Presentation to the Board of Regents:
Proposed Changes to Regents Policy
“Commercialization of Intellectual Property Rights”
Tim Mulcahy and Jay Schrankler
Planned for June 11, 2010 Board Meeting
Framing the Issues
 University derives significant benefit from a robust
technology commercialization operation
 Federal policy requires Universities to commercialize
technology developed with federal support
 Technology commercialization is a costly function
 Seeking ways to normalize funding for technology
commercialization comparable to peer institutions
 Need to identify changes to current policy that would
be necessary to achieve this
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Benefits of Technology Commercialization
Amplifies impact of U discoveries
• Improves public health and well-being
• Generates multifaceted economic benefits: new
companies, additional jobs, revenue growth
• Provides funds for further research and for
research infrastructure investments
Serves as an extension of U’s threefold mission of
research and discovery, teaching and learning, outreach
and public service
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Technology Commercialization Revenue
Supports the Strategic Goals of the U
Exceptional students
• Helps colleges and departments support deserving students
• Funds $50 million Presidential Scholarship Fund
• Provides matching funds for donor contributions
Exceptional faculty and staff
• Rewards inventors
• Funds research and scholarly activity through opportunities
like the Imagine fund
• Supports faculty through Innovation Grants that help bridge
the gap between sponsored research funding and the point
where the a technology could be licensed or become a startup
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Revenue Supports Strategic Goals of U
(Cont’d)
Exceptional organization
• Supports responsible stewardship of resources and
encourages outstanding performance
• Provides matching funds for major instrumentation purchases
Exceptional innovation
• Showcases research achievements and brings University
discoveries to the world
• Funds Innovation Grants to further develop promising
technology
• Used for Ignition Investments, early-stage loans made to a
University start-up company to help enable a successful
launch
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Office for Technology Commercialization (OTC)
Strategic Initiatives
Accomplishments: Significantly improved
•
•
•
•
•
•
Disclosure evaluation timeliness and thoroughness
Implemented a rigorous analysis process for prospective IP
Communication through technology evaluation process
Operating by strategic business units
Leveraging industry contacts and experience of new team
Targeted and innovative marketing efforts
Improvements ahead
•
More efficient royalty distribution processing
• Expedited agreement processing
o Material Transfer Agreements
o Confidential Disclosure Agreements
o Inter-institutional agreements
• New evaluation process for University-based start-ups
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OTC Current Funding Model
 Exclusively self-funded through royalty revenue
 Receives no central administrative (O&M) funds
 Major royalty revenue stream (Glaxo, >90% of total) in
decline as patent coverage sunsets
 Assumes all the risks and the costs associated with IP
protection and licensing
• Must entirely cover costs for ‘winners’ as well as ‘losers’
 Current funding model is an exception among peers
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Model Needs to Change
 Key source of OTC funding is going away
Actual Overall
Net Ziagen Royalty
Income
OVPR Share
of Net Ziagen
Royalty Income
FY2000 through
FY2009
FY2010
FY2011
FY2012
FY2013
FY2014 &
beyond
$421M
$13
$12
$10
$9
$0
Drop may even be steeper…
difficult to accurately forecast decline
 OTC staffing level and operating budget are
appropriately scaled to research volume and peers
 If not resolved, larger benefits of technology transfer
to the U will be diminished
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Balancing Costs With Benefits
Current situation requires a workable solution that
accomplishes the following:
• Strikes more appropriate balance between the U’s risk of
investing in the costs of tech transfer with the rewards
received by all stakeholders
• Maintains faculty inventorship/entrepreneurialism incentives
• Compels licensees to pay appropriate fees
(industry recognizes there is a cost of doing business)
• Helps to sustain the cost of technology transfer operations
after decline of royalty revenue from our current
“blockbuster” (Glaxo)
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Current BOR Policy: U Assumes All Risks and
Administrative Costs
Total
Income
Total
Income
Net
Income
Net
Income
(net of $25K
patent costs)
$127K
$102K
~15%
$34K
33% Faculty
$10K
33% Faculty
$34K
33% Dept/College
$34K
33%
Current UMN Policy
Licensing Example 1
($185K)
Costs
$31K
$10K
33% Dept/College
$31K
($151K)
$10K
33%
OVPR
(net loss)
($65K)
Costs
($45K)
OVPR
(net loss)
Current UMN Policy
Licensing Example 2
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U Model Out of Sync With Peers
How they fund tech transfer
Combination of…
University
Licensing Income
(2007)
Tech Transfer
Service Fee
Northwestern
$85.3M (w/ Lyrica)
$2.5M (w/o Lyrica)
20% overhead charge,
OVPR receives addtl. 20%
Info not available
Wayne State Univ.
$5M
35-50% net
None
U. of Virginia
$5M
~40% net
3% or $10k/yr
Johns Hopkins
$10M
15% net
None
Not available
10% net
Info not available
Vanderbilt
$9M
5-10% net
Case by case
Iowa State U.
$18M
15% gross
None
Baylor College
$11M
15% gross
None
$63.9M
15% gross
None
MIT
Not available
15% gross
None
U. of Arizona
Now available
15% gross
3%
Case Western Reserve
$11M
15% if net income >$100k
None
U. of Pennsylvania
$6M
$10k transaction fee
49.9%
Harvard
$12M
10-15% gross
None
U. of Michigan
$13M
7% gross
None
$63M (w/ Glaxo)
$8.5M (w/o Glaxo)
0%
5%
Yale
Stanford
Univ. of MN
Gross=charge taken prior to expenses
Net=charge taken after expenses
*Held privately
Increases Univ. % of distribution
after threshold is reached
Startup Inventor
Equity Cap*
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Additional Benchmark Data: Big Ten
University
Licensing Income (2007)
How They Fund Tech Transfer*
(plus additional available ‘distribution’ data )
Wisconsin
$46.7M
80% TTO,
(resides in Foundation),
20% Inventor(s)
Iowa
$17.4M
25% TTO
(resides in Foundation)
Addtl. 20% Office of VP of Research
$13M
7% (off top) TTO
$63M (w/ Glaxo)
$8.5M (w/o Glaxo)
Royalties alone
$8M
40% TTO,
40% Inventor(s),
20% Department
Michigan State
$5.6M
*Used ‘big hit’ to create an endowment that provides $10M/yr to fund TTO
33% OVPR,
33% Inventor(s),
33% Department
Indiana
$4.6M
35% TTO,
35% Inventor(s),
15% Labs,
15% Other Campus Units
$2M + $700M Lyrica one-time monetization
20% (off top) TTO
Addtl. 20% Office of VP of Research
$2M
Under $75k: 50% TTO, 50% Inventor(s)
Over $75k: 33% Inventor(s), 25% OVPR, 42% Colleges/dept.
U. of Michigan
Univ. of MN
Illinois
Northwestern
Ohio State
Distribution typically occurs NET of patent expense reimbursement; have not yet received data from Purdue & Penn State
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Summary of Strategies Used By Others to Support TTOs
 Reduce or cap faculty, department, college
distribution amounts
 Support via endowment
 Support via central administration allocation
 Partially fund tech transfer with a service fee
The U, however, currently
does none of these
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What Are We Proposing?
Reduce or cap faculty, department, college
distribution amount
Support by endowment
Support by central administration
Implementation of tech transfer service fee
comparable to peers
• This will necessitate a Board of Regents policy
change
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Recommendations
Maintain
• 1/3rd, 1/3rd, 1/3rd split
• Faculty and departments should be incentivized for their hard work
and support of commercialization
• Aggressive OTC financial goals
Proposed Change
• Modify OTC business plan to incorporate a 15% service fee
• Discontinue consideration of fees received from industry for
conducting OTC-related administrative duties as royalty
• Allow U investments in commercially focused efforts to earn
a financial return
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Service Fee Better Balances
Risk/Reward Ratio
Total
Income
Total
Income
Net
Income
Net
Income
Total
Income
~15%
33%
33%
Net
Income
% of
Net Income
~15%*
Faculty
Dept,
College,
or Unit
33%
33%
OVPR
33%
Faculty
33%
Dept,
College,
or Unit
33%
OVPR
Faculty
Dept,
College,
or Unit
OVPR
Current UMN Policy
(w/large Glaxo stream)
Costs for OTC Services
Current UMN Policy
(w/out large stream)
Income
Peer Normal
(regardless of revenue stream)
*Partial cost offset for OTC
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Conclusion
Implementation of the proposed 15% service fee will
bring financing of the U’s tech transfer operations into
alignment with those of other major research
universities and will help to normalize OTC budget in the
post-Glaxo era
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