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Advice for Academic Entrepreneurs

Since I’ve mentioned a recent book on academic drug discovery, I also wanted to highlight this article at Nature Biotechnology on university tech transfer offices (TTOs). The authors, mostly from a list of high-profile research universities (Oxford, Stanford, UCSF, University College London, Harvard et al.) and part of the Oxbridge Biotech Roundtable, have a lot of good advice for academic entrepreneurs who are going to have negotiate a pretty complex landscape.

First-time academic bioentrepreneurs frequently confront a deal-making process they do not completely understand, in part because final deal terms are often held confidential, making it difficult for outside observers to understand fair market terms. At the same time, bioentrepreneurs sometimes do not fully recognize how the interests of the TTO and university may diverge from their own. In fact, one postdoc we spoke to said, “Knowing what I know now about my university’s licensing process, I might have considered a different university for my postdoc.”
TTOs arguably benefit from information asymmetries in negotiations, whereas experienced bioentrepreneurs fear that disclosing details of prior deals could jeopardize their ongoing relationship with their TTO. Thus, they often stay silent on just how they got their asset outside the university walls.

Inexperienced faculty members, heading into lengthy negotiations in legal areas that they may not understand well, are certainly at a disadvantage. And what this article makes clear is that it’s not just the slick operators from the biopharma business world that need to be watched out for, it’s also the slick operators at the university itself. The interests of the institution and the interests of the inventor may well diverge, which is a particularly interesting situation when the inventor is an employee of said institution.
The article notes a number of differences between the US and the UK in these matters, a big one being the UK universities seem to expect a much larger equity stake in any spinout companies, but some fundamental advice is the same. Recognize everyone’s own interests in the negotiations, and adjust your thinking accordingly. Get yourself the best and most experienced legal counsel you can find to look over the proposed IP and business arrangements. Remember that almost everything is negotiable, and a lot of it is renegotiable (but also remember that this means that you’re going to have to flexible on some issues yourself). And get ready for everything to take longer and cost more money than you were prepared for at the start – it’s worse than renovating a kitchen.
Update: see the comments section – the university equity numbers in this article are being disputed there.
Update #2: the authors are apparently working on correcting this issue, with new tables forthcoming.

25 comments on “Advice for Academic Entrepreneurs”

  1. Academic111 says:

    I work in a major university TTO in the US and the university equity table in this article seems wildly off. Most universities are incredibly flexible with equity from 0% equity to 50% equity typical, with the lion’s share being on the lower end. if you check the supplementary table thats the source of this data its a hodge lodge of vague policy links that do not consistently explicitly spell out an equity guideline. A good TTO knows what is reasonable relative to the specifics and while it will negotiate hard, will do so within the realms of whats reasonable. Again, a good TTO that is.

  2. Matthew Todd says:

    While we’re discussing this could I ask whether anyone has any reliable resources to help answer this question: Do TTO’s, on aggregate and for a typical university, make money for their university?

  3. A TTO staffer says:

    Confirming #1, that article is a mess. The authors have completely confused the internal distribution policy with the licensing policy. Most schools return 25-50% of TTO revenue to the inventors, and the rest goes to the Dept, College, and TTO as unrestricted funds. But that says absolutely nothing about how much royalty/equity was in the deal that lead to the revenue. It may have been 1%, 10%, or 50% equity, the policy only governs how its distributed after liquidiation. I’ve done more than a dozen startup licenses in the past 5 years, we’ve never taken more than 10% equity for an exclusive worldwide IP license.

  4. exTTO says:

    #2 – ‘some’; if you exclude engineering/software and only look at life sciences, the answer becomes ‘a few’. But that’s only if you are talking about licencing/commercialisation – TTOs can also be covering research contracts, clinical trial arrangements and other things bringing in money to the university
    Coming from a UK perspective, I’ve never quite understood the de facto thinking that the inventor deserves the high percentages equity for their work. Their research is typically funded by the tax payer via the government, and they are employees of the university. For most academics, commercial development of their work is a happy by-product but not their blue-skies goal. For taxpayer speculation, I’m happy that a chunk of that goes back.
    But maybe I’ve seen too much public funding prioritise egos over poorly thought out research

  5. A TTO staffer says:

    @Matthew Todd
    The best overall data is compiled by AUTM, the association for TTO’s. The short answer is that very few TTO’s are net profitable every year, a larger number are profitable over a 10-year measurement (so that you average the home-run years with the down years), and many programs are hardly ever or never profitable. Good people and practices at the TTO can increase the odds of financial success, but as long as most true “home-runs” are coming from pharma or biotech IP royalties, with the inherent challenges known so well to all of us, the odds of success can only be increased so much.
    The longer answer is that TTO’s aren’t just a profit center, but are now almost a core function of a research university, whether in the black or red. (You may or not not agree with this, but it’s today’s reality.) We routinely have faculty wanting to meet with our TTO during their interviews, and any public institution can be expected to have questions from their state governments on why they aren’t creating as many startups as some other peer state.

  6. A Nonny Mouse says:

    #2
    Matt, as an aside, what has happened to TSL?
    I thought that you wanted everything open sourced anyway!

  7. PharmaHeretic says:

    Any thoughts on this one..
    Novartis chief: Sometimes you have to kill your R&D darlings (http://www.fiercebiotech.com/story/novartis-chief-sometimes-you-have-kill-your-rd-darlings/2015-03-25)
    “One of the reasons why spending in the pharmaceutical industry is so high is that many scientists keep their products alive far beyond when they should be,” Jimenez said. “If you help them feel like it’s OK to stop the project, you’re going to save hundreds of millions of dollars.”

  8. Hap says:

    1) I thought management generally kept the zombies alive to justify their incentives or investment.
    2) No products, no revenue, no company. Killing everything that moves doesn’t give you products you can sell, and if a product’s obviously good, everyone else has probably made it, too. Waiting for certainty in an inherently uncertain business is a recipe for death.

  9. Cellbio says:

    Yes, PH, I have thoughts.
    The very framework of the statement highlights what is wrong with leadership. By saying “…scientists keep their products alive far beyond when they should…” segregates functions and assigns blame. It is preachy, which continues with the regal perspective to help the poor scientist “…feel like it is OK to stop…”.
    This is thoughtless drivel that displays a lack of what really happens, which is companies keep projects alive, or stuff pipelines or buy crap, for the purpose of presumed value (stock price), often with the objection of reasoned scientific voices. It also reveals that 20/20 hindsight of people who do not understand making timely decisions with imperfect information, decisions whose outcome is only known later and can fuel the ‘Why did we not stop earlier?’ thoughts, or my favorite, “why didn’t we do the thing that worked first?’.
    If a clock that is not running is right twice a day, a pharma executive that predicts his scientists are making the wrong decisions based upon future failures is right about 99% of the time.
    He has his mantra exactly wrong. He needs to make it safe to fail, not safe to stop if there is a reason for doubt. If you do the former, then bets are placed. If you do the later, then failure is predicted, nothing is good enough and no compounds enter the clinic. This sets up a work cycle where compounds emerge from the chemists hands, are decorated with enough information to find a flaw and are laid to rest, with a return to a new compound whose lack of study provides blue skies. Repeat until the same leader fails to see progress and RIFs start. I have lived this nightmare.

  10. Anon2 says:

    One mistake often made is that every party thinks the other needs them to continue forward, and inexperienced groups (venture capital, TTO, inventors, and the licensing party) all want the best terms for themselves. As someone who is involved in the space (biotech, currently advising a couple pre-seed companies) I’ve seen TTOs be extremely cocky about what they think a PROVISIONAL is worth. I’ve also seen inventors feel that they are did all of the work and should therefor get most of the equity, and and have seen some inexperienced VCs (inexperienced in the biotech space) have some uneducated ideas of their own on how a company should be spun off.
    Unfortunately, this is why the great state of Houston (because we count Texas as a country 😉 ) have maybe a handful of companies that are in the clinic…despite the largest medical center in the world.

  11. Anon2 says:

    …I really should have proofread my comment before submitting…that didn’t help our stereotype one bit!

  12. Surprised says:

    @8&9, Hap & Cellbio: I’ve never worked in pharma, though I have done preclinical work in academia. But it seems to me that there *might* be something to what Jimenez is saying. There are at least two reasons a scientist will push to keep a troubled project alive. Either because s/he is attached to the idea, or because his/her job is attached to the project. If you provide the researcher with job security *regardless* of the outcome of the project, then you “help them feel like it’s OK to stop the project” and the researcher is more likely to kill a bad project in a timely manner.
    What I don’t know is how often in industry job security is tied to project longevity/success.

  13. Anonymous says:

    “What I don’t know is how often in industry job security is tied to project longevity/success.”
    In industry, job security is tied to nothing but the inscrutable whims of management.

  14. TTO Guy says:

    Confirming #1 and #3, the areticle is a mess. My 2 cents here. We only take equity in a company (less than 12%) in liue of a cash payment of the upfront license fee.

  15. Biotech Capitalist says:

    Scientists definitely keep their projects longer than they should. It’s human nature to become entangled with your work. It happens in large pharma, small biotech and academia just the same. It’s just that VC partners (overlords?) squash those projects in small biotech before they linger. They get more linger time in large pharma and eternal linger time in academia.
    I am not sure it is so much a fear of failure from a job security perspective as it is human nature to be more optimistic than rational about one’s own work.

  16. S Levy says:

    #1, #3, #14
    I also noticed the equity numbers in Table 1 looked bizarre based on my unsuccessful attempt to negotiate a license with one of the universities listed.
    I contacted the corresponding author, Daniel Perez, who promptly replied that they were aware of several errors and an erratum had been submitted to Nature yesterday.

  17. bank says:

    To the TTOs,
    The article doesn’t mention the equity that the inventors get versus the distribution of license income. It appears to be common in the US for the inventors to get substantial equity in the spin-out, which might account for the lower equity the University gets.
    In the UK, the inventors sometimes share the license income on a sliding scale, which starts out very much in the inventors favor then reduces ending up with 30% of license income being shared by the inventors, the rest to the dept and university. However, they are often only given a small amount of equity in the spin-out.
    I guess these are the issues that take a long time negotiating…

  18. Confirming #1 and #3. But we are aware of this issue, and the authors are in the process of contacting the schools and overhauling the tables. Correction and new tables forthcoming. Our deep apologies.

  19. A TTO Staffer says:

    @bank
    I can only speak for my current TTO and the handful of other US TTO policies I’m familiar with, but we typically don’t differentiate between income on a license that comes via liquidated equity, royalties, or fees – the share to the inventor is always the same. (Around 40% after sunk IP costs are recovered.) This actually takes no time to negotiate, it’s just a University policy.
    If the inventors are the startup founders, then they start with 100% of the equity, less what we negotiate into a license (1-10%) and less what their seed investors take (definitely more than 10%). If the inventors aren’t the founders, but are working or consulting for the startup, they may also have an individual equity stake outside of the IP license.

  20. RET says:

    I have learned quite a bit about Stanford’s paradigm recently as my university begins efforts to establish a presence in Silicon Valley. It appears that they are focused on long term benefits and value $ their development office can get 20 years from now over OTT garnering equity and royalties.

  21. Cellbio says:

    Surprised,
    There is certainly a tie to career viability, or perceptions of, that drive a scientist to want to keep going, but this is not universal as assessment of poor probability drives many scientists to look to reload. For projects that rise to an impactful budget amount, the scientists does not have the ability to spend piles of money, like manufacturing or clinical costs, without organizational buy-in. EVERY project I have seen that is kept alive while costly despite good evidence to stop is done so because of the value for the corporation of having the program remain active. If his comment relates to stopping research level activities, then it is really off-base in terms of being impactful, as the cost is low and future innovation does come from active minds puttering about. Good management of research is, in my opinion, about measuring contribution not by squashing pet projects. If someone does not attempt to contribute to the company goals, or ignores direction to reallocate resources it does not matter the reason, pet project, incompetence, there is a different issue. Industry research is not academia and one can’t hold onto projects as if one is a PI in an academic lab. Seen some try. Not pretty.

  22. TTO worker (UK) says:

    One thing the article highlights is that academics should prepare a business plan or model before contacting the TTO.
    I completely agree – if the inventor has thought about the market, IP etc this reduces the amount of time the TTO has to devote to these items, thus reducing TTO costs.
    If the TTO has less up front costs associated with a spin out they are more likely to be more equitable – everyone likes a quick win after all.
    Finally the university cultivates an environment that allows the research to flourish, and the academics will be trading on that reputation. If the university doesn’t receive sufficient income from the commercialisation of this research then it cannot continue to preserve that environment, especially in these economic times.

  23. TTO Guy says:

    @bank
    Revenue sharing is different to equity in a company, and i think it is something that is not clear in the article. As ‘A TTO Staffer’ stated, revenue sharing is part of the university policy. Typically, revenue sharing can be done as a % either from the top line (low %) or after discounting IP and internal costs (high %). Inventor equity in a company only plays a role if the inventor is a co-founder, not all of them are. An, it is a company’s internal issue. I think the article confuses equity and revenue sharing. Coming from industry, I have notice that the Academic TTO world is open and willing to share policies as well as to provide the rational about what they do and why they do it. It would’ve been, maybe, easier to talk to the listed TTOs and get there comments/policies around these issues in the article

  24. Klaus says:

    The vast majority of university tech transfer offices are unprofitable. That is, the combined research of the university IP does not pay for itself or the office. It’s a scam folks.
    With the exception of a few big schools like Columbia and the UC system , those Bay-Dohl inspired neophyte academics looking to score big with other people’s money are nothing more than witless wonders wandering into a mine-field.
    Academia ends up giving away most research to industry without turning a profit. Our esteemed host should know this.
    Free stuff is what industry wants and articles like this one send the wrong message.

  25. TTO Guy says:

    @ Klaus
    It’s is easy to ask for ‘free stuff’ when millions of taxpayers pay for the research that enables your ‘development engine’. Do you know how difficult is to get a compound from a Pharma Co. to do research in Academia? Why Does Pharma not give Academics their stuff ‘for free’? It is true that not all the TTOs make money. However, Industry, in general, sees Universities as organizations that have to give away ‘their stuff’ for free. Most importantly, Do you really think that single digit royalty stops Industry to create product and bring them to market? I see TTOs as a way to level the field off. Ah, an ‘stuff in university’ is mostly early stage. Something that is giving for free in publications. You are right in that point!

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