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
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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:
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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
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Open dissemination
Public benefit
Informed participation
Legal/ethical integrity
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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
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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