OTC News Archive

UT scores licensing deal

Emergent, university forming startup around enzyme technology

By Colin Pope, Austin Business Journal
April 23, 2004

When Neil Iscoe was hired last year to direct the University of Texas’ Office of Technology Licensing, he took the reins of an agency that had a reputation for being slow, bureaucratic and inflexible.

The perception alone was a deal killer for many businesses that wanted to commercialize the plethora of promising campus research. That list includes Emergent Technologies Inc., an Austin venture capital firm that had struck commercialization deals with other universities, but not UT.

So Iscoe began work immediately to bring a new business-friendly philosophy to UT’s commercialization office.

It paid off.

After mining technology mostly at the University of Oklahoma, Emergent has come home to roost. Emergent and UT say they have struck a deal to form an Austin startup around a promising new enzyme that could have a dramatic effect on the agriculture industry.

“Emergent’s focus hasn’t been on UT because, among the technology commercialization community, UT had a reputation of being hard to work with,” says Tommy Harlan, Emergent’s chairman, president and CEO. “But under Neil’s leadership, there is a new attitude and a new message that they’re more willing to do deals. That message got to us.”

The new startup, Entercel Ltd., marks a new type of venture for UT’s Office of Technology Licensing, which, among other things, licenses technology that’s patented by the university.

Rather than simply take equity in Entercel, which UT typically does when it licenses something to a cash-hungry startup, UT is a limited partner. Emergent is the general partner.

“This is UT’s first partnership deal, and it’s an attractive model,” Iscoe says. “By being a partner in the company, UT can realize proceeds in the first couple of years instead of waiting four to 10 years for an exit event like an IPO or acquisition.”

The regular distribution of income is an upside for Emergent’s principals and investors, too, plus there are tax benefits. But more important to Emergent, which doubles as a biotech-focused private equity firm and incubator, is the enzyme that Entercel will try to commercialize.

The enzyme is called Resistox, and its inventors say it could cut by half the amount of herbicides—or plant killer—being spread across Texas and beyond. Resistox regulates a cell’s ability to keep out foreign compounds. All plants have a “motor” that purges toxins. Resistox essentially shuts down that motor, allowing the herbicide to do its job better.

Cutting down on the volume of chemicals used to control weeds and other plants would allow herbicide manufacturers to produce less product, potentially reducing consumer costs. Plus, there are obvious environmental benefits to using fewer herbicides.

Although Entercel is focusing on herbicides for now, Resistox has other applications, co-inventor and former UT researcher Brian Windsor says. Windsor, who is Entercel’s chief scientist, says Resistox eventually could help agriculture scientists genetically modify plants, plus it could help humans overcome certain types of drug resistance.

But the herbicide market is first and foremost. The U.S. agriculture industry is facing a growing amount of federal incentives and mandates aimed at reducing the environmental effects from farming and landscaping, says Lee Christensen, a spokesman for the U.S. Department of Agriculture.

The herbicide market is valued at more than $15 billion, according to industry giant DuPont. Entercel’s staff will remain small during the immediate future, says Harlan, who has agreed to be the startup’s CEO. As Emergent does with other startups formed around college research, Entercel will be run by the 10-person management team at Emergent’s West Austin headquarters, which comprises business veterans with wide-reaching contacts.

Employees will be added when needed, Harlan says, but that might not be too far off.

“We’re envisioning that we’ll add staff later this year,” Harlan says.

Harlan expects it to cost between $500,000 to $2 million in seed capital “to make the company a success.”

Emergent already has poured an undisclosed amount of that money into the company. The remainder will come from larger business partners in the future—a company like The Dow Chemical Co. or DuPont, which have the deep pockets needed to take Resistox to the market quickly. Emergent also says it will seek grants from the Department of Agriculture.

Entercel wants to find its heavy-hitting partner sometime later this year. After that, Entercel might be able to complete product development and testing within a year, Harlan says.

“The biggest challenge is getting the product to market quickly,” Harlan says.

“There are breakthroughs like this all the time. The problem becomes getting that breakthrough out on the market in time to command a presence. Otherwise, all you’re doing is giving the big boys the idea.”