Wednesday, June 25, 2008

Diagnosing What Ails the 800 Pound Gorilla

Graham is always yammering on about how Penn State has such a big economic impact on the Commonwealth and all of the high tech jobs Penn State creates. But in a couple of post earlier this year (here and here), I showed that Penn State hasn't had much success over the past twenty years or so in creating major employers in the Centre region. Why is that?

Today Science Progress has a piece on what it takes for universities to create life science companies. It deals with all aspects of the process. Here is what it has to say about how the climate of universities effect commercialization of their research.
There is a great deal of variability among academic institutions about technology transfer. Some universities have people that are full of ideas and are eager to commercialize them. Others have people that have some ideas but no interest in commercialization. This strongly influences the overall technology climate at that university.

Next, one must consider the university’s technology management office. Sometimes the influence of a technology management program will encourage innovation, and sometimes it will hinder it. Sometimes, even, there’s no technology management program at all. Finally, we must consider the endowment status from the university’s standpoint. If a university is working on building an endowment and they’re doing well, why put it at risk by seeking to commercialize novel bioscience?

All of this contributes to the fact that, from the standpoint of many academic institutions, technology licensing arrangements are often preferable to company formation in a bid to commercialize directly any intellectual property. If someone has an idea, then they can license it, and there’s no risk. The worst risk is that they will not get the money. But if that person forms a life sciences company, then that’s very risky financially. With a license arrangement, somebody gives them the money, and that’s that. It does not matter to whom they license to the IP.

The person or company seeking the license probably will not be someone in the same geographic area, and therefore won’t build any local business at all. The individual or university simply receives money, which does not stimulate the local economy.

Some universities, however, take advantage of the so called “grateful donor syndrome.” These universities understand the long-range return that they can get from a group of grateful inventors who develop a company and then have a success. Often these inventors will give large donations to their alma mater, and the cycle continues as the university attracts more and more brilliant students.

Direct revenue for the university, in the form of fees and royalties, is very positive from straight tech transfer licensing deals. Yet universities would benefit more if their graduates founded a company nearby that goes on to become a major company, or gets sold to a bigger company for a huge sum of money, or goes public on a major stock market through an initial public offering.

I don't have anything to say in particular about this, but I know that a few of my readers are well informed on the topic as it relates to Penn State. So I'm throwing this out there for discussion. What Ails the 800 Pound Gorilla?

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