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UTexas Entrepreneurial Faculty Member Urges State to Support Start-up Funding

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October 18-20, 2023 / Tucson, AZ
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The Story

University of Texas professor James McGinity has defied the odds as an academic entrepreneur.

In 1996, he and a colleague, Bill Williams, went in hock for $1 million to start a company, PharmaForm LLC, in a small building off Yager Lane. By the time they sold the company in 2007, it had 85 employees and annual revenues of more than $10 million.

More important to UT is another McGinity venture — a drug patent that accounted for about $11 million of the $26 million in last year’s revenue for the university’s Office of Technology and Commercialization. The patented process makes it more difficult to abuse the drug OxyContin by breaking it up and snorting it.

However, the patent — and UT’s revenue stream — expires in 2016.

The university could have reaped much more, McGinity told the House Committee on Economic and Small Business Development on Wednesday. McGinity estimated UT could have earned nine times the $11 million in annual revenue if the university had created a startup instead of licensing the patent to Abbott Laboratories.

The House committee is studying ways to encourage Texas universities to convert their research into products, companies and, by extension, jobs. Several witnesses joined McGinity on Wednesday in calling for more state incentives on that front.

The suggestions ranged from creating research parks with more labs to granting tenure to faculty members based on entrepreneurship or the creation of intellectual property.

“I think we should be doing a lot better than we’re doing,” McGinity said.

He urged the Legislature to provide “pre-venture capital” — or seed money — to support faculty-generated startups. That money would come before the state’s money from the Emerging Technology Fund that helps startups grow and expand.

There is risk in spending tax dollars on startups. The maxim for venture capitalists is that only 2 out of 10 investments make a profit. But the successes are so great — or at least the investors hope they are — as to offset any losses.

Rep. Rodney Anderson, R-Grand Prairie, said the success-failure ratio bothers him.

“Part of my concern is the failure rate,” he said. “We don’t know what the outside risk is.”

Not every professor is willing to take the risk, either. McGinity recalled going into debt to create his company.

“It made our wives nervous. If it was a failure, we would have lost everything,” he said.

“I think there are other entrepreneurs at UT who may not go out and borrow $1 million but, with help from the Legislature, could have successful companies.”

According to Wednesday’s testimony, there is no shortage of pending patents at universities.

Edward Powell, CEO with Austin-based IPX, said his company helps 14 universities — including UT, Texas Tech and Baylor — manage their portfolios of intellectual property.

“Ninety-six percent of technology transfer offices lose money,” he said.

One problem is the small staff of a university’s technology transfer office can’t have broad expertise.

“How can five people in the tech transfer office deal with patent applications across 100 disciplines?” he asked.

He said his company helps analyze which patent applications are worthy of the university’s time and money. For that service, his firm gets 15 percent of the portfolio’s profits. If a university outsources management of the portfolio to IPX altogether, Powell said the company charges 35 percent.

Just as university researchers get a share of their invention’s profits, Powell suggested financial incentives for the technology transfer staffers who decide which patents are worth pursuing.

“The guys making the decision don’t have a carrot,” he said. “They’re hourly employees.”

Contact Laylan Copelin 
at 445-3617

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