GovernmentIndustry Partnerships for the Development of New Technologies The Advanced Technology Prog

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Government-Industry Partnerships for the
Development of New TechnologiesThe Advanced
Technology Programin the Knowledge Economy
Briefing for the Manufacturing Task Force
17 March 2003 Russell Senate Office Building,
Room 418

• Charles W. Wessner, Ph.D.
• cwessner_at_nas.edu [phone]
• Board on Science, Technology, and Economic Policy

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Goals of Presentation

• Provide Policy Context to NRC Analysis of
  Government-Industry Partnerships
• Academy Assessment of the Advanced Technology
  Program
• Note Examples of Foreign Practice
• Address Common Questions about Partnerships

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U.S. Policy Context for Partnerships Analysis
Ambivalence

• The United States is traditionally ambivalent
  about government support for applied RD.
• Policymakers most comfortable with linear model
  of innovation
• many believe that government support for basic
  RD will transfer seamlessly to economy at large
• Genuine skepticism in Washington about government
  support for industrial innovation, in spite of
  numerous examples from the past, current
  practice, and overseas

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U.S. Policy Context Ambivalence about
Partnerships Despite Ample Precedent

• 1798 - Grant to Eli Whitney to produce muskets
  with interchangeable parts, founds first machine
  tool industry
• 1842 - Samuel Morse receives award to demonstrate
  feasibility of telegraph
• 1919 - RCA founded on initiative of U.S. Navy
  with commercial and military rationale. Patent
  pooling, antitrust waiver and equity
  contributions.
• 1969-1990s - Government investment in forerunners
  of the Internet
• Current investments in genomic/biomedical research

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NRC Analysis of Current Government-Industry
Partnerships

• Multiyear Assessment Program focused on
  Operations Output of Partnership Programs
• not an ideological discussion of general
  principles.
• Goals Identify Best Practice Improve
  Management of Current Future Partnerships
• Benchmark Domestic Foreign Practices and
  Resources in Key Sectors by
• Recognizing diversity of goals of different
  agencies in different sectors different
  countries
• Highlighting common challenges
• Underscoring reality of past practices and
  current need for collaborations and assessment

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Focus Areas in Government-Industry Partnerships

• Analyzing existing Partnerships Programs
• Small Business Innovation Research Program
• Advanced Technology Program
• Government-Industry Partnerships in Biotechnology
  and Computing
• and Current Potential Consortia
• Sematech for Semiconductors
• Partnerships for Solid State Lighting
  

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Government-Industry Partnerships Current Focus
Areas in Innovation System

• Industry-National Laboratory Partnerships
• Review of Sandia Science and Technology Park
• Review of ST Park Initiatives at NASA Ames
  Research Center
• International Collaboration Benchmarking
• US-EU Science and Technology Agreement Enhancing
  Transatlantic ST Cooperation
• National Programs to Support the Semiconductor
  Industry Japanese, European, Taiwanese, Chinese
  and U.S. programs

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ATP was one Element of Analysis

• Prominence as a partnership program
• Significant size approximately 200 million
  annually peaked at 341 million in 1995
• High profile in the technology policy community
• Ambitious goals
• Develop high-risk, high payoff technologies with
  economy-wide benefits
• Innovative Mode of Operation
• Industry-Driven Cost Sharing Required
• Technical and Commercial Feasibility stressed
• Emphasis on collaboration across companies to
  spread know-how increase award impact

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Traditional U.S. Debate

• Debates on principle but less assessment of
  practice little understanding of early-stage
  finance and previous/current practice
• In fact, U.S. deploys multiple partnerships
• ATP is Industry driven. Cost-sharing acts as a
  reality check, provides for flexibility, limits
  dead-ends, backed by exceptional assessment
• Other programs, e.g. SBIR or CRADAs, are
  widespread and much larger than ATP
• These programs are much less well assessed and
  may be less well run than ATP

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Breakdown of US Venture Capital by Stage of
Development-2002
302.8 million
Source PricewaterCoopers, Venture Economics,
National Venture Capital Association, 2003
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Average Deal Size

• Important in Early Stage Funding

Charles W. Wessner, Ph.D.
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ATPs Place in the Innovation System

• ATP Provides a Valuable Step on the U.S.
  Innovation Ladder
• Institutional Role in Early Stage Finance is
  Limited
• Growth in Average Deal Size Works Against Small
  Firms
• Increased Risk Aversion by Institutional
  Investors Works Against New Innovations,
  especially those in small firms
• ATP has Unique Focus on Spillover Technologies
  with High Social Benefits

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Programs to Bridge the Valley of Death
Uncertainty and Distance to Market
Basic research Curiosity research Strategic
basic research
Friends, Families Fools
The Financial Valley of Death The Focus of
SBIR and ATP
Seed
Need for Supportive Policy Framework
Angel
Applied research Product development Commercialisa
tion
1st Round VC
Private Industry Allocation Curve
2nd Round VC
Business development Investment
Expansion
Venture Capital Allocation Curve
Total Allocated Resources
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ATP Critical Characteristics

• Focus on developing the economic benefit for
  early stage, high-risk, enabling innovative
  civilian technologies
• Encourage formation of partnerships and consortia
  to encourage technology development and diffusion
• Rigorous, competitive selection process with an
  independent evaluation of the project's
  technical merit, commercial worthiness and
  potential for broad-based benefits
• De-briefing for all non-winners.

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ATP Comparative Advantage

• ATP benefits from industry lead on priorities,
  tight management and close assessment
• ATP has demonstrated successes in wiring boards,
  automobiles, semiconductor technologies, and new
  medical diagnostics
• Example New ATP-supported mammography system
  gives good detection, with greater accuracy, at a
  lower cost, and is therefore more widely
  available. Digital records are
  transportablei.e., second opinions easy.

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ATP Programmatic Activities

• ATP funds high-risk, high payoff technologies
  beyond capabilities/hurdle rates of individual
  firms.
• ATP can be countervailing force to herding
  tendencies of venture finance.
• ATP and Genomics Research ATP is uniquely
  positioned to contribute to the
  cross-disciplinary challenges in genome research.
• Assessment program is well-developed potential
  model for other technology programs.
• Dissemination of enabling technologies is key to
  public benefits and rationale for public support.

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Report Summary

• The Committee finds that the Advanced Technology
  Program is
• Achieving its legislative objectives
• Carrying out an exceptional assessment program
• Establishing a record of valuable achievements,
  some of great promise
• Generating high social benefits via health
  diagnostics, tools to exploit the genome,
  semiconductor research, tissue repair, and
  improved manufacturing

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Report Summary

• The Committee believes ATP can be improved
  through
• Adopting a revolving application process
• Concentrating a proportion of awards in thematic
  areas while also retaining the general
  competition
• Insuring integration of assessment results and
  early publication of assessments
• Assuring greater predictability and stability in
  funding
• Uncertainty is the enemy of proposals for and
  execution of research and development programs

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Policy Context for ATP Uncertainty in Funding
Millions
90
340.5
221
218
199.5
192.5
197.4
184
180
142.6
145.7
67.9
49.4
37
0
9.9
Note Budget Proposal for 2004 is 0
Fiscal Year
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Report Summary

• The Committee believes the ATP management should
  capitalize on ATPs core competency
• i.e., its ability to screen, select, monitor, and
  assess projects with technological and commercial
  promise.
• To do so, the ATP management should
• Consider expanding cooperation with state
  programs to extend ATP best practice in project
  review, selection, and monitoring
• Should seek greater collaboration in the form of
  work for others, i.e., agencies such as NIH
  that focus on generation and demonstration of new
  research ideas, but not commercial development

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Report Summary

• Collaboration with state governments would
  include
• Increased technical certification
• Leveraged program funding
• Expanded best practice selection procedures
• Align state programs and ATP awards
• To maximize the nations return on the program,
  the ATP could use more funds efficiently and
  effectively, consistent with the goals set for
  the program

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ATP Award Concentration

• Electronics Computers 38
• Manufacturing 22
• Biotech and Advanced Materials 14
• Information Tech 12
• Small Companies 63 of Awards

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Impact of ATP Awards

• Medical Cost Savings
• Biopolymer Repair avoids second surgery
• Bone Marrow replaced by Stem Cell expansion
  technology (Less Pain, Better Outcomes, Much
  Cheaper)
• Knee Repair (cheaper and better)
• Breast Cancer detection (accurate, cheaper,
  transportable, fewer false positives, therefore
  fewer biopsies)

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Impact of ATP Awards

• Improved Manufacturing in Automobiles Computers
• Printed Wiring Board Consortium
• improved productivity competitive position of
  US suppliers for PWBs
• Saved Est. 200,000 Jobs
• High Temperature Super Conducting Wire
• improved operation of motors, transformers,
  specialty magnets
• Better Auto Bodies
• improved automobile quality, production and
  reduced production costs

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ATP A Way to Meet the Terrorism Challenge

• ATP Core Competency Track Record Offer Major
  Advantages in the
• War on Terrorism
• Could help to bring new anti-terror technologies
  to market sooner
• Could help meet new threats with Faster, Better,
  Cheaper technologies by harnessing the power of
  the market

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ATP A Way to Meet the Global Competitive
Challenge

• Helps Capitalize on U.S. RD Investments
• Helps Spread Know-how Across Firms
• Develops Technologies with High Economic and
  Social Payoff
• Brings Small Business and Big Business Together

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• The Stakes of Global Competition

High Value Added and Less-High Value Industries
are All Targeted
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International Context Examples of Foreign
Partnerships

• Tekes in Finland
• similar to ATP - 387M Euros annually
• Semiconductor Partnerships in Japan
• ASET Program (1995-2000) - 473 million
• Six other partnerships underway
• Medea II in Europe
• JESSI (1988-96) funded at 3.6 billion
• MEDEA 500 million Euros annually
• Framework 17.5 billion Euros annually
• German Seed Capital Program
• approx. 375 million in 2000
• Belgiums IMEC
• 91.1 million Euros annually

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Government-University-Industry Collaboration in
Japan
(Source SIRIJ-Semiconductor New Century
Committee Report)
Semiconductor Industry
Government
Industry
Electronics Industry Association of Japan Roadmap
(ITRS) 1998
Semiconductor Industry Research Institute of
Japan SIRIJ 1994
ETL
NEDO
Semiconductor Leading-Edge Technologies Selete
1996
Semiconductor Tech. Academia Research
Center STARC 1995
Association of Super- Advanced Electronics
Tech. ASET 1996

Limited Activity on Research Litho/TCAD /PFC Emis
sion
300mm Equipment and Material Evaluation

Small Geometry Lithography Etching Plasma Process
Universities
VLSI Design and Education Center VDEC 1996

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U.S. Policy Context

• Criticisms of Partnerships
• Picking Winners and Losers
• Picking Winners and Losers
• Picking Winners and Losers
• Picking Winners and Losers
• How does repetition inform policy?

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Summary

• ATP is Part of a Long History of Government
  Support to Industry
• ATP is Very Effective
• ATP is Well-Managed and Carefully Evaluated
• ATP Contributes to Retaining Manufacturing in the
  U.S.
• ATP Contributes to Jobs, Health, and Wealth
• ATP Can Help with the War on Terror
• We Need to do More Partnering Not Less

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Common Questions
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Common Questions

• Does U.S. Policy include Partnerships?
• Answer Yes, 1996 study identified over seventy.
  They are created whenever there is sufficient
  consensus to establish one.
• Are We often Skeptical about Partnerships?
• Answer We are skeptical in principle and
  traditionally pragmatic in practice.

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Common Questions

• Do other Countries Value our Experience with
  Partnerships?
• Answer Yes. SEMATECH is widely considered a
  major success and is increasingly imitated.
• ATP is considered a model program.
• SBIR attracts much attention
• The use of partnerships, as well as direct
  subsidies, are growing rapidly overseas.

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Common Questions

• Are we Picking Winners and Losers?
• Answer Certainly. The goal is to have more
  winners than losers (or at least have the winners
  make up for the losers).
• Advanced RD is inherently risky
• Small companies face high attrition
• VC success is 2 out of 10
• ATPs success is
• 16 at the top end
• 58 at the middle
• a different target from VCearly phase development

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Common Questions

• Are we Picking Winners and Losers?
• Answer We always have and still do support new
  technologies.
• Examples abound from the origins of the republic
  to today.
• Procurement from muskets to semiconductors
• Eli Whitney and Simeon North
• Cost Plus Contracts for Minuteman Missiles
• Federal Support for New Technologies
• Telegraph award to Samuel Morse, 1842
• Railroad incentives to railroads - land grants
  for each mile of track
• Radio RCA created with patent pooling, Navy
  participation
• Internet, and
• Genomic-based medicine, today
• Regulatory Choice
• Spectrum allocation

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Common Questions

• Should we do this? Isnt this intervening in the
  economy?
• Answer Compared to what?
• Current U.S. practice internet to biotech
• NIH 7 for companies 10 for non-profits
• 17 of 20.3B in FY2001 3.4B in grants
• Global practice vs. U.S. preference
• Germany, France, Finland, Taiwan, and Japan all
  have large, diversified programs.

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Common Questions

• Do Partnerships Crowd Out Private Capital?
• Answer No. Public investments and private
  investments are complementary.
• Public awards are small compared to the pool of
  private venture funding ATP is 200 million
• Total US venture investments in 2002 21.2
  billion
• Total US venture investments in 2001 41.3
  billion
• VC funding targets later in technology
  development cycle.
• Awards actually attract private capitala
  crowding-in effect.Feldman Kelly

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Programs to Bridge the Valley of Death
Uncertainty and Distance to Market
Basic research Curiosity research Strategic
basic research
Friends, Families Fools
The Financial Valley of Death The Focus of
SBIR and ATP
Seed
Need for Supportive Policy Framework
Angel
Applied research Product development Commercialisa
tion
1st Round VC
Private Industry Allocation Curve
2nd Round VC
Business development Investment
Total Allocated Resources
Expansion
Venture Capital Allocation Curve
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Common Questions

• Would Private Capital Support the Project Anyhow?
• Usually not Recent research shows that 2/3 of
  non-award winners do not do proposed RD at all,
  others reduce scale.
• Sometimes government awards are necessary to
  attract internal funding, e.g., mammography at
  GE.
• Sometimes awards play important role in
  expediting technology development with welfare
  and competitive advantages.
• Sometimes yes then ATP withdraws.
• Leveraging Research and Development The Impact
  of the Advanced Technology Program. Maryann P.
  Feldman and Maryellen R. Kelley, 2000.

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Common Questions

• Why Give Awards to Large Companies?
• Answer Its the technology that matters, not the
  size of the company.
• Large companies bring special advantages to
  partnerships
• expertise, funding, and infrastructure
• management resources and market power
• New ideas in large companies face valley of
  death
• new ideas are new and lack advocates
• internal hurdle rates may exclude ideas with
  broad applications
• Large companies push new technologies to market
• Cooperation with small companies especially
  positive

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Technology Matters

• Technology drives economic growth
• Generates jobs, enhances welfare, assures
  national security
• For these reasons, U.S. has long history of
  federal support for new technologies
• Competition in the global economy
• Foreign competitors have larger technology
  support programs
• These programs employ a broad range of measures
• trade, tax, procurement, standards, government
  equity finance, and regional aids

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Keys to Success

• Cooperative Programs and Government Support seen
  as the Key to New Technologies, in order to
• Achieve Government Missions
• Sustain Economic Growth
• Enhance Citizen Welfare
• Keys to Making Sure these Programs Work
• Industry Leadership
• Shared Cost,
• Frequent Assessment
• Failure is a Frequent Partner in Advanced RD
• Risk of Political Capture Blocked by Cost Share

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Concluding Points

• New, independent Academy report supports ATP as
  an effective RD program.
• Independent research documents program benefits
• Programs tight management, documented benefits,
  and potential for synergy with other federal
  programs, e.g. NIH, are
• a credit to the Department of Commerce

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Concluding Points

• Government plays a unique role in partnerships
• Neutral ground for technology development
• Establishment of de facto industry standards
• First-mover advantage possible for national firms
• Consortium programs stimulate technology
  diffusion
• Government partnership programs provide conduit
  to the marketplace

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Report Summary Main Points

• 1. The NRC report is the most comprehensive
  assessment of a comprehensively assessed program
• Main Finding it works
• 2. Economists clearly established that new
  technologies are essential sources of growth,
  employment, and wealth generation (e.g.,
  semiconductors and printed wiring board)

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Report Summary Main Points

• 3. Welfare-enhancement of new technologies (e.g.,
  wireless and especially health).
• Societal benefits from improved diagnostics for
  breast, colon, and prostate cancer are enormous
  (Austin/Macauley)
• Economic productivity driven by new technology
  (e.g., semiconductors)
• 4. Facilitating technological development is
  worthwhile
• costs are low returns can be high some wastage
  inevitable. ATP is one, effective vehicle.
• 5. On-going Assessments are key
• ATP program is a model both in terms of scope,
  depth, and on-going nature of its assessment
  program.