Man with a plan

For an executive who just watched a half-billion dollars swirl down the drain, Erik Iverson is a cool cucumber. Just maybe the right guy at a crucial moment for the Wisconsin Alumni Research Foundation.

Iverson, a youngish 50 and a bit of a jock, is now two years into his role as the change-minded managing director of UW-Madison’s banged-up but still powerful technology licensing operation with 3,000 patents in its portfolio.

That’s to say, Iverson sits atop a 93-year-old independent nonprofit that for decades has been fabulously successful in bringing campus discoveries to the public and, not incidentally, socking away $2.9 billion in assets to benefit UW-Madison.

WARF’s contributions to UW-Madison programs this year? About $86 million, including $12.5 million to subsidize the privately run Morgridge Institute for Research.

But now WARF finds itself vulnerable and somewhat weakened. It faces a transformed marketplace that is not pliable to WARF’s old and settled ways of doing business.

In September a federal appeals court threw out a monumental $506 million award WARF received in a patent-infringement suit brought against Apple. (WARF has appealed the reversal, but Iverson admits such challenges are seldom successful.)

WARF’s licensing revenue dropped from $57.7 million in 2011 to $20 million in 2017 — stark evidence that for the first time in memory it no longer has a lucrative patent burnishing the bottom line. (Zemplar, a kidney disease drug discovered by legendary UW researcher Hector DeLuca, generated a humongous $500 million in royalties before the last of its patents expired in 2016.)

And for all the celebrations marking the 20th anniversary of UW-Madison researcher James Thompson’s stem-cell breakthrough, WARF has found that the related patents are not the huge moneymakers once envisioned. (Stem cells are basically a tool used in the search for new therapeutics; it’s the successful life-changing treatments, if they emerge, that will be mega-valuable.)

Iverson gets how serious WARF’s challenge is.

“Tech transfer is bloody hard. Really, really hard,” he says of moving basic academic research to the marketplace. “If you can find one diamond in the rough every 10 or 15 years you’re ahead of the curve.”

Yet Iverson, a veteran of Seattle’s vibrant tech scene, is confident that WARF’s newly expanded entrepreneurial program will solidify its success in the 21st century.

That diamond in the rough — the next Zemplar — will be found, he predicts.

“I have enormous optimism that what comes out of this university will be commercialized and be highly productive,” he says. “From computer science, from engineering, from life sciences — I am highly optimistic.”

An observer looks closely for signs of flop sweat on Iverson’s brow.

Nope. The guy has a plan.

Raised in Moorhead, Minnesota, Iverson still has vestiges of the yah-hey Midwest in his voice. (When is the last time you heard someone using the word “smidge” to describe a tiny portion?) His dad was an oral surgeon who moved the family to Fargo, North Dakota. His mom was a nurse who emigrated from Newcastle, England.

Iverson has two cousins who played hockey for UW-Madison, but he majored in political science and business administration at Gustavus Adolphus College in boondocks Minnesota. He picked up his law degree from the University of North Dakota and headed to Seattle to ply his trade. He built a WARF-friendly resume. It’s heavy on biotech lawyering and investing, medical therapeutics, intellectual property development, and nonprofit administration.

Iverson was hired, after a stint in private practice, as the first attorney staffing the Bill & Melinda Gates Foundation’s global health and agriculture program. The budget? $4 billion in annual funding for the development of drugs and diagnostics. (Iverson describes the Gates couple as “scary, passionate, wicked smart and global in their views.”) Seven years later he was named president of the Infectious Disease Research Institute in Seattle. Among its achievements: a spinout biotech company developing vaccines in Cape Town, South Africa. That was a first for the continent.

He took the WARF job because he considered UW-Madison, along with the Massachusetts Institute of Technology and Stanford, to be the premier technology-transfer universities in the nation. He and his wife, Jennifer, settled in the Blackhawk neighborhood. She does marketing for law firms. They have two teenagers: a guitar-playing freshman boy at Middleton High School and an older globetrotting daughter now in Oman (on the Arabian peninsula) as part of an international high school program. Iverson will be visiting her over the holidays.

The only hesitancy Iverson reveals in telling his story is a moment of shyness as he explains how he started playing hockey at the age of 28, even attending a hockey camp to polish his skills, so he could join a Seattle team. But he hasn’t played in Madison and doesn’t let on that he wants to pick up his stick again. It is perhaps another shrewd decision by this middle-aged executive. Biking is his passion now.

Iverson has “a perfect blend” of experience that “prepares him incredibly well for service to WARF and the UW-Madison research community,” WARF board chair Peter Tong said in announcing his appointment in March 2016.

Certainly Iverson has his work cut out for him. For 55 years, WARF was pretty much a unique operation. Incorporated in 1925 to manage UW biochemist Harry Steenbock’s patented technique for irradiating food to increase Vitamin D, the Wisconsin Alumni Research Foundation became the first university technology transfer office in the nation.

WARF patented the work of UW research legends like Karl Paul Link (Coumadin, an anticoagulant used to treat blood clots, and Warfarin, the famous rat poison) and Hector DeLuca (whose 2,000-plus patents include Zemplar.) In the 1970s, UW’s medical imaging researchers broke through with repeated innovations that continue to this day as we reported in “UW’s Innovation Leader.”

But in 1980, the ground suddenly shifted with passage of the Bayh-Dole Act. WARF’s Howard Bremer took a national role in advocating for a simpler path to patent discoveries growing out of federally funded research. No longer would the researcher or university have to trek to Washington to gain the rights from a federal funding agency; the patenting rights would instead revert to the university as a matter of course. As an institutional history of WARF documents, the number of university technology offices exploded from around 30 to more than 300. The number of university-related commercial patents ballooned seven-fold. This was a good thing for disseminating knowledge.

For UW researchers, Bayh-Dole means if federal bucks are in play they are obligated to submit an invention disclosure report to WARF, whose reviewers assess the patentability and licensing potential. They may go meh, or they may accept the disclosure. If accepted, a memorandum is negotiated in which the inventors assign their breakthrough to WARF in return for 20 percent of any royalties earned through licensing.

Three to five years may pass before the patent office finally rules on the application. WARF pays the not-insubstantial lawyering costs and then recoups its expenses through licensing. This can be a problem for startups wanting to use the technology.

And it’s not the only problem outsiders see with WARF.

What was once considered strength — WARF’s independent position as an alumni-run nonprofit (Steenbock is said to have wanted to protect patent revenue from the grubby fingers of politicians overseeing the UW) — can now be a source of confusion.

Almost all other universities have integrated their tech-transfer operation into campus administration. But not at UW-Madison. Here if you’re a business wanting to work with the university on recruitment or sponsored research, you contact the campus’ Office of Business Engagement. But if you’re a business wanting to license UW technology, you go to WARF. This gets murky for outsiders.

Ford Motor Co., for instance, finds it difficult to negotiate joint research projects with UW. Note that the tech site Recode ranks Ford among the top 10 companies in the country for research-and-development spending. The automaker says it is stymied by UW’s refusal to agree at the outset how intellectual property and potential royalties will be shared should their research hit pay dirt.

“Our attorneys are very hesitant to go forward developing technology when they have no idea how much it might cost if it gets developed,” says Edward Krause, Ford’s global manager for external alliances. Other elite research schools, he notes, are willing to set terms at the beginning. Ford works with them instead of UW.

Investors I contacted said WARF’s problems started in the last few decades when it veered from its long-time focus on actively transferring the “insanely great” UW research for the benefit of the public. John Byrnes, who chairs the Mason Wells private equity firm in Milwaukee, says WARF’s trustees have tended to “take pride in the wrong thing.” They should focus on how much UW innovation they’re commercializing for public benefit; instead, many of them “take pride in the stewardship of the money they’ve accumulated” in the $2.9 billion WARF endowment.

Ken Johnson, another prominent Wisconsin investor, thinks WARF overprices its licenses, making them less desirable to Wisconsin startups, which can and often do turn to other innovative products to fuel their businesses.

The problem, as Johnson sees it: WARF is frontloading its patent expenses on its licensees instead of capturing the money at the backend in royalties when the companies start making money on the licensed product.

Kay Plantes, a San Diego business consultant with Wisconsin ties, says WARF “marketed and sold licenses like a catalogue sales company when, to best leverage UW intellectual property, WARF needed to be like a corporate business-development team.”

And John Torinus, a Milwaukee-area manufacturer, investor and business columnist, hits on a long-simmering outstate complaint: WARF needs to look at a Wisconsin road map once in awhile because it’s just too darn focused on Dane County tech innovation for investing and patenting.

When I talked to Zach Brandon, the tech-minded leader of the Greater Madison Chamber of Commerce, he confides: “I’ve heard the complaints too,” ticking them off one by one. “But whether or not they’re true, WARF is still the envy of the world.”

This, of course, is old style Chamber of Commerce boosterism. But the surprise is how often I heard similar sentiments expressed by tech veterans in other cities. WARF really does have an exalted reputation.

It’s a big reason why so much more is expected of it.

Iverson has a sweeping view of the west campus athletic practice fields and Lake Mendota from his 13th floor aerie in the WARF headquarters, 614 Walnut St. Big thoughts should come easily with this wide vista. He’s passionate in sharing them.

In May we met over coffee downtown, and he sketched out a scenario I had heard before from tech veterans like Allen Dines, who’s a senior advisor to a Madison venture capital fund. Dines feels the path of tech transfer has changed mightily over the past 15 years or so. Corporations no longer gamble on licensing unproven technology that they tinker into a product in their own lab.

Or as Iverson put it, corporations no longer stick their money into the “D of R&D.” Better to invest in, or buy, a smart startup that is figuring out product development for a brainy university professor’s research discovery.

“These companies want more mature technology to fill their pipeline,” Iverson says. “They’re willing to pay more for it, but they don’t want to spend early-stage dollars [on in-house product development].”

This has major implications for research universities like UW-Madison. The focus is now on “de-risking” new technology fresh from the lab — working out the kinks and being sure it does what the discoverer says it does.

In the absence of this due diligence “we might as well throw away the patents, because nobody will want them,” Iverson says.

He digs in and explains: “We’re going to take a dozen technologies, sink in $1 million, $2 million, $3 million, whatever it takes to get those technologies further developed, understanding that a majority of them are going to die. But those that survive will be more valuable and return more money. That’s what venture capital is all about. That’s what industry used to do. Now they’re looking at universities to do it.”

That approach is certainly a long way from the WARF as a “catalogue sales company” that Plantes remembers. It’s much closer to what Dines feels WARF needs to be: a technology innovation operation. Emphasis on “innovation,” not “transfer,” because Dines says innovation is the real product of UW-Madison research.

All this leads to Iverson’s and the WARF trustees’ expansive plans for the future.

In early November, at the annual Early Stage Symposium at Monona Terrace, Iverson introduced WARF’s latest acquisition: Michael Partsch, its first chief venture officer. Even before he arrived in Madison two-and-a-half years ago, Iverson told the crowd he knew WARF needed to muscle up its investment in startups.

WARF is looking at investing a total of $100 million — $40 million committed over the past 10 years and another $60 million forward. Partsch, who developed and managed medical device startups in the San Francisco bay area, will help identify the most promising startups and connect with investment funds.

He’s now part of a thick network of WARF supported programs that include WiCell, an offshoot that sells stem cells and related biomaterial to other research institutions; the Morgridge Institute, where stem cell research is underway; the WiSys Technology Foundation, which promotes research in UW System colleges; and two free mentoring programs, the gBETA Madison accelerator and the gALPHA+Computer Science workshop on campus, both run by the tireless gener8tor tech combine.

Partsch’s work will bolster the crucial element in WARF’s strategy: doubling down on human therapeutics. Such research has long been a valorous theme in WARF’s history, stretching from Steenbock’s Vitamin D breakthrough ending rickets as a public health threat to Hector DeLuca’s Zemplar saving the lives of kidney disease patients who are on dialysis.

Details are sparse, but in early 2019 WARF expects to announce a major initiative to move new pharmaceuticals closer to market. That’s gutsy: New drugs are notoriously the most costly, time- consuming, risky, but financially rewarding product to develop and patent.

WARF’s own Accelerator program, which was created before Iverson came on board, already targets the most promising and, invariably, technically challenging projects emerging from campus laboratories. Many are medically related.

“The goal is to make our patents more licensable,” says manager Greg Keenan. “There are two things we’re trying to de-risk: Does the technology really work, and do the customers really care?”

WARF backstops the effort with a deep bench of 45 mentors and real money. Keenan says Accelerator’s 70 completed projects have, on average, received $120,000 apiece for lab expenses, demonstration projects and customer development. Among Accelerator’s success stories: UW food scientist Jim Steele’s research on lactic acid enhancing yields in ethanol production. A Georgia biofuels company bought Steele’s startup in 2017 after WARF patented his technique.

This is more than a nice little anecdote about tech transfer. If you’re someone who believes carbon emissions from petroleum and coal-based energy are a threat to the planet, Steele’s research and WARF’s support of it is a small step forward.

The glory of university research like Steele’s is that it incrementally expands human knowledge and understanding, setting the stage for the next advance. Sometimes it even improves the material circumstances of a whole lot of people.

Stephen Susalka, who runs the Association of University Transfer Managers, makes a relevant point: “Universities are not in tech transfer to make a jillion dollars. They are in there to see their research make an impact on society.”

But can anyone deny it’s the bucks that keep the lights on and the wheels turning?

Skeptics question how easily WARF can execute the pivot that Iverson is advocating. UW-Madison’s research standing has already slipped from second to sixth in the nation. The overall flattening of total research spending at about $66 billion that Susalka talked to me about does not bode well. And that $100 million WARF earmarked for venture investment? Impressive … but it’s an ink stain compared to the $1.7 billion its trustees invested in hedge funds in 2016.

Brandon believes Iverson’s big changes are coming. “Erik is looking for ways to put that great university research into the ecosystem faster and well-funded,” he says. That’s “a revolutionary idea” for UW-Madison “and one that I’m bullish on,” he says. “It doesn’t come without risks, but I think it has the makings of a national success story for Madison and the university.”

The always-cool Iverson dials it back to describe the current moment as an “inflection point” for the campus. “I’m very optimistic,” he assures me. “We’re going to be in fine shape.”

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Inside WARF

Year founded: 1925

Headquarters:614 Walnut St., Madison

Employees: 150

Assets 2016: $2.9 billion*(Assets 2012: $2.5 billion*)

Grants awarded 2016: $62.2 million, UW-Madison; $23.3 million, Morgridge Institute for Research

Investment portfolio 2016: $1.7 billion, hedge funds; $461.6 million, money market funds; $316.3 million, private-equity limited partnerships; $149.5 million, fixed income; $28 million, WARF startup companies

*includes endowment managed for Morgridge Institute for Research

SOURCES: IRS form 990, GuideStar nonprofit report

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All the stories in this series on UW-Madison research can be found at isthmus.com/topics/uws-challenge/

Editor's note: This article incorrectly stated that Zemplar generated $700 million in royalties for WARF. The correct figure is $500 million.