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June 12, 1997

Pitt to invest in technology transfer projects based on faculty research

Acting for the full Board of Trustees, the board's investment committee has approved the borrowing by the University of up to $5 million to help support technology transfer projects based on the research of Pitt faculty.

According to the loan resolution, passed June 9, projects for which the money will be used are designed to add to the University's resource base, stimulate the local economy and create jobs.

At its February 1996 meeting, the full Board of Trustees made such "partnering in community development" a priority of the University.

Investments will be made through a limited partnership known as the University Strategic Development Fund, which includes Pitt and the University of Pittsburgh Medical Center System.

Shortly after that February 1996 trustees' meeting, Arthur Boni was hired as director of Pitt's Office of Technology Management. For the past 15 months, he and his staff have been preparing plans for investment by the University in technologies developed by faculty members.

"We'll be looking for good investment opportunities that have local job creation potential," Boni said. "Our office will be working very actively with these people [faculty] to form companies and commercialize their technology." Boni said investments by the Strategic Development Fund will focus on technologies developed at the University. However, the fund also will look at complementary technologies from the outside "to the extent that bringing them into the portfolio would strengthen an existing company." According to Boni, investments by the fund will be limited to about 20 percent of the total funds invested in a company. He said the fund's total investment in a company will be in the $500,000 range.

"We would, of course, look to leverage that investment by bringing in outside money after the valuation of the company has been increased substantially," he added.

Several projects already have been identified as possible investment opportunities, according to Boni. He said Pitt could invest in some of them as early as this summer. Those projects include artificial organs, phar-maceuticals, gene therapy, bio-informatics and various new materials.

The Office of Technology Management has been identifying possible investment opportunities through the patenting process.

"As part of our [Pitt's] evaluation process of making a decision on patenting, we do a business analysis and start working with a faculty member very early on," Boni said. "We work with them and decide whether or not a project is, a) worth patenting and b) is it something we want to license out to an existing company or is it suitable for consideration as a start-up company." The loan will come from the University's Consolidated Endowment Fund, which essentially means Pitt is borrowing the money from itself, and will bear a floating interest rate set at the three-month London Inter-Bank Offered Rate (LIBOR) plus 40 basis points (0.40 percent) effective July 1 and reset quarterly.

As of June 2, the three-month LIBOR was 5.81250 percent. The 40 basis points in the loan agreement would push that rate to 6.21250 percent, according to investment committee figures.

Interest on the outstanding principal balance will be payable starting Oct. 1 and continuing quarterly until July 1, 2004. The principal will be payable as follows: * July 1, 2002, $1.5 million or 30 percent of the then outstanding principal balance.

* July 1, 2003, $1.5 million or 30 percent of the then outstanding principal balance.

* July 1, 2004, $2 million or the entire unpaid outstanding principal balance.

The principal also may be prepaid at any time without paying a premium or a penalty.

–Mike Sajna

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