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Kauffman Study: Proof-of-Concept Model Can Supplement, Support Academic Tech Transfer

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Universities and non-profit research institutes can help move inventions from the lab to the market by supporting proof-of-concept centers that provide seed funding and other commercialization assistance to faculty entrepreneurs, according to a report released last week by a pair of prominent groups.
 
The report, by the Ewing Marion Kauffman Foundation and the Max Planck Institute of Economics, is also intended to provide an outline for other universities to create POC centers, which Kauffman said it hopes to organize into a network to study best practices, establish metrics, and define future areas of research.
 
However, according to experts, POC centers may still be limited in their ability to move certain biomedical innovations, such as drug candidates, further down the development pipeline due to a lack of financial resources.
 
Entitled “Proof of Concept Centers: Accelerating the Commercialization of University Innovation,” the report compared two POC centers located in the US: the Deshpande Center for Technological Innovation at the Massachusetts Institute of Technology and the William J. von Liebig Center for Entrepreneurism and Technology at the University of California, San Diego.
 
The Kauffman Foundation provided an unspecified amount of funding to support the report, which was co-authored by Christine Gulbranson, director of the Advancing Innovation program at the Kauffman Foundation, and David Audretsch, director of the Max Planck Institute of Economics.
 
Lesa Mitchell, vice president of Kauffman’s Advancing Innovation program, said that the project chose the two centers, which were bootstrapped with philanthropic donations, because they are the only ones in the US that met the POC criteria, which includes having been in operation for at least five years to provide meaningful data for comparison.
 
“They weren’t models that were just implemented last year,” Mitchell told BTW this week. “They have been up and running for a number of years and have their own lessons – things that they would have done differently.”
 
According to the study, which can be downloaded here, a POC center provides seed funding to university-based early-stage research, as well as services such as market research, mentoring, business-plan development, and commercial connections to entrepreneurial faculty and students.
 
“The [POC] center accelerates the commercialization of innovations out of the university and into the marketplace … by providing seed funding to novel, early-stage research that most often would not be funded by any other conventional source,” the report states.
 
“Unlike some accelerators, there is no central shared lab space, [and] each of the funded investigators continues to perform their research in their own respective laboratories,” the report continues. “The [POC] center facilitates and fosters the exchange of ideas between the university innovators and industry via various mentors associated with the center.”
 
Mitchell said that the Kauffman Center decided to take on the project after Deshpande Center officials contacted Kauffman with an interest in evaluating its program against similar programs.
 
“They called a meeting of a number of different people from universities across the country,” Mitchell said. “I looked at the agenda and said, ‘You realize that these other programs aren’t like yours.’ When we all got together, it was hard [to compare].”
 
Define ‘Success’
 
According to the report, since they were founded in 2002 the two centers have collectively awarded approximately $9.8 million in seed grants to 130 research projects, and have helped launch 26 seed-stage shops that went on to attract more than $159 million in private capital from either angel investors or VC firms.
 
The Deshpande Center operates on a budget of approximately $1.7 million per year and doles out $1.3 million in two types of grants: ignition grants worth about $50,000 and innovation grants worth about $250,000. To date, it has awarded a little more than $7 million to 64 projects, according to the report.
 
Meantime, the von Liebig Center’s annual budget is about $1.2 million, about $420,000 of which funds seed grants in amounts ranging from $15,000 to $75,000. It has awarded around $2.8 million to 66 projects since its inception.
 
Though the scope of their financial assistance may differ, the POC centers offer many similar commercialization services, including advising, business community open houses, luncheons and networking events, educational programs, lectures, and graduate-level courses at their respective universities.
 

“The areas where this stuff does work are in things like discovery tools, diagnostics, [and other] things that are around the edges. That’s where I think we can have a really big impact on the biotech and therapeutic industries.”

The Deshpande Center has helped create 10 startup companies and resulted in one university patent being outlicensed, while the von Liebig Center has helped spin out 16 companies and license four university-developed technologies, the report states.
 
The Deshpande Center also estimates that its spinout companies collectively employ about 150 people and have attracted about $88.7 million in private capital. Meantime, the von Liebig Center said that its startups collectively employ around 64 workers and have secured more than $71 million in private funding, according to the report.
 
Despite the direct comparisons between the two POC centers, the report states that “many obstacles” exist in evaluating quantitative metrics of success for the two centers.
 
“First, both centers have only been in existence for approximately five years. Thus, there has not been enough time to evaluate the end result of many projects,” the report states. “Second, there are no accepted benchmarks to define success.”
 
For instance, the researchers wrote that although forming a business or licensing a technology are easily identifiable metrics for success, it is difficult to determine what constitutes a failure, since a researcher who receives funding and realizes that a market opportunity may not exist for his technology may then more quickly be able to work on new versions of the technology or seek other market niches for it.
 
Still, the authors support the idea that POC centers are effective tools for accelerating university technologies to market by stressing the number of POC-center graduate companies that have appeared since 2002 and the venture capital they have attracted.
 
Say No to Drugs?
 
Both the Deshpande Center and the von Liebig Center were born from the engineering departments at their respective universities but have found limited success in supporting and accelerating biomedical research to the market.
 
For instance, of the 18 actively funded projects listed on the Deshpande Center website, 10 can be generally classified as biotechnologies; and of the 51 completed projects, 18 are biotechnology-related. Of the 10 Deshpande startup companies, three are biotech-related. A full list of current and past funded projects, as well as spinout companies, can be seen here.
 
And according to the von Liebig Center website, it has funded or is currently funding 23 projects in the life sciences category; 15 in the software/IT; and 24 in materials science/electronics. A full list of all projects that have been funded by von Liebig Center can be seen here.
 
In both cases, the biotechnology projects being funded tend to fall in the categories of general medical technologies, medical devices, biomedical research tools, or diagnostics. However, in its pharmaceutical-development silo, the POC stage typically is the first stage at which a pharma or biotech firm will be interested in picking up a technology from the university research bench. However, that stage does not necessarily correlate with the POC center concept, according to some experts.
 
“The difference is that in life sciences, POC is much further down the road than on the device or engineering side,” Kauffman’s Mitchell said. “I think it will be very difficult to apply this [to drug discovery]. You really couldn’t do this with a therapeutic.”
 
Leon Sandler, executive director of the Deshpande Center, told BTW that whether the POC center model will persevere in the drug-discovery environment depends on its ability to raise substantially more cash than it has in the past.
 
“If you get into pure biotech, where you are really doing biotechnology in the lab to try and develop therapeutics, targets, et cetera, you need a lot more money to do that,” Sandler said. “Where our model breaks down is that it has to be something that, with $250,000 as the upper limit, you can move this thing along significantly. If it’s going to take $1 million [or more] in research, the model could work, but … places like ours and von Liebig just don’t do that because we don’t have those types of resources.”
 
Few would argue, however, that the POC center model is just as applicable to other types of biotechnologies as it is to physical sciences and engineering technologies.
 
“The areas where this stuff does work are in things like discovery tools, diagnostics, [and other] things that are around the edges,” Sandler said. “That’s where I think we can have a really big impact on the biotech and therapeutic industries.”
 
Another limitation that exists is that, much like the lack of venture capital in most of the country beyond both coasts, the POC center can only be as successful as the entrepreneurial resources that are available in its particular region.
 
For instance, Mitchell told BTW that the University of California, San Francisco, and UC-Santa Barbara both have the pieces in place to sustain effective POC centers, and may be among the first additions to Kauffman’s POC center network. As with MIT and UC-San Diego, these schools are located in relatively VC-rich communities, and also in areas that naturally foster a certain entrepreneurial spirit (see related story on UC-Santa Barbara, this issue).
 
“I think that we’ll see that change over time,” Mitchell said. “The critical element … is an entrepreneurial community that literally is engaged in either selecting early-stage technologies, or working as advisors or mentors. In California, lots of entrepreneurs that came out of the universities still very closely collaborate with the university. So it’s them kind of pushing, frankly, the university to put together these kinds of models.
 
“Unfortunately, there are many universities in the middle of the country that aren’t necessarily sitting next door to a roomful of entrepreneurs,” she added.
 
Mitchell did note that Washington University in St. Louis and the University of Arizona both have recently established pieces of the POC puzzle, and may be able to support such a center. The report also notes that the University of Texas, Austin; Johns Hopkins University; the University of Illinois; Northwestern University; and the University of Wisconsin-Madison are all prime candidates for successful POC centers.
 
“Regardless of the center’s location, its success will be determined by the strength of its staff and its surrounding social network infrastructure,” the report states.
 
A full analysis of the report will be published in the June 2008 issue of The Journal of Technology Transfer, the Kauffman Foundation said.

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