Institutional Equity
Disclosure form
Introduction
The University of Kansas encourages the development of new technologies
that advance scientific knowledge and contribute to the public
good. Researchers are encouraged to participate in technology
transfer activities including forming new start-up companies
based on newly discovered technologies. The Research Foundation,
as licensing agent of the University of Kansas, may take an equity
position in the start-up company when licensing a new technology
to the start-up company. The purpose of this policy is to mitigate
institutional conflicts (at each Research Foundation and the
University) and to avoid the creation of other personal conflicts
with regard to a Research Foundation's equity holdings. Various
conflict of interest may arise when the University of Kansas
Center for Research, Inc., or the University of Kansas Medical
Center Research Institute, Inc., (each individually "Research
Foundation") holds equity in companies that license technology
and/or support ongoing research at the University of Kansas (University).
The Lawrence campus (KULC) and
the Medical Center campus (KUMC)
of the University of Kansas each have a conflict of interest
committee (each individually "Conflict of Interest Committee")
for overseeing and managing the conflict of interest for the
respective campuses. This policy concerns conflict of interest
other than personal conflict of interest that may arise when
a faculty member or other employee stands to benefit financially
from the results of his/her own research. The University has
policies in place to deal with these conflicts. Basically, these
personal conflicts are managed by requiring disclosure to the
Chairperson/Director, Dean/Vice Chancellor, a Conflict of Interest
Committee, and the Vice Provost
for Research and Graduate Studies/Provost as appropriate.
A management plan for personal conflicts is developed through
a Conflict of Interest Committee and approved of by the Vice Provost
for Research and Graduate Studies/Provost.
An institutional conflict may develop when the institution (such
as a department, center or college, the applicable Research Foundation,
or the University) stands to benefit financially from the outcome
of research ongoing at the University to support a license or
a research agreement. A Research Foundation, and/or units at
the University, along with inventors, may receive future financial
rewards by way of royalties or other fees if the product or service
is commercially successful. Therefore, they have a financial
interest in ensuring the success of the product. If the returns
are in the form of royalties, there is a control, however. The
market must buy the product or service and will judge it on its
merits, not on earlier university actions. Otherwise, there are
no royalties.
A Research Foundation may hold equity in licensees, most often
equity taken in lieu of royalties or other license fees. In these
instances the potential institutional conflicts become more likely
for several reasons:
- Equity markets are not perfect. Speculators reacting to information
such as research results may cause substantial changes in market
value. This may occur before any product sales.
- Unlike royalties, owners of equity may cash in their shares
prior to the product or service passing the market test of
generating sales. This creates a situation where a Research
Foundation and the inventor may enhance their positions relative
to other shareholders by having superior or "insider" information.
- A Research Foundation generally accepts a level of equity
that could have substantial value if the product or service
is successful. Therefore, the size of the transaction makes
the potential institutional conflict even more serious.
- The University and a Research Foundation, as well as the
inventor, must avoid even the appearance of manipulating stock
prices through issuing or using information that may later
prove incorrect, such as promoting a drug discovery that later
fails testing mandated by regulatory agencies. Such manipulation
exposes these entities and individuals to significant criminal
and civil liabilities.
Acceptance of equity in licensees of university technologies
is within the overall mission of each Research Foundation. There
are two compelling reasons:
- Many technologies are best developed within a small entrepreneurial
company. In such cases, cash held by these companies may be
better employed in product development and marketing rather
than paying a cash license fee.
- The development of technologies in a small company may enhance
economic develop-ment within the region, which is also of benefit
to the University and the State of Kansas. By licensing to
new companies that locate within the region, jobs are created.
If the company is successful, many jobs may be created.
Hypothetical Situation:
To illustrate the issues involved in institutional conflicts
of interest, consider the following hypothetical case. A Research
Foundation licenses a drug developed at the University to a start-up
biotechnology company (BIO). As an alternative to a license fee,
a Research Foundation takes 100,000 shares of BIO stock that
is 10% of the founders' shares. The stock has no market value
initially and is carried on the books at a value of zero. Suppose
that after the license agreement is entered into, the entrepreneur
is successful in a private placement and raises $5,000,000 for
future research and development from venture capitalists at a
price of $4 per share. Thus, a Research Foundation position has
now effectively grown to $400,000 although there is no market
for the stock. The venture capitalists that invested in BIO anticipate
that if the drug goes through clinical trials, it will create
a valuation at 20 times their investment. Thus, a Research Foundation
looks at a potential stock price at a public offering of $80.
A Research Foundation's position would then be worth $8,000,000.
Under current policy, a Research Foundation would sell the stock
as soon as practicable when it becomes publicly traded. The revenues
would be distributed to the inventor, the researcher's department
or center, and a Research Foundation according to University
policy. Additionally, if the stock reaches this value, it is
likely that there will be many millions in royalty income over
the life of the patent. These funds will also accrue to the inventor,
the department or center, and a Research Foundation.
With a potential $6 million from the sale of stock, plus future
royalties coming to the University, there is a large incentive
for units to make this technology successful. Developmental research
may be the key to success. This is widely known by the financial
community that will become very interested in research progress
reports. If research continues on the invention at the institution,
and particularly if that research is partially or wholly conducted
by the inventor, conflict of interest or the appearance of such
conflicts may occur. (The following analysis is taken from the
University Research Foundation Conflict of Interest Policy regarding
Equity Holdings and borrows heavily from Ezekiel Emanuel and
Daniel Steiner, "Institutional Conflict of Interest," The
New England Journal of Medicine, January 26, 1995.)
Examples of situations in which such conflicts may
lead to decisions not in the best interests of the University
or a Research Foundation are:
- The inventor/researcher may elect to assign his/her graduate
students to work on the project although this may not be in
the best interests of the careers of the graduate students
because of confidentiality reasons or simply the nature of
the science or technology involved.
- The researcher may inappropriately divert resources from
research not funded by the licensee company (i.e., supported
by a federal agency or another corporate sponsor) to development
of the invention.
- The department may assign excessive laboratory space or other
resources to the project, crowding out more deserving science/technology
in terms of research and educational value.
- The department/unit, the college, and the University will
have an incentive to keep the researcher on the faculty/staff
and involved with the technology. This may conflict with normal
tenure, promotion, and merit pay standards. For the same reason,
the researcher may be allowed to enter into inappropriate consulting
or other agreements with the company.
- If future research involves clinical trials, there may be
pressure on the institution to aggressively seek patients for
these tests, to fail to inform patients of the potential conflict,
and to ignore or minimize symptoms that suggest an adverse
reaction to the drug.
- There is a risk that the researcher will employ a research
design or data collection that biases the study to obtain the
desired results and that traditional institutional checks on
the behavior will be ignored.
- In reporting the results to the public or in other public
relations activities, the University and the researcher have
an incentive to portray research progress and the potential
for the company in the best possible light to maximize investor
interest in the company.
- If another researcher at the institution invents an alternate
therapy or product, which may be more efficacious for the patient
or have more value for consumers, the University may not pursue
further development or licensing because of economic competition
with the existing invention.
Policy:
The University encourages and supports the transfer of University-developed
technology to commercial entities. Technology transfer is an
important outcome of the University's research and educational
efforts. To ensure that the mission of the University is not
compromised and that research integrity and objectivity is held
to the highest standards, the University of Kansas, the University
of Kansas Center for Research and the University of Kansas Medical
Center Research Institute have adopted the following policy to
deal with the potential and actual conflicts created when a Research
Foundation holds equity interests in commercial enterprises that
license technology and/or support ongoing research at the University:
- Disclosure and Responsibility for Monitoring:
- Any material provided to the public, to scientific journals,
or to professional organizations from the University, a
Research Foundation, or from their respective employees
shall include the disclosure that the University, a Research
Foundation, and/or the inventor(s) have financial interests
in the licensing company. The person providing the material
is responsible for making such disclosures.
- When a Research Foundation takes an equity interest in
a company, the President of a Research Foundation shall
file an Equity Disclosure Form with a Conflict of Interest
Committee through the Director of Research Administration
(or appropriate officer responsible for oversight of the
Conflict of Interest process). The Equity Disclosure Form
shall be signed by the President of a Research Foundation
and the Provost of the University. Copies of the form shall
be distributed to the appropriate department chair or director,
and dean or vice chancellor and the Vice Provost
for Research and Graduate Studies
at KULC and
the appropriate Vice Chancellor at KUMC.
- When a research contract or grant is entered into by
the University or a Research Foundation with a company
in which a Research Foundation holds an equity interest,
or when a research project is commenced dealing with a
licensed product of a company in which a Research Foundation
holds an equity interest, the Director of Research shall
inform the appropriate officials of the potential conflict
of interest of any faculty member or other employee ("Researcher")
working on that research project. Notification shall be
made to the department chair or director, to the dean of
the college or appropriate vice chancellor, and to the
Vice Provost for Research and Graduate Studies. The dean of the college or appropriate
Vice Chancellor or Vice Provost, with oversight by a Conflict
of Interest Committee on behalf of the Provost, shall be
responsible for monitoring the situation through a management
plan, with special attention to resource allocation, employment
practices, and graduate student assignments, and for informing
the Researcher of this policy. At the discretion of a Conflict
of Interest Committee, certain cases (such as the BIO example)
where the potential conflicts are significant, the college
dean or appropriate vice chancellor shall make annual written
reports to the University's General Counsel's office, which
will assist these persons in overseeing the disclosure
and management of potential conflicts. A copy of the reports
shall also be sent to the Provost's office. In all cases
in which a Research Foundation has an ownership interest,
any proposed changes in the license or research agreements
involved or any potential sale of that interest shall be
immediately reported to the General Counsel's office.
- The financial interests of the University, a Research
Foundation, and the Researcher must be disclosed in writing
to any human research subject by a Research Foundation
through the appropriate Institutional Review Board.
- Research:
- Any clinical trials/product testing of University licensed
technology shall be disclosed to and managed by a Conflict
of Interest Committee.
- Any research involving University-licensed technology
shall be designed to avoid any conflict of interest or
the appearance of a conflict of interest in order to achieve
maximum validity and reliability of the researcher's results
and interpretation of results. The Researcher shall keep
extensive notes to detail results and other issues that
came up during the study.
- Equity Decisions:
- Research Foundation managers, including directors and
officers, shall not acquire an equity position in any commercial
enterprise that has provided the Research Foundation an
equity position as consideration under a license or other
agreement. Additionally, Research Foundation managers shall
not acquire an equity position in any commercial enterprise
in which a Research Foundation has otherwise acquired an
equity interest. A list of such equity positions shall
be found in each Research Foundation's annual audit.
- University department chairs, directors, deans, and vice
chancellors (including associate and assistant administrators)
shall not acquire an equity position in any such company
when the respective department, center, school or college
may benefit financially from a license of University owned
technology to the company or other agreement with the company.
This restriction shall not prevent such university officials
from acquiring equity positions in start-up companies licensing
university technologies when they are an inventor/creator
of the technology licensed to such company.
- Each Research Foundation shall divest its equity position
as soon as feasible. Such a sale will be accomplished upon
the advice of a Research Foundation's Investment Subcommittee
and a Research Foundation's investment manager.
- The prohibition on the acquisition of an equity position
by individuals described in this section shall apply equally
to immediate family members and members of those individuals'
household as well.
Questions? Please contact:
William Sharp
785-864-7430 | wsharp@ku.edu
Director | Research Integrity
— or —
Susan MacNally
785-864-4148 | sumac@ku.edu
Compliance Coordinator | Research Integrity
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