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TEDCO Co-Creator Discusses How Incubators Help University, Biomed Startups in Maryland

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Brian Darmody
Associate Vice President, Assistant Vice Chancellor
University of Maryland, University System of Maryland
NAME: Brian Darmody
 
POSITION: Associate Vice President for Research and Economic Development, University of Maryland; Special Assistant Vice Chancellor, University System of Maryland
 
BACKGROUND: Has held a variety of positions at UMD, including University Legal Counsel, Assistant to the President for Federal and Sate Government Relations, and President's Senior Advisor for Economic Development; staff member, US House of Representatives and Maryland General Assembly; JD, University of Baltimore; BS, University of Maryland, College Park
 
The Maryland Technology Development Corporation last week released an economic impact assessment report of Maryland’s technology incubators.
 
Commissioned by TEDCO and carried out by RTI International, the report studied Maryland’s 18 technology incubators and four proposed incubator projects.
 
Among its findings is the fact that current and graduate incubators employed 14,044 people in the state, paid a combined $845 million in annual salary and benefits to its employees, and contributed $1.2 billion to Maryland’s gross state product.
 
The report also disclosed that incubators contributed $104 million in state and local taxes, and increased state output by $2.7 billion in 2006 over the previous year.
 
Other key findings were that Maryland has the potential to support new high-tech incubators, but that the state can do a better job assisting incubator graduates — particularly those in the life sciences.
 
Many of the state’s incubators are also affiliated with or located at universities or non-profit research institutions, underscoring the importance of these facilities to nurturing startup companies based on university-developed technologies, particularly in the biosciences.
 
An executive summary of the report can be seen here.
 
This week, Brian Darmody, associate vice president for research and economic development at the University of Maryland and one of TEDCO’s creators, discussed the report and how its findings are intertwined with the commercialization of university biomedical research.
 

 
What is your background?
 
I’ve been at the University [of Maryland] for a little more than 20 years. I came from a legal background. I also used to represent the university in the general assembly on [Capitol] Hill. One of the projects that I worked on was moving our incubators. At the time our incubator was in what we called relocatable trailers. They were old classroom buildings that Montgomery County had given us, and you couldn’t validate some of the equipment because it vibrated, and such. We had a plan to build a new incubator, [in which] half of the space would be wet lab space, with funds from the general assembly.
 
I started our tech-commercialization office; I wrote the legislation that created TEDCO; and I’m on the board of the Association of University Research Parks. So I don’t come at this just from the perspective of tech commercialization; I try to integrate the facilities side, the IP side, the public-policy side, and all of those different pieces.
 
Do you get a sense from this report that in Maryland — or any state, for that matter — that incubator space is any more or less important for startup companies in certain industry sectors, such as life sciences, IT, engineering, et cetera?
 
Most bioscience companies, although not all, generally need access to wet-lab space. You can find commercial space for an IT company that doesn’t necessarily need to be in an incubator because all you need is a plug and computer and access to a server. If you’re going to be a biotech startup [and] you haven’t outsourced your R&D, you’re going to need wet lab space.
 
In Maryland, our biotech companies are mostly startup companies. We don’t have big pharma. We have a lot of smaller bench scientists that want to start their own companies. They need access to wet-lab space, and that’s why, I think, incubators certainly in the state of Maryland and in this region play an important role in filling that niche.
 
To give you two examples, I think there are three or maybe four biotech companies that have gone public in Maryland. One of them, Digene, started at the University of Maryland incubator as a startup. Although Digene’s core technology and the management have completely changed, it first started in our incubator.
 
Martek is another company based in Columbia that started in our incubator. Although it started out as an affiliate, it wanted access to some bioprocess scale-up facilities that we had on campus, and so it became an affiliated member of our incubator, and it grew. It has obviously changed management, and although not as much as Digene, has also changed its product and its focus.
 
So those are two examples of companies in the life sciences area that have taken advantage of the network of incubators. The [University of Maryland] had one of the first ones, but since then more incubators have joined the network.
 
In Maryland, we’ve had a very successful series of incubators that are associated with universities. We also have some that are run by counties that have been successful. And we have several research parks, some of which have embedded incubators and some of which do not. But it’s been interesting that for some technologies that have spun out of different universities – those companies have not necessarily been located at an incubator at their respective university, but at a different university. And some of those incubator companies have then moved into research parks at different universities. So there is a whole ecosystem of finding the right fit in terms of what they need from a facilities standpoint, closeness to the inventor, and a lot of other considerations.
 
Another thing that the report doesn’t talk about is that when international biotech companies … want to do a soft landing in the US, they’re also going to need access to equipment, space, et cetera.
 
The report also pointed out that despite the prominence of its research universities and the quality of its research, Maryland has lagged behind peer states in generating spinout companies. What role do incubator facilities play in this process?
 
There is actually a [University System of Maryland] Board of Regents workgroup that is trying to create a more supportive climate for university-based spinouts. We’ve invested in a new program called Tech Ventures, which is a startup-assistance program out of our College of Engineering that actually runs the incubator. We hired some people that have VC backgrounds. Our tech-commercialization office didn’t necessarily have the resources for this. But we’ve now changed that considerably in that these two dedicated people from the venture capital community, and who have lots of ties to the VC world, work with startups to identify faculty and/or technologies that would lend themselves to startups.
 
At least in our incubator, and I think increasingly in all university-related incubators, you’re going to see an increase in spinouts based on university-owned technology. You didn’t always have this, because some incubators historically have taken anyone who had an interesting technology. I think you’re going to see that crowded out because more university technology is going to be exploited via spinout companies [instead of] a model of licensing technology to an existing entity.
 
At what stage would a university spinout typically begin seeking space in an incubator? Would this be before they seek private funding?
 
Very much before that. The venture people are now financing much further down the pipeline, so there is very little seed financing available. Access to incubator space, even if it is providing minimal support, meaning an address, or bringing some credibility – because friends and angels are going to be more supportive of an entity that has a university address or affiliation – is very important. Biotech companies in particular have specialized equipment and space needs. I think you’re going to see universities mature their licensing model to include more spinouts. Georgia Tech, Stanford, and many other places now have a set of people that work on startups as opposed to licensing technologies. That’s much harder, it requires the university being involved with trying to find management capital, as well as financial capital, and the management capital is perhaps in shorter supply than the financial capital.
 
From an economic development standpoint, if we can do a startup as opposed to licensing something out to a company in California, even though we might generate more guaranteed revenue from the latter, having your technology embedded in the local community and having the researchers here can pay off more in a variety of ways that you can’t measure as easily.
 
And from a reporting standpoint, an [Association of University Technology Managers] report might indicate that our numbers would be better if we had just licensed out technologies, but it’s more complex than that. We don’t have good metrics for measuring startups other than counting their actual creation. The AUTM survey tells you the number of startups that were launched, but not the impact they might have had on the local economy.
 
Regarding the biotech industry, the report indicates that the total employment of current incubator tenants in the state was dominated by IT-related fields, while the total employment of incubator graduates was dominated by scientific research and pharmaceutical and medical manufacturing. This seems to indicate that incubators are currently housing more IT-related tenants and fewer life sciences tenants.
 
Well, there’s no question that the data shows that scientific research and medical manufacturing incubator graduates are having a bigger impact on the state than do the IT incubator graduates in terms of employment. But I’m not certain that we are currently housing more IT-related tenants in our incubators than we have in the past since the report doesn’t have historical data on this point. But one possible interpretation is that because biotech [companies are] capital-intensive, once they graduate from an incubator they will stay in a region. The bio-firms appear to be a little more localized to where they were born, whereas IT-related incubator grads can be merged and relocated fairly easily to other regions.
 
The report also identified that graduating from incubators is difficult for many tenants, especially those in the life sciences, due to lack of funding or additional avenues for growth. This is often cited as a problem by university startup companies in general. What types of programs are needed or are being considered in Maryland to address this?
 
On the financing side, we have a pretty robust network of incubators, and we actually have recently started the country’s first state association of research parks called Research Parks Maryland. We are also developing extensive angel networks. Since the venture people have moved even farther down [the pipeline], angel financing becomes even more important. We’ve hosted a couple of events, and Johns Hopkins will be hosting some similar events, in an attempt to create a more robust angel network for some of these companies.
 
Also, [Governor Martin O’Malley’s] life sciences advisory board [established last year] is writing [a] strategic plan for biotechnology and the life sciences industry, and that is going to come out in the late summer or early fall. My guess is that you’re going to see a lot of ideas about tweaking tax credits for investment. The state of Maryland does have a biotech venture tax credit, and I think you’ll see some other initiatives of that type that focus on earlier-stage operations. I’m not involved with this, but we are all aware that it is coming out, and that there will be a lot of discussion about helping finance early-stage biotech companies.

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