University labs are one of the biggest engines of innovative healthcare technology in the country. But translating those discoveries from the campus to the consumer poses unique business challenges around licensing.
A panel at the WSGR Medical Device Conference in San Francisco delved into the specifics around what oftentimes sinks the relationship between companies and colleges and how to create real alignment and understanding between the two stakeholders.
Sunita Rajdev, senior associate director of the UCSF Office of Technology Management, said one of the major points that prospective licensees should make clear is what exactly is going to be done with the technology.
For example, explaining the full scope and potential of how the technology may be used across different applications.
“If it does have multiple applications then we need to have a conversation around field of use so that we can make sure that all aspects of the technology are developed and not just sitting on the company’s shelf,” Rajdev said.
Another point of negotiation, according to Rajdev, needs to be the discussion around timelines and milestones for commercializing the technology.
“From the University of California’s perspective we’re managing assets that belong to the state of California as well as to the inventors, so we’re looking for overall fair consideration,” Rajdev said.
John Maroney, the CEO of Alessa Therapeutics, a startup developing implantable drug delivery systems that is based on research done at UCSF, highlighted the kind of legwork that needs to be done by the company in order to develop a fruitful relationship with the academic institution.
“The first concern for a company licensing from the university is the question of what are you buying? Is there allowed claims? Is there issued patents? Is this an application that hasn’t seen an office action yet? And how compelling is that IP?” Maroney said.
“You have to do some analysis yourself about freedom to operate because the university is not going to do that work until they have a partnership or a deal.”
In order to allow some breathing room in that early stage of relationship building, Marony suggested signing a quick-start agreement or a letter of intent which provides exclusive rights to negotiate with the university.
In his case, Marony said that agreement gave him a base to raise seed money from investors and were able to delay some of the progress fees that come when an actual licensing agreement is signed. Another strategy Maroney employed was getting the university on the cap table as a shareholder, which creates more alignment between organizational goals.
In the case of diligence milestones which requires the company to project out its commercialization plan, Maroney said he was careful to negotiate around issues of penalties for missing out on checkpoints because it could affect the company’s ability to raise money and grow in the future.
In order to protect the company from the university unilaterally deciding to cancel the licensing agreement, Maroney suggested the inclusion of a mediation and arbitration provision to give an independent third-party a chance to rule on the decision.
Kathy Ku, who joined Wilson Sonsini Goodrich & Rosati as chief licensing advisor after 27 years leading Stanford’s Office of Technology Licensing, compared the initial negotiation process as a “first date” that leads to a longer-term relationship.
“I’m always about relationships, I think the companies should just talk to the universities, it’s not a fight, it has to be a win-win,” Ku said.
She said in the case of a company missing a certain milestone or running into other issues, universities are generally willing to renegotiate terms or provide extensions given that the company was upfront in the communication about their situation.
In this case of working smaller universities without the track record of schools like Stanford of UCSF, Maroney said the company needs to see themselves as educators and partners to the organizations that they are hoping to license technology from.
“You have to go into the education mode and you have to show them comparables and why you’re asking for specific terms or what have you,” Maroney said.
Ku added that smaller universities can be under more pressure to show a financial return and without the deal flow of larger institutions may overvalue their technology and IP.
“A lot of times you have to bring them down to what are the challenges in commercialization in general,” Ku said. “As a community we have to sell that in the long term a successful entrepreneurial culture comes out of having a supportive ecosystem.”
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