The University of Arizona has the brains to change Tucson’s future. But it needs help. State sales taxes earmarked for university research

Toiling in cramped labs across the University of Arizona, researchers are inventing the next generation of DVDs, super grains and cancer drugs.

By Inger Sandal and David Wichner

While the computers hum and the beakers boil, researchers also are mixing up what many hope will be a new economic future for Tucson.

Getting their innovations to market might cure asthma and detect anthrax for the benefit of all humankind. Closer to home, their work holds the promise of creating jobs and companies that could help Tucson transform its low-wage, service-dependent economy.

"There’s a growing awareness that university research is good business," UA President Peter Likins said. "Entire industries have been created through research that was initially federally funded university research."

The UA is a world leader in optics and cancer research, but it has done a poor job overall bringing its ideas to market. It ranks 22nd in total research spending among U.S. universities – with $370 million in 2001 – but 78th in the amount it brings in from technologies licensed to startups or existing companies, according to an Arizona Daily Star analysis of data from the Association of University Technology Managers.

After years of missteps, and then inaction, the UA is jumping onto a bandwagon that, in Likins’ view, started rolling 25 years ago. From the lessons other campuses have learned, plus interviews with people who turn ideas into companies, some key advice emerges for using technology to transform Tucson’s economy:

* State and local governments must spend more on university research, clear a path for fledgling companies to grow and for established companies to thrive, and help schools graduate students -with the skills that high-tech employers demand.

* Local businesses and investors must open their checkbooks to help launch promising firms, build the specialized office and lab space high-tech companies need, and invest in their employees’ continued education.

* The UA must attract and retain outstanding faculty able to draw top students and snare lucrative research grants, then team them with others who can develop marketable ideas.

Taking such steps could help create enough good jobs – $33,280-a-year medical manufacturers, $90,000-a-year optical scientists, and everything in between – to lift Tucson’s $30,700-a-year average salary. The area’s wages are lower than the state average of $33,400 and the national average of $36,200.

If it’s ever going to happen, it’s hard to imagine a better time than now.

The state soon will start construction on three research buildings where scientists can expand their discoveries. The UA is courting private support through endowments and commercial partners. And the university has committed more money and manpower to its technology transfer office, which scours the campus for ground-breaking ideas and helps spin them into companies through patents and licensing.

"I’m a firm believer that the universities are a huge economic driver," said J.P. Benedict, a senior in the Karl Eller Center’s McGuire Entrepreneurship Program who is also the university’s student body president.

The 21-year-old business student spent his summer studying potential tech transfer projects. He and his classmates will write a business plan for the most promising ideas, hoping to attract investors next spring.

"You see people coming out of the engineering programs and medical technology programs and they have these ideas," Benedict said, "but they don’t know how to turn it into a profitable business."

Why do it?

The UA already is a powerful generator of jobs.

It is Tucson’s largest employer with more than 11,000 full-time jobs. Research supported an additional 8,915 jobs and had a $387 million impact on the local and state economies last fiscal year, a UA study showed.

Spinning university technology into new companies could spread that wealth to every corner of the community.

One company could attract another, eventually building a community of similar firms – and their suppliers – that feed off each other’s success. Some of those companies would stem from UA research; others would move here, eager to be part of the area’s vibrant tech base.

An infusion of new tech companies could open a realm of opportunities to Tucsonans, nearly a quarter of whom work in retail and hospitality. The state’s retail workers earn an average of $362 a week – less than $19,000 a year. The state doesn’t track hospitality pay.

"The taxpayers put money in and I think we have a responsibility to try to put these technologies into the marketplace and create jobs," said David L. Day, who directs the University of Florida’s Office of Technology Licensing. Florida is one of the nation’s most successful tech transfer universities, thanks to home runs such as the sports drink Gatorade and a glaucoma drug sold by Merck, each of which generates millions for the school each year.

In the early stages, the benefits of tech transfer start with the university and flow outward. Eventually they flow both ways, said Steve Weathers, president and CEO of the Greater Tucson Economic Council. New jobs created from university research in optics, astronomy, biology and life sciences will attract top students to the UA, he said: "They are going to grow their own demand for students."

Those scholars could land lucrative jobs here after graduation, building a top-flight workforce that would attract even more companies to Tucson.

Student Ben Shepherd, for example, came to the UA to pursue his doctorate in physiology, drawn by the innovations and entrepreneurial spirit of Stuart Williams, the UA’s director of biomedical engineering.

Shepherd, 26, leaves the UA this fall for a fellowship at Yale. He has a pending patent – jointly filed with Williams and associate professor Jay Hoying – on a technique for attaching new blood vessels to the heart.

Tucson, tech mecca

Ultimately, the UA’s sharper focus on research and economic development will benefit students in the classroom as well as the laboratory, said professor Lay Gibson, director of the university’s Economic Development Research Program.

"The people I know who are really good make an effort to be really good in everything they do – including their teaching," he said. "If you can take a course from someone who is internationally known and a real player, and the guy is also a terrific teacher, what could be better than that?"

Still, a fine balance must be struck, said Jory Hancock, UA’s faculty chair and head of the dance division.

"In a large university like the UA, there are things that are important for their own sake, whether they generate money and boost the economy or not," Hancock said. "I hope that not every measure of success in education will be based on how it affects the economy."

The money can benefit the entire community, said Ross C. DeVol, director of regional economics for the Milken Institute, an economic think tank in Santa Monica, Calif.

"All of the nation’s leading technology centers have universities that – to one extreme or another – heavily focused on commercializing their research," DeVol said.

GTEC’s Weathers, who spent 11 years with San Diego’s regional development group, said he sees Tucson where San Diego was about a decade ago.

San Diego is home to 500 biotech companies with $1.75 billion in revenues in 2000. Biotech employment there has more than doubled since 1991 to 32,350, according to San Diego’s Chamber of Commerce.

Reformation of tech-transfer laws governing the University of California system, including UC-San Diego, was a key to the area’s biotech success, Weathers said. Schools now can take ownership stakes in companies spun out of university research – letting them profit if the company takes off without sapping fledgling firms of much-needed startup cash.

"It was like a dam, and once it broke, the technology flowed," he said.

Arizona has the chance to do something similar next year, when voters decide on a constitutional amendment to let state universities own stock in startup companies.

Transferring technology

Improving tech transfer at the UA means turning around a long history of neglect.

Tech transfer took off after 1980, when Congress passed the Bayh-Dole Act, letting universities claim rights to inventions developed with federal money.

In 1981, the UA was issued its first patent – a system for removing solids from lime slurry used to scrub smokestack emissions. It opened its first tech-transfer office in 1988, to help researchers patent their ideas.

But it lacked money to help faculty members take their ideas to market. Patenting an invention can cost a few thousand dollars for a provisional application, or $20,000 or more for a full, 20-year patent.

"We had to find someone to license those technologies to or simply shelve it," said Mike Cusanovich, director of UA’s Arizona Research Labs, who managed tech-transfer efforts from 1988 to 1990. "Tech transfer was at the very bottom of the food chain."

A costly lawsuit chilled early efforts to help faculty members start new companies. In 1994, the state and the UA paid $4.4 million to Gibson-Stephens Neuropharmaceuticals Inc. to settle charges the UA licensed the same drug technology twice.

The tide started to turn in 2000, when the UA got $300,000 from the state, county and city to expand tech transfer. The following year, the office secured annual sales tax money – $340,000 last fiscal year – from the voter-approved education initiative Proposition 301.

The UA also hired Patrick Jones, a former chemistry professor and licensing official at the University of Washington, to direct its tech-transfer office, and added marketing and licensing specialists.

Once a researcher discloses a potentially money-making idea, the tech transfer office helps apply for patents, and eventually negotiate licensing fees in the form of up-front payments or royalties on each sale. If the idea makes money, the UA shares in the profits.

The office’s total annual budget, which also includes money from sponsored research, is now nearly $1.5 million, still just half that of Arizona State University. About $300,000 is for patent applications, compared with $1.5 million at ASU.

Even with more money, the UA still has a tall hill to climb: In 2001, it ranked 86th of 142 universities for U.S. patents issued – just eight, according to the Star analysis of the technology managers data. Five U.S. universities were issued more than 100 patents each that year, and the median for universities in the survey was 11.5 patents. The UA owns 99 patents.

The UA’s push to boost tech transfer has won some allies among former critics. The university is not nearly as proprietary about technology developed on campus, local venture capitalist Larry Aldrich said. But Aldrich, a member of the UA’s tech-transfer advisory board, remains concerned the school lacks the legal expertise to efficiently capitalize on the fruits of its research.

"There’s still an overhang of that experience from years ago that says, ‘Protect the university at all costs, don’t let anyone get sued here,’ " Aldrich said.

Historic groundbreaking

The completion of one of the nation’s largest student unions this spring capped an era of student-focused investment at the UA. Now, with a groundbreaking on campus next month, the investment focus is shifting to research.

The Institute for Biomedical Science and Biotechnology, or IBSB, is about to begin its $65.7 million first phase. With 170,000 square feet, including 105,000 square feet of research space, it will house about 30 faculty scientists and another 300 researchers and support people.

The institute will be part of a biomedical corridor along Warren Avenue north of Speedway linking the main campus to the Arizona Health Sciences Center. Two other research centers, a $54.4 million Medical Research Building and the $30 million Roy P. Drachman Hall, will go up there in the next few years.

"If we’re going to be players in the biotech industry, then we have to have those buildings," UA President Likins said.

The UA has at least one advantage over similar efforts: Its biotech institute will let researchers in various fields work side by side, allowing for unique collaborations. For example, a medical researcher and an optical scientist might team up on new ways to use light to detect cancer.

"That’s unique in the country – I know no place where a plant genomicist is working in the same building, on the same floor, as the person dedicated to mammal immunology," said Dr. Fernando Martinez, director of the Arizona Respiratory Center and IBSB co-director.

Cramped quarters

An Arizona Board of Regents analysis five years ago showed research space was the UA’s biggest need: Some faculty in the College of Medicine have worked out of temporary quarters for two decades, said Richard Powell, UA’s vice president for research.

One of the biggest space crunches is in the UA’s internationally known optics center. Today some of its researchers toil in unlikely places: optical detection workers in McKale Center, a laser expert in the economics building, and an off-campus remote sensing research group that has to drive to campus to teach.

Imagine Lute Olson trying to recruit a high school basketball star by promising terrific coaching, top-notch teammates – and a locker room in the economics building.

That’s the challenge optics center director James Wyant faces when he recruits professors. One new researcher starts in December, making Wyant a bit nervous: "I promised her space and now I’m kind of worried about where I’m going to get the space."

There won’t be room for everyone even after a $17 million expansion of the Meinel Optical Sciences Building is finished in December 2004. The building, along the UA Mall, will have 160,000 square feet – nearly 50,000 more than it has now – and ultimately could reach 250,000 square feet by adding two floors and expanding to the southwest.

The UA has allocated more money to biomedical expansion, but it actually has invested "fairly evenly" in optics, biotechnology, information technology and water and environmental research, Powell said: "We aren’t trying to look dollars for dollars to make sure everything is exactly even," he said. "We’re trying to meet the needs for those areas as they come up."

Meanwhile, other universities are making significant investments in optics, a field so integral to Tucson that Business Week magazine declared the area "Optics Valley" in 1992. The local industry boasts about 150 companies that employ 5,000 people and together bring in $650 million a year.

The University of Rochester, the only school other than UA with an optics doctoral program, plans a 100,000-square-foot building for optics and biomedical engineering. Georgia Tech, which is to start a $50 million research center next year, lured away a UA scientific team considered pioneers in an emerging area of optics and chemistry. One attraction was research space.

Future focus

Arizona State University President Michael Crow sees the state’s universities as a vast, untapped economic resource.

"We are a state with great potential that has not yet exercised that potential," Crow said in an e-mail. "The university has a responsibility to position the state to be a part of the still-emerging, rapidly evolving, perpetually innovative, technology-driven economic change."

That’s a new direction, but one Tucsonans should embrace, UA’s Likins said. When he was a young engineering professor at UCLA, the public accepted the importance of universities without question. "That was a different America," he said. "We’re in an America that demands accountability."

Technology transfer helps universities prove their worth, said Thomas Baldwin, the UA’s head of biochemistry and molecular biophysics and founding director of the soon-to-be-built biotech institute.

The UA has long done well publishing its discoveries in scientific journals, Baldwin said. Now the tech-transfer office adds a new dimension, he said, teaming researchers with people who can get ideas to market.

"If we don’t see a major change within the next decade, we’re doing something really wrong," he said. "Now is the time."

* Contact reporter Inger Sandal at 573-4115 or [email protected] and reporter David Wichner at 573-4181 or [email protected].


Your taxes finance tech growth, but the state expects to reap job dividends

By David Wichner

Do you think that transforming Arizona’s economy into a high-tech powerhouse is someone else’s challenge?

Think again. You’re paying for it now, and you’ll be asked to pay even more.

Every time you buy a taxable item, you’re chipping in on the state’s efforts to boost high-tech growth by raising spending on university research.

State sales taxes earmarked for university research as part of the Proposition 301 education sales tax add up to about six-hundredths of 1 percent – or 6 cents on every $100 worth of
taxable purchases, a Star analysis of state revenue figures shows. For a $20,000 car, that’s $12.

And in June, the Legislature voted to spend about $831 million over 24 years, starting in 2008, to finance $440 million worth of new research buildings at the University of Arizona, Arizona State University and Northern Arizona University. That equals about $18.20 per Arizona household each year, once the money starts flowing.

The community commitment doesn’t end there:

* Next year, Arizona voters will be asked to approve a constitutional amendment allowing the state’s universities to take ownership stakes in private companies. The move would let universities take stock in startup companies in exchange for the rights to use university-patented inventions, as an alternative to taking upfront license fees or royalties on future sales.

* The UA campus is making room for the new research buildings, where marketable discoveries may launch private spinoff and support companies that want to move into adjacent neighborhoods.

* State and local governments are
being asked for more money to help launch companies based on UA research at a new high-tech business "incubator" at the UA Science and Technology Park.

Arizona leaders say the costs of the high-tech initiatives are an investment in the state’s economic future, with the prospect of new research money and high-paying jobs in companies spun off from university research.

"It doesn’t do the university or society any good for cutting-edge technologies to remain in the laboratories," said Nasser Peyghambarian, CEO of a UA spinoff company called NP Photonics and chair of photonics and lasers at the UA Optical Sciences Center.

Throwing out figures

Both Arizona State University and the UA estimate they return about $6 to $7 to the economy for every dollar the state invests. The figures are based on state spending on universities, research money the schools attract, and the sales and jobs they generates.

ASU President Michael Crow told lawmakers last spring that returns from university research could reach $11 on every dollar spent, based on federal data.

Not everyone shares the universities’ economic optimism.

Rep. Russell Pearce, R-Mesa, chairman of the House Appropriations Committee, opposed the Legislature’s decision in June to spend $34.6 million annually from 2007 through 2030 on new university research space, including $182 million for UA buildings. The universities must repay the state 20 percent to 30 percent of proceeds from license revenue.

It’s a foolish gamble to commit state money far into the future with the state facing a budget crisis, Pearce said.

"This is a direct assault on the general fund," he said. "We’re going to place commitments out the next 25 to 30 years and not know what it’s going to look like."

Also skeptical is the conservative Goldwater Institute in Phoenix, which released a study in May challenging the connection between increased funding of higher education and economic growth. The reasoning: Arizona has grown rapidly without extra money devoted to its universities.

But supporters of high-tech investment say that approach is simplistic and ignores the economic benefits the state reaps from the universities, especially in Tucson. UA officials estimate that in fiscal year 2002, the $373 million the school attracted for research created 9,539 statewide jobs and contributed $20.1 million in state and local taxes on $384 million in sales.

At least one study suggests Tucson is ahead of other communities in the high-tech race. Although average annual pay hovers at about $30,000, Tucson ranks 22nd among the leading cities for high-tech economic output as measured by job and sales growth, according to a 1999 Milken Institute study.

In 2000, local economic development officials estimated that Southern Arizona’s six high-tech clusters accounted for more than 50,000 jobs in more than 1,200 companies with annual revenues approaching $4 billion.

"Game you have to play"

University research can attract high-paying, high-tech jobs to the state, economic development leaders say.

And competition is fierce.

"Those high-tech jobs are the jobs every city in the country is trying to recruit," said Marshall Vest, director of the University of Arizona’s Economic and Business Research Program.

Such jobs may attract and keep workers with advanced degrees, but they also translate into lower-level skilled manufacturing positions.

Chris Limberg, 27, owes his job at Ventana Medical Systems Inc. to UA research.

Ventana was founded in 1985 by UA pathologist Dr. Tom Grogan, based on his idea for a device to automatically process microscope slides of human tissue for cancer detection. The company now employs about 380 at its sprawling Oro Valley plant and had revenues last year of $105 million.

When Limberg moved to Tucson five years ago from Oakland, Calif., job pickings were slim.

"The only jobs I could find were in customer service and call centers," said Limberg, who made about $9 an hour at call-center jobs.

Since starting at Ventana as a test technician in 1998 and working his way up to assembly line leader, Limberg has earned an associate’s degree in electronics from ITT Technical Institute. He lives with his wife and 3-year-old son in a house the couple bought recently on the Northwest Side.

He makes about $16 an hour, and believes his field offers more opportunities for advancement than does service work.

"In my mind, these are good jobs," he said.

But there aren’t enough of them, said biochemist Brian Noland, 33, who moved from Texas to do his postdoctoral research at the UA a few years ago.

When it came time to launch his career, Noland packed his bags again and moved to San Diego, where a thriving hub of biotech firms has emerged over the past decade.

It’s much cheaper to live in Tucson than in technology hubs such as San Diego or Boston, but the city lacks a critical mass of companies, Noland said.

"If there were more alternatives locally, I think people would be more willing to stay," he said.

The long haul

Business leaders say it will take a sustained effort both by governments and the larger community to make Arizona a major player in biotech and other growing tech industries.

University research is central in "Arizona’s Bioscience Roadmap," a report by the nonprofit technology development giant Battelle Memorial Institute, which found the state needs to invest an annual $140 million in public and private money for the next decade – a total of $1.4 billion – to become a player in bioscience.

The study, commissioned by the Phoenix-based Flinn Foundation, found Arizona well-positioned to lead in three research fields: neurological sciences, cancer therapeutics and bioengineering.

It suggests strategies that could triple funding from the National Institutes of Health, generate 32,000 jobs and create 120 new bioscience firms. A steering committee of more than 40 business and university leaders is studying how to implement that plan.

Arizona has some catch-up work to do.

As of 2001, taxpayers in 41 states, not including Arizona, had agreed to spend money to support major bioscience research projects, according to a study by the Biotechnology Industry Organization in Washington, D.C.

For example, Texas ponied up $800 million for science, engineering and commercialization efforts, including $385 million for research space at the state’s universities.

Fifteen states have used tobacco-settlement funds to help drive biotech development, 35 have set up biotech trade associations, and five have created state-backed seed funds to invest in bioscience companies.

Arizona lawmakers committed state money for new research buildings only three months ago. Southern Arizona companies five years ago formed a biotech cluster to promote the local industry.

While many states are spending millions to attract high-tech industry through new university research initiatives, only those willing to stick with it will see returns, said Gary Munsinger, president of the Tucson-based technology development firm Research Corporation Technologies Inc.

"You have to make that investment now in order to receive that payback in the future," said Munsinger, whose company has managed patents for the UA and other major research schools. "You’ve got to be in the game for the long term."

And winning the game takes cooperation, said Steve Weathers, president and CEO of the Greater Tucson Economic Council.

Building San Diego’s biotech industry to 500 biotech companies with 32,000 employees was a communitywide effort that included new lab and office space developed in cooperation with real estate investors; increased investment capital for startups, including a city-sponsored loan fund; and an active network of industry and economic development groups.

"It was really a collaborative effort of public officials, academics and economic development officials willing to sit at the table and see it through thick and thin," said Weathers, who spent 11 years as vice president of the San Diego Regional Economic Development Corp. before coming to Tucson. "We are walking in the same footsteps."

Taking a stake

Next year Arizona voters will decide whether to remove a constitutional ban on universities holding equity in private firms.

Now, universities can only exchange rights to their technologies for upfront license fees, annuities or royalties – something cash-strapped startup firms can ill afford as they work to develop products and court investors.

If the proposition passes, universities would be able to take stock in startups, preserving cash for business development. They could cash in their company shares by selling their stock, or they could take cash when a company is sold or goes public.

But taking equity can be dicey, as schools may be left with stock of limited value. The value of stocks also can be diluted if a company sells more shares to raise capital.

Oklahoma and Oregon recently repealed their constitutional prohibitions, said Patrick Jones, director of the UA Office of Technology Transfer.

As the state considers giving universities a greater stake in companies spun out of its research, a key figure in the effort to commercialize faculty technology has some fundamental misgivings about the process.

Ventana’s Grogan, often called the poster boy for UA tech transfer, risked his faculty position – and prosecution – in 1985 when he got a business license to pursue his idea in violation of a law banning state employees from owning stakes in private companies. With UA support, the law was changed virtually overnight, and Grogan launched Ventana.

Grogan isn’t sure the university should be in the patenting business at all. His alternative: have faculty members register their ideas with the university, then give companies the rights to patent them – in exchange for partial ownership in the companies. That would limit the UA’s patenting costs and financial risk, Grogan said.

"My view is the universities, by being in the middle of owning the intellectual property, are in the middle of the conflict," said Grogan, whose company has been both plaintiff and defendant in patent-infringement suits.

Growing influence

The UA already is Tucson’s economic, cultural and scientific center, said Bob Davis, a senior vice president with CB Richard Ellis-Tucson who helps technology companies find space in Tucson.

As its influence grows, startup companies will be drawn to its borders, wanting to be within walking distance of university researchers.

"And when I say very close, I mean very close – not two miles away," Davis said. The UA Science and Technology Park, for example, is about 15 miles from campus.

One logical place for fledgling companies started by UA researchers or graduates is the area south of Sixth Street, where the UA already owns some property but which also includes residential neighborhoods, Davis said.

Depending on the area, the city could help by providing tax credits for new and expanding businesses and has the power to condemn land the university needs. Some tax-credit programs do not cover the UA area, but a federal enterprise zone, which offers property tax breaks to qualifying businesses, encompasses the campus.

Nurturing young firms

As universities spend millions to upgrade their research space, the state and local communities are being asked to ante up to push university technologies to market.

Last month, the UA Science and Technology Park unveiled the Arizona Center for Innovation, a new technology "incubator" to help nurture young tech companies. The center replaces the Tucson Technology Incubator, which closed in January.

Aaron J. Latham / Staff
ASU connection: Frederic Zenhausern, director of Arizona State’s new Center for Applied Nano-Bioscience, holds a prototype "lab on a chip" that could be used to quickly detect disease-causing microorganisms in blood. Zenhausern says he welcomes the chance to work with UA researchers.

The new center will provide office and lab space, office support services and discounted business services. Its leaders – along with the university’s tech transfer office – will search the UA campus for marketable opportunities.

But it lacks critical "seed" money needed to help get fledgling companies off the ground, develop business plans and products, and court longer-term investment.

Bruce Wright, UA associate vice president for economic development and CEO of the Science and Technology Park, said he’s talking with state, county and local government officials and corporate sponsors to raise the annual $500,000 or so needed to help the center’s clients. The former incubator was supported by a combination of government and corporate funding.

Tucson Mayor Bob Walkup said the city can help the UA become a job-creating machine by supporting local business development groups and helping the UA expand its campus.

The city is considering contributing to the incubator, but money is tight, said Walkup, a Republican and retired Hughes Aircraft engineer.

"Where money needs to go is investing in our future, and clearly, one of the things I’d like to do is put some money into Bruce’s incubator," Walkup said, noting that the city had contributed $50,000 to the former incubator. "If we had a lofty budget, I’d bump that up."

Walkup says he’d like to see UA research facilities Downtown, with buses or a trolley running nonstop to campus.

Walkup’s Democratic mayoral opponent, former Tucson mayor and UA political science professor Tom Volgy, also favors Downtown research space and said he’d support contributing city funds to the incubator as the city budget permits.

With university, government and business leaders all starting to work together, the UA can become an economic engine powerful enough to transform the community, Wright said.

"We have finally matured enough to know how to do this," he said, "and are pulling together with the sufficient time and resources to make it happen."

* Contact reporter David Wichner at 573-4181 or [email protected].

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