UT tries new model with latest licensing deal
University partnering with company to bring technology to market.
By Renuka Rayasam
Saturday, April 24, 2004
The University of Texas is taking a fresh approach to its latest technology deal.
Rather than signing a deal to allow a startup to license its technology, the university, for the first time, is forming a partnership with the company, biotechnology firm Entercel.
The university is working with Austin-based venture capital firm Emergent Technologies Inc. to create Entercel, which is developing a chemical to make herbicides more powerful.
"We share in the risk and the reward," said Neil Iscoe, director of technology commercialization at UT.
When UT licenses technology developed on campus, it usually receives equity, a royalty or cash. But as a limited partner, the university will get an annual, undisclosed payout from Entercel.
Iscoe said the university picks a structure based on the type of technology. For technologies that are popular now but might not be in the future, the office tries to get cash in exchange for a license. For deals involving equity, the office receives a payout when the startup is acquired.
The partnership works in the case of Entercel because it was a much less expensive way to commercialize the technology, Iscoe said. It's a model the university might use more in the future, he said.
"Because Emergent already existed, they already had a whole group of people who knew what they were doing," he said.
Entercel uses a technology developed by UT biologists that overcomes a mechanism that allows cells to resist foreign compounds. The company's first product, which is not yet on the market, is a chemical that makes herbicides more powerful, breaking down plants' resistance.
That means farmers could need half as much herbicide, said Brian Windsor, Entercel's chief scientist. "Companies are under tremendous pressure to eliminate toxic products," he said.
The company has nine patents related to the research.
Entercel plans to partner with other herbicide companies to sell the chemical, said John Hoopingarner, who is Emergent's executive vice president of operations and will become Entercel's chief operating officer.
So far, Windsor is its only employee. He helped develop the technology as a UT graduate student. Entercel will add one or two employees this year.
UT set up its commercialization office relatively recently compared with other major research universities. UT's office was founded in 1991. The Massachusetts Institute of Technology established its office in 1940, and Stanford University has had one since 1970.
UT's deal with Entercel allows the university to put in less money building a company and to get faster returns.
"If you start a new company, you have to find office space, and in order to raise money to do that, you have to raise capital," said Iscoe. With this deal, Emergent will provide an immediate business staff and office space in West Austin.
Emergent will invest as much as $1.5 million in Entercel over time, Hoopingarner said. He wouldn't disclose its initial investment.
Emergent has been around since 1989 as a consulting firm. In 1998, founder and CEO Thomas Harlan decided to get into the venture capital business, backing biotechnology companies. Since then, the company has formed six startups in Oklahoma and one in Texas. Entercel is the company's second Texas startup.
"We're excited about this, because it's in our own back yard," Hoopingarner said.
UT originally had licensed the herbicide technology to Texagen Inc., another startup, in 1999. But UT took the license back when Texagen failed to raise venture capital and shut down last year.
Windsor said the technology is being developed for uses other than in herbicides. In humans, it could help patients overcome resistance to drugs.