The article below appeared in the August 2007 issue of Technology Transfer Tactics. Click here to subscribe.

“Individual components of the IP bundle typically have a low value,” noted Richard Sheehan, president of The Technology Resource of the Southeast, a Johnson City, TN-based service provider of third-party analysis and valuation of new products and early stage technologies. “However, the value increases when combined with other like items that have a synergistic effect on the bundle.”

“The missions of universities do not match up with those of businesses,” added Michael J. Martin of TechTransfer Associates, Inc., a Blacksburg, VA-based consulting firm. “The mission of business is to maximize return to shareholders, while universities create and disseminate knowledge. Universities are organized by disciplines, while businesses are organized by products — but you can identify clusters of research activity that match a company’s product organization.” Martin says he successfully made just such a proposal to DuPont that resulted in a development grant for Virginia Tech, where he previously served as executive VP for intellectual property.

Finding synergy

In seeking to help the university become more efficient for an approach to DuPont, Martin and his staff identified clusters of researchers — electrical engineers, the chemistry department, and chemical engineers — who were working on non-linear optics for an electronic optical modulator. “The three groups were not aware of each other,” he noted.

“We brought the faculty together over coffee, and the university got three new research proposals,” he continued. “It also got them thinking about invention disclosures, and we got six new ones. That was the value of just having one meeting.”

Once the three departments pooled their disclosures, Martin was able to approach DuPont with a platform — what he calls ‘a total solution.’ “I could also say to them I had a cross-disciplinary team that was very interested in further development; I had in essence a product development team they had not seen from a university,” he added.

The technology is now in further development, though no licenses or businesses have yet been formed as a result of the activity. “We see [bundling] as a very valuable approach,” Martin summed up. “You can look inside your campus, enhance [your efficiency] to approach an existing corporation or a new business, or seek out other universities to help solve market-driven problems you have identified.”

Untapped potential

Sheehan pointed out that bundling can unlock a significant amount of potential licensing dollars that are currently untapped. “According to the USPTO, at least 70% of university patents go unlicensed, and of the 30% that are licensed, only 10% exceed in revenues the initial investment in patent costs,” he noted. While some clearly should never have been patented, some are patented for political reasons, and some are only incremental improvements to an existing process or technology. However, “there is a whole category — an entire band of technologies — that are good ideas but on their own simply cannot sustain a business model or have sufficient importance to be attractive to the investment community.”

One example dealt with genetic contamination in the rice industry, springing from a concept initially developed by Monsanto. The concept involved conferring disease resistance to insects and making plants immune to weed-killing chemicals. “The bad news is that some of the genes have spread to weeds, making them tough to control; biotech crops approved for animal feed have found their way into the human supply chain and plants engineered to make medicines in their tissues have escaped their test plots,” said Sheehan.

RNA silencing, he continued, has been investigated for several years and has been pioneered by Applied Biosystems and Invitrogen. “Several research universities have independently developed a number of techniques that, when combined, may allow plants to become self-regulating and force the genes that control pollination to cease function if there is a mismatch in the DNA through cross-pollination,” he noted.
While the details of the project are confidential, Sheehan said, “the basis for a business formation exists that would outpace rivals in size and technology value.” In fact, he asserted, “this project represents a market opportunity that would exceed $1 billion.”

In a bundling model, Sheehan commented, revenue distribution is the key to success. “We value each item [in the bundle] as a separate and independent contribution; the sum total of the individual values is used as the benchmark to determine the ratio or percent contribution that each item made to the sum total,” he explained. “Next, we value all of the contributing items as a whole or complete package and then apply the percentages from the first step to establish the amount of revenue distribution to be expected from each contribution.”

As for Sheehan’s firm, he says they are compensated with a flat fee, as opposed to a percentage of the deal.

The ‘Wall Street’ approach

While relatively untested in the U.S., bundling IP into a stock offering has proven highly successful in the U.K, noted M. Guven Yalcintas, PhD, vice president of technology transfer for The Research Foundation of The State University of New York (SUNY), based in Albany. SUNY has five technology transfer offices for 64 campuses managing over 400 research projects.

Yalcintas says stock offerings for IP bundles can provide a fantastic commercialization vehicle for universities, and he is pioneering the idea for the SUNY system. “About six years ago IP2IPO, an entirely new concept, was created in the U.K.,” he related. At the time, it had a single university partnership — with the University of Oxford. “They floated an offering for about 100 million pounds,” said Yalcintas. “Their promise was that they would share half the money raised.”

Today, the result of that offerering, IP Group, has partnerships with ten universities in the U.K.; as of December 2006, 53 portfolio companies had been created from these partnerships. Eight of the companies have been listed on the U.K.’s Alternative Investment Markets (AIM).

The concept has continued to grow among British investors. “Imperial College led to Impil Innovations, and last fall floated 320 million pounds,” Yalcintas reported.

Heartened by this success, Yalcintas has created Academy IP — SUNY’s own company. “Bridge funding has been completed, and we are open for round A [financing],” he told the attendees. “We estimate that in two years we will go to market.”

Yalcintas said he was trying to bring other universities into the venture as well. “We expect to enrich our portfolio so it becomes more attractive to U.K. companies and other investors.”

Yalcintas specifically said “U.K.” companies because he plans to eventually float an offering on AIM. “It seems the people in AIM accept larger risks; NASDAQ is severely restricted by Sarbanes-Oxley,” he tells Technology Transfer Tactics.

While Academy IP will raise the money, they are not looking to be paid a fee. “We would much rather see [the inventors] become rapidly successful,” he said. “If they spin off a company, we will take equity.” He explained that 40% of the stock would go to the inventor, with the other 60% going toward a campus research fund.

Contact Martin at (540) 953-1712 or mike@techtransferassociates.com; Sheehan at (423) 929-0380 or rsheehan@technologyresourceSE.com; and Yalcintas at (518) 434-7167 or guven.yalcintas@rfsuny.org.