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Why Technology Transfer Offices Should Focus on Sponsored Research and Ignore Royalties: In Praise of UNC’s “Express License”

A story by Xconomy’s Sylvia Pagán Westphal yesterday highlights a new approach to technology transfer licensing being taken by UNC Chapel Hill’s Office of Technology Development: The Carolina Express License. At first glance, the agreement looks, as Westphal puts it, “not very sweet for the university.” UNC takes 0.75% of any exit transaction, but no equity, no milestones and only a 1% or 2% royalty. Here’s Westphal’s description of the UNC approach (including a witty juxtaposition of religious imagery):

“They call it the holy grail of tech transfer, though critics, I reckon, think of it more as heresy. Either way, it’s gutsy.”

Count me in the group that considers it tech transfer Nirvana Nirvana.

Why? Maximizing revenue from individual licenses is the wrong priority for University tech transfer. As UNC’s Cathy Innes says:

“Where we hope to gain is that if we get a lot of companies started, more of them will be successful and have more products on the market, so we’ll be more successful…”

The University of California tech transfer system calls this the “Home Run Model,” (pdf) recognizing that even with 420 companies founded and 800 products on the market, nearly half of all licensing revenue comes from the top 5 products and the top 25 accounted for 75.6% of all 2009 licensing revenue. If more companies are started, there’s a better chance one of them is the home run.

Here’s another reason: easier licensing negotiations mean more sponsored research, and sponsored research is way bigger than licensing. For example, the USC Stevens Institute for Innovation took in $7 million in licensing revenue in 2008; but nets $500 million annually in sponsored research. Even tech transfer powerhouse Stanford takes in almost 7 times more money from industry-sponsored research than it does from licensing (PowerPoint). A small increment in sponsored research would easily offset the marginal licensing revenue sacrificed in UNC’s template.

Since December when the Express License was introduced, it has been used to found 6 companies out of UNC. Whether these six succeed or fail, I bet every person involved — the P.I.s, the founders and the funders — will be more likely to work with UNC again than if they had negotiated an individualized license. Westphal quotes Lita Nelsen, director of the Technology Transfer Office at MIT as saying the University license “is not the hard part of the problem,” but the UNC model sounds vastly less painful than every tech transfer story I’ve heard or been involved in.

Bottom line: a better tech transfer experience = an easier start-up = more companies = more sponsored research = more tech transfer wins. Here’s hoping that UNC’s Express License goes forth and multiplies.

Twitter connection: hat tip to @ldtimmerman and @Michael_Gilman for links to the Xconomy story. Follow Sylvia Pagán Westphal on Twitter at @sylviawestphal or as part of my Twitter list of Biotech Pharma and Health personalities.
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