Transcript Slide 1
Start-ups and Business Incubation:
The Challenges and the Opportunities
Presented to:
Students to Start-ups
By
David Schetter
Assistant Vice Chancellor for Research
UCI Office of Technology Alliances
May 6, 2008
Challenges Facing
Universities and the Role of
Start-up Companies
Universities Need Research Funding
Alternatives
Federal funding becoming highly competitive
State funding becoming highly restricted
Many universities are growing rapidly, infrastructure
being stressed
Costs of research are increasing
Conduct of research becoming more complex
Regulatory requirements result in project delays
Bottom line:
Research now takes longer, costs more and
competition for available funds is Intense
Industry is a Significant Research
Funding Alternative
Industry offers universities a degree of freedom
however,
Larger companies have moved away from funding
discovery research: preferring to buy proven
technologies or start-ups that own them
Start-up companies founded on University
technologies offer a route to research funding and
technology commercialization
Requirements include:
Strong Intellectual Property
Coordination among University offices
Flexibility on IP terms
Attention to Conflicts of Interest and Commitment
Challenges Facing Industry:
The Bio/Pharma Technology
Pipeline Example
Top Ten Selling Drugs in 2003
Drug
Company
2003
Sales
1
Lipitor
Pfizer
$ 9.2 Bn
2010
2
Zocor
Merck
$ 4.9 Bn
2006
3
Norvasc
Pfizer
$ 4.2 Bn
2007
4
Zyprexa
Eli Lilly
$ 4.2 Bn
2011
5
Paxil
Glaxo
$ 3.5 Bn
2006
6
Zoloft
Pfizer
$ 3.0 Bn
2006
7
Procrit
J&J
$ 2.9 Bn
2013
8
Pravachol
BMS
$ 2.8 Bn
2006
9
Fosamax
Merck
$ 2.7 Bn
2007
Effexor
Wyeth
$ 2.6 Bn
2008
10
Year off
Patent
• Total 2003 Sales - $ 40 Bn
• Percent of Sales off Patent by 2010 – 82%
Substantial Revenues at Risk
Due to Patent Expiry
2003-2008
Merck
2009-2013
41
Pfizer
26
Glaxo
27
40
37
18
Wyeth
3
42
24
BMS
AZ
15
16
17
JNJ
15
13
Novartis
21
4
Roche
%
Abbott
8
0
9
15
7
%
%
20
40
%
60
Percent of 2003 Sales Coming off Patent
%
80
%
100
Bridging Two Cultures
UNIVERSITY
COMPANY
• Create and propagate
Financial return to investors,
knowledge for the public good
founders and employees
using knowledge
• Narrow Scope of License
License
• Revenue
Expense
• Academic Freedom
Confidentiality
• Control of Intellectual
Property
Control of Intellectual
Property
• Diligent Development
Commercial Flexibility and
Uncertainty
Why Should Industry Partner
with Universities?
Expands corporate R&D capabilities
Lowers R&D costs and adds flexibility
Provides access to matching grants and other
sources of non-dilutive funding
Provides access to scientific and technical
expertise
Facilitates recruiting of technical staff
Enhances the corporate technology portfolio
Licensing direct from University
Start-up acquisition or strategic partnering
Types of University/Industry
Interactions
Student Recruitment
Internships/Externships
Sharing of Materials,
Equipment &
Facilities
Faculty Consulting
Industrial Consortia
Clinical Trials
Gifts
Technology Option or
License
Affiliate Programs
Collaborative/ Sponsored
Research
Continuing Education
UC Commitment to Industry
Partnering
Decentralizing technology transfer to campuses
Principles for Industry/UC partnering
Open dissemination
Public benefit
Informed participation
Legal/ethical integrity
-
Accessibility for UC purposes
Fair consideration
Objective decision-making
Impact on students
Patent Policy changes and incentives
Equity Policy
Licensing flexibility for different industry sectors
California Institutes for Science & Innovation
The UC Discovery Grant Program
National Academy of Sciences
Convocation, Fall 2006
Theme: U.S. global competitiveness
Focus: “Rising Above the Gathering Storm” report
Challenge to participants: Recommend one action your
community could take within the next six months that
would address the issues in the Report
Attendees: VP level executives from Orange County
industrial firms, civic leaders, UC Irvine executives,
community members, California Governor’s Office Rep
Primary Recommendation: Orange
County needs more business incubation
Orange County Business
Incubation Network (OCBIN)
Enhancing economic growth in Orange County:
New business incubation
Collaborative R&D
Leveraging investment capital, services and
business resources
OCBIN-Connections
Secure communications for matching
vetted start-ups with VCs and qualified
service providers (screening process)
Start-ups access “best in class” on most
favorable terms
Sponsorships by OCBIN-Connections
members with visibility on www.OCBIN.org
OCBIN Corporate Partners
Technology scouting
Incubating new company technologies
Collaborative R&D
Accessing UCI and the UC system
resources
The Incubation Ecosystem
Service
Providers
Sponsors
Incubators
Portfolio
Company
Investors
Economic
Development
Corporate
Partners
The Incubation Process
Pre-Incubation
Identification of Incubation Prospects
Vetting of Incubation Prospects
Incubation
Seed Capital Provided by Incubator Fund
Mentoring by Incubator Staff and Advisors
Support from Service Providers
Transition from Technology to Product
Series A funding as needed
Post Incubation
Continued Growth
Pursuit of Exit Strategy
Incubation Business Models
License-in/
Acquire
Technology
Sub-License
Technology to
Customers
Improve
Technology
Productize
Technology
Sub-License
Technology to
Customers
Sell Products
via Channel or
Direct
Open-Source:
Provide
Services
Advantages of Incubation
Inventors Retain Control of Technology
UCI and Inventors Increase Revenue Share
Inventors Can Focus on Technology
Mentors Provide Guidance
Additional Assistance from Service Providers
Funding Provided as Needed
Economic Development Stays Local
UCI Virtual Incubation Model for
Start-up Companies
Company founded on optioned/ licensed UCI
technology and pre-seed capital
Initial non-dilutive funding SBIR, STTR and UC
Discovery Grants
Provides for early stage technology development,
leveraging UCI resources
A web of agreements between the start-up company
and UCI:
Sponsored/collaborative research, license/option,
Material Transfer Agreements, Sales & Service, sublease,
gifts, consulting, subleases
All standard terms with no exceptions to policy
Management and integration of agreements is key
UCI Virtual Incubation Model
UCI
Research
Lab
At Risk
Patent
Filing
OTA
Invention
Proposal
Matching Grant
Grant $
UC Discovery
$
New
Company
Virtual
$
UC
Discovery
Grant
Independent
Company
Physical
Sublease
Federal
Agencies
SBIR
STTR
Funding Sources
$
Seed
Funds
Virtual Incubation Model
(continued)
Conflict of Interest Review
“Without conflict there is no interest”
(Conflicts can exist but must be managed)
Review of financial interests (income, stock,
board or management position)
Percent equity holding allowed for UC founder
based on stage of financing and dilution
Board membership discouraged and no
tolerance for management position – can
serve on the Scientific Advisory Board but not
as chair
Virtual Incubation Model
(continued)
Sponsored Agreement Terms
Full UCI overhead
“Improvement inventions” rolled into
license/option at no additional charge
New inventions in the “Field” added to
license/option for one-time fee
First right to negotiate a license to new
inventions outside the Field
Virtual Incubattion Model
(continued)
Move to Non-virtual Status
Company does strategic partnership with larger
company including research funding, sublicense
and co-development milestones
UCI receives “attributed income” share of company
partnering revenue and liquidity events
Company raises next round of capital, moves out
of virtual phase to own facilities & carries out
product development, production & sales
UCI receives license revenue on milestones and
net sales
Virtual Incubation with Incubators
UCI
Research
Lab
At Risk
Patent
Filing
OTA
Invention
Proposal
Matching Grant
Grant $
UC Discovery
$
New
Company
Virtual
$
UC
Discovery
Grant
Federal
Agencies
SBIR
STTR
Funding Sources
Incubating
Company
$
Seed
Funds
Independent
Company
Physical
Take Home Messages
Diligence on IP absolutely critical
Solid business plan essential from R to D to
regulatory all the way through certification and
reimbursement
Assessment of University inventor current and future
projects and potential overlapping obligations is key
Understand inventor motivations and expectations
Understand investor motivations and expectations
Communication, Communication, Communication
A business incubator can provide needed services,
expertise & support, often on an equity basis
Leverage University resources to the extent possible
Thank you for your attention!
David Schetter
Assistant Vice Chancellor for Research
949.824.7297
[email protected]
UCI Office of Technology Alliances
www.ota.uci.edu
Orange County Business Incubation Network
www.ocbin.org
May 6, 2008