Decade after QB3’s first incubator, lawmaker wants to fund more UC innovation

Ten years after the QB3 Garage incubator launched in a small room at UC San Francisco’s Mission Bay campus, the idea has grown an innovation ecosystem and become the catalyst for state legislation that could help turn ideas at University of California campuses into job-providing companies.

The incubator model that was once called a quixotic venture has grown to be a prime example of why the state should invest $66 million to UC campuses for innovation and entrepreneurship programs, said Assemblywoman Jacqui Irwin, D-Thousand Oaks, who is sponsoring the legislation.

The proposed bill would build on the successes of the UC schools in their innovation and entrepreneurship programs by giving each of the 10 universities and the Lawrence Berkeley National Laboratory $2 million per year for three years.

“Most of our UC campuses are among the top ranked of our country’s research universities,” said Assemblymember Irwin. “That research engine is a tremendous asset to California not only in the talented workforce it produces, but also the innovation that sparks startup businesses and local economic growth. With this investment, we can continue to leverage our taxpayer investment in UC research into economic growth and new, high-paying jobs for years to come.”

Innovation starts in a garage

The idea of incubating life-science companies is a turn, or what in startup lingo could be called a pivot, from the original QB3 concept. In 2000, former Gov. Gray Davis created four California Institutes for Science and Innovation, one of which was QB3, or the California Institute for Quantitative Biosciences. QB3 bridges UC San Francisco, UC Berkeley and UC Santa Cruz.

The institute has a joint mission of supporting science, driving the California economy and transforming scientific research into public good. For the first few years, supporting science was QB3’s strength.

Then in 2006, QB3 Director Regis Kelly, Ph.D., OBE, and former Associate Director Douglas Crawford, Ph.D., had an idea. When UCSF’s Byers Hall was built, a small space on the second floor, marked “Incubator Lab,” had been reserved for academic-industry collaborations, but never used for anything beyond storing unused chairs. Kelly and Crawford decided to recast the space as an incubator, the “QB3 Garage,” in the spirit of the garages that have launched Hewlett-Packard, Apple, and Google – though this one would be geared toward life-science companies.

The idea, Kelly said, started with the question, "What would happen if we made available to our faculty and students the opportunities to become entrepreneurs?"

The concept of renting out a lab bench space and providing the machines to do wet lab work was bemoaned by the QB3 advisory boards. Its members, including prominent venture capitalists from Silicon Valley, uniformly said the idea would create a space where researchers with ideas would go to stay, though the companies would never grow.

The first batch of companies that rented space in the QB3 Garage proved the naysayers wrong. Of the six, four received Series A venture-capital funding and the fifth, True Materials, was acquired by Affymetrix for $25 million.

“It worked beautifully,” Kelly said of the Garage incubator space. “We filled up within a year."

The Garage lowered the technical risk and overhead of starting a life-sciences company – and the idea caught on. Within years, other QB3 incubators opened at Berkeley and affiliated locations elsewhere in the Bay Area, and the demand for the rentals at the sites quickly outpaced the available spots.

A profitable business model

At QB3-UCSF, the innovation didn't stop with the Garage incubator. In 2009, Kelly and Crawford launched Mission Bay Capital, a seed-investment fund to invest in life-science companies. QB3 in 2013 launched a standalone incubator near Mission Bay, called QB3@953, an affiliated private company that was profitable after just five months of existence.

Crawford now heads the QB3@953 incubator and Mission Bay Capital, which is investing out of its second, $25 million fund. "I like being the test case," Crawford said of pioneering the incubator idea at University of California. "I like being on the cutting edge."

The growth of the QB3 system has yielded quantifiable results. In 2014, companies in the QB3 network brought $600 million in funding and $161 million in revenue to the San Francisco Bay Area, according to a voluntary survey sent to the QB3 network.

In terms of jobs, the data from QB3 represents 411 early-stage companies that were employing 1,728 people in 2014.

The continued flow of companies out of the QB3 network is a bar that Kelly says is a measure of success. "To prove what we are doing is valuable, there should be a readout," he said. "And the readout is companies."

Expanding entrepreneurship at UCSF

The push to help form companies at UCSF hasn't remained solely in the realm of QB3. In the 10 years since the Garage opened, several programs have launched to help turn research and ideas into companies.

While QB3 is working with startups with marketable concepts, others at UCSF are working with researchers at an earlier stage.

One program is Catalyst, which is run out of the UCSF Clinical & Translational Science Institute. The goal of Catalyst, which launched in 2010, is to help take research and put it onto the rails that could lead to a product and patient benefit, said Catherine Tralau-Stewart, Ph.D., the associate director of therapeutics for Catalyst.

The program is multipronged, reaching out to researchers across UCSF, providing project specific mentoring from matched industry advisors linked with small amounts of targeted funding to progress the project toward proof of concept, product development, and help to form business or partnership proposals to progress the project.

All of the entrepreneurs that Catalyst works with are pre-incorporation and pre licensing, so they aren't businesses yet. The goal, Tralau-Stewart said, is to find the best ideas in therapeutics, digital health, devices and diagnostics at UCSF and help the people behind the ideas transition them to the clinic and into marketable products.

“Catalyst helps investigators to find an optimal path for their innovation to turn into a product, be it through a startup formation or through a collaboration or licensing opportunity to an existing company,” said June Lee, M.D., director of Catalyst.

That goal of helping entrepreneurs is shared by UCSF Innovation, Technology & Alliances (ITA). The department helps entrepreneurs with ideas not quite ready for prime time get it there, said Jim Kiriakis, interim director of ITA.

The services ITA offers include entrepreneurship classes and access to mentors who can help the researchers or faculty understand if they have a viable business opportunity, said Stephanie Marrus, director of ITA's Entrepreneurship Center.

"In a very short period of time, they come a huge distance in understanding whether their research can become the basis for a commercial venture that will have traction in the marketplace," Marrus said of participants in the center's programs.

Such successes out of UCSF include Neurona Therapeutics, a pre-clinical stage biotechnology company focused on regenerative cell-based therapeutics to treat intractable neurological disease. Four neuroscientists from UCSF founded the company, which received $23.5 million in Series A funding late last year.

Through the startup and entrepreneurial ecosystem at UCSF, a researcher could take their basic research, get help in validating their idea and creating a business plan around that research, receive access to industry mentors to solidify their business model, refine their product in an accelerator or incubator, and gain access to investors or industry partners willing to fund their business.

Expanding the ecosystem

But in order for UCSF and other UC campuses to create more spinouts, more financial resources are needed.

There are currently 16 UC-run business incubators across the UC campuses. In addition to those, there are several dozen more entrepreneur and startup groups across the 10 UC campuses, and they receive little state funding, Kelly said. The systems that do exist are taxed in their resources.

The state legislation would be an investment in UC startups that could then feed more economic benefits back to the state, which would in turn benefit the universities, too, Kelly said.

"I think we are punching way below our weight in terms of economic impact," Kelly said of innovation and entrepreneurship opportunities across the UC system. "This investment would allow all of the campuses to spin out even more companies and expand our financial contribution to California's economy."