Minnesota tech transfer faces a new challenge: the patent cliff

You’ve likely heard of the pharma patent cliff. But upcoming drug patent expiration dates are also threatening another sector: university technology transfer offices.

The University of Minnesota, which has spent years resuscitating its tech transfer prowess, is now among the institutions facing a patent cliff that will dry up revenue from commercialized research. Most of its tech transfer revenue over the last decade has come from the patents related to the Ziagen AIDS drug that will fully expire in 2013.

The tech transfer office will lose $6 million to $7 million annually after that drug patent expiration date passes, according to a panel of three experts commissioned to review the university’s Office for Technology Commercialization.

“We strongly believe that UM needs to find a way to continue to support at least the current level of operations from an alternative budget source even after the cliff arrives,” the panel wrote to Tim Mulcahy, the university’s vice president of research who asked for the report. The three experts manage tech transfer efforts at Stanford University, Columbia University and the Wisconsin Alumni Research Foundation.

The panel urged against short-term fixes. For instance, the reviewers advise not to focus on generating near-term revenue increases because they are almost impossible to achieve and create “perverse incentives fortech transfer officers, such as demanding inappropriately high upfront fees, at the expense offuture earned royalties and can also limit the number of deals that end up getting done.”

Instead, the university should file more provisional patents, the panel said, noting that it files fewer provisional patents than other educational institutions.

The university’s patent cliff problems were included in a report that praised its recent tech transfer efforts and, as a result, may bolster Mulcahy’s argument for continued financial support for the Office for Technology Commercialization.

In the past, the university’s tech transfer activities came up short. But now the office is “at or near the top of its peer group, and should beconsidered an exceptional success story over the past five years,” according to reviewers Katharine Ku, director, Stanford Office of Technology Licensing; Carl Gulbrandsen, managing director, Wisconsin Alumni Research Foundation; andOrin Herskowitz, executive director, Columbia Technology Ventures.

The group reserved special praise for Jay Schrankler, OTC’s executive director.

“It is rare to find someone who has both thebusiness experience to get good deals done and the temperament to be able to work well with universityresearchers and administrators,” the three-page letter said. “Jay strikes us as an excellent steward for the office.”

Mulcahy said that Schrankler instituted some important process changes when he assumed OTC’s responsibility four years ago. For instance, he split “the technology manager function into two separate roles: technology strategy managers who work directly with faculty, and technology marketing managers who focus on licensing technologies to business/industry” Mulcahy stated in an e-mail.

He also engaged in more face-to-face meetings with potential licensees across the country, hired staff with industry and small-company experience and held workshops about startups for faculty among many other efforts.

The reviewers’ glowing evaluation is a vindication for the OTC, which they say has done an impressive job of achieving results similar to its peers on a much tighter budget. Still, they offered specific recommendations on how it can improve its performance. For instance, it believes the activities of the Venture Center, that provides large seed grants and recruits and manages CEOs-in-residence are too expensive and has not generated enough returns.

“We recommend thatOTC consider refocusing the Venture Center, emphasizing entrepreneurship education, bootcamps for faculty inventors, collaborations with the business school, and connections to localangel, seed, and VC investors,” the reviewers stated.

That could save as much as $750,000 annually.