The Invention Machine

The University of Hawaii is a massive repository of cutting-edge research and technology. So why isn’t it churning out Hawaii startups?

April, 2007

Kevin Kelly remembers acting as a liaison between a University of Hawaii professor and a company that was sponsoring the professor’s research. To keep up the funding arrangement, Kelly dropped by the professor’s office to ask if he could share some of his results with the industry sponsor.

“I asked the faculty member if he could have a report out by the end of the quarter,” says Kelly. The professor was flustered; he snickered, “Don’t they know we are on the semester system here?” So Kelly asked if he could submit it by the end of March.

“He could do that,” Kelly says, laughing.

That’s a little anecdote Kelly uses to illustrate the at times sizable divide that exists between researchers in the academic arena and companies that turn those kinds of ideas into successful commercial products. Even the little stuff can cause problems. And it’s a two-way street. There are as many stories about businesspeople getting their feathers ruffled by the culture of academia.

“They speak different languages,” Kelly says, now the UH managing director for the Experimental Program to Stimulate Competitive Research.

But even though it might not be easy, there is good reason for a university and the private sector to bridge that gap and start talking. For companies trying to find a competitive edge, there is perhaps no greater hotbed for ideas than a university. For universities, there is an obligation, some academics say, to get their life-improving research out to the public, not to mention the royalties can be very beneficial for the university’s coffers.

For policymakers, that’s a double bonus: living-wage jobs and new revenue streams for higher education.

Proponents point to the cancer drug, Taxol, as the poster child of how successful the relationship can be. According to the Association of University Technology Managers, in the early ’90s, Florida State University professor Robert Holton developed an economical process to make large quantities of Taxol, which was previously produced with a substance taken from rare and costly Yew trees.

The royalties to FSU for licensing Holton’s process to Bristol-Myers Squibb through 2005 were $350 million, which the university used to bolster its academic programs. Holton, who shared in the royalties, became a multimillionaire and also founded a spin-off company that provided high-paying jobs to the local community.

The tech managers association also reports that, from 1998 to 2005 in the United States, 3,641 new products were introduced based on academic inventions. That’s 1.25 per day. The annual revenue to U.S. universities today is estimated to be more than $1.5 billion.

Gary Ostrander, UH Manoa vice chancellor of research and interim dean of the medical school, says while the general public might not be aware of it, “For almost all of modern technology, the significant advances, if not the original discoveries, came out of universities.”

Ostrander adds that UH, in part because of its growth in research dollars in recent years, is more than ever perched to be one of those kinds of universities. So perhaps the biggest question is how much is being done in Hawaii to get the private sector and the university talking in the same language? In other words, is Hawaii sitting on its Taxol?

In 1980, the federal government passed a measure, known as the Bayh-Doyle Act, which allowed universities to patent their research discoveries. The act was intended to precipitate the movement of university discoveries into the marketplace by giving them legal standing to do so.

More than 25 years later, the total amount of royalty revenues from universities is dominated by a handful of colleges. According to a recent Milken Institute study, 10 percent of the universities accounted for 42 percent of the total university licensing revenue generated in 2003. The average incomes for the top three, from 1997 to 2003, are the University of California, $100 million; Stanford University, $50 million; and Massachusetts Institute of Technology, $33 million.

Many universities are still struggling with the issue, which is at times controversial. Some academics believe tying profits too closely to research could hamper the intellectual freedom that results in many of the discoveries made at universities, some of which might not have commercial applications, but are still worthy endeavors. There are conflicts, too, when researchers are eager to publish results that the private sector would rather keep quiet for competitive reasons.

The term for licensing university technology to the private sector is technology transfer and where the rubber meets the road at UH is the Office of Technology Transfer and Economic Development. Dick Cox, who heads the tech transfer office, reports that UH’s royalty income for the past several years has averaged under $1 million, an amount that does not yet pay for the tech office expenditures. During that period, the office has helped spawn 15 jobs locally through new companies based on UH tech.

But Cox quickly adds the ultimate goal of tech transfer is to bring discoveries that can improve people’s lives to the public, not money. The foremost goal for universities, he says, is to ensure that the public receives the benefits from the discoveries, which taxpayers often have funded.

“It is incumbent upon us to share our discoveries with society, to get the solutions to some of society’s most vexing problems, like pollution and health and environmental problems, to get those solutions out here so they can do some good,” Cox says. “And if, in the course of doing that we make some money for ourselves, well then that’s a good thing.”

That said, Cox agrees that UH could do more to get its discoveries out to the public. Cox says five years ago, the tech transfer office was reorganized to put a heavier emphasis on getting licenses out to the private sector. Compared to universities of similar academic ranking and considering its level of grant funding, UH falls short in tech-transfer performance. In the Milken Institute study, researchers ranked Hawaii 128 out of 135 universities in its tech-transfer/commercialization index, sandwiched between University of Montana and University of Maryland at Baltimore.

Cox says in the past several years the number of licenses filed has increased from two to three a year to upwards of 20 a year, and the tech office portfolio has expanded considerably. He explains that the technologies coming out of a university are unproven and far from commercialization, so it is hard to tell which will receive funding and eventually take off. It could take anywhere from a few years to more than 10 years to develop a new finding into a commercial product, he says.

So volume is key. “It’s a numbers game. You don’t know which ones are going to pan out. So you have to treat every one of them as something that has potential to turn into a good license for you,” he says.

MIT is often held up as the sparkling example of how well university tech transfer can work, says Peter Crouch, dean of UH’s school of engineering. But, he adds, people often fail to mention that tech-transfer development for MIT started decades ago. “The current focus on tech transfer for most universities is relatively new,” says Crouch, who made notable strides in developing tech transfer at Arizona State University before joining UH last year.

Crouch says tech transfer is part of a larger shift in perspective, one that will also involve teaching entrepreneurial concepts outside of the business school, in places like the engineering school. He says a university also has to be careful that its professors don’t become too involved with the private sector, at the expense of their teaching and research duties. “So there is a ramp-up operation to do,” Crouch says. “You need to develop a culture.”

Crouch adds that he believes it is vital for a university to get involved in economic development. Tech transfer and economic development are part of the symbiotic relationship between the community and the university. “Almost all universities that are successful are successful because they have a community that supports them,” Crouch says.

Ostrander says building effective tech transfer boils down to the faculty, he says. If you have all-stars, they will crank out ideas. Ostrander says tech centers in places such as Boston and San Diego were built around the intellectual girth of the universities. Ostrander adds that unlike universities of similar academic ranking, UH has pockets of excellence, such as its astronomy program and its oceanography program, that are world leaders. Those pockets, along with Hawaii’s proximity to Asia and its natural attractiveness as a place to live, continue to attract better and better faculty.

“We are hiring a different type of faculty than we did in the past,” he says.

He adds that in the past five years grant funding at UH has doubled to more than $4 million a year. Then the planned growth in UH medical research could have immense impacts on tech transfer.

“The potential is there. That is why I came here,” Ostrander says, who left Johns Hopkins, the leading U.S. research university, in volume of grants, for his current post.

None of this is to say everyone agrees on how tech transfer should work for UH and Hawaii.

Yuka Nagashima, executive director of Hawaii High Tech Development Corp., believes tech-transfer goals should be measured by the overall impact it has on the community, not just by royalties and startups. Tech transfer is also about graduating entrepreneurs who can excel in an innovation economy, she says. “I think we should avoid being shortsighted and look at other measures of innovation,” she says.

Others though, like Edward Young, project manager of Hawaii Technology Development Venture, says economic development through new companies has to be the central focus and the tech-transfer office, like any business, has to get out there and market itself aggressively. Otherwise, those entrepreneurial graduates will have to leave Hawaii for work. “Economic development has to be the end game,” Young says.

Magdy Iskander, director of the Center for Advanced Communications at UH, offers caution in the rush to partner with the private sector. Iskander says there are risks to both the university and the professor in getting involved with private sector companies that have short-term horizons. Iskander says it is important to protect researchers in the process and to ensure the university gets its fair share of the partnership. “Sometimes, the entrepreneurial spirit is alive and well at the university and small firms wants to suck up the ideas and run away with them,” Iskander says.

There are some UH success stories.

In 2004, Monte Littlefield was in Japan consulting for Booz Allen Hamilton, but he badly wanted to return to Hawaii. Then Littlefield, who received his MBA from UH, saw that his alma mater was having another business-plan competition, but this year, the university was offering another $20,000 in prize money if the winner used a tech-transfer patent in his plan.

So Littlefield visited the tech office Web site and found a wireless technology that could prevent anyone from snooping on a transmission. A former Army signal intelligence expert, Littlefield saw both civilian and military applications. He called one of the professors who had developed the technology and he agreed to help him pitch it for the competition.

Littlefield and his company, Pipeline Communications and Technology Inc, won the competition. Littlefield has gone on to build a nine-person company around what he now calls Wave Cloak, and has hired UH interns and graduates and brought back kamaaina from the Mainland. Littlefield has also contracted about $200,000 worth of research back to UH to further develop his products.

Cox says, in recent years, more emphasis has been put on transferring technology to Hawaii companies. The business plan prize is part of that initiative. “And Pipeline is the gold standard of tech transfer,” adds Cox. “They started on UH technology. We actually own a small piece of equity in the company. They have in turn sponsored research at UH. They are hiring graduates. They are here in Hawaii. What more could you ask for?”

Littlefield says Pipeline is now in the process of securing a new round of funding to bring a couple products to market. (The company has also licensed a cooling system for electronics from UH that could have huge applications.)

When asked about the potential profits, Littlefield was reluctant to share figures. He believes the windfalls from both products could be great, for the company and UH. He does add that the company has provided living wages for its employees, which some lead sectors cannot in Hawaii.

“Four of our employees bought homes in the last year,” Littlefield says. And does he plan to keep the company in Hawaii? “I am one of the four who bought a house,” Littlefield says.

Now, we’re talking.

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