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INNOVATION
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FEBRUARY 26, 2007
A Matchmaker For Inventors UTEK is earning big bucks by pairing brainstorms with businesses For George E. Inglett, a researcher with the Agriculture Dept., the eureka moment came in 1995. Searching for a use for oat hulls, he shoveled a couple of pounds into a high-speed centrifuge in his lab in Peoria. What emerged was a white gel with no taste or calories. Adding it to food cut the fat and calories dramatically—Inglett managed to drop 50 pounds eating the stuff—but the gel had no impact on taste or texture. Inglett had discovered nutrition's Holy Grail: an all-natural fat substitute. Inglett's discovery might have been for naught without an outfit called UTEK Corp. (UTK ), which ultimately found a small company to commercialize his product: ZTrim in Mundelein, Ill. UTEK, a technology matchmaker with an unusual business model, gives researchers like Inglett an outlet for their ideas, and it gives companies like ZTrim a way to outsource innovation by providing access to a database of more than 35,000 discoveries that would otherwise go unnoticed. "To have a robust product pipeline, you have to spend an inordinate amount of capital," says Clifford M. Gross, CEO of Tampa-based UTEK. "There are very few companies that can do that." For university and government researchers struggling to license their discoveries, UTEK can make all the difference. Many universities have technology-transfer offices that are understaffed and underfunded. And many risk-averse companies are unwilling to take a flyer on an interesting idea with uncertain commercial potential. The result: Only about 30% of the 18,000 discoveries made by university and government researchers each year ever see the light of day as commercial products. North Carolina A&T State University's experience is instructive. When a researcher there stumbled upon a way to detect microscopic cracks in an airplane fuselage, the discovery, while promising, turned out to be nearly impossible to sell. The technology-transfer office spent two years scouring North America and Europe for a buyer. Many companies wanted to see a prototype—typically a more than $200,000 investment—and others simply weren't interested. Then UTEK showed up, with Material Technologies Inc. in tow. Material Technologies, which specializes in monitoring metal fatigue, was interested in commercializing the technology, but its intent was to check the structural integrity of bridges and highway overpasses, not planes. In August the three parties struck a deal. "We had no entry into that market," says M. Douglas Speight, the school's director of outreach and technology transfer. "That's what UTEK brings to schools like ours." A SHARE OF THE ACTION Unlike other technology-transfer companies, which license technologies they've acquired or charge fees to broker deals, UTEK pays the research lab for licensing rights to its discovery. It then sells those rights to the client company for shares of stock, which UTEK agrees to hold for one year. UTEK might pay $500,000 for the discovery and receive stock worth $2.5 million. A lot can happen in a year—UTEK's stake in ZTrim, for example, ballooned to $6 million. On the other hand, in a dozen deals since the company's inception in 1997, the client company ceased operations, and UTEK's stake evaporated. But UTEK has had more hits than misses, including deals involving technologies for fertilizer production, pollution monitoring, even land mine detection. Since 2003 the number of tech transfer deals UTEK has brokered has quadrupled, despite robust competition, which includes 10 publicly traded tech-transfer companies. UTEK, which went public in 2000, now holds equity stakes in 55 companies, for a portfolio valued at $60 million. And each year it adds several thousand discoveries to its database. Through the third quarter of 2006, it had operating income of $17.4 million on $48.5 million in revenue, up from $3.9 million in operating income and $15.5 million in revenue for the same period in 2005. One reason UTEK has a following among universities is that, in addition to a cash payment, its deals also guarantee a stream of royalties for the institution. Most direct a third of the royalties back to the individual researchers, which makes for a lot of happy inventors.  By Louis Lavelle Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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