University of Michigan Tech Transfer Makes Great Progress in Ten Years. But Is It Enough?

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Harvard University, California Institute of Technology, and Stanford University, according to report by the Association of University Technology Managers (AUTM). Out of the 150 schools or so surveyed, only MIT ($1.4 billion) and John Hopkins University ($1.24 billion) spent more on research.

Not all research has commercial value but it’s reasonable to expect a university to generate a healthy return on billions of dollars worth of investments.

Here’s where the U-M has some work to do.

From 2007 to 2009, the university spent $2.7 billion on research, according to the AUTM report. It generated an adjusted cumulative gross income of $52.3 million, a number that pales in comparison to schools like New York University ($1 billion), Wake Forest University ($256 million), and University of Florida ($154 million) that spend far less on research.

To be fair, some of these numbers from competing schools reflect revenue from a few blockbuster products or exits. But that also implies U-M is not yet producing deals of that magnitude.

Here’s another way to look at it. The University Research Corridor (URC), an alliance of U-M, Michigan State University, and Wayne State University, commissioned a report that compared the economic impact of these schools to other research university clusters, including Northern and Southern California, Illinois, Massachusetts, North Carolina, and Pennslyvania.

The report, written by Anderson Economic Group, attempted to evaluate how well each cluster converts its research expenditures into licensing income. From 2005 to 2009, the URC generated $31.8 million in licensing revenue, or just 2.1 percent of total R&D spending in 2008. By comparison, Illinois boasted a 16.9 percent conversion rate, followed by Northern California (8.7 percent), Massachusetts (6.4 percent) and Southern California (2.4 percent).

The U-M is certainly aware of this. For example, the medical school, which is responsible for the vast majority of the university’s research spending, recently created its own business development office to better connect companies with its doctors and researchers, though OTT would still be responsible for licensing and developing startups.

Investors have said the U-M has made remarkable progress in a relatively short period of time. The question is whether the school can take tech transfer to the next level.

The U-M has enjoyed some nice exits in recent years, Weiser of RPM Ventures says, which includes the $300 million sale of HandyLabs to Benton, Dickinson & Co. (BD) in 2009, HealthMedia to Johnson & Johnson in 2008, and Arbor Networks to Textranoix Communications last year. (Terms of the last two deals were not disclosed.)

“But as a venture capitalist, you would like to see more,” Weiser says.

Accuri Cytometers, another U-M spinoff, recently agreed to be sold to BD but the school does not own equity in the startup.

The school, after all, has spun off a remarkable 93 companies over a ten year span, or about nine a year. About three quarters of those companies are still alive and three quarters of them still reside in Michigan, mostly in Ann Arbor, Nesbit says.

However, startups are only one piece of a puzzle that includes talent and capital, says Jeff Bocan, managing director of Beringea, the Detroit-based venture capital/private equity firm.

Are these university-bred companies a “major economic driver?” Bocan says. “No. They do not make a short term impact. But over the long term, they could help diversify our economy. But you can’t flip a switch and diversify overnight.”

Weiser acknowledges the university faces “impossible expectations.” That’s what happens you’re Michigan’s top university spending over $1 billion a year on research at a time when the state continues to struggle with a depressed economy and 11 percent unemployment rate.

Can the U-M meet those expectations? Does it even want to? That’s the $1.2 billion question.

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