Top University of Minnesota research official fires back at critical legislators

Tim Mulcahy’s eyes lit up as the thought suddenly seized him.

“Here’s what we can propose,” said Mulcahy, vice president of research at the University of Minnesota. “Perhaps the university is too risk averse in our assessment” of potential startups.

“We will make any of those technologies and potential companies that we pass on immediately available for the state to invest in,” he said. “They can put some skin in the game in proportion to their tolerance of risk. That way, we don’t lose anything. Either we fund them or they fund them.”

Um … are you serious?

“Why not? Mulcahy said. “We’re being criticized for due diligence because we’re trying to protect our investment resources and technologies, and being criticized by people who are not in the position of having to make the decision to put skin in the game. If you think we’re doing so badly, we’ll give you the direct opportunity to do it yourself.”

By “people,” Mulcahy is specifically referring to Rep. Tim Mahoney (D-St. Paul). The chairman of the House Bioscience and Workforce Development Committee recently told MedCity News that unless the university adopts a more aggressive approach to tech transfer, he will propose a bill that will privatize the school’s Office for Technology Commercialization (OTC), or recommend hiring an university president to “shake up” the office.

“They’re screening companies to death,” Mahoney said.

Mulcahy, a respected research official and a former top candidate to lead the University of Wisconsin at Madison, is not exactly a loose cannon. He is a politically astute guy who frequently works with legislators like Mahoney.

But in an hour long  interview with MedCity News, which he requested, Mulcahy pulled no punches, offering a spirited, often exasperated, defense of the university. He also pushed back hard against Mahoney who says the university is too risk averse in pushing out technologies.

“I actually thought we were working on a team,” Mulcahy said. ” I joke to people: ‘Now I know what Terrell Owens teammates feel like.‘ It’s disappointing. I don’t know what [Mahoney] is basing his assessments on. In many regards, he is ill informed or partially informed … Winning an election doesn’t make you an expert.”

Oh, it’s so on.

First, a little context. When the school recruited Mulcahy out of the University of Wisconsin five years ago, OTC was an operation in name only. Staffed by academics with little or no experience in tech transfer, the office’s record was abysmal, despite the school attracting nearly $500 million in annual federal research money.

From 1984 to 2004, the university spun off 101 companies but only three went public, according to a study conducted by MBA students at the University’s Carlson School of Management. The three startups generated just $9 million in income for the university, with $8 million from just one — Net Perceptions, an Edina-based tech company that went public in 1999 with great fanfare but struggled after the tech bubble burst and moved out of state in 2004.

Almost 95 percent of the school’s licensing income came from one source — Ziagen, an anti-AIDS drug whose American patent expires in 2013. Investors and entrepreneurs often complained about the difficulty of working with the university.

Under Mulcahy, the school recruited former venture capitalist Doug Johnson and former Honeywell Corp. executive Jay Schrankler to run OTC. The two established a $5 million seed fund to develop potential startups and recruited local entrepreneurs to advise and eventually lead companies that spun out of the university.

The two also developed a vetting process in which “technology managers” with industry experience in medical device and software would carefully screen technologies and decide whether to launch a company, license the technology, or just reject it all together. That deliberate approach means the university would only spin out two or three “potential blockbusters” a year.

But Mahoney believes the university should move faster, a criticism rejected by Mulcahy as naive and even reckless.

“That’s easy for someone who doesn’t have to put any skin in the game,” Mulcahy said. “The university owns important technology we can’t afford to jeopardize by making a poor decision. That requires a lot of due diligence. If we were irresponsible, we should be taken out and shot. Starting a company is not a zero sum game. It’s a costly venture. We’re holding a very real financial liability that we may never see” a return on investment.

“It’s ironic,” he continued. “We are being now criticized for bringing the professional due diligence to the operation that people criticized five years ago for lacking.”

But for all of Mulcahy’s efforts, obvious success has been elusive. The university launched only one company last year, compared to four in 2007. And in other key areas, OTC has actually lost ground over the past five years.

In 2009, OTC said revenue totaled $95.2 million, almost double than 2005. But in that same period, U.S. patent filings fell to 65 from 104, disclosures dropped to 244 from 251 and licenses dropped to 50 from 86.

But experts say the total economic impact of technology transfer is hard to measure.

“The [innovation] ecosystem is dynamic and ‘chaotic,'” according to a report by the Association of University Technology Managers (AUTM). “Outputs from research can go into the system and ‘bounce around’ for decades through formal and informal transfer mechanisms. This is a key reason why direct monitoring of impact resulting from research is so difficult.”

“There is a wide range of channels through which university knowledge flows to end users and it is dangerous to focus too narrowly on formal licensing,” the report said. “The final economic impacts are created by partners of the university. Direct influence of the university’s final economic impact is limited. The university’s key role is to help the end users to achieve impact.”

Externals factors like early stage venture capital and partnerships with state government, like Ohio’s widely lauded Third Frontier Program and Wisconsin’s angel investment tax credits, also play major roles in technology transfer. And until recently, Minnesota hasn’t had much of either.

Vance Opperman, a prominent local investor and lawyer who sat on a task force that recommended changes to OTC, gives the university mixed reviews.

“Yeah, there has been some progress,” said Opperman, founder of Key Investments in Minneapolis. “The real question is have they made enough. I think expectations have been too high and OTC has not met those expectations. It depends on the culture [ informing the observer]. The university says it has been a success. But the corporate world probably doesn’t think so.”

Mulcahy said politicians tend to directly connect university research with new companies and jobs, a misguided perception he partially blames on the university. The school should do a better job at managing expectations, he said.

For instance, legislators often express impatience with the Minnesota Partnership for Biotechnology and Medical Genomics, a venture between the university and Mayo Clinic. But the partnership focuses on long-term, cutting-edge research unlikely to produce startups and jobs any time soon.

“If you say that the only value add is the number of companies that you started, I will tell you that you’re missing the boat,” Mulcahy said. “It’s a reasonable metric but it is not the sole metric.”

“Take at look at the Biomedical Discovery District,” he said. “What that’s actually doing is recruiting outside interests in plopping down new buildings, new companies, new accelerators, new investors. They are being attracted here. That should go into the equation of how the university is helping us with economic development.”

“When [Schrankler] and others go outside and talk to investors who typically fly from Boston to San Francisco, if we can get them to slow down a minute and take a coffee break at [Minneapolis-St. Paul International Airport], that’s a value add to Minnesota.”

But legislators must be willing to hear that message, Mulcahy said.

“We as an institution need to inform people, and people have to be open minded to recognize that perhaps the metric that they have glommed onto is not the whole story,” he said.

Given the recent passage of angel credits and the creation of the Minnesota Science and Technology Authority, “I would like the legislature to recognize the urgency [of action] and the possibility that something is within their grasp, and that we should seize upon it.”