants

79%

Provide incubator facilities to companies

43%

Manage a seed capital fund

22%

Business Insights

Source: The ASTP Survey for Fiscal Year 2006

Figure 4.27 shows the range of technology transfer services offered to other public research institutions in Europe. As with university technology transfer offices, the majority of public research institutions receive support in IP protection, licensing activity and the creation and support of start-ups. However, fewer non-university technology transfer offices offer negotiation services with research sponsoring companies or grant awarding bodies, and only a very small proportion of research institution technology transfer offices are involved in providing incubator facilities or in managing a seed capital fund.

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Figure 4.27: Technology Transfer Office services provided to other European public institutions, 2006

96%

IP protection

92%

Licensing activities

83%

Create/support start-ups

79%

Negotiate consulting contracts with companies Negotiate government research contracts & grants

67%

Provide incubator facilities to companies

Manage a seed capital fund

25%

4%

Business Insights

Source: The ASTP Survey for Fiscal Year 2006

With technology transfer offices providing a range of services, their structural organization can vary widely dependant on the size and type of institution, local regulations and the age and remit of the technology transfer function. Key structural issues impacting on technology transfer include: ‰

Commercial returns – demonstrating value over time;

‰

operational effectiveness – delivering high service levels;

‰

culture and process – balancing public science with private business;

‰

independence – in-house vs external, non-profit vs for-profit

Commercial returns Age is a critical asset for a technology transfer office. A recently established technology transfer office will find it hard to demonstrate value. It can take a 85


technology ten years before any royalties are earned and therefore a five-year-old technology transfer office is unlikely to show any returns. However, once a technology transfer office has become established it will be able to become self financing.

Paul Van Dun, Director of Leuven Research and Development, summarized the advantages of having an established technology transfer function with over 30 years of commercial success:

“The main advantage is that you do not have to convince researchers and academics of the value of working with industry partners, for them it is an established process that is positive rather than detrimental to generating innovative technologies.”

As well as demonstrating value internally to secure budget, technology transfer offices also need to provide a clear demonstration of the value of technologies to potential licensing partners. However, academic research values are not the same as commercial exploitation values, and the technology transfer function needs to translate value from the academic world to the business world.

Paul Field, Technology Transfer Manager at Qatar Science & Technology Park, outlined the important role the technology transfer office plays in ensuring prospective partners are made aware of the potential commercial value of a new technology:

“Industry is interested in a technology’s benefits and features, not how it works. They need to have some sort of ‘commercial benefit statement’ that shows how they are going to make a profit.”

Operational effectiveness Achieving operational effectiveness in the technology transfer process is a critical element for maximizing the returns from new inventions. It could be argued that after the ‘low hanging fruits’ are exploited technology transfer activity should suffer from diminishing returns. However, it can also be argued that the function can always stand to benefit from operational productivity gains.

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Professionalism must be evident from the very first contact with a potential licensing partner and therefore non-disclosure agreements need to have a quick turnaround time. With internal partners, technology transfer offices need to provide an effective economic sense check for research plans and IP applications.

Smoothing the way towards agreeing licensing terms with a potential partner often means setting modest annual minimums, royalty rates and upfront fees, leaving the possibility to achieve greater returns from downstream royalties. Similarly, technology transfer offices also provide critical support for spin-outs, helping them to evolve and eventually get the right terms at exit.

Paul Van Dun, Director of Leuven Research and Development, highlighted the importance of commercial professionalism for a technology transfer function:

“If you want to make a bridge with industry you need to communicate to their standards. I always say you need to have one leg in industry and one leg in academia.�

There are two schools of thought when it comes to organizing the technology transfer function. The first is a silo approach, whereby the technology transfer office is split into its separate functions, such as clinical trials, licenses, industrial research, material transfer etc. The second is an integrated, holistic approach whereby the technology transfer role is cross-disciplinary managed across areas of competency. For example, the cancer technology transfer executive would manage all relevant relationships with PI, conduct lifecycle management and provide a single point of contact for industry. A silo approach provides specialization, but lacks the oversight and continuity provided by the holistic approach.

Material transfer agreements and academic research licenses are complicated enough. However, collaborative research results in a further level of complexity for technology transfer. Researchers in UK university hospitals have a joint NHS/academic contract. The NHS runs its own technology transfer function, NHS Innovations, providing an extra level of potential conflict or duplication in the transfer of new technologies. 87


Another area of complexity occurs where faculty moves from institution to institution resulting in around a quarter of all research leads resulting from inventors based at multiple universities. Cross-institutional agreements are required to establish share of responsibilities and results and assign a technology transfer lead in these cases.

Culture and process Amongst all the frustrations felt by industry in its dealings with technology transfer offices, the most common complaint is the lack of understanding as to the needs of the industry customer. Technology transfer executives tend to be PhDs not MBAs, and as a result often better understand the merits of good science over good commercial solutions.

A technology partnering director with a leading pharmaceutical company summarized some of the frustrations of dealing with early stage academia-based technologies engrained in research funding mechanisms:

“What we are not is a grant awarding body.”

Internally, technology transfer offices face a significant cultural challenge in interacting with faculty on the basis of ‘for-profit’. It is important to take a balanced approach, making small steps towards creating a more commercial environment, such as introducing commercial viability assessments and including independent people on the management committee.

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Nick Rodgers, chief executive and co-founder of IPSO Ventures, outlines the difficulty faced in partnering science and business:

“The industry is traditionally very good at exploiting innovations but not at developing them. On the other side universities have the technologies but are unable to develop them appropriately. The difficulty in connecting universities with the industry is largely the result of the different objectives and the different ways in which each side operates.”

Technology transfer offices play a very challenging role in bringing science and business together. As a result, they attract a great deal of criticism from the biopharmaceutical industry. However, while both sides need to understand one another better, there also needs to be fairness in respect of each side's differing objectives.

Universities continue to be non-profit institutions run ‘for the benefit of the public’. Therefore, alongside calls to be more commercial and professional, technology transfer offices need to remain prescient of the requirements for academic freedom and the ‘right to publish’ in particular.

Brian Clark, Director of Technology Licensing at the Beckman Research Institute of City of Hope, outlined the importance of providing the right environment for partnering between science and industry:

“We’d invite industry to come and visit us face to face more often. They can sit down with our key scientists and get a better sense as to our basic research and translational capabilities. They may be surprised to find that many “academic” institutions have evolved and that we have more areas of overlap and complementarity than they might have thought. Indeed, in some areas such as first-in-man studies, or looking at off-the-beaten track drug targets, we can be faster, cheaper and more nimble than biotech partners. To meet its end of the bargain, it’s important that academia recognizes the needs of industry and staff their own offices with professionals who can get the deal done.”

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Independence Technology transfer offices vary in their affiliation to universities and research institutions. There are four main technology transfer office models: ‰

Integrated university/research institution technology transfer office;

‰

Independent technology transfer company founded out of university/research institution;

‰

Independent technology transfer company acting as agent for university/research institution;

‰

Parallel technology transfer vehicles that grant funds with a commercial interest, such as the Wellcome Trust, Cancer Research UK and NHS Innovation.

A major reason for establishing an independent technology transfer office is to generate a more commercial environment for technology transfer that would otherwise be restricted by a university or research institution’s public research remit. Critically, independent technology transfer offices are able to deliver the right pay and rewards for its professionals, not been hampered by parallel benchmarks established for academic research professionals.

It can be argued that having an ‘independent’ technology transfer office also allows the university/research institution to focus on innovation, without having to be distracted by establishing the commercial bridge. However, whether to have a more independently operated technology transfer office or not is largely determined by context, with no established best practices suggesting one model works better than another.

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Paul Field, Technology Transfer Manager at Qatar Science & Technology Park, summarized the merits of different approaches to technology transfer and the associated degree of independence:

“Whether in or out of house, technology transfer depends on the university – there is no one model fits all. The key question is ‘what do you want out of it?’”

The following section reviews real world case studies supporting three different levels of technology transfer office independence: ‰

In-house, non-profit model – the integrated technology transfer office;

‰

Independent, non-profit model – the independent technology transfer company established by a university/research institution;

‰

Independent, for-profit model – the independent technology transfer company acting as an agent for universities/research institutions.

In-house, non-profit model In-house, non-profit technology transfer offices provide the vast majority of technology transfer work in the US and elsewhere. The technology transfer office sits as an external facing division within the university/research institution’s more general research department. Three key case studies include: ‰

University of California – the largest university technology transfer office in the world;

‰

K.U.Leuven – Europe’s oldest university technology transfer office;

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City of Hope – a hospital research institution technology transfer office generating significant licensing income (relative to research budget).

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Case study: University of California As shown Table 4.9, the University of California Office of Technology was established in 1979 and employs 95 full time licensing staff. In 2007, the technology transfer office generated 1,411 invention disclosures, 1,208 US patent applications, received 331 US patent grants, signed 440 licensing agreements and generated licensing income of US$116.9m. A hepatitis-B vaccine discovered in 1979 is the current top licensing income earner, contributing US$14m in 2007. Bovine growth hormone discovered in 1980 generated its first royalties in 2007 following a US$100m patent litigation settlement in 2006.

Table 4.9: University of California technology transfer summary, 2008

University of California Office of Technology Transfer Year established – 1979 Licensing full time equivalents (FTEs) – 95 Outcomes (FY2007) Invention disclosures – 1,411 US patent applications – 1,208 US patents – 331 Licensing agreements – 440 Licensing income – US$116.9m Technology transfer milestones Hepatitis-B vaccine discovered in 1979 is top earning invention generating over US$14m in licensing revenue in FY2007 Bovine growth hormone discovered in 1980 generated its first royalties in FY2007 following the US$100m litigation settlement in FY2006 Source: University of California Technology Transfer website; AUTM 2006 Survey

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Business Insights


The University of California Office of Technology Transfer provides leadership and strategic direction for the system wide technology transfer program and is responsible for the administration of intellectual property on behalf of the university. Technology transfer functions include: ‰

development and administration of intellectual property policy, including the University of California’s patent policy;

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evaluation of inventions;

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prosecution of patents;

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licensing of intellectual property;

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monitoring of licenses and other intellectual property agreements;

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distribution of resulting income;

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provision of support to other University units in copyright, trademark, and research funding agreements.

In addition, the technology transfer office also provides outreach services for the community on behalf of the system wide technology transfer program. These services include giving forums about how to work with the University of California, and providing ways to access the University of California technology transfer system though publications, websites and visibility at relevant meetings.

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Case study: K.U.Leuven As shown in Table 4.10, K.U.Leuven Research & Development, the technology transfer office for the Catholic University of Leuven, was established in 1972 and employs 28 full time licensing staff. In 2007, technology transfer outcomes included three new spin-offs, making a cumulative total of 75, generating a total turnover of over €400m. There is no available data for K.U.Leuven Research & Development’s licensing activities in 2007. In 2007, FORMAC Pharmaceuticals was spun-off after raising €1.7m in private seed capital. ThromboGenics, a spin-off dating back to 1991, raised €38.5m in a 2006 IPO followed by a further public placement of €23.9m in 2007.

Table 4.10: K U Leuven technology transfer summary, 2008 K.U.Leuven Research & Development Year established – 1972 Licensing full time equivalents (FTEs) – 28 Outcomes New spin-offs in 2007 – 3 Total spin-offs as at end of 2007 – 75 Total spin-off turnover in 2007 – >€400m Technology transfer milestones FORMAC Pharmaceuticals was spun-off in 2007 after raising €1.7m in private seed capital ThromboGenics was spun-off in 1991 and raised €38.5m in an IPO in 2006 followed by a further offering of €23.9m in 2007 Business Insights

Source: Leuven Research & Development website

K.U.Leuven Research & Development is the technology transfer office of the Katholieke Universiteit Leuven in Belgium. It is the oldest university technology transfer office in Europe, dating back to 1972. The technology transfer office is a separate entity within the university with the specific mission to promote and support the transfer of knowledge and technology between the university and industry.

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K.U.Leuven Research & Development offers professional advice with regard to legal, technical as well as business-related issues. These activities include: ‰

Contract research – professional advice is provided both to determine opportunities and to negotiate and elaborate research agreements;

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Intellectual Property Rights management – an active patent and licensing policy is pursued with respect to university research results;

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Establishing new research-oriented and innovative spin-off companies – professional advice and support as well as access to venture capital is provided to entrepreneurs who want to set up a new, research-oriented business that makes use of the university’s knowledge or technology;

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Promotion of high-tech entrepreneurship and innovation – stimulating networking initiatives and technology clustering.

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Case study: City of Hope As shown in Table 4.11, the City of Hope Office of Technology Licensing was established in 1986 and employs two full time licensing professionals. 2006 technology transfer outcomes include 19 invention disclosures, 10 US patent applications, 11 US patents, 5 licensing agreements and total licensing income of US$98.7m. In 2008, a final court ruling ordered Genentech to pay City of Hope US$300m in owed royalties relating to a 30-year-old patent resulting from the collaboration to synthesize human insulin (Humulin). Vasix, a spin-off company established in 2005, exclusively licensed the rights to 15 City of Hope patents and 100 compounds relating to inhibitors and breakers of Advanced Glycation Endproducts (AGE), an important causative agent responsible for tissue damage in diabetic patients.

Table 4.11: City of Hope technology transfer summary, 2008 City of Hope Office of Technology Licensing Year established – 1986 Licensing full time equivalents (FTEs) – 2 Outcomes (FY2006) Invention disclosures – 19 US patent applications – 10 US patents – 11 Licensing agreements – 5 Licensing income – US$98.7m Technology transfer milestones A 2008 court ruling ordered Genentech to pay US$300m in owed royalties relating to a 30year-old patent resulting from the collaboration to synthesize human insulin (Humulin) A spin-off company (Vasix) was established in 2005 to exclusively exploit more than 15 patents and 100 compounds relating to inhibitors and breakers of Advanced Glycation Endproducts (AGE), an important causative agent responsible for tissue damage in diabetic patients Source: City of Hope Office of Technology Licensing website; AUTM 2006 Survey

Business Insights

The City of Hope Office of Technology Licensing identifies technologies with potential for commercial application. Once such technologies are identified, the office works with inventors to help them understand the patent process and negotiates agreements with prospective partners to commercialize the relevant intellectual

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property. The technology transfer office also helps launch new spin-off companies based on research conducted at City of Hope.

Independent, non-profit model Independent, non-profit technology transfer offices are frequently found in Europe and in a small number of examples elsewhere. The technology transfer offices generally sits as a wholly-owned or exclusively contracted, independent company, having being spun-off from the university/research institution’s research department at some point in the past. Three key case studies include: ‰

Wisconsin Alumni Research Foundation – the oldest university technology transfer office in the world;

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Arizona Technology Enterprises – the only independent university spin-off technology transfer company in the US;

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Isis Innovation – the UK’s leading, wholly-owned university spin-off technology transfer company.

Case study: Wisconsin Alumni Research Foundation As shown in Table 4.12, Wisconsin Alumni Research Foundation (WARF), the University of Wisconsin’s technology transfer office, was established in 1925 and employs 22 full time licensing staff. 2007 technology transfer outcomes include 410 invention disclosures, 300 US patent applications, 115 US patents, 60 licensing agreements and total licensing income of US$50m. In 2008, the US Patent Office issuing certificates to uphold WARF’s base embryonic stem cell discovery patents following a two year reexamination. An agreement with Invitrogen in 2008 brought WARF’s total number of human embryonic stem cell licensing agreements to 24, involving 18 different licensing partners.

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Table 4.12: Wisconsin Alumni Research Foundation technology transfer summary, 2008

Wisconsin Alumni Research Foundation Year established – 1925 Licensing full time equivalents (FTEs) – 22 Outcomes (FY2007) Invention disclosures – 410 US patent applications – 300 US patents – 115 Licensing agreements – 60 Licensing income – US$50m Technology transfer milestones A two year reexamination of WARF’s base embryonic stem cell discovery patents was concluded in 2008 with the US Patent Office issuing certificates to uphold the patents A 2008 agreement with Invitrogen brought the total number of human embryonic stem cell licensing agreements to 24, involving 18 different licensing partners Source: Wisconsin Alumni Research Foundation website

Business Insights

WARF’s mission is to support scientific research at the University of WisconsinMadison by: ‰

Moving inventions arising from the university’s laboratories to the marketplace for the benefit of the university, the inventors and society;

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managing an endowment that WARF has grown since its inception.

WARF supports research at the University of Wisconsin-Madison by protecting the intellectual property of university faculty, staff and students, and licensing inventions resulting from their work. Andrew Cohn, Director of Government and Association Relations at the Wisconsin Alumni research Foundation, outlined the importance of intellectual property protection in technology transfer offices:

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“WARF has a strong reputation for protecting and enforcing its patents. We are not afraid to go to court. But as a result you know that if you get a license form WARF, we will stand behind it.”

Established in 1925, WARF was the first university technology transfer office in the United States. WARF affiliates include: ‰

WiSys, the non-profit patenting and licensing organization of the University of Wisconsin System;

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the nonprofit WiCell Research Institute, established in 1999 to advance stem cell research;

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the Morgridge Institute for Research, part of a unique public/private University of Wisconsin interdisciplinary research hub scheduled to begin construction in 2008.

WARF has two groups of technology transfer staff: ‰

IP managers that are campus-based and manage relationships with inventors;

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‘sales’ people from industry that manage relationships with industry.

WARF takes a unique approach to technology transfer, whether it be through their royalty scheme or through their technology transfer ‘sales office’ in California. Andrew Cohn, Director of Government and Association Relations at the Wisconsin Alumni research Foundation, summarized the different approach taken to royalty incentives for inventors:

“At most institutions inventors stand to make 30-35% royalties on the returns from IP after costs, administrative and staff costs, and as a consequence needs a ‘home run’ to make any money at all. At WARF we do things differently with inventors taking a different percentage for royalty payments, but from gross returns, not after costs, which creates income for inventors even when a technology isn’t a ‘home run’. WARF has over 300 inventors who are currently earning royalties.”

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Case study: Arizona Technology Enterprises As shown in Table 4.13, Arizona Technology Enterprises, Arizona State University’s technology transfer office, was established in 2003 and employs 6 full time licensing staff. 2006 technology transfer outcomes include 154 invention disclosures, 49 US patent applications, 23 US patents, 19 licensing agreements and total licensing income of US$3.3m. Therapeutic peptides spin-off AzERx was acquired by OncoLogic (now Capstone Therapeutics) in 2006 for US$8m in cash and shares. In 2008, a technology transfer agreement was signed with partner universities Dublin City University in Ireland (through its technology commercialization organization Invent DCU Limited) and Tec de Monterrey in Mexico to market their technologies at Arizona State’s Skysong Innovation Center.

Table 4.13: Arizona Technology Enterprises technology transfer summary, 2008 Arizona Technology Enterprises Year established – 2003 Licensing full time equivalents (FTEs) – 6 Outcomes (FY2006) Invention disclosures – 154 US patent applications – 49 US patents – 23 Licensing agreements – 19 Licensing income – US$3.3m Technology transfer milestones In February 2006, therapeutic peptides spin-off AzERx was acquired by OncoLogic (now Capstone Therapeutics) in an US$8m cash and share deal In July 2008, a technology transfer agreement was signed with partner universities Dublin City University in Ireland (through its technology commercialization organization Invent DCU Limited) and Tec de Monterrey in Mexico to market their technologies at Arizona State’s Skysong Innovation Center Source: Arizona Technology Enterprises website; AUTM 2006 Survey

Business Insights

Arizona Technology Enterprises (AzTE) was established in 2003 as an Arizona Limited Liability company with the Arizona State University Foundation as its sole member. Pursuant to agreements with Arizona State University, AzTE operates as the

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exclusive intellectual property management and technology transfer organization for Arizona State University. AzTE conducts its activities on behalf of Arizona State University in accordance with policies of the Arizona Board of Regents and Arizona State University. AzTE also collaborates with other universities on technology transfer.

The AzTE executive team is comprised of industry and university veterans with years of professional experience in: ‰

Technology evaluation;

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product development;

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technology marketing;

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capital formation;

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operations/management;

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IP protection;

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industry relationships;

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licensing and commercialization.

Case study: Isis Innovation As shown in Table 4.14, Isis Innovation, the technology transfer office for the University of Oxford, was established in 1988 and employs 25 full time licensing staff. 2008 technology transfer outcomes include 202 invention disclosures, 68 new patent applications, 74 licensing agreements and total licensing income of £4.7m. Isis Innovation received its 100th US patent grant in 2007. Tuberculosis vaccine MVA85A was licensed to Emergent Biosolutions in 2008, raising £8m from Wellcome Trust and Aeras Global TB Vaccine Foundation to fund phase IIb trials.

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Table 4.14: ISIS Innovation technology transfer summary, 2008 Isis Innovation Year established – 1988 Licensing full time equivalents (FTEs) – 25 Outcomes (FY2008) Invention disclosures – 202 New patent applications – 68 Licensing agreements – 74 Licensing income – £4.7m Technology transfer milestones 100th US patent granted in 2007 In July 2008, tuberculosis vaccine MVA85A was licensed to Emergent Biosolutions, raising £8 million from Wellcome Trust and Aeras Global TB Vaccine Foundation to fund phase IIb trials Business Insights

Source: ISIS Innovation website

Isis Innovation Ltd is the University of Oxford’s wholly-owned technology transfer company. Isis was established in 1988 and in 1997 started a major expansion phase. Isis manages the University’s intellectual property portfolio, working with university researchers on identifying, protecting and marketing technologies through licensing, spin-out company formation, consulting and material sales.

Isis provides researchers with commercial advice, funds patent applications and legal costs, negotiates exploitation and spin-out company agreements, and identifies and manages consultancy opportunities. Isis works on projects from all areas of the university’s research activities: life sciences, physical sciences, social sciences and humanities.

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Independent, for-profit model Independent, for-profit technology transfer companies are most commonly found in the UK. The technology transfer companies generally operate as an independent agent for universities and research institutions. Historically, ‘independent’ technology transfer offices have concentrated on the demand side and partnering with industry, whereas in the future they will need to compete more fiercely for university IP which will lead to universities becoming more demanding. Three key case studies include: ‰

IP Group – publicly quoted company with seven years of operational success;

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Fusion IP – exclusive technology transfer agreements with two leading UK universities;

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IPSO Ventures – technology transfer venturing company of truly independent origin.

Case study: IP Group As shown in Table 4.15, independent technology transfer company IP Group was established in 2001. In 2007, IP Group’s portfolio of technology transfer spin-outs grew by £126.1m, generating fair value of gains of £26.4m and disposal gains of £8.1m. Private funds raised by IP Group totaled £31.3m in 2007. Portfolio company Proximagen Neuroscience signed a neurodegenerative disease drug discovery and development licensing agreement with Upsher-Smith Laboratories in 2008 worth a headline value of US$232m. In 2008, the University of Bradford joined the Universities of Aberdeen, Dundee and Manchester to become the fourth academic licensing partner for IP Group’s drug development company Modern Biosciences.

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Table 4.15: IP Group technology transfer summary, 2008 IP Group Year established – 2001 Outcomes (2007) Portfolio growth – £126.1m Portfolio fair value gains – £26.4m Portfolio disposal gains – £8.1m Private funds raised – £31.3m Technology transfer milestones In July 2008, portfolio company Proximagen Neuroscience signed a neurodegenerative disease drug discovery and development licensing agreement with Upsher-Smith Laboratories worth a headline value of US$232m In 2008, the University of Bradford joined the Universities of Aberdeen, Dundee and Manchester to become the fourth academic licensing partner for IP Group’s drug development company Modern Biosciences Business Insights

Source: IP Group website

IP Group’s core business is the commercialization of intellectual property originating from research intensive institutions. At the time the company was founded in 2001, it had a single university partnership (the University of Oxford). Today it has long-term partnerships with ten UK universities in total in the UK and as at 30 June 2007, 60 portfolio companies had been created from these partnerships.

IP Group offers the following benefits to its long-term partners: ‰

Significant support for its partners’ IP commercialization activities and, in particular, expertise in the identification of novel intellectual property with commercial potential;

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seed capital finance for portfolio companies;

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ongoing strategic and financial support for portfolio companies to maximize their chances of success.

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As shown in Figure 4.28, IP Group maintains a portfolio of different academic partners. A total of ten different UK universities have exclusive and non-exclusive agreements in place for the transfer of technology through IP Group.

Figure 4.28: IP Group’s academic partners

Business Insights

Source: IP Group website

Case study: Fusion IP As shown in Table 4.16, independent technology transfer office Fusion IP was established in 2001 and employs 13 full time staff. 2007 technology transfer outcomes include total consolidated turnover of £351m, new funds raised of £7.8m, new investments of £3.3m, four new company spin-offs, eight new company spin-offs and one company exit. A 10-year exclusive agreement was signed with the University of Cardiff in 2006 to acquire the rights to 100% of all research-generated IP. In 2008, the 10-year exclusive IP licensing agreement with the University of Sheffield was expanded to include non-life sciences IP.

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Table 4.16: Fusion IP technology transfer summary, 2008 Fusion IP (formerly BioFusion) Year established – 2001 Number of staff – 13 Outcomes (FY2007) Total consolidated turnover - £351m New funds raised - £7.8m New investments– £3.3m New company spin-offs – 4 New company acquisitions – 8 Company exits – 1 Technology transfer milestones In November 2006, a 10-year exclusive agreement was signed with the University of Cardiff to acquire the rights to 100% of all research-generated IP In July 2008, the 10-year exclusive IP licensing agreement with the University of Sheffield was expanded to include non-life sciences IP Business Insights

Source: Fusion IP website

Fusion IP owns the rights to 100% of the university-owned research generated at two of the UK’s leading universities – the University of Sheffield and Cardiff University. The company’s combination of short, medium and long term investments aims to minimize risk while providing the potential for significant value growth. As shareholders in Fusion IP, partner universities are rewarded and incentivized to ensure that their R&D spend is focused on generating world class IP and the academics are rewarded with shareholdings in subsequent portfolio companies.

Fusion IP’s university partnerships allow each party to play to its strengths. University partners focus on creation and innovation, while Fusion IP looks after commercialization. At the point of cross-over there is sufficient integration with each university’s existing technology transfer team to ensure that progress is smooth.

Case study: IPSO Ventures As shown in Table 4.17, independent technology transfer company IPSO Ventures was established in 2005 and has five full time staff. In 2008, IPSO’s group investments were worth £775,000 and launched one new company spin-off. In 2008, the company’s 106


second spin-out company Polyfect Solutions received an investment totaling £400,000, while portfolio company Therakind generated its first revenues through partnered research in children’s medicines.

Table 4.17: IPSO Ventures technology transfer summary, 2008 IPSO Ventures Year established – 2005 Number of staff – 5 Outcomes (FY2008) Group investments – £775,000 New company spin-offs – 1 Technology transfer milestones In July 2008, IPSO invested in second spin-out company Polyfect Solutions with a £400,000 investment Portfolio company Therakind generated its first revenues in FY2008 through partnered research in children’s medicines Business Insights

Source: IPSO Ventures website

IPSO Ventures creates commercial value from intellectual property and technology generated by universities and other research institutions. Working with industrial partners the company acts as a bridge between them and the research innovations found in universities and other research establishments in the UK and worldwide. IPSO work with research partners to help identify potential commercial opportunities and then add value to enable use by industrial partners.

Where IPSO Ventures has identified the demand for a new technology they work with research partners to source IP that has the potential to be developed into a valuable commercial opportunity. Whether the appropriate commercialization route is licensing or creating a spin-out company much of the early development process is the same. Licensing and spin-out creation are two ends of the commercialization continuum and the appropriate route for a particular piece of technology may involve a blend of both. IPSO Venture transforms technologies into commercial opportunities by providing capital, management expertise, business development support and corporate finance advice.

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Recommendations A consideration as to the most appropriate structure for technology transfer offices provides three key recommendations: ‰

Best practices are established over time;

‰

professionalism needs to be balanced against respecting the unique positioning of the technology transfer office;

‰

while there is no one size-fits-all best practice model, there are some basic rules of thumb.

The best performing technology transfer offices tend to dominated by those offices that have had the time to establish their practice and generate strong returns. Internal and external relationships, with faculty and potential business partners respectively, also require time to develop and flourish. Critically, the generation of technology transfer returns is required to help justify technology transfer office budget and staffing levels. When proactivity and innovation is required, only those technology transfer offices that have an established financial grounding will find the room to take the additional risk.

Much is said about the culture clash between the academic and business worlds. However, in brokering this partnership, the technology transfer office needs to promote commercial levels of professionalism, but not at the expense of a university’s core goals relating to public research. In turn, the challenge faced by the technology transfer office should be respected by industry, in recognition of the precarious positioning of the function in balancing commercial and academic pursuits.

It is clear that no one-size-fits-all model will work for all technology transfer functions. However, as a rule of thumb, two basic lesson can be learned from the situations in the US and UK. In the US, big budgets, lots of licensing activity and a receptive business community has resulted in integrated technology transfer functions been established within the university setting. Whereas in the UK, the funding gap is maybe felt more 108


keenly. As a result independence can often help technology transfer functions to access additional funding and play a more critical commercial evaluation role to ensure efforts are directed towards those opportunities offering the greatest potential returns.

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CHAPTER 5

Bridging the funding gap

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Chapter 5

Bridging the funding gap

Summary ‰

The technology transfer funding gap has been around for some time, but was magnified after the stock market and venture capital downturn in 2001. Generating a successful initial public offering (IPO) exit for a biotechnology venture capitalist has become more difficult, which in turn has put increased pressure on associated royalty rates and spin-out terms. As venture capitalists have become more conservative, moving new technologies from federal funding to proof of concept has become more challenging.

‰

Industry and venture capitalists have become more risk averse with respect to technology transfer. As a result, start-ups and translational research funding have become more effective vehicles with early stage funding drying up.

‰

An analysis of the ‘funding gap’ and the various ways in which technology transfer can bridge the gap provides three key recommendations: channeling research funds to conduct ‘translational research’; accessing challenge funds and internal seed capital to generate spin-off ventures; and utilizing alternative sources of venture capital to compliment additional research and/or spin-off companies.

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Introduction Technology transfer offices face a significant challenge to bridge the funding gap separating basic research from established proof of concept. The university start-up has long been the technology transfer solution of choice in dealing with the funding gap, but start-ups are associated with their own finding difficulties. Technology transfer offices are engaged in a number of strategies to mitigate against the funding problem including translation research, internal seed capital and alternative source of venture capital.

The funding gap The technology transfer ‘funding gap’ generates a disconnect between early basic research and downstream clinical development. As shown in Figure 5.29, basic research and early target discovery are funded by government grants and through philanthropic research funds. Once a technology has reached the proof of concept stage in late preclinical testing venture capital and licensing funds become available and are supplemented by private equity, public offerings and late stage licensing as the technology progresses towards commercialization. However, in-between target discovery and proof of concept a ‘funding gap’ is evident, where government and philanthropic funds begin to run out, but where the technology’s risk profile currently discourages venture capital and licensing investments.

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Figure 5.29: The technology transfer ‘funding gap’

Basic research

Target discovery & lead validation

Preclinical development

Clinical development

Approval & marketing

Government/ philanthropy

Venture capital/ early-stage licensing

Private equity/IPO/ Late-stage licensing

Funding gap Business Insights

Source: Author’s research and analysis

George Whitehead, Business Development Director at NESTA Investments, highlighted the challenges faced by technology transfer offices in building a pipeline of valuable IP assets:

“Anecdotally, there does not seem to be as much in the pipeline now as there once was. On the one hand this may be down to over-fishing. On the other hand, this illustrates today’s reality that the appetite of investors to invest in risky, early stage opportunities has diminished. Series A investors are moving upwards or out of the Venture market entirely, University Challenge funds are running out of money and over the next couple of years it is reasonable to predict that Angel funding will be harder to come by.”

The technology transfer funding gap has been around for some time, but was magnified after the stock market and venture capital downturn in 2001. Generating a successful initial public offering (IPO) exit for a biotechnology venture capitalist has become more difficult, which in turn has put increased pressure on associated royalty rates and spin-out terms. As venture capitalists have become more conservative, moving new technologies from federal funding to proof of concept has become more challenging.

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In the UK, the government conducted a major review of business-university collaboration, published in 2003. The Lambert Review showed no lack of ability to transfer technologies in UK but rather a lack of capacity to take up inventions. A similar problem is found in other major markets, such as Australia, Canada and Denmark, which do not have an established biopharmaceutical industry for technology transfer offices to tap into.

Industry funding will continue to provide an essential part of the resources made available for university research, and as a result universities will be dragged ‘kicking and screaming’ into the commercial world. However, it is clear that public universities should retain some autonomy over ‘blue sky’ research. As a result, there needs to be a balance between applied and pure research. For example, government funding in the UK means that it could be argued that Russell Group universities (leading 20 research institutions) will get greater funds for ‘blue sky’ research in the future forcing other universities to pursue more applied/commercial research.

Technology transfer start-ups Despite the restrictions generated by the funding gap, the number of university startups has generally increased over the last twenty years. The start-up is an effective solution to bridging the gap between basic research and establishing proof of concept. However, the funding of university start-ups has become increasingly challenging.

In the UK, university start-up successes include: ‰

Celltech – formed in 1980 as a spin-out from the Medical Research Council (MRC) and acquired by UCB in 2004 for around $2.6bn;

‰

Cambridge Antibody Technologies – formed in 1990 as a spin-out from the MRC and acquired by AstraZeneca in 2006 for around $1.3bn;

‰

ARK Therapeutics – a spin-out from University College London floated on the London Stock Exchange in 2004 for £168m;

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‰

Renovo – a Manchester University spin-out floated in 2006 for a total value of £154m.

One of the major technology transfer challenges associated with university spin-outs is the valuation process. It is common for industry to feel that universities place too high a valuation on their spin-out technologies. William P Watson, PhD, Senior Partnering Director at Teva Innovative Ventures outlined their approach to valuing early stage technology transfer spin-outs:

“Often, early stage spin-outs tend to value themselves using small biotechnology company benchmarks. However, from the industry’s perspective we also consider why we should license or acquire a technology rather than develop an alternative research pathway in-house.”

More recently, the number of university start-ups has started to be used as an indicator of technology transfer success, particularly in Europe. However, such as measure ignores the eventual success of such activity and whether or not it is preferable to other forms of technology transfer. There is a danger that political pressure will become a key determinant on technology transfer practices, whereby one country’s universities are encouraged to generate more spin-outs just because a competitor country is beginning to generate a greater number of spin-outs.

Bridging the gap Industry and venture capitalists have become more risk averse with respect to technology transfer. As a result, start-ups and translational research funding have become more effective vehicles with early stage funding drying up. Paul Van Dun, Director of Leuven Research and Development, sets the criteria for having a flexible and effective technology transfer office that is willing to respond effectively to commercial requirements, such as early stage seed capital and translational chemistry:

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“In setting the objectives for an effective technology transfer office it is not limited to the need to stimulate innovation but also the need to be innovative.”

In summary, technology transfer offices have three major strategies for bridging the ‘funding gap’: ‰

Translational research – internally funded proof of concept studies;

‰

University seed capital – internal funds for new start-ups;

‰

Alternative venture capital – external funds/grants for new start-ups and collaborative research.

Translational research Academia’s approach to filling the ‘funding gap’ has been ‘translational research’, which originally emerged in the medical devices sector and involves downstream development to proof of concept, but falls short of product development. Universities are generally using their own research funds to complete the medicinal chemistry involved in translational research, and as a result need to identify the most pressing/valuable gap opportunities likely to generate the greatest return on investment.

The Catholic University of Leuven has developed a small team of medicinal chemists to add extra step in bringing innovations to industry. Like may universities, the institution is responding to industry by extending projects from early stage to reduce the risk profile for a technology transfer opportunity.

University seed capital In mid-1990s, there was a lot of university spin-off potential but no culture of seed capital, particularly in Europe. As a result, technology transfer offices took the initiative to establish seed venture funds causing a major boost to technology transfer activity. However, seed capital needs to be raised and invested in the right way – it is not just free money.

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The funding gap for university start-ups in the UK was addressed through the launch of the University Challenge scheme, backed by the Wellcome Trust and Gatsby Charitable Foundation. The challenge funds were initially awarded in 1999 and 2001 in a bid to increase the flow of seed funding for university spin-outs.

The concept of the University Challenge scheme was carried forward through the Higher Education Innovation Fund (HEIF). The latest round of funding took place in 2006 involving funds of £234m. For example, Oxford University was awarded £4m in the initial 1999 University Challenge fund allocation. This has helped fund 71 different projects and led to a £1m replenishment by the university in 2003 (ISIS University Innovation Fund) and a further replenishment in 2004 with a share of £1.8m jointly awarded by the HEIF to Oxford University, Cambridge University, Imperial College and University College London (Proof of Concept Fund).

One of the main issues for challenge funds is the valuation of start-ups. The challenge fund will tend to seek low valuations to maximize the share of returns, while the university and faculty will seek high valuations to retain a higher proportion of equity. This trade off has to occur in the context of laying the tracks for future valuations by venture capitalists.

George Whitehead, Business Development Director at NESTA Investments, highlighted the opportunity for better portfolio management in determining university spin-out programs:

“Whilst the quantity of spin outs appears to be declining the quality of the spin outs has significantly improved over the last 5 years. This is undoubtedly due to the growing sophistication and experience of technology transfer offices and in the best TTO’s the insistence on setting up the companies in a way that can attract A-grade commercial management. With a better recognition of which companies a University should spin out the cream of commercial IP is now rising to the top and investors who are still active in the area are in a good position to get some great valuations and pick up some opportunities with very significant potential.”

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Alternative venture capital Traditionally, large pharmaceutical companies have provided an alternative source of venture funding through new technology investment funds. However, similar to specialist venture capital, the industry venture funds and moved their focus to later stages of the research and development continuum in order to limit risk. An additional source of venture funding is provided by biomedical venture philanthropy.

Biomedical venture philanthropy refers to the use of venture investing principles for nonprofit philanthropic foundations. With venture capitalists investing in companies whose products are already in development, there remains a large financing gap for early-stage companies and academic researchers. A further complication for biomedical research is that areas of greatest unmet clinical need often involve relatively small patient populations, making them unattractive investment opportunities for big pharma.

As a result, disease-focused foundations are now playing a significant role in funding research for new drugs in a wide range of under-served diseases. Examples of biomedical venture philanthropic foundations include the Multiple Myeloma Research Foundation, the Juvenile Diabetes research Foundation and the Leukemia and Lymphoma Society.

The Leukemia and Lymphoma Society (LLS) invests around $60m each year in basic and translational research. The company recently launched its Therapy Application Program (TAP) to help accelerate the development and regulatory approval of new drugs for blood cancers. TAP aims to plug the gap found at the preclinical and early clinical development stage. The first company to receive TAP funds was Ensemble Discovery, which utilizes technology licensed from Harvard University to identify cells responsible for minimal residual disease in chronic myelogenous leukemia.

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Recommendations An analysis of the ‘funding gap’ and the various ways in which technology transfer can bridge the gap provides three key recommendations: ‰

Channeling research funds to conduct ‘translational research’;

‰

accessing challenge funds and internal seed capital to generate spin-off ventures;

‰

utilizing alternative sources of venture capital to compliment additional research and/or spin-off companies.

Translational medicine is expensive and is therefore limited to those projects where a significant return on investment is anticipated. The technology transfer office is tasked both with securing funding for translational research as well as selecting the right projects to take forward. The technology transfer function must therefore develop a clear idea as the value added by translational research and conduct significant commercial assessment for new technologies in order to select appropriate projects.

Challenge funds have emerged in order to deal directly with the ‘funding gap’ in technology transfer. Internally generated seed capital has followed and most major universities and research institutions direct internal funds to help progress technologies through spin-off ventures. However, as well as selecting the most appropriate projects to spin-off, the technology transfer office plays a central role in establishing the funds in the first place, based on internal evaluations as to where best to assign research funds.

In order to bring in outside investment, whether it be philanthropic venture grants or corporate venture funds from biopharmaceutical companies, technology transfer offices need to present an economic case based on return on investment and risk. External funding is generally integrated with translational research or spin-off activities in order to maximize returns from pushing forward promising inventions. However, where external funding is mixed together with internal funds it is imperative for the 120


technology transfer office to properly structure the relationship with respect to the sharing of risk and returns.

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CHAPTER 6

Appendix

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Chapter 6

Appendix

Research sources The report’s key insights were the result of a detailed program of primary research with senior technology transfer executives. In depth interviews were conducted with 11 experts in their field including technology transfer executives from universities, hospitals, research institutions and independent companies, along with venture capital and pharmaceutical industry executives. Interview respondents included executives from the US, Europe and emerging markets.

Secondary data was primarily taken from the technology transfer associations in each major market: ‰

US: The Association of University Technology Managers (AUTM)

‰

Europe: The Association of European Science and Technology Transfer Professionals (ASTP)

‰

UK: The University Companies Association (UNICO)

Bibliography Accelerating Technology Transfer & Commercialization In The Life & Health Sciences. Ewing Marion Kauffman Foundation. August 2003

ASTP Survey for Fiscal Year 2006. Anthony Arundel and Catalina Bordoy. September 2007

AUTM Canadian Licensing Activity Survey, FY2006

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AUTM US Licensing Activity Survey, FY2006

Becoming an entrepreneurial university? A case study of knowledge exchange relationships and faculty attitudes in a medium-sized, research-oriented university. Arianna Martinelli, Martin Meyer and Nick von Tunzelmann. The Journal of Technology Transfer. 2007

Commercialization University Innovations: Alternative Approaches. Robert E. Litan, Lesa Mitchell and E.J. Reedy. National Bureau of Economic Research. May 2007

Developing internationally comparable indicators for the commercialization of publicly-funded research. Anthony Arundel and Catalina Bordoy UNU-MERIT, Maastricht, The Netherlands

Draft report to the commission (DG Research) – “Monitoring and Analysis of technology transfer and intellectual property regimes and their use” – 2007

Mind to Market: A Global Analysis of University Biotechnology Transfer and Commercialization. Ross DeVol, Armen Bedroussian et al. September 2006. Milken Institute

Practical experiences in starting up life science companies in the academic sector. Paul Rodgers, David Catton and Gavin Scott Duncan. Journal of Commercial Biotechnology, 2002 Vol.8. 4, 271-280

Proof of Concept Centers: Accelerating the Commercialization of University Innovation. Ewing Marion Kauffman Foundation. January 2008

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Index

Australia, 12, 66, 69

License, 26, 27, 29, 30, 31, 33, 35, 36, 37, 39, 40, 41, 42, 43, 45, 46, 53, 54, 55, 56, 57, 58, 59, 60, 69, 78, 80, 89, 92, 94, 96, 98, 100, 102, 107, 124, 125

Bayh-Dole Act, 19, 68, 73 Biogen Idec, 20

Patents, 49, 50, 51, 52, 68, 97, 98 Biotechnology, 20, 48, 50, 125 Rate of return, 41, 42, 43, 45, 46 Cambridge University, 118 Research Institution, 26 Canada, 12, 29, 30, 39, 40, 45, 46, 61, 63, 66, 69, 78, 124

Start-up, 68

Emtriva, 20

Translational research, 117

Europe, 11, 12, 24, 27, 28, 38, 43, 44, 61, 62, 63, 66, 67, 68, 69, 71, 75, 76, 83, 84, 85, 124

UK, 12, 19, 48, 49, 50, 62, 66, 67, 68, 69, 70, 71, 75, 76, 80, 87, 90, 97, 103, 104, 105, 106, 107, 108, 115, 118, 124

Genentech, 20, 96

University of Oxford, 48, 101, 102, 104

Harvard University, 47, 48, 49, 50, 61, 119

University of Texas, 48, 49, 51, 53

Intellectual Property, 67, 68, 69, 71, 73, 75, 76, 77, 78, 83, 84, 87, 99, 101, 103, 104, 105, 106, 107, 114, 118

US, 10, 11, 12, 16, 19, 20, 24, 25, 26, 27, 29, 31, 32, 33, 34, 35, 36, 37, 41, 42, 43, 44, 45, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 80, 91, 92, 96, 97, 98, 100, 101, 102, 103, 104, 108, 124, 125

Invention disclosures, 25, 68, 92, 96, 98, 100, 102 Japan, 77

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Tech Transfer Report  

tech transfer report

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