Speeches and Writing

President Kaler’s Remarks at the U.S. Department of Commerce in Washington, D.C.

October 1, 2012

President Eric W. Kaler delivered the following remarks at the U.S. Department of Commerce in Washington, D.C., on the occasion of a conference, “The Innovative and Entrepreneurial University: Higher Education, Innovation, and Entrepreneurship in Focus.” President Kaler’s panel addressed issues on the topic, “University Technology Transfer and Industry Collaboration.”

(As delivered)

Thank you to the Department of Commerce for inviting the University of Minnesota here today. Quite simply, a decade ago, the University of Minnesota would not have been invited anywhere as a technology transfer leader. We were behind.

Every institution must adapt to its own environment, community, and academic and research strengths, so I don’t believe there is a single template for success, but I do believe our story illustrates some good practices. Let me walk you through how and why we transformed our Office for Technology Commercialization.

In the old days—a decade ago—we were considered laggards on the tech transfer front.

Not only because peer institutions were ahead of us, but also because the vibrant business community in Minnesota saw us as unresponsive and uncreative. We didn’t do business relations well. Like many universities, we felt we didn’t have to.

But now we help to create, nurture, and leverage an entrepreneurial and discovery ecosystem in Minnesota that benefits our faculty, the business community, and, ultimately, the prosperity of our state.

As evidence: This past fiscal year discoveries by University of Minnesota researchers were used to launch a record 12 startup companies. Since 2006, when we picked up our game, a total of 38 startup companies have been launched by the University. Of those, 30 are still active. That is a strong track record of staying power, especially given economic circumstances of the past few years.

Like anything in higher ed or science or innovation, this didn’t happen overnight.

But nearly eight years ago, we began to tackle the transformation of our tech transfer operation. The leader was our vice president for research, Tim Mulcahy, who came to us in 2005 from our neighbor and rival, the University of Wisconsin-Madison. First, we listened.

Upon Tim’s arrival, we sought input and advice from business and industry partners—large and small—and the investor community. We asked them what they thought was working in our tech transfer operation, and what wasn’t. We asked what changes they would they recommend. We also consulted with peer institutions and identified best practices.

Based on this information, we embarked on a transformation of the University of Minnesota’s tech transfer function that included hiring staff with industry and small company experience. It was important to have industry experience, and not that of the faculty only. It was very important that our staff understood the language of our customers.

We instituted what we call the stage-gate process. It’s a rigorous criteria-based evaluation to make sure our University technology is, in fact, unique, patentable and marketable.

And it is one reason why our startups have had such staying power. We provided extensive sales and technology assessment training for staff. We increased the number of face-to-face meetings with potential licensees across the country. We assessed standard contract terms and conditions. We created events such as showcases on available technologies to expose our intellectual property to potential customers, licensees, inventors, and the broader community. We launched an Office of Business Relations to serve as the University’s “front door” for business. That office provides quick access to the things Minnesota businesses say they want most from the U: talent, training, and technology. We also created a concierge service so that emails and voicemails didn’t go unanswered and so that business community frustration was reduced.

Yes—in a novel approach for a university—we began to run our tech transfer operation like…a business!

Moving discoveries for the public good

We then established new ways to move our University research onto the marketplace and for the public good. Let me tell you about three of them.

One: We established Internal Business Units or IBUs. These follow an incubation model through which early product sales can begin prior to launching a startup company. IBUs require small amounts of seed funding—about $100,000 in loans—and are typically spun out of the University in 18–24 months. There have been three IBUs over the past two years, and two of them have gone on to become startup companies.

Two: We began to make what we call Innovation Investments. Using previous technology commercialization royalties, these development investments are provided to University of Minnesota researchers. These investments help to bridge the gap between sponsored research funding and the point where a technology can be commercialized. Nearly $5 million has been invested in the past five years in grants to faculty inventors to help bring their inventions closer to commercialization.

And three: Late last year we established Minnesota Innovation Partnerships, or MN-IP.

This is a new approach to the way we handle intellectual property arising from research projects funded by business and industry partners. We believe it is a nation-leading approach. It was designed to eliminate red tape and protracted negotiations over IP rights and to promote closer, more beneficial relationships with our business partners.

Previously, the negotiations went round and round about who might own intellectual property that might come out of the process of discovery that might make its way into a product that might go for sale that might be purchased by somebody and, therefore, might turn a profit. That often resulted in the University acquiring 100 percent of nothing.

We’ve changed the entire model. We’ve made it simple. MN-IP allows a for-profit entity to prepay 10 percent of the sponsored research agreement—or $15,000, whichever is greater—for exclusive rights to the resulting inventions.

That company handles all patenting costs, including attorneys’ fees.

In exchange, the University gets 1 percent in royalties only when net sales exceed $20 million a year. It’s a win-win for the U and its business partners and, ultimately, a win for consumers or patients or manufacturers.

Or we have a Plan B. We do it the old way if faculty members or a company desire that.

Faculty members love this and companies love MN-IP. Already, over the past 10 months, we’ve signed 18 MN-IP agreements.

What’s most important is that MN-IP creates a true and lasting partnership between our University and companies. The partnership extends well beyond that single research project. It becomes an opportunity for students to work as part of internships with our partners. It allows scientists from industry to come and work at University laboratories.

It enables our relationship with business to lead to, among other things, philanthropy, and it fundamentally changes the way industries and universities interact.

 

Cautions

But this leads me to two cautions. First, as much as we love to launch startups, much of our research is important to existing and already thriving companies in Minnesota or around the nation. In fact, our biggest partner in MN-IP so far is Boston Scientific, a Fortune 500 company with 5,000 employees in Minnesota. So, tech transfer is not just about startups.

Secondly, let me caution you about home runs. As a Minnesota Twins fan, I know they are few and far between. We have had one research and IP home run over the last decade. It is called Ziagen, an anti-HIV agent used in AIDS treatment, and it has saved millions of lives and generated billions of dollars. Between the year 2000 and last year, we received more than $400 million in royalties from Ziagen, which was developed by one of our professors of medicinal chemistry. That accounted for more than 90 percent of all our licensing revenue. But that patent has expired, and, with it, the large annual revenue stream. Ziagen is an outlier, as any blockbuster is for any university.

That’s why I would encourage you and your universities to focus more on the culture of invention and entrepreneurship. Focus on and grow your community’s economic and innovation ecosystem. MN-IP won’t succeed and other tech transfer initiatives won’t be sustainable unless your institution develops solid partnerships with your local business community and, even, your legislature.

It also won’t succeed unless you encourage and unleash an entrepreneurial spirit within your faculty. We have created incentives and programs to drive that spirit of innovation and discovery. We revised our tenure code in 2007 to include tech transfer activities as part of tenure criteria satisfaction. We began conducting startup workshops for faculty, postdocs, and graduate students to introduce them to startup resources available inside and outside the university. We launched “University Innovations” events that recognize our faculty and researcher inventors and entrepreneurs, and which drive loyalty and continued ingenuity. We celebrate success! And right now we are in the process of creating an entrepreneurial leave program that will enable faculty members to temporarily leave their University positions to assist in commercializing IP.

Add it all up, and this transformation of the tech transfer operation at the University of Minnesota was part of a much larger institutional commitment. The focus turned from revenue generation to a broader focus on partnership opportunities and research opportunities. At its core, it was about fulfilling our land-grant mission, to teach, to discover, and to serve the public good. We believe our research and tech transfer operation can aid in that mission—of using our knowledge and ingenuity to help our communities and the world.

Investments needed

In closing, let me urge the United States to consider a few initiatives to support technology transfer in our higher education community. There is a critical need for investment in early-stage technologies—the kinds of technologies produced by most university laboratories. Venture capital funding, and now angel investments, have moved further downstream to more developed technologies. We find, perhaps more than ever before, the so-called “Valley of Death” has become the final destination for many university discoveries.

A major problem is a lack of cash or lack of investor interest to move that innovation forward. Federal agencies should seek programs or policies to bridge that gap to leverage research investments they have already made into early-stage technologies.

It would allow the full potential of university tech transfer to be realized. We are filling the pipe, but we need to be sure it does not leak near the end.

With that, I thank you for listening.