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Utah Universities look to invest in firms
The Eureka! moment was nearly 20 years ago, in a plane above Sacramento, Calif., under the creative influence of a martini.
By Rebecca Walsh
The Salt Lake Tribune
Ted Stanley, an anesthesiology professor at the University of Utah’s School of Medicine, was returning home after experimenting with putting monkeys under using drug-soaked sugar cubes. And he thought, why not a lollipop — for people?
Stanley’s innovative idea — delivering drugs through the thin membrane of the cheek — and the resulting medication, Actiq, has changed the way cancer patients manage sudden pain. Through a series of licensing agreements, the "lozenge on a handle" has also made the university a bit of cash. But Utah’s Constitution complicates things, prohibiting state universities from taking a share in private companies. Gov. Mike Leavitt wants to change that. His attorney, Gary Doxey, is prodding the Utah Constitutional Revision Commission to amend state law to "clarify" that the universities’ current practice is legal.
"The universities are doing this. But there’s sort of a cloud over whether they’re allowed to do this," Doxey says. "There should be no question that it’s legal."
State lawmakers, judges and lawyers on the commission are considering an amendment that would allow the universities to acquire an equity interest in a start-up company unless the Legislature specifically bans investment in a specific industry.
The Constitution’s prohibition on the state or its subsidiaries’ buying stock in private companies dates back to the 19th century. Utah’s founders feared the corruption potential of state leaders investing public money in railroad and telegraph companies.
Recent history provides another problematic example: In 1983, Utah lawmakers created the Utah Technology Finance Corp., an agency designed to help fledgling high-tech companies. The Utah Supreme Court quickly declared the corporation’s practice of taking stock in the companies illegal. Ten years later, the corporation tried to get around the ruling by setting up a nonprofit foundation to invest and hold stock. State Auditor Auston Johnson challenged the scheme and the corporation eventually dissolved the foundation.
In that tense environment, the University of Utah and Utah State University typically limit their involvement in spinoff companies to licensing the innovations of their academic founders. At times, the two state research universities risk convoluted equity agreements to get a greater share of the proceeds of the intellectual property they foster.
Everyone hopes for Gatorade. It’s a mythic tale at research universities. Professors at the University of Florida developed a flavored drink to rehydrate football players. The university licensed the recipe. The rest you know.
Most of the time, the universities rarely make back their investment.
"We’ve got all this paper that we take on these inventions," says U. President Bernie Machen. "Most of it turns out to be worthless."
Still, in two decades of research, nearly 60 high-tech companies have sprouted from the University of Utah, including Myriad Genetics, Evans & Sutherland, ARUP Laboratories and Stanley’s Anesta, many of them based at Research Park. The university made $5 million on its patents in 2001-02. And the business park’s tenants employ nearly 5,000 workers and produce more than $600 million in revenues.
David Harmer believes those jobs and the money are just a portion of university start-up companies’ potential. The Department of Community and Economic Development director worries Utah technology is exported to other states, taking revenue and jobs with it. Reason enough, he says, to change the Constitution.
"It’s a significant hindrance to our economic development efforts," Harmer says. "Because of the question mark, the universities are not aggressive. The consequences of challenging the Constitution are just too dire."
"We export too many of our good ideas," he says. "The universities do a terrific job on the research side. We need to find a better way to translate those ideas into things that can be turned into business."
Steve Kubisen laments even the businesses that stayed in Utah. The Utah State vice president for technology commercialization, Kubisen can point to one Cache Valley business that could have been a cash cow for the university — Hyclone. Hyclone makes growth media (the stuff in petri dishes) for animal research — and $150 million in annual revenue. The germinating idea came from a USU professor. But the university didn’t license the development and lost out.
Kubisen doesn’t want another Hyclone to go by. Utah State researchers are working on a meat tenderizing process and a method for testing wires for shorts. Utah State has spawned 20 spinoff companies. And individual researchers have started another 30 on their own. The university collects about $300,000 in annual royalties.
He wants commission members to amend the Constitution as soon as possible.
"Equity primes the pump," Kubisen says. "There’s revenue coming back. You can control your own destiny."
The University of Utah helped Stanley control his. Without the university, he says, it would have been difficult, if not impossible, to launch his idea.
"Raising money is always difficult," Stanley says. "People looked at this fentanyl in a lollipop and said, ‘What kind of a crazy idea is this?’ "
He sold his company, Anesta, to Cephalon, which now distributes Actiq from a plant in Salt Lake City. Cephalon Senior Manager of Product Communications Stacey Beckhardt says nearly 30,000 patients worldwide use the white, raspberry-lemon flavored painkiller to handle so-called "breakthrough pain" — pain that is not diminished by routine treatments.
Sharon Weinstein, pain medicine and palliative care director at the Huntsman Cancer Institute, says Actiq frees cancer patients from repetitive painkiller injections or carrying around pumps and other equipment.
"Many of our cancer patients are still working," Weinstein says. "Having a preparation available that allows them to function is a great advantage. It makes a difference in their overall quality of life."
Stanley has started another spin-off company, Zars, developing drug delivery through the skin. He hopes his next invention goes as well as the first. And this time, he says, he won’t sell his company.
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Tribune reporter Kirsten Stewart contributed to this story.
© Copyright 2003, The Salt Lake Tribune.
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