Vanderbilt turns ideas into new companies

After spending $10 million to turn ideas into a dozen new companies, Vanderbilt University is about to announce a new investment initiative.

By:
Bill Lewis
The Tennessean

The program will be modeled after the Chancellor’s Fund, a venture capital pool that helped finance start-up companies using the intellectual property, or the ideas, of professors and researchers on campus.

”We want to be the match that lights the flame and carries the flame forward,” said Chris McKinney, director of Vanderbilt’s Office of Technology Transfer and Enterprise Development.

The new initiative will be announced within a few weeks, he said.

Of the 12 companies that received the Chancellor’s Fund money since the late 1990s, at least one has gone dormant, but others have attracted additional investment and have active operations.

Vanderbilt would not disclose financial details of the investments, but McKinney said he’s pleased with the result.

While not every idea leads to success, Vanderbilt could make millions of dollars from just one deal born on the Vanderbilt campus.

In a separate program, the university in 2001 sold the rights for the commercial development of an electronic order system, WizOrder.

McKessonHBOC, an international supplier of information technology for hospitals, paid an undisclosed amount for the licensing rights for that system, which was developed on campus. Mick Stadler, who headed Vanderbilt’s technology transfer efforts, said at the time that the university had the potential of making $30 million in future royalties on a $500,000 investment.

Joel Peek has three reasons for being in favor of Vanderbilt’s investments.

If not for Vanderbilt’s willingness to invest, Peek and the two other employees at tiny Microarrays Inc. would probably be living and working somewhere else.

”If it weren’t for Microarrays, I’d be back in California,” Peek said.

The other two employees of the company, both of whom hold doctoral degrees in biomedical engineering, would be somewhere else, too, he added.

Microarrays uses its self-developed computer-controlled robotics to place tiny DNA samples on microscope slides. Customers include academic researchers and pharmaceutical companies that need to know how genes of different substances — yeast, for example — react under different conditions. The robot can place 30,000 samples on one slide.

The company, which is cramped for space in its offices above The Wild Boar Restaurant on Broadway, hopes to be one of the first to move into the Cool Springs Life Sciences Center. Vanderbilt has leased 8,000 square feet of space with an option for 8,000 more in that development, which will be built on a 10-acre site on Nichol Mill Lane near CoolSprings Galleria.

The university plans to use its space as a biotech incubator, Vanderbilt spokesman Peter Rousos said.

Microarrays is one of the companies that McKinney points to as examples of the university’s efforts to start up new companies using intellectual property born on campus.

Traditionally, universities simply sell rights for commercial development and marketing of those ideas to existing companies. Vanderbilt does both under McKinney’s direction.

Not all of the Chancellor’s Fund companies are local, and not all are still actively pursuing their original business plans. For example, MindScore Inc., which was developing a Web-based learning tool, is ”hibernating,” spokesman Mike Hassell said.

But Mindscore’s parent company, Nashville-based Conduit Corp., has turned its attention to another venture that Hassell believes will change the way movies and music are distributed.

That company, M-Terra, was developed independently of Vanderbilt. It has developed a ”digital wrapper” for movies and music that allows customers to sample before they buy the product over the Internet.

Once the wrapper is electronically opened, a prepaid account is automatically billed.

The Chancellor’s Fund, and its willingness to invest in start-up companies, was innovative for a university, Hassell said.

”Early stage companies represent great opportunity but great risk,” he said.

Vanderbilt, he added, ”is a giant engine of innovation. But universities are set up for intellectual activity, not business.”

Another company that got money from the Chancellor’s Fund, ActivBiotics, was founded by individuals affiliated with Vanderbilt but is based in Lexington, Mass.

The company is working on drugs that it hopes will help solve the problems created when bacteria grow resistant to antibiotics, Chief Financial Officer James Warren said.

The company, which employs 35 people, hopes to go public and sell stock, he said.

”It’s pretty unusual,” he said of Vanderbilt’s investment in a private company like ActivBiotics.

”The universities have wisened up. They realized they have something valuable,” Warren said.

James Green, an executive with another company that benefited from an investment by Vanderbilt, Cumberland Emerging Technologies Inc., said other universities seem to be following Vanderbilt’s example.

”The equivalent of the Chancellor’s Fund, every university is rushing out to get one,” he said.

”This all takes a lot of years, and a lot of years takes a lot of dollars. It’s a long-term commitment, and a lot of universities have difficulty.”

Cumberland Emerging Technologies was launched in 2000 with investments from Vanderbilt, Cumberland Pharmaceuticals Inc. and the Tennessee Technology Development Corp. with the goal of making money from research already being done at Vanderbilt.

Its goal is to finance early stage drug development and then sell or license the products to other firms or spin off drug families as separate companies.

Vanderbilt ideas that grow into businesses help Nashville’s economy, McKinney said.

”As the companies grow, some will become job machines. I’m pleased with what I’m seeing. I’m encouraged,” he said.

Even ideas that aren’t glamorous have potential. For example, the civil engineering department had an idea for better impact cushions to protect motorists from crashes into highway guardrails. That idea was licensed to an existing company.

University officials declined to say exactly how many companies were launched by the Chancellor’s Fund. Citing confidentiality agreements, McKinney declined to discuss details of any of the companies that the university invested in.

He’s sensitive to being judged too soon.

”A lot of time, people will tend to do a report card before school’s out,” he said. ”It’s going to be a while before you can say we’ve made serious progress.”

University publications show that the Office of Technology Transfer filed 72 patents in 2002, a nine-fold increase from 10 years earlier. In 1991, total royalties from technology transfer were $118,000. Last year royalties were $12.3 million.

Most of the credit for that goes to the WizOrder deal with McKesson, one of the ”home runs” that McKinney said occasionally happen, even when the team is really only trying for base hits.

”We’re in the base-hits business,” he said.

”Some people say, ‘can’t you just hit home-runs?’ It’s a matter of having a lot of at-bats, a lot of companies in the pipeline.”

http://www.nasvf.org/web/allpress.nsf/pages/7889