MIT, Caltech—And The Gators?

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http://www.businessweek.com/magazine/conte...ign_top+stories

 

MIT, Caltech—And The Gators?

 

How the University of Florida moved to the major league of technology startups

 

When it comes to spawning new companies, a clique of universities has long topped the lists: Massachusetts Institute of Technology, California Institute of Technology, and the 10-campus University of California system. Their dominance seems almost preordained. These schools are in high-tech communities brimming with scientific brainiacs and risk-taking investors. They boast labs and equipment that only the biggest budgets can afford. They have worldwide name recognition. Now, against all odds, the University of Florida is joining their ranks.

 

Florida is best known as a sports juggernaut, and for a long time the Gators were its main claim to fame. Isolated in Gainesville, the university failed to create a single startup from faculty discoveries a decade ago. By the 2004-05 school year, though, its spin-off tally was up to 13. The Big Three still outdid Florida, with leader MIT generating 20, according to the latest annual survey by the Association of University Technology Managers (AUTM). But Florida whizzed past all the rest of the 228 survey respondents, including such better-endowed universities as Johns Hopkins and Harvard. The payoff is tangible: Florida's license income jumped from $11 million 10 years earlier to $40.3 million, more even than MIT or Caltech. Its office of technology licensing is now a profit center.

 

 

 

TURNING IDEAS INTO CASH

The rise is the result of a change in strategy, which boils down to treating intellectual property like merchandise and then marketing these products to targeted customers. In a break from conventional wisdom, the university also shuns its own inventors when it comes to running startups, relying instead on hired guns who have proved they can make a go of business. "Our scientists are very good at science, and they're at a university because they enjoy research," notes David L. Day, director of the university's Office of Technology Licensing. "But I wouldn't go to my barber for an eye exam. What works best is if they stay in the lab and I go and find a been-there-done-that, made-money-for-investors management team."

 

Although the value of university research has been evident ever since a University of California biochemist co-founded Genentech Inc. (DNA ) in 1976, much of American higher education is still struggling to transform ideas into cash. Brainpower isn't the problem: A steady flow of postdoctoral students and itinerant professors seeking tenured posts ensures that bright minds are widely distributed at schools around the U.S. Nor can institutions blame a scarcity of funding. University-based research spending has jumped nearly 45% since 2000, to $42.3 billion in fiscal 2005, according to the autm survey.

 

Yet the pool of university money earned from license fees has risen at half that pace, to $1.6 billion, excluding lump-sum payments. Half of the universities in the survey have fewer than six people in tech transfer. Venture capitalists, badly burned when their dot-com investments exploded, are still wary of university spin-offs, particularly in the life sciences. While an Internet venture really can be started by a couple of undergrads in a dorm room, it typically takes a team of scientists years in a lab to get a new drug approved by federal regulators.

 

The out-of-nowhere success at Florida shows there are effective ways to attract capital and nurture campus-born technology industries. "The cultures at most universities are beginning to change," observes Ross C. DeVol, an economist at the Milken Institute in Santa Monica, Calif., and the lead author of a 2006 report on university technology spin-offs. He warns: "If universities don't get actively involved in technology transfer, there are so many others around the world who will, and will be more successful."

 

 

 

STARTING SMALL

Florida adopted its new course in 2000. Until then, the university had been sitting back, waiting for corporate giants to materialize and write megachecks for the rights to its patents. But the bigs almost never appeared, because the investments and corresponding returns were too small for multibillion-dollar outfits. So the university chose instead to go after small businesses that don't require blockbusters to thrive. To that end, Florida tripled the staff of its tech licensing office and hired Day, a go-getter director with private-sector experience to knock on doors. The office also began working with researchers to get an early glimpse of the work going on in their labs. And it linked up with two underutilized business incubators in metro Gainesville to provide subsidized homes for these just-born businesses.

 

The university's Sid Martin Biotechnology Incubator, a 40,000-sq.-ft. facility outfitted with 19 wet labs and $1 million in gear, is fully occupied today by a dozen startups. They include Banyan Biomarkers, which is developing a blood test to detect brain trauma, and Pasteuria Bioscience, which is testing a genetically engineered bacterium that kills a crop-damaging parasite. Another is AxoGen Nerve Regeneration, an 18-employee outfit on track to hit the market later this year with a nerve graft taken from cadavers. It shows promise helping accident victims regain function of injured arms and legs.

 

AxoGen has especially high hopes. In 2000, CEO James M. Grooms leveraged his own patented work at the university--implanting cadaver tissue to spur bone growth--into a publicly traded company, Regeneration Technologies Inc (RTIX ). The Alachua (Fla.) corporation, which has grown to 415 employees and $74 million in annual revenue, has netted the university more than $65 million from stock sales and royalties and turned Grooms, 47, into the millionaire poster child for Florida's biotech efforts. "When I started RTI, I'd call [venture capitalists] and say 'Gainesville,' and it was just click, they'd hang up," says Grooms. But now, "they're starting to know us."

 

Florida's tech transfer office has a staff of 19. That puts it in the same upper tier as MIT and Hopkins, though way behind the California system. The licensing office also has an annual budget of $5 million. One of the staff's duties is to keep tabs on university research to assess what breakthroughs might be worth patenting and licensing. That's no small task: Florida spent $518.8 million on research in the 2005-06 school year and employs some 4,000 faculty members and 8,000 assistants in its labs.

 

Meantime, Day, 56, plays matchmaker, chasing down investors and executives who might be interested in commercializing their inventions. He hits dozens of biotech conferences around the country each year and recently hosted a two-day exhibit in Gainesville to showcase new companies and technology in the pipeline. He also taps alumni to broaden his reach.

 

The university's catches include Sue Washer. A biochemist, Washer had spent seven years with Abbott Laboratories (ABT ) in suburban Chicago, readying new diagnostic products for the commercial market, until her husband joined the faculty at the University of Florida in 1990. After going back to school to earn an MBA, Washer ended up running a series of startups including a construction company.

 

Today, Washer, 46, is CEO of Applied Genetic Technologies Corp., a university-sponsored startup in Alachua, Fla. She oversees 20 researchers experimenting with a handful of bioengineered drugs that could become treatments for inherited emphysema and blindness within the next two to three years, if later-stage human trials confirm safety and efficacy. "It's really a perfect position for me," she says. "Before that, I was in an area where I was either using my science or using my business. Not both."

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