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UAMS’ BioVentures Goes NonprofitLock Icon

6 min read

BioVentures is still affiliated with the University of Arkansas for Medical Sciences in Little Rock, but it’s now a nonprofit organization.

It undertook that conversion last year to become more competitive with private companies and other universities commercializing new technology.

BioVentures is a technology transfer entity that licenses the technologies created and developed at UAMS, collects royalties from the patents on those and, as a technology incubator, helps develop new businesses launched with the technologies.

Public universities often use the nonprofit model for their technology transfer offices because it offers flexibility in hiring and retaining staff and spending money, so they can invest in startups, according to Stephen Susalka, CEO of AUTM, formerly the Association of University Technology Managers. It is a nonprofit association for tech transfer professionals around the world.

“Technology transfer is really at the cutting edge, and the people who work in the field, generally, are very flexible and creative deal-makers,” Susalka said. “Universities, by nature, are fairly conservative. They don’t like to engage in a lot of risk. Technology transfer, by definition, results in a lot of risk. So to have a structure that fits that enhanced risk profile makes a lot of sense.”

BioVentures President Nancy Gray said the new structure will free the nonprofit from restrictive state laws that apply to public universities, and allow it to invest in startups.

“Now that we are an independent LLC, the dollars that we have are not state dollars. When we were under the university, every dollar that came in, it was a state dollar,” she said. “We don’t have it yet because we’ve only been in place for 18 months, but we’ll have an independent board of directors, the majority of which will not be university[-affiliated], and they’re the decision-making body. … So we are independent, truly independent.”

BioVentures has not invested in any startups yet, but at the end of fiscal year 2018, June 30, it had about $2.5 million that could be used for that purpose.

“That is the wave of the future,” Susalka said, referring to investments by technology transfer offices in startups. “That’s actually how things are moving. And the reason for that is, you’ve probably heard of, the ‘valley of death.’ ”

The valley of death is a term used often in the world of technology and innovation. It refers to the gap between the initial development of a product or a technology and the point at which that product or technology is commercially viable. Grants of public money often fund that initial development, but a sizable investment is usually required to achieve commercial success. This is the point at which many companies die.

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BioVentures’ conversion to a nonprofit also allows it to provide more privacy to established companies that acquire a technology or a product developed at UAMS. Privacy is attractive to companies that want to do business with BioVentures, Gray said. BioVentures can sell a product or technology developed at UAMS without disclosing the purchase price, for example.

Susalka addressed a concern he’s heard before: Public funding, mostly in the form of federal grants, is being used to develop inventions and technologies that are monetized by offices like BioVentures that are less transparent than public universities. Is the public taking all the risk and getting none of the reward?

He said the public is getting what it paid for — taxpayer dollars partially develop inventions and technologies that could bring new products or services, jobs and companies to market.

Susalka added that 78 percent of university spinoffs remain in the state where they were founded.

But when an invention or technology is disclosed to a tech transfer office, it isn’t “ready for prime time.” The spinoff or established company that acquires it has to absorb the costs of doing the rest, he said.

Aside from being able to invest in startups, Gray pointed to other benefits of the private nonprofit structure for BioVentures, benefits that make doing business with it more attractive to private companies:

  • BioVentures’ agreements can be dictated by laws outside Arkansas.
  • It can agree to arbitration.
  • It doesn’t have sovereign immunity, meaning it could be sued. This is a benefit because companies that do business with BioVentures know they have a recourse if a deal goes bad.
  • It can operate more efficiently.

For example, BioVentures doesn’t need to get a dozen signoffs from higher-ups at UAMS to order office supplies, and confidentiality agreements with a company wanting to see technology developed at UAMS could be processed in a day or two instead of six months.

In fact, the tech transfer offices at most larger research universities are private nonprofits, Gray said.

Susalka agreed; he previously worked for one with the same structure as BioVentures, the University of Virginia Patent Foundation. Other examples, cited by Gray, are the University of Wisconsin’s Wisconsin Alumni Research Association, Purdue University’s Purdue Research Foundation and the Iowa State University Research Foundation.

But there are downsides to a nonprofit structure for technology transfer offices, including administrative redundancy and additional expenses, the perception that an independent organization’s interests can’t be aligned with a university’s interests and the loss of sovereign immunity.

Additional expenses include the costs to incorporate as a nonprofit, prepare a form 990 tax return annually, have separate audits done, retain separate legal counsel and administer payroll, benefits and human resources services separately from the university.

There are no other technology transfer offices in Arkansas structured this way, Gray said. But UAMS is also the state’s only teaching hospital.

How Is BioVentures Funded?

BioVentures LLC is funded in three ways.

The first revenue source is its annual contract with the University of Arkansas for Medical Sciences, said Nancy Gray, the nonprofit’s president. UAMS pays BioVentures to own and commercialize its intellectual property, or inventions and technologies developed at UAMS. It obtains patents, licenses the properties and commercializes them. UAMS paid BioVentures $638,000 for FY 2019, which began July 1.

That money covers operating expenses but does not include the salaries and benefits of BioVentures’ four-person staff. Those on staff are UAMS employees, but their services are given by contract to BioVentures, and their compensation is on BioVentures’ books.

Commercialization of IP is another revenue stream, and the funds can be invested in startups at a later date.

When UAMS faculty members invent something, they are required by policy to notify BioVentures, which determines whether it wants to retain rights. Rights are returned to the inventor if little commercial potential is seen, but Gray said that’s rare. Spinoffs and established companies then pay licensing fees or royalties to BioVentures to use the inventions.

Because spinoffs don’t usually have up-front money, BioVentures typically takes some equity in exchange for maintaining the patents. Spinoffs are also required to submit an annual report to BioVentures and allow its staff at their board meetings. “We’re not quite the helicopter parents, but we’re close sometimes,” Gray said.

So far, UAMS has produced 40 spinoffs; 28 of them are still operational, she said. Many technologies are sold to established companies. With established companies, BioVentures makes money right away, when it sells the company something. IP money is split among BioVentures, the inventor or inventors, the UA system, the UAMS chancellor’s office and the account of the college the inventor works for.

BioVentures’ cut of these IP funds can then be used to invest in startups, Gray said.

“We can use BioVentures dollars to invest, out of the BioVentures account only, not the chancellor’s account, not the college’s account, out of our account,” Gray said.

The third revenue stream for BioVentures is the money it receives from renting lab space in its building on the UAMS campus. Rental revenue is recorded separately. It is used to offset building maintenance costs, common equipment costs and facility upgrades, Gray said.

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