1. I appreciate the opportunity to make remarks to the UC Regents today.

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1 AN ENTREPRENEURIAL UNIVERSITY A Proposal to Establish a Technology Transfer Independent Board of Directors James S. Economou Vice Chancellor for Research University of California, Los Angeles (Remarks to UC Regents, May 15, 2013) 1. I appreciate the opportunity to make remarks to the UC Regents today. 2. UCLA is generally 12 th in global rankings of research universities. Our institution is among a select group of preeminent universities that have a major impact on society; we produce and transmit knowledge and serve as powerful engines of change on a global scale. We have a system of higher learning that fosters creativity and discovery, and we draw together the most talented and motivated students and faculty on our campus. 1

2 3. But when I state that UCLA is ranked 12 th, what does that really mean? Traditional performance metrics for universities include levels of sponsored research, faculty citations and awards, test scores of our students, and dollars per student. Then, we get rated by a magazine. 4. Because of our obsession with university rankings, we feel compelled to try and outperform our peers using externally mandated performance metrics determined by magazine editors. In this performance trap, whoever has the most money wins. 2

3 5. But, universities with large levels of research support and large numbers of faculty may not necessarily be achieving the greatest impact with their research and scholarship. Great research universities such as ours must be tackling the critically important problems of society health, environment, poverty, creation of employment problems that won t be solved in the legislatures nor in the courts nor fully in the private business sector. Who else is going to do this? This issue of impact is important because society, through their tax revenues and philanthropy, support research universities and they want to know what they re getting for their money. So, we, the faculty, students and leaders of a great research university should be defining the Grand Challenges in which we will engage, Challenges with the best chance of measurable and achievable and lasting impact on major problems in society. This is what distinguishes our elite research university from the 4300 other colleges and universities in the United States. This will require an entrepreneurial mindset in which we are neither emulating nor competing with peer institutions, but defining our own overarching and compelling missions, developing strategies, and a set of concrete activities and metrics to achieve these goals. 6. California looks to the University of California to prepare young women and men to lead constructive and productive lives in a highly competitive and global society, and at the same time, to create and disseminate new knowledge for its benefit. Thus, how a university s performance should be measured is by its impact on society and how well we accomplish these dual and interrelated missions. 3

4 7. We will need better structures if 21 st century universities are to remain in preeminent leadership positions: modern engines of scholarship and research, efficient technology transfer, robust industry partnerships and a culture of entrepreneurship. 8. It makes no sense for research universities to make discoveries and create new technologies to solve society s Grand Challenges if there isn t an efficient way to deliver these to the private sector: this requires a pathway for converting our new knowledge into translatable benefit. Entrepreneurship is translating a good idea into reality for the benefit of society, but requires a way of thinking that involves change, risk, uncertainty, competition and ambiguity. The work of the university isn t done until there is a benefit to society and this requires a pathway for entrepreneurship. 4

5 9. Our campus underperforms in several key metrics of entrepreneurship: the number of inventions and disclosures per research dollars (shown on the left), and industry sponsored research as a percentage of research expenditures (shown on the right). There was also a sense that we had outdated models of entrepreneurship. 10. There was this feeling that we were averse to risk (instead of investing in technology transfer and managing risk), that we lacked real world business experience (which would benefit from empowering business professionals in the decision making process), and some lack of accountability (a culture which would change in having a board with fiduciary responsibility). 5

6 11. What we found on our campus and on many others was this Traditional Paradigm of technology transfer. After a faculty member had made a disclosure of an invention or innovation, a provisional patent application was submitted and then technology transfer staff worked very hard to secure a licensing agreement as quickly as possible, they tried to license this IP before the increasingly expensive propositions of conversion to a regular patent, international filings and ongoing patent expenses. There was the understandable concern about accumulating unreimbursed patent expenses when they were dealing with 450 disclosures per year. Thus, the hand off was usually very early and involved venture capital and biotech startups and, as most of you know, this Traditional Paradigm produces a value transition point quite a bit away from the university. 12. What all of us also know is only about one in a thousand disclosures from a major research university will be a financial homerun that will yield a multimillion dollar licensing and royalty stream, and it will usually be from a therapeutic. Perhaps a handful will be financial base hits that will generate no more than a million dollars. The remainder of these disclosures, the vast majority, will not make much money, but they are still important to our faculty and students and they may end up being a useful and important contribution to society: these discoveries represent our faculty s creativity and innovation and one of the reasons they chose a life at a research university. Delivering these innovations and discoveries to society is what research universities should be doing, even if it isn t making money in the process. Also, among these many discoveries, may be unrecognized homeruns those shown in red is where we in the distant past left a lot of money on the table with Viagra, Herceptin and the cyclooxygenaseprostaglandin enzymes. So a shrewd business like approach to identifying and capitalizing on these potential financial homeruns is an important element to the overall success of entrepreneurial university. 6

7 13. Almost three years ago I asked Judy Olian, Dean of the UCLA Anderson School of Management, if we could borrow one of her senior faculty members, Professor Bill Ouchi, an expert in corporate renewal, to help us revitalize our entrepreneurial culture. Bill, with the help of scores of our faculty, students and staff spent almost 3 years in providing us with a blueprint an Ecosystem for Entrepreneurs which has been embraced with widespread enthusiasm at all levels of our campus. Several of his reports may be found on this Website. 14. This Ecosystem is pictorially represented in this busy diagram, which I will not go through in detail, but I show you this to emphasize that entrepreneurship is not about technology transfer, it is about creating a culture of innovation and discovery for the benefit of society. The overall goal is to keep research discoveries and innovations and scholarship within the university for a longer period of time where they undergo rigorous scientific refinement and business mentoring, business driven patent investment processes, and opportunities to partner with industry. Competitive proof of concept grants may be used to mature select intellectual property portfolios and perhaps place them in campus incubators. Business Advisory Boards and entrepreneurs in residence are established within various schools on our campus to help faculty inventors. Fully integrated into this Entrepreneurial University are educational programs for undergraduate, graduate and professional students as well as faculty. Our undergraduates, for example, have flocked to an oversubscribed certificate program in Entrepreneurial Studies offered by the Price Center in the Anderson School. The longer discoveries can be kept within the university environment, the greater opportunity there is for successful faculty startups, maturation of intellectual property and creation of large academic industry partnerships. This team approach to entrepreneurship will allow our campuses to spin out more mature new companies, directly license better protected intellectual property, and will move the value transition point more towards the university and its faculty inventors. This will enrich the entrepreneurial culture on our campus. This looks well and good, but how are you going to pay for all of this? 7

8 15. As I implied earlier, the best way to pay for all of this is to increase the frequency of financial homeruns and capitalize on all of them. Here is the most recent UCLA homerun, a prostate cancer drug recently FDA approved and developed by two of our faculty. This bar graph shows conservative estimates of the Campus Share of royalties for the next five years. After all the expenses are paid for patent prosecution and patent infringement defense, after the inventors shares have been issued, after the research share has been distributed to the research unit, after all the joint holders have been paid off, and after 12 ½ % has been contributed to the General Fund, you have the Campus Share. The Campus Share is distributed at the discretion of the Chancellor. As you can see, the UCLA Chancellor will have approximately $140 M over the next five years from this single therapeutic drug, $140 M that can be invested in various campus activities. The salaries and benefits of the tech transfer staff and the unreimbursed patent expenses for many other inventions need to paid, but that isn t going to cost anywhere near $140M. The deans from the schools that generated these successful licensing events deserve consideration; these are appropriate incentives. The Chancellor might wish to invest in proof of concept grants or in specific technology platforms. The Chancellor will wish to invest in many discoveries and innovations and scholarship that aren t going to be financial homeruns, but will be important contributions to society from our campus. And the Chancellor will also wish to invest in campus priorities with no commercial intent, but still having a profound impact on society, namely, the educational and scholarly activities which serve as the foundation of a liberal learning experience for our students, students who will one day occupy leadership positions in industry and government and the professions in our pluralistic democracy. We also have I think two or three more big hits in our pipeline, but perhaps several more we can t even see for the forest. How can we ensure that we will enjoy this kind of steady licensing and royalty income stream and the capabilities to compete for large multimillion dollar, multiyear industry sponsored research agreements? How will we become a first in class Entrepreneurial University? 8

9 16. The answer is laid out in the Regents Action Item before you today. The UCLA combined tech transfer and industry research staff are shown in the lower yellow box. Instead of reporting to a Vice Chancellor for Research who might be a general surgeon (I m in the middle yellow box), they will instead report to a Board of Directors (the lower blue box) a Board of Directors comprised primarily of individuals possessing extensive experience in the business of commercializing research and scholarship. The Board will be Friends of the University. They will be leaders in the fields of the pharmaceutical manufacturing, technology and engineering, venture capital, all highly successful and recognized to be preeminent in their field, and some of whom may be contemplating semi retirement. The Board will also have included in its membership representatives from the UCLA Academic Senate. These directors will not receive compensation for their services nor will they have any disqualifying financial interest. They will be held to the same conflict of interest standards as the UC Regents, UC President and the Governor of California. 17. This important point is worth reemphasizing! In consultation with the Office of General Counsel, (pause) the President and campus will ensure that charter documents and internal policies hold the Directors to the same standards as apply to University officials. 9

10 18. All finances will be retained within university accounts. Among the various safeguards we ve introduced is the ability of the Regents or the President or the Chancellor to dissolve the Board without cause and at any time. Overseeing these activities, which will be undertaken in a much more transparent manner than in the past, will be an Oversight Committee (this is in the upper blue box) appointed by the Chancellor which will consist of key deans, additional representatives from the Academic Senate (in particular the Councils on Research, and on Planning and Budget) as well as senior campus administrators. An Annual Report will be produced each year and provided to the Chancellor, UCLA Academic Senate, UC President and to the University of California Regents. I know that the Regents will want to be assured of having adequate oversight. The creation of the 501(3)(c) nonprofit corporation to oversee the management of intellectual property and industry sponsored research contracting at UCLA has the support of the Chancellor, all university officers, all of our deans, and has the strong support of the UCLA Academic Senate. This Entrepreneurial Ecosystem is also entirely consonant with, and a byproduct of, the October 2012 Regents Report from the Working Group Report on Technology Transfer. 19. This Entrepreneurial Ecosystem is an important way to distinguish ourselves as a preeminent public research university. As a university system, we are educating 240,000 students, we create and disseminate new knowledge, we are solving Society s Grand Challenges, and we are creating wealth for our state and our nation. 10