News & Events
Illinois universities study how to turn science into business
By Gary Ruderman
Illinois universities have not been known as hotbeds of innovation when it comes to turning laboratory developments into private enterprises.
The practice known as technology transfer--or taking what's developed in the university labs and turning it into a business--has been a boon for many of nation's top schools. But in Illinois, despite being home to one of the Internet era's greatest developments--the Mosaic project at the University of Illinois, which later became California-based Netscape and revolutionized how people used the Internet--the rate of technology transfer is dismal at best.
The Mosaic Web browser is the "one that got away" and has become the state's tech albatross, said Jill Tarzian Sorensen, head of the office of technology management at the University of Illinois at Chicago.
Now, with investment from venture capitalists dwindling at a rate quicker than the demise of the dot-com boom, the state's universities are looking closer at what their professors and students are working on in hopes of finding new investment opportunities and keeping promising technologies here.
While the Massachusetts Institute of Technology and Stanford University routinely pushed out dozens of new businesses each year with few strings attached, Illinois' universities let great technologies slip away, accumulated backlogs of unexamined technologies and heaped onerous provisions on the ones they backed.
The state's "universities all said, `Any thought in your head belongs to us and any development in our labs belongs to us,'" said Jim Charney, executive director of the federally funded Illinois Innovation Initiative--or i3--which is supposed to get federal technologies into the hands of business.
Signs of change
Recent investments, however, hope to change the way universities view home-grown technology
Motorola Inc. is fueling some of the new tech transfer growth. Two weeks ago, Motorola agreed to be the founding investor in a new information technology lab at Northwestern University, said Sam Musa, the university's associate vice president of strategic initiatives.
"This is aimed at creating companies out of Northwestern University technology," he said.
Motorola will help fund Northwestern's new Information Technology Development Laboratory, or DevLab, by supplying $2 million annually for the next two years, with an option to invest $1 million the third year.
DevLab will be located in Evanston's technology research park and is considered a first step toward commercializing technology developed by Northwestern's faculty and students.
One new firm, Chromatin Inc., housed at the Chicago Technology Park on the Near West Side, is an example of moving basic research out of the university lab and into the commercial mainstream.
With technology licensed from the University of Chicago, Chromatin was founded last year and recently got its first round of venture capital funding.
The firm designs mini-chromosomes that can be implanted in plant cells to deliver specific, commercially desirable traits. The technology can also be used to make new pharmaceuticals and chemicals.
Daphne Preuss, a University of Chicago professor of molecular genetics and biology, founded the firm.
In September, San Francisco-based Burrill & Co., a leading biotech venture capital fund, committed $5 million to Chromatin. The first $1 million check arrived in September, allowing Chromatin to begin staffing up, said Greg Copenhaver, a member of the firm's board of directors.
Another local endeavor, SloWave Inc., also uses technology from U. of C. and Louis Pasteur University in Strasbourg, France. The company is developing a new class of drugs that affect the gammahydroxybutyrate receptor system and produce the deepest sleep, known as "slow-wave" sleep.
SloWave is also working on drugs that can ease anxiety and other central nervous system disorders, said Robert Rosenberg, assistant vice president at the University of Chicago and head of the school's technology transfer program, called UCTech.
In the last year, the firm has raised nearly $500,000 from an angel investor, Chicago's 2200 Ventures, a state technology challenge grant, and a federal Small Business Innovation Research grant.
Those investments moved SloWave to the point where progress was seen in animal trials.
Rosenberg said the firm, housed at the Lyric Opera building downtown but with leased labs at Northwestern University, is looking for a $3 million venture investment. The business plan calls for licensing the drugs to big pharmaceutical firms.
The lag in the state's attention to technology transfer came from its diversified economy, said i3's Charney, who worked for NASA in the 1960s.
Chicago didn't have a depressed economy like Massachusetts and California in the 1960s and 1970s. Those states received millions of federal dollars for research that spawned start-up companies that, in turn, supplied new technology to the space program, he said.
Defense technology also formed a solid footing for early-stage venture capital investments on both coasts, while "investment in Chicago has always been meat and potatoes--property and manufacturing," said U. of C.'s Rosenberg.
The private sector can be a linchpin of technology transfer for universities. On Oct. 16, for example, Procter & Gamble Co. gave the University of Illinois at Chicago nearly $3 million in patents, equipment and cash to commercialize a new microchip circuit that it hopes will revolutionize battery power.
"Start-ups and economic development are a vital component of the university," said UIC's Tarzian Sorensen.
New approach at U. of C.
Despite recent successes like Chromatin and SloWave, the University of Chicago's technology transfer engine--once known as Arch Development--has been revamped to commercialize more science.
"We thought we could incubate companies on campus, but we're good on developing science but not incubating," Rosenberg said. "Running technology transfer is a business, not a cottage industry."
In July, the university shut down Arch, its arms-length incubator, responsible for bringing out start-ups like SmartSignal, which used signal processing algorithms developed at Argonne National Laboratory, and Arryx Inc., which uses U. of C. technology that can manipulate objects as small as one-thousandth the diameter of a human hair.
"Arch is gone. It's a relic of the past," said Rosenberg. UCTech succeeds it, and Rosenberg thinks pairing with industry can speed ideas to market.
Next month, the University of Illinois at Urbana-Champaign will break ground on its first business incubator aimed at transferring university technology to start-up businesses.
An $8 million investment by the state will finance the 43,000-square-foot incubator in Champaign. John Parks, director of U. of I.'s research park and incubator, expects 25 to 30 early-stage companies will populate the new building, with 90 percent of the companies coming from the university. "The mandate is technology transfer," Parks said.
An infusion of money also is clearing up a backlog of more than 700 technologies in the university's portfolio. Mike Fritz, of the office of technology management at U. of I., came in this year as interim director to an agency that "historically had not done technology transfer very well." With more than $3 million in university funding, Fritz's office increased the staff to 21 from six, contracted outside technology consultants and has evaluated more than 300 technologies.
Wooing big companies
Another failure of the past was attracting big Chicago companies to university labs. Parks said one of Champaign's strengths was its ability to attract established companies such as Intel, Cisco Systems and SAIC--what he calls the "engines of technology transfer"--that acquired three Downstate start-ups in the last year.
The big-company synergy Downstate expanded when U. of I. opened its first research park in January, with such tenants as Motorola, Swiss audio technology firm Phonak, Caterpillar's digital simulation center, Aventis CropScience and the National Center for Supercomputing Applications.
Now the University of Chicago is finding corporate partners to run start-up companies or working with Chicago's national laboratories, Argonne and Fermi.
"If we don't partner together and work together we are never going to be a tech center," said Rosenberg.
Technology transfer comes in a number of flavors. The best-known is university research spun into start-up companies with the inventing professor on board, as in the case of Chromatin.
Universities either take an equity share of the new company or royalties of future revenue. But in the past, Illinois colleges were especially onerous in their demands, asking for as much as a 50 percent stake at U. of C.'s Arch Development or a 20 percent at the University of Illinois at Chicago.
By comparison, start-up epicenters like Stanford University in Palo Alto, Calif., take just 2 percent to 5 percent equity in start-ups, and MIT generally takes less than 10 percent.
Part of the equity requirement was defensive, said UIC's Tarzian Sorensen. Before 1988, UIC had no equity requirement in technology transfer and was losing faculty to start businesses.
Steep costs, legal woes
With little early-stage funding in Chicago, it's hard to overcome the high cost of getting a technology to market, added i3's Charney. Patents cost $10,000 to $35,000 each, and many inventions need several patents. Some technologies, once protected, are so complicated that they are next to impossible for venture capitalists to understand or even take to market, Charney said.
And then there's the legal process. "It's negotiating hell," explained Vic Pascucci, a Chicago lawyer who specializes in technology transfer. Terms of acquisitions or funding "just ends up sitting there" while everyone agrees.
The Department of Defense, NASA, the Environmental Protection Agency and other agencies fund thousands of campus-based research projects each year. Ninety percent of research at the University of Chicago, for example, is federally funded. If research pans out and the university has no interest in developing it, the federal government can elect to give the technology to the professor or research team.
In other cases, colleges license technology to an outside company.
Stanford's licensing of the technology for recombinant DNA, for example, nets it $250 million a year, according to Katharine Ku, Stanford's director of tech transfer.