U-M gains in turning technology into startups Commercializing research is promising in bringing millions of dollars, more jobs
News Staff Reporter
Every day in laboratories at the University of Michigan, professors and scientists are performing high-level research, leading to a greater understanding of how the world works.
Only in the past few years has the university made steady gains in its long-stated quest to turn those discoveries into commercial enterprises by licensing them to existing companies or creating startups.
Whether developing new drugs against debilitating diseases or refining software that helps fly fishermen improve their skills, commercializing research holds the promise of bringing millions of dollars in revenue to the university, and more jobs to Ann Arbor and the Michigan economy.
In the past 10 years, enterprising professors and U-M administrators have helped create 76 startups; about 55 are still in business with licenses for university technology. Of those still in business, about 60 percent have offices or headquarters in Michigan, generally in Ann Arbor. Some employ only a few people; Arbor Networks, which makes software to secure Internet providers from computer attacks, employs 40 in Ann Arbor, and another 120 in a Boston suburb.
The jobs created by startups are exactly the types of jobs that state and local leaders say Michigan dearly needs as it tries to reinvent its economy from the manufacturing age to the information age. U-M's importance as an economic engine will only intensify when Pfizer Inc. pulls out of Ann Arbor by the end of 2008, closing its research laboratories and taking 2,100 jobs out of the local economy.
U-M makes gains
A decade ago, U-M was viewed by both its own researchers and investors as slow to embrace the process called technology transfer. Now, they say, the university is making gains. A national study ranked U-M as the ninth most effective university in North America in taking knowledge and turning it into commercially viable products and companies. The Milken Institute, an economic think-tank based in Santa Monica, Calif., reviewed data on universities from 2000 through 2004.
U-M's licensing revenue in 2005 was $20.4 million, a significant increase from the $1.8 million it received eight years earlier, in 1997.
U-M still lags behind some of the schools U-M considers as its peers and others in the Big Ten, according to the most recent survey of universities by the Association of University Technology Managers. Michigan State University, for instance, received $23.8 million in 2005.
Licensing income isn't why U-M wants to commercialize technologies, said Stephen Forrest, vice president for research at U-M. He said a large public institution like U-M, which will get about 75 percent of its $800 million in research spending this year from federal government sources, should seek to serve the public good and help the economy.
To judge the university's success, Forrest considers statistics on licensing dollars and startups created while also considering a broader perspective.
"I would rather (ask) how do we look in this region as an entrepreneurial mecca," Forrest said. "And I would say anybody who looks at Ann Arbor would say, 'We're pretty good, but we have a long, long way to come.' "
Seeking commitment
Following passage of the Bayh-Dole Act in 1980, many universities established offices of technology transfer to assist professors who wanted to become entrepreneurs. The act allowed universities to hold patents on discoveries from federally funded research.
U-M opened its tech transfer office in 1983, but it had a small staff and budget compared to peer universities and progress was slow. Staffing and spending was increased at times, and some policies were changed to encourage transfer.
In an annual report on research to the U-M Board of Regents in 2003, then-Vice President for Research Fawwaz Ulaby recounted the slow progress. "Many faculty felt discouraged about participating, and technology transfer staff morale was low," the report said. "Ann Arbor's distance from the concentrated centers of banking on the east and west coasts - and its relative lack of entrepreneurship and venture capital - also discouraged an entrepreneurial approach to research and technology development."
In January, U-M again modified its policies, this time to allow professors with an ownership interest in a company to share in the licensing dollars received by the university, a common practice at other schools.
Investors, employees
Finding investors willing to fund companies in Michigan and workers willing to take a risk on startups are still significant challenges, U-M officials and leaders of startups say. They are reasons some of the startups eventually leave Michigan, and a significant impediment to the potential of startups to transform the state's economy.
In February, U-M announced that Mohammed Islam, a professor of electrical engineering and computer science, will receive the first Distinguished University Innovator Award in recognition of his entrepreneurial accomplishments. In the 1990s, his laboratory developed a new way of pushing more information through fiber optics. U-M released the rights to the technology to him and later U-M and Islam negotiated a licensing agreement.
After a friend in California introduced him to investors, Islam formed Xtera Communications in 1998. The company was based in Ann Arbor and seemed poised for success; it had investors, patents, and purchase orders. The next step was employees. Islam said he flew in at least 18 people to interview for jobs. He couldn't fill the positions. People felt moving to Ann Arbor was too much of a risk because if the company failed, they wouldn't be able to jump ship for a similar company, he said.
Xtera moved to the Dallas area and has about 60 employees today, down from 210 at the height of the telecommunications boom.
"You've got the brain trust, what you need is the local capital," said Mark Benedyk, vice president of business development at Ascenta Therapeutics, a company that licensed promising cancer drug technology from U-M. It got its start in Ann Arbor, but eventually moved to California as a condition of its venture capital plan.
For Dr. James Baker Jr., a U-M professor of internal medicine and biomedical engineering, and nanotechnology, hiring employees is still the single biggest limitation to the growth of the company he formed to develop treatments for skin infection. NanoBio has about a dozen employees and is looking to grow to 20 to 25 in about a year. Baker served as the interim CEO for two years because the company couldn't find one.
"We need to get more of a critical mass of companies so people feel comfortable coming here," he said.
Forrest understands what the startup companies are facing. "We have so many people with advanced degrees and trained in exactly what the startup needs," he said. "The problem is that those people supplying the capital don't necessarily have that same perspective.
"They live on the coasts. They like their companies nearby. They also know there's very deep talent, managerial talent for the companies (on the coasts)."
Offering help
To persuade investors to keep companies here and lure workers, staff in the tech transfer office work to make technologies more commercially appealing. They test it and anticipate questions investors might have. They talk to business people and analyze markets. They can coach professors through the starting up a company or finding someone to license their invention.
"If we do a better job of preparing the startup or the technology of an existing company, then even though we're in Michigan, and even though we maybe don't know these people as well because they're from a different part of the country, they'd be more likely to come here because they'd have a higher hit rate," said Ken Nisbet, executive director of the office of technology transfer.
One example of developing local talent is TechStart, an internship program in the tech transfer office for graduate students to work on business development. The hope is former interns will work at U-M startups.
U-M supports Ann Arbor Spark, the local economic development agency that provides resources for entrepreneurs, like a boot camp program with coaching on how to write a business plan. The state also has been providing more money to develop high-technology companies, such as programs like the 21st Century Jobs Fund.
All of those pieces came into play when Dan Rhodes, a U-M research investigator, and professor Arul Chinnaiyan co-founded Oncomine to market a database they developed that's useful to drug researchers. They attended the Spark boot camp, received business mentoring and then met their CEO by networking through Spark.
In September, the company received $1.2 million from the state's jobs fund. Now that it's a year old, the company has signed up 10 customers and grown to 17 employees, 12 of them in Ann Arbor.
More work to do
The university has made progress but hasn't gone far enough, said Bill Orabone, president and CEO of Polytorx, a U-M startup.
"They have this (belief) that research just happens, that lightning strikes," he said. " ... You just can't do research for the sake of doing research. You've got to think about why you're doing it."
Polytorx sells Helix, a small twisted steel fiber that greatly increases the strength of concrete. Demand is so great the company could grow to 1,500 manufacturing jobs in several years, Orabone said. That won't be in Michigan. Polytorx is shuttering its manufacturing facility in Jackson, and moving out of the state. Orabone said the company couldn't find qualified, blue-collar workers.
Other heads of startups are more upbeat about Michigan opportunities.
Steve Kanzer, chairman and CEO of Pipex, moved to Ann Arbor from Miami because of research at U-M that might lead to a drug for treating Wilson's Disease, a genetic disorder that attacks the central nervous system. Small bio-tech companies with ties to universities are the future of pharmaceutical development, he said. His company's role is to shepherd the drug through the FDA process. It has 14 employees and is growing.
"You've got a tremendous amount of talent from the university and Pfizer," said Kanzer, who is recruiting former Pfizer employees. "The costs are very reasonable compared to places like California and Boston."
Frank Jones, CEO of Etubics, a small drug development company with a license from U-M, praises the tech transfer office.
"Nobody has a better operation than the University of Michigan - no one," Jones said. "They know what they're doing. They know that they can make money if they get this technology out. That's very unusual for academic institutions."
Dave Gershman can be reached at 734-994-6818 or dgershman@annarbornews.com.