Presentation to the Board of Regents: Proposed Changes to Regents Policy “Commercialization of Intellectual Property Rights” Tim Mulcahy and Jay Schrankler

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

Office for Technology Commercialization 2

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


Benefits of Technology CommercializationAmplifies 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 investmentsServes as an extension of U’s threefold mission of

research and discovery, teaching and learning, outreach and public service


Technology Commercialization Revenue Supports the Strategic Goals of the UExceptional 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 start-up


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


Office for Technology Commercialization (OTC) Strategic InitiativesAccomplishments: 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 Agreementso Confidential Disclosure Agreementso Inter-institutional agreements

• New evaluation process for University-based start-ups


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

OTC Current Funding Model


Model Needs to Change

Actual OverallNet Ziagen Royalty

Income

OVPR Shareof Net Ziagen

Royalty IncomeFY2000 through

FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 & beyond

$421M $13 $12 $10 $9 $0

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

Drop may even be steeper…difficult to accurately forecast decline

Key source of OTC funding is going away


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)


Current BOR Policy: U Assumes All Risks and Administrative Costs

Current UMN PolicyLicensing Example 1

Total Income

Net Income

(net of $25K patent costs)

Costs OVPR(net loss)

Faculty33%

33%

~15%

Current UMN PolicyLicensing Example 2

Total Income

Net Income

$127K

$102K

$34K

Dept/College$34K

$34K33%

($185K)($151K)

Costs

Faculty33%

33%$31K $31K

$10K

Dept/College$10K

$10K33%

($65K)

OVPR(net loss)

($45K)


University Licensing Income (2007)

Tech Transfer Service Fee

Increases Univ. % of distribution after threshold is reached

Startup Inventor Equity Cap*

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

Yale 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

Stanford $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

Univ. of MN $63M (w/ Glaxo)$8.5M (w/o Glaxo)

0% 5%

Gross=charge taken prior to expensesNet=charge taken after expenses *Held privately

U Model Out of Sync With Peers How they fund tech transfer

Combination of…


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

U. of Michigan $13M 7% (off top) TTO

Univ. of MN $63M (w/ Glaxo)$8.5M (w/o Glaxo)

Royalties alone

Illinois $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 TTO33% OVPR,

33% Inventor(s),33% Department

Indiana $4.6M 35% TTO,35% Inventor(s),

15% Labs,15% Other Campus Units

Northwestern $2M + $700M Lyrica one-time monetization 20% (off top) TTOAddtl. 20% Office of VP of Research

Ohio State $2M Under $75k: 50% TTO, 50% Inventor(s)Over $75k: 33% Inventor(s), 25% OVPR, 42% Colleges/dept.

Additional Benchmark Data: Big Ten

Distribution typically occurs NET of patent expense reimbursement; have not yet received data from Purdue & Penn State


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


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


RecommendationsMaintain• 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


Inco

me

Current UMN Policy(w/large Glaxo stream)

Total Income

~15%

IncomeCosts for OTC Services

Net Income

Total Income

Net Income

Current UMN Policy (w/out large stream)

Peer Normal(regardless of revenue stream)

Total Income

Net Income

33%

33%

OVPR

Dept,College,or Unit

Faculty

OVPR


Faculty

OVPR


Faculty33%

33%

~15%*

33%

33%

33%

% of Net Income

*Partial cost offset for OTC

Service Fee Better BalancesRisk/Reward Ratio


ConclusionImplementation 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

Documents

Presentation to the Board of Regents: Proposed Changes to Regents Policy “Commercialization of Intellectual Property Rights” Tim Mulcahy and Jay Schrankler