Bruce Booth, the biotech venture capitalist known for his social media savvy, sent a Tweet last month that caught my eye. He tweeted in reference to the number of academic spinoffs reported in the 2012 AUTM Licensing Survey Report, “What % biotech? My bet, ~ half.”
Extrapolating from Top U.S. universities, institutes for life sciences in 2012 and AUTM data, perhaps 63 percent of academic startups formed in 2012 were biotech or in “life sciences.” Working from a set of 639 startups, that would equate to 402 biotech startups formed in 2012.
A recent paper from The Brookings Institution noted “the top 80 universities by research funds control 89% of research expenditures and 92% of gross licensing revenue.” This top-heavy distribution, the paper suggests, has led many of the smaller universities to try to compete with the big boys by nurturing more startup companies.
That may sound like a great idea, but in practice, it isn’t. In How many startups can university research support?, Jerry Paytas of Fourth Economy Consulting suggested that universities need at least $100 million in research expenditures to be anything but lucky in creating academic spinoffs. Data from the AUTM 2012 survey suggests that, on average, it takes $90,863,347 in research expenditures at U.S. universities to create one startup. I think these numbers work best in the negative. For example, if an institution’s research expenditures are $150 million and they are creating 20 companies a year, it raises an eyebrow.
Are universities creating too many life science startups?
I tried to answer this question by doing some simple math based on data from the AUTM 2012 survey of U.S. universities and research centers. If you take the total research expenditures per university and divide by the average research expenditures per startup ($90,863,347) you can see the university’s projected number of startups per average research expenditures. Next, I looked at the actual startups created per university, minus the projected number of startups per average research expenditures, and gave an over/under score for each university. Taken together, I found there were 37 “too many” startups. If 63 percent are life sciences companies, then U.S. universities created 23 “too many” life science startups in 2012.
Success in biotech is said to hinge on “Three basic factors: science, demand and people.” How many of the startups are based on proven reproducible science? How many of the technologies have been “shopped” for industry interest? Importantly, how many will be able to attract the talent to drive them forward?
According to AUTM, 79 percent of the startup companies formed had their primary place of business in the licensing institution’s home state. Avoiding a specific biotech hub ranking, geographically, 333 of the startups were not formed in California or Massachusetts. And of those, 263 did not move; meaning many of those startups are not formed in a biotech hub and don’t move to one.
In The spill-over theory reversed: The impact of regional economies on the commercialization of university science, Steven Casper of the Keck Graduate Institute of Applied Life Sciences essentially says that universities in regions that lack a significant industry presence—for example, a biotech anchor tenant— “will not develop extensive networks of ties linking academics with industry, and as a result will have lower commercialization output.” Nevertheless, AUTM data indicates a significant number of startups are being formed in regions without a significant life science industry presence.
You can form and grow a successful life science startup outside of the hubs. But, like it or not,
