Posted by : Anonymous on May 13, 2004 - 05:14 PM General

Arnold Schwarzenegger, Tiger Woods and Google's thirtysomething founders aren't the only investors likely to make big bucks when Google sells shares to the public this year.
Stanford University, where Google began, could sock away $250 million from stock it owns in the online search engine giant. That could be a record for a university profiting from a campus start-up.


Stanford has long benefited from its role as the tech industry's crucible. The Silicon Valley university has helped spawn 1,200 tech and other start-ups, including Hewlett-Packard, Yahoo and eBay. It earned $50.2 million in royalties from technology licensed to Google and other companies in 2002 -- fifth among U.S. schools, the latest data show. No. 1: Columbia University.

The Stanford-Google ties spotlight a growing trend on campuses from California to Florida. More schools are trying to boost revenue by profiting from campus research -- a once-taboo practice.

More than 300 universities are mining laboratories and classrooms for discoveries that could become the next Google or anti-cancer drug. That's up from 25 in 1980.

''They pray that maybe they'll get the big score,'' says Eric G. Campbell, an assistant professor at Harvard Medical School who has studied the trend.

But the gambit is risky. Schools that spend millions to patent and license discoveries often wait 10 years or more for payoffs that aren't guaranteed. Start-ups, especially in booming sectors like biotech, may fail -- leaving schools with worthless stock.

And experts worry that schools too focused on profit may hoard discoveries by refusing to publish research. That blocks other scientists from data needed to create drugs and other advances that benefit society.

For now, however, universities are barreling ahead with so-called tech-transfer programs, often in places far from marquee research hubs such as New York, Boston and the San Francisco Bay area. Florida is especially hot.

In Gainesville, the University of Florida earned $32 million in 2002 in royalties from discoveries such as an in-ground termite fighter and the glaucoma drug Trusopt. That's more than the $26 million earned that year at powerhouse MIT, says the Association of University Technology Managers.

The Florida school, with a 14-person tech-transfer office, scored $60 million two years ago selling its stake in Regeneration Technologies. The university spun off the maker of bone and tissue implants in 1998. Regeneration went public two years later.

Regeneration has about 400 employees and had $76 million in revenue last year. Its process for harvesting bone and tissue from cadavers has broad applications and big market potential, says Win Phillips, vice president of research at the University of Florida.

The school has long profited from campus discoveries, most famously with a sports drink invented for its thirsty football players.

Since 1973, it has earned $94 million selling rights to Gatorade. The school, with 50,000 students, plows the money back into research.




From Gatorade to Google

Google may be Stanford's Gatorade -- on steroids.

Google's technology was created eight years ago by two Stanford computer-science grad students: Sergey Brin, now 30, and Larry Page, 31.

Stanford owns the technology because it was created with university money.

The school tried to license it to other companies for two years before Brin and Page licensed it for their Google start-up in 1998. Under that deal, Google pays Stanford annual license fees in stock and cash. The cash is split in three equal shares between the school's computer-science department, the engineering school and Brin and Page.

Stanford also received Google stock in the deal. The school won't say how much. Google's recent IPO filing with the Securities and Exchange Commission indicates Stanford's stake is less than 5%.

Craig Zolan, CEO of tech-transfer firm Techcense, estimates the university's ownership started at 5%, based on historic norms. The stake may have been diluted to 1% after investors like Schwarzenegger piled in through venture-capital funds that plowed $40 million into Google in 1999 and 2000.

Estimates of Google's post-IPO market value vary widely. But based on one figure often cited, $25 billion, the value of Stanford's stake could soar to $250 million.

''It could be the biggest hit ever,'' says Scott Shane, an economics professor at Case Western Reserve University. He is author of the newly published Academic Entrepreneurship: University Spinoffs and Wealth Creation.

Stanford's ties to Google go further. University President John Hennessy joined the board of directors last month. He and two other new directors each received options to buy 65,000 Google shares. Hennessy joined Google's board as a private individual, Stanford says. He also is on the board of Cisco Systems, a Silicon Valley stalwart that traces its 1984 birth to Stanford.

Even for a school as rich as Stanford, $250 million is big money. The university raised $486 million in gifts in the 2003 fiscal year. Its endowment is $8.6 billion.

Universities everywhere are scrounging for cash as overhead rises and governments slash support, says John Lippincott, interim president of the Council for Advancement and Support of Education.

Tech-transfer revenue comes with no strings attached, unlike many alumni gifts. Universities can pump it into research, fund scholarships or pay the light bill, Lippincott says.

Profit: The mother of invention

Universities have been profiting from tech inventions since at least 1925. Efforts zoomed into overdrive after the 1980 passage of the federal Bayh-Dole act. It eased hurdles to profiting from research funded by government grants.

East Carolina University started its program 1995. Since then, the Greenville, N.C., school has launched three start-ups, including Janus Development Group. It makes a gadget called SpeechEasy to fight stuttering.

ECU spent about $80,000 on the SpeechEasy technology before licensing it to Janus. The school has earned $250,000 in royalties so far -- small by U.S. averages, but an important boost for the school. It has 18,000 students and a $400 million annual budget.

Equally important, ECU wants to create good jobs nearby in eastern North Carolina towns hurt by tobacco and other job losses. ''Many of those counties are very, very poor,'' says Marti Van Scott, who runs ECU's tech-transfer office.

ECU and other schools hope start-ups like Janus, with 10 employees, will become big businesses like Google. Six years after its start, Google has nearly 2,000 workers in Silicon Valley's Mountain View. Annual revenue last year soared to $962 million.

State governments also are diving in. They hope to capitalize on a potential boom in the growing biotech sector by shifting resources to university research.

Florida lawmakers agreed in October to spend $310 million in federal economic-development money to lure the Scripps Research Institute and its Kellogg School of Science and Technology to open a campus near West Palm Beach. Gov. Jeb Bush hatched the deal in just three months.

The institute will offer doctorates in biology and chemistry. Florida hopes to add 44,000 jobs if the institute spurs biotech start-ups, as Scripps did in its San Diego hometown.

Sharing science

Yet that rush forward by universities worries experts like Campbell, at Harvard. Before passage of Bayh-Dole, he says, standard practice meant sharing research widely through such publications as the Journal of the American Medical Association.

Now, Campbell says, some researchers, pressed for profits by universities or a desire to supplement meager paychecks, are keeping discoveries to themselves. ''Secrecy is a major concern,'' he says.

In a study, Campbell and other researchers found that 21% of geneticists who withheld information from other researchers cited the ''need to protect the commercial value of results.''

Moreover, researchers may focus too much on discoveries with commercial potential instead of basic research that could yield unexpected discoveries in medicine and tech, Campbell says.

But tech-transfer advocates say universities can profit while also allowing the unfettered sharing of science.

''For a majority of universities, it's achieving a mix,'' says Ann Hammersla, senior intellectual property attorney at MIT.

Many lab and classroom discoveries don't reach consumers unless corporations turn them into cancer-fighting drugs, software -- or search engines, experts say. Companies won't do that unless universities patent discoveries and grant them exclusive use rights.

''You could make this free public knowledge,'' says Phillips, at the University of Florida. ''But if it's free public knowledge, no one is going to invest in developing it.''Please see COVER STORY next pageCover storyContinued fromCover story

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