A Brookings Institution report has helped quantify a problem that technology transfer offices have talked about for years-the inefficiency and expense associated with licensing university patents. The report advocates ramping up the decades-old practice of spinning out assets to newcos, although technology transfer offices contacted by SciBX were skeptical that focusing on newco creation is the best solution.

Although fostering startups remains part of their role, technology transfer offices (TTOs) are exploring other strategies beyond traditional licensing and startups to help more inventions see the light of day.

The Brookings report, written by Walter Valdivia, a fellow in the Center for Technology Innovation at Brookings, comes on the heels of increasing interest from Congress on how to promote entrepreneurship and was spurred by the Technology and Research Accelerating National Security and Future Economic Resiliency (TRANSFER) Act of 2013.

The TRANSFER Act is an amendment to the Small Business Act being debated in the U.S. House of Representatives that aims to accelerate the commercialization of federally funded research and technology by small businesses.

Valdivia's report concludes that although the TRANSFER Act is a step in the right direction, it does not go far enough, and that university TTOs should receive greater support from government and industry to help them spin out more companies.

Low licensing rewards

The blockbuster deals originally envisaged when university TTOs were set up to commercialize academic discoveries have turned out to be few and far between. Only a handful of universities have managed to use licensing as a profit-generating strategy for translating their research to the clinic.

Valdivia analyzed numbers from 155 TTOs that are members of the Association of University Technology Managers (AUTM) and found that although there is a slow increase in university-based startups, the majority of TTO activity is devoted to patent licensing, which brings low financial rewards.

Valdivia highlighted two cardinal problems with the majority of TTOs. First, the revenue raised by their licensing activities does not cover their costs. According to his data, less than 13% of universities generate enough revenue from licensing deals to cover their operating costs.1 Second, TTOs focus on a few potentially high-value patents and thus pay little attention to the majority of inventions.

According to Valdivia, about 75% of licensing gross income went to only 10% (16) of the AUTM universities in 2003-2012.

Kevin Cullen, head of technology transfer at the University of New South Wales (UNSW), also has analyzed AUTM data and agrees with Valdivia that licensing patents is rarely a cash cow for universities.

He said that about 5% of IP gets licensed and less than 0.5% will generate $1 million in revenues per year.

Although licensing patents and spinning out companies has long been within the purview of TTOs, their role has broadened in recent years to include longer term co-development deals as pharma companies have sought out more academic alliances.

According to Cullen, the debate over the role of TTOs in the last few years has toggled between reaping value from IP to benefit the university, to being agents of economic development to help the local economy, to providing a bridge between academia and local industry.

The default setting is still IP, he said. Despite the very long odds of IP licensing yielding high returns, universities treat all IP as if it is million-dollar IP, Cullen told SciBX.

Startup solution?

Valdivia's solution is for TTOs to receive more government support and to increase their focus on fostering startups from their research discoveries. He thinks that nurturing startups would be a more economically beneficial way for universities to promote innovation than simply trying to patent discoveries.

Valdivia recommends three government actions to support the change: increased funding for Small Business Technology Transfer (STTR) programs designated for university startups, patent-use exemptions that would make it easier for not-for-profit organizations to use patented material in their research and an equity rule that would help less well-funded universities access government funding by apportioning part of the STTR funds based on the number of faculty.

But university technology transfer officers who spoke with SciBX were skeptical that spinouts are the answer, based on decades of experience in doing what Valdivia suggests, and indicated that the high investment of money and time in fostering startups is rarely profitable for the university.

Valdivia told SciBX, "A greater emphasis on entrepreneurship won't bring income to universities necessarily, it could be a financial burden for them, but it will help them contribute to the local economy."

"What I'm proposing is that universities need to leverage their resources, and since those resources are limited the government should be brought on board, and the private sector too," he said.

Alicia Löffler agreed with Valdivia's numbers and with the need for change but not with the idea of increasing government funding indiscriminately. She noted that his financial incentives might be more effective if targeted at spurring disruptive innovations or high-risk, high-reward research that leads to successful startups.

Löffler is associate VP and executive director of the Innovation and New Venture Office at Northwestern University.

According to Löffler, the mission of the Northwestern TTO is to move research to the public, and for most university TTOs being financially self-supporting is not-and should not be-part of the equation.

Northwestern ranks fifth in Valdivia's table of top earners by licensing income.

That success, Löffler told SciBX, has largely been due to a few high-value patents, notably those behind Pfizer Inc.'s Lyrica pregabalin for epilepsy, pain and other neurological disorders.

The U.S. patent on Lyrica is set to expire in 2018. Despite that, the TTO has not been under pressure from the university to make a high-value licensing deal to compensate for the impending loss of revenue from Lyrica, Löffler told SciBX.

Nevertheless, the Northwestern TTO is expanding its activities beyond licensing, and it now places emphasis on co-development partnerships with biotechs and pharma that may lead to commercialization of more inventions in the long term. It also requires hiring university employees with skills and experience in business development, venture capital and program management.

Kirsten Leute, senior licensing associate in the Office of Technology Licensing at Stanford University, agreed that there has been a lot of internal debate at universities about changes within TTOs. "It's not your grandfather's TTO anymore. TTOs are being asked by governments, states and universities to do more and to have a broader job description," she told SciBX.

Universities are under pressure to show the fruits of public funding for research and to increase the efficiency of commercializing inventions. As TTOs take on new roles such as driving co-development partnerships, in addition to fostering startups and filing patents, they struggle with how to prioritize the different activities with their limited resources and how to access the necessary range of expertise.

Leute agreed that covering costs is not part of the mission, although Stanford is consistently one of the more successful universities at commercializing inventions.

Christian Suojanen and Morris Berrie, cofounders and chairmen of the Technology Transfer Summit (TTS) Global Initiative, think that the shift in TTO activities toward collaborations with industry is more a reaction to pharmas increasingly seeking external sources of innovation than to the fact that TTOs are not profit centers.

The TTS Global Initiative is an international network of technology licensing offices that brings together stakeholders at the academic-industry interface to help drive the commercialization of academic inventions.

Valdivia agreed that multiple factors are behind the change in TTOs.

"I don't believe that TTOs not producing enough money is the main driver of change, but it is an element," Valdivia told SciBX.

"TTOs must focus on whatever is the best way to take things forward, which may be licensing, startups or collaborations, depending on the specific technology and situation," Suojanen told SciBX. "Often the relationships start as collaborations and move to licensing and startups. Some institutes will have a greater emphasis on startups and spinouts, and some will be successful, but most people who have tried their hand at venture capital have not succeeded."

Suojanen agreed with Löffler that to support startups and the shift in the pharma space toward academia-industry collaborations, TTOs will need to add skill sets they currently do not have. These include employees who understand biotech and have industry experience. He suggested that universities could tap into the pool of employees laid off from big pharma.

Berrie said that fostering startups is worthwhile but was not convinced that devoting more funds toward startup activities is a good idea.

"Throwing money at TTOs to make startups isn't going to result in more or better startups," Berrie told SciBX. "This won't make them good, viable startups." He added that startup success requires a number of factors not solved by money, including a good idea, an unmet need, an ability to execute and a host of market factors.

Valdivia responded that faculty members are the most likely to know the potential market value of their inventions. "Only a handful of companies recognize the true value of inventions at early stages of their maturity. If a faculty member can get the bare minimum of funding, he or she will have the energy necessary to take on the risk."

Instead of increasing their focus on startups, Berrie told SciBX that TTOs from different universities should invest greater effort in collaborating with each other.

"Universities are still not open enough. There needs to be more collaboration between universities to pool their thinking and help move products or other concepts forward," he said.

UNSW's TTO is pursuing an Easy Access IP strategy in which it gives away most of its IP licenses for free. This is because the cost of licensing IP, which includes staff, marketing and other activities, is greater than the received revenue.

The TTO makes an early decision on which inventions have the potential to make money. "If we can't see a way to $1 million, then we let it go," Cullen told SciBX.

According to Cullen, the strategy has led to about 25 licenses and 3 Australian Research Council collaborations that would not otherwise have happened.

Easy Access IP also has helped the TTO at UNSW build relationships with new companies and institutions, according to Cullen. The number of academic researchers wanting to work with the TTO, and the number of companies making enquiries about research capabilities and IP, has increased tenfold since Easy Access IP was introduced in December 2011.

The licensing agreements are simple, one-page contracts in which the licensor commits to performing some activity related to the invention within three years, agrees to acknowledge the university if the IP is successfully exploited, and guarantees the licensee will not take action to prevent the university pursuing research in that area.

The strategy was first employed by Cullen in his previous position at the University of Glasgow and has now been adopted by about 25 universities in Europe, Canada and Australia. To date, he said, no U.S.-based university TTOs have adopted it.

Löffler told SciBX that at Northwestern, and most likely at many other U.S. universities, TTOs waive rights back to the inventor or the government for inventions they do not wish to pursue. It is then up to the inventor or government to decide what actions to take.

Fishburn, C.S. SciBX 7(3); doi:10.1038/scibx.2014.77
Published online Jan. 23, 2014

REFERENCES

1.   Valdivia, W.D. University start-ups: critical for improving technology transfer. (Center for Technology Innovations at Brookings, Nov. 20, 2013)

COMPANIES AND INSTITUTIONS MENTIONED

      Association of University Technology Managers, Deerfield, Ill.

      Australian Research Council, Canberra, Australian Capital Territory, Australia

      Brookings Institution, Washington, D.C.

      Northwestern University, Evanston, Ill.

      Pfizer Inc. (NYSE:PFE), New York, N.Y.

      Stanford University, Stanford, Calif.

      University of Glasgow, Glasgow, U.K.

      University of New South Wales, Sydney, New South Wales, Australia