UW startups for FY2013 four years later, 2

Part 1 of this article is here.

Now let’s look at ID Genomics, the one company that was actually correctly reported by UW as a FY2013 startup. As of June 2017, IDGenomics is still in operation, reporting 10 employees. According to Crunchbase, it has received $50K in equity investment in 2016 (a phase I STTR?) and a $3m STTR Phase II grant from the NIH, also in 2016 (actually, it appears that the funding is spread over 3 years). Here is a link to the grant summary. The technology–a better way to diagnose bacterial infections, starting with E. coli–is important. Their primary product appears to be a database, but they also have patents on diagnostic techniques. STTR awards require a company-university subcontract. Thus, IDGenomics collaborates with UW–under projects headed by the same UW PI. In fact, UW collaborates with itself. Here’s a bit from the summary of the IDGenomics grant:

The proposed studies will be performed as collaboration between ID Genomics, Inc, the University of Washington’s start-up company specializing in sequence-based typing of microbial pathogens, and the University of Washington, Seattle, laboratory of Evgeni Sokurenko (the lead PI).

The company appears to be living on grant income, not sales income, and doesn’t appear to have a product on the market. Here’s a link to their NIH funding history. $214K in 2015; $1.0m in 2016; 988K in 2017. One of the principal investigators on the IDGenomics grant is Evgeni Sokurenko, who is also a professor of microbiology at the University of Washington, where he has been PI on RO1 grants in the same area of work, also with NIAID–$784K in 2014; $770K in 2015; $761K in 2016; $739K in 2017. In 2016, IDGenomics and UW filed a provisional patent application for PCR-based test kit for “predicting antibiotic resistance and susceptibility of bacteria” (15/055376) citing both the UW and IDGenomics NIAID grants. It appears that the PI has extended his research funding by adding STTR funding via his company.

As a strategy, then, UW uses company formation to capture more federal research dollars, but now coming formally to a company rather than through UW directly. The research then is divided between the portion that moves through UW and the portion that moves through a company on the premise of commercial development. But given the situation, one might be just as ready to view the arrangement as one in which the entire effort–UW included–is committed to commercial development, with the company serving as the front-end, as it were, of the operation. That’s a consequence of having the university committed administratively to pro-active “commercialization” of research.

Here’s the top-level description of the STTR program:

STTR Mission and Program Goals

The mission of the STTR program is to support scientific excellence and technological innovation through the investment of Federal research funds in critical American priorities to build a strong national economy.

The programs’ goals are to:

  • Stimulate technological innovation.
  • Foster technology transfer through cooperative R&D between small businesses and research institutions.
  • Increase private sector commercialization of innovations derived from federal R&D.

One might expect the “small businesses” to be existing businesses. That is, the aim (one might think) would be to involve small businesses in development pathways by which they gain opportunities to develop technology developed in federal research at universities. But in the case of IDGenomics, we have a company formed that displaces existing small companies. If there’s an exclusive license between UW and IDGenomics (very likely, though some of the inventions that may be involved are jointly owned by other organizations, including the University of Minnesota), then that exclusive license ensures that other small companies won’t have collaborative development access to the UW technology.

IDGenomics might take a look at UW’s DIDB drug interaction database for a model. What’s missing from the picture is venture backing and development of a product for sales in the near term.

In March 2017, ID Genomics participated in CAP-FeedForward, an NIH “accelerator” program, where NIH funded companies “presented their business strategies.”

According to Kaveri Parker, IDGenomics president and CEO, determining pricing is the company’s next step. For ID Genomics to develop their value proposition, the company needs to better quantify both the hard costs and the impact of surveillance for customers. IDGenomics has done extensive work on building partnerships with various medical institutions, but needs to find a commercialization model that would protect the IP of its database.

It’s a warning sign that the company cannot figure out, four years in, a “commercialization model” that actually works. It’s also a warning sign when a financial advisor starts talking like this:

Stephane Budel, a partner at DeciBio, a Los Angeles market research consultancy commented that you don’t always have to have profitability at the forefront—competitively it is not necessarily a winner take all situation but you should build best-in-breed database and technologies.

Ouch.

ID Genomics appears to be a company that’s doing the work of a university research lab, but outside the university. It might be described as truly “extra-mural” research, outside the walls of the university. Perhaps more research ought to be done this way–entirely outside university controls, overhead, bureaucracy, and policies. Companies can be used in this way, not as profit ventures, but as “companies” of individuals focused on a specific goal.

To be effective, should such companies be stuck with a patent license from the university? If the company product doesn’t have a clear line to profitability, does a patent license from the university (which expects royalties) then become a hindrance, because the company might feel constrained not to allow its database to become “open”?

This sort of “company”–an extra-extramural way of getting research dollars for work that otherwise could have gone to a university-based project–is not the sort of company that is built by investment to create highly profitable products. That is, it is not the kind of company that UW put forward to the public as an emblem of economic development and investment vitality. While it is a worthwhile research technology, and the development of database and other tools to predict whether a bacterial infection might be resistant to antibiotics is a good thing, the oddness lies in how UW uses companies to extend its claims on federal funding while presenting to the public the idea that such companies are rather engines of economic development. That may be, too, but it would appear that UW is cleverly subverting the public claims of the STTR program by starting companies that then run with common control with UW investigators.

What do we learn from this survey of FY2013 startups, four years later? One, it appears that these companies have made their way primarily by extending UW research to obtain funds that otherwise would go to companies. So UW starts companies that exist primarily to extend the range of UW’s funding. This is funding that UW doesn’t report formally, as it is channeled to companies–but we might expect that these companies then turn around and subcontract their grant and investment dollars back to UW. UW in turn reports these subcontracts as “industry sponsored research” and includes that funding in a metric to show how involved it is with local industry and with small companies. These companies also then spice up UW’s licensing metrics–look at the patents and the exclusive licenses. But it’s all pretty much in-house. Many of the primary players are UW faculty, serving as co-founders, scientific directors, in charge of technical development, and the like. Some are PIs both in their companies and at UW for related work.

We might also learn that these UW startups compete with existing businesses and with entrepreneurs for federal funding. Backed with the credentials of UW faculty, these companies likely appear attractive to federal program officers. For the UW, then, putting faculty in a position to compete with small companies for SBIR/STTR funding makes sense–more grant funding, more money to develop technologies, more money to build the value proposition of the company. Even if the company never creates a product based on the licensed inventions and even if it never runs a meaningful profit, it still might get acquired for its IP assets, for its data, and for its personnel. That might be enough to recover UW’s licensing costs and maybe even the state’s investments (made through W Fund and Life Sciences Discovery Fund and Department of Commerce grants).

There’s also a third observation. These companies, despite their promise, appear to languish in a limbo of barely funding. While Nolha Therapeutics raises over $60M in venture investing, none of these companies have anywhere close to that. AnswerDash has raised significant amounts, but much of that has been within the closed loop of the WRF and W Fund–the state and semi-state funding itself, as it were. And AnswerDash appears to be a neat technology without a business model to fuel its growth and development. That’s difficult.

A fourth lesson is that for every exclusively licensed patent to these startups, the underlying inventions are not available to anyone else. Given that patents routinely tie up whole classes of technology, not just some single thing, these exclusive licenses ensure that the interesting UW-based discoveries, inventions, and ideas will be tied up in these business deals. That means no research with other companies, no other pathways for development. A UW faculty member stuck with an exclusive license for his patented technology with a startup company (MicroGREEN Polymers–now failed, at some major loss, optimistic story here; denouement here) had to refuse multiple requests from companies to collaborate on research because he could not get access to the patent rights UW had licensed exclusively to the company, even though the patent rights he wanted (and lacked, even though he was the inventor) had nothing to do with making plastic hot cups for airlines. This sort of story is not going to be reported by UW. We get the positive claims, but no accounting of the costs, the actual outcomes, the lost opportunities.

Finally, that raises the problem of starting companies for all the reasons but for the one that has to do with profit from sales. Yes, look at the number of companies started–that was UW’s repeated claim, counting most anything that could be called a company. Somehow the sheer number of companies was supposed to mean that UW was a powerhouse of research innovation (so fund more research there) and that the C4C (once OTT, then OTL, then TechTrans, now CoMotion, sometime later will be something else) was licensing patents in the public interest. Sure, UW administrators no doubt want to make a profit from their licensing, and certainly the entrepreneurs involved in these startups think about exits that involve making substantial sums. But the UW involvement creates three classes of companies:

1) Companies that are started by their inventors, with UW fronting the patenting costs and then licensing the patents exclusively to the inventors’ company. UW could front the patenting costs and skip the assignment to UW and license from UW to company steps. UW could take a financial interest in the inventors’ share of proceeds from the companies to recover patenting costs and skip the need for the rest of the apparatus with its complexity and liability. Let inventors assign their inventions directly to their own startups and offer to help with the patenting if that is an issue.

2) Companies that are started by UW’s entrepreneurs to exploit UW inventions. The inventors might be involved to help with the technical details, but the company is run by folks with experience in the industry. These sorts of companies look toward venture funding. That’s the sort of thing that AnswerDash represents. It’s just that the UW license may be a net drain on the company–even getting the license can take months, can end up with company obligations that are a bother or liability, although the company and its license count in UW metrics, the UW isn’t much of a value-add.

3) Companies that are started as extensions of UW’s research enterprise. The CEO of the company is the PI at both the company and at the UW. This sort of company exists to extend research funding. That’s okay, as far as it goes. If one views these companies as the state of Washington working to capture funding that otherwise would go to private enterprises, then these companies appear to be predatory. They have better credentials, and perhaps even better technology, but they lack the focus and drive to do deals. They win the competitive grants game, but they don’t show much sign of producing. These companies are technologically rich but lack the freedom to get past the research interests. Like an airliner on an infinite runway, they are always taking off–until they put the nose wheel down again and taxi back to the hanger, where another aircraft is waiting its turn.

Despite the interesting technology, even deeply important technology, represented by these FY2013 cohort companies, one might wonder whether company life in the form UW has created is really all that effective. For some, like Marqmetrix, UW might just get out of the way altogether. For others, it would appear that the company repackages and ties up something that might have circulated in other forms much more readily–Polydrop, say.

It might be easy to second guess the licensing–that UW could have waited for better entrepreneurs to show up or something. But that’s not really the point. The point is that UW made startups like this its signature activity, endorsed repeatedly by its president, committing $15m or more a year to the effort. UW stuffed anything it could into a startup package, attached an exclusive license, and then pumped the startup full of grant and seed funding from sources it could control or influence. We get companies, but not necessarily the ones we are looking for. Few employees, little in the way of development–really neat possibilities, no question–but rapidly by-passed by competing technology and competing investment opportunities. Silicon Valley creates unicorns (startups with valuations over $1B), most other places want to create gazelles (rapid growth, high value companies that create jobs). The UW startup program produces high tech turtles. That’s not to say that startups based on university work must be turtles–but rather UW created an administrative system that valued creating companies over creating an environment in which companies find value. That’s a tougher thing than trying to create companies to flip for equity profits (which was C4C’s stated, official five-year operating plan), but that’s perhaps the thing that UW ought to be working on. Perhaps that’s what CoMotion is trying to do. But then–what is CoMotion, as a licensor, doing now to help the FY2013 cohort of companies?

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