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Tag Archives: license agreement

Why Technology Transfer Offices Should Focus on Sponsored Research and Ignore Royalties: In Praise of UNC’s “Express License”

A story by Xconomy’s Sylvia Pagán Westphal yesterday highlights a new approach to technology transfer licensing being taken by UNC Chapel Hill’s Office of Technology Development: The Carolina Express License. At first glance, the agreement looks, as Westphal puts it, “not very sweet for the university.” UNC takes 0.75% of any exit transaction, but no equity, no milestones and only a 1% or 2% royalty. Here’s Westphal’s description of the UNC approach (including a witty juxtaposition of religious imagery):

“They call it the holy grail of tech transfer, though critics, I reckon, think of it more as heresy. Either way, it’s gutsy.”

Count me in the group that considers it tech transfer Nirvana Nirvana.

Why? Maximizing revenue from individual licenses is the wrong priority for University tech transfer. As UNC’s Cathy Innes says:

“Where we hope to gain is that if we get a lot of companies started, more of them will be successful and have more products on the market, so we’ll be more successful…”

The University of California tech transfer system calls this the “Home Run Model,” (pdf) recognizing that even with 420 companies founded and 800 products on the market, nearly half of all licensing revenue comes from the top 5 products and the top 25 accounted for 75.6% of all 2009 licensing revenue. If more companies are started, there’s a better chance one of them is the home run.

Here’s another reason: easier licensing negotiations mean more sponsored research, and sponsored research is way bigger than licensing. For example, the USC Stevens Institute for Innovation took in $7 million in licensing revenue in 2008; but nets $500 million annually in sponsored research. Even tech transfer powerhouse Stanford takes in almost 7 times more money from industry-sponsored research than it does from licensing (PowerPoint). A small increment in sponsored research would easily offset the marginal licensing revenue sacrificed in UNC’s template.

Since December when the Express License was introduced, it has been used to found 6 companies out of UNC. Whether these six succeed or fail, I bet every person involved — the P.I.s, the founders and the funders — will be more likely to work with UNC again than if they had negotiated an individualized license. Westphal quotes Lita Nelsen, director of the Technology Transfer Office at MIT as saying the University license “is not the hard part of the problem,” but the UNC model sounds vastly less painful than every tech transfer story I’ve heard or been involved in.

Bottom line: a better tech transfer experience = an easier start-up = more companies = more sponsored research = more tech transfer wins. Here’s hoping that UNC’s Express License goes forth and multiplies.

Twitter connection: hat tip to @ldtimmerman and @Michael_Gilman for links to the Xconomy story. Follow Sylvia Pagán Westphal on Twitter at @sylviawestphal or as part of my Twitter list of Biotech Pharma and Health personalities.

If You License IP in Canada, You Need to Know About Recent BIA/CCAA Amendments

Adapted from a bulletin by my colleagues Evan Cobb and Brad Newman:

In the U.S., Section 365(n) of the bankruptcy code provides protection to licensees in the event their licensor becomes insolvent.  Canadian law has not historically had that protection, forcing licensors to set up dedicated IP holding companies or other bankruptcy-remote structures to protect their licensees.  However, recent amendments to Canada’s insolvency legislation provide a solution for licensees, at least in the case of intellectual property licensors that are restructuring under the Companies’ Creditors Arrangement Act (“CCAA”) or Bankruptcy and Insolvency Act  (“BIA”) proposal regime.

Under the amendments, even if an intellectual property license has been successfully disclaimed by an insolvent licensor, the licensee’s right to use, or its ability to enforce a right of exclusive use of, the licensed intellectual property is not affected for the duration of the license agreement (which includes any rights of renewal).  The right to continued use is conditional upon the licensee’s continued performance of its obligations under the license agreement in relation to that usage.

Some cautionary notes regarding the Canadian amendments:

  1. The amendments do not provide protection to licensees in a standard bankruptcy or receivership scenario. If a receiver or bankruptcy trustee of the licensor were to sell the licensed intellectual property and terminate the license associated therewith, licensees would generally be left only with an unsecured claim against the assets of the licensor. 
  2. The exact definition of “intellectual property” is uncertain.  Under the U.S. Bankruptcy Code, “intellectual property” is defined specifically (and excludes trademarks).  A similar definition may be adopted in Canada, but at the moment the application could be quite broad.
  3. Obligations “in relation to” use of the intellectual property that the licensee has to comply with may be uncertain in some circumstances.  License fees that aggregate payments for all usage, exclusivity rights and maintenance services may be problematic in light of the amendments. Precise delineation of obligations under a license agreement that are attributable to use of the licensed intellectual property would be a prudent drafting response to the amendments.

Read the whole bulletin for more analysis of the amendments’ implications for IP licensors and licensees.

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Do the Q2 Venture Capital Numbers plus the HGS Success Indicate a Light at the End of the Tunnel for Biotech Funding?

light at the end of the tunnel smallMany of the articles and talks on biotech funding over the past year or so have lamented that public markets are closed to biotechs, and that the absence of a public exit, coupled with the preference for licensing over M&A by big pharma, would seriously dis-incentivize venture funding for biotech startups.  Two data points this week suggest the tide may be turning:

  1. Human Genome Sciences’ drug candidate for Lupus shocked analysts, showing positive results in its clinical trial, which sent HGS shares up almost 400% and boosted shares of two other companies working on products in the same pathway.  More importantly, it reminded risk-seeking investors of the outsize returns that make them love biotech stocks.  Remember last week’s NVCA study showing a 20% cost-of-capital for biotech?  Everyone (including me) focused on the take-away argument for biologics exclusivity, but now is a good time to remember that the cost-of-capital calculations are backed into from the historical (outsized) returns shown by biotech’s success stories.
  2. PwC-NVCA numbers released Monday showed biotech as the biggest recipient of funds in Q2, exceeding every other industry (thanks in part to the crappy numbers for other industries, but still…), and getting $3.67 billion for 612 companies January-June.

The change in mood has been immediate.  One obvious example is this piece in the WSJ’s Venture Capital blog that touts the value of biotech partnering deals as a boon to investors.  The same partnering deals that just a few weeks ago were described as barriers to VC exits are now a rationale for follow-on investment.

Not that there aren’t still challenges.  The Aveo Pharma deal in the WSJ post has two important features — they retained key assets for an M&A or public exit and their partner took equity in the licensing deal –  but a few more headlines like “Biotech Start-Ups Striking It Rich With Partnerships” and we could be on the road to a biotech recovery.

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Cardiome Licenses Vernakalant (Oral) to Merck

Merck & Co., Inc. and Cardiome Pharma Corp. announced a collaboration and license agreement that provides Merck with exclusive global rights to the oral formulation of vernakalant for the maintenance of normal heart rhythm in patients with atrial fibrillation.

Here’s the deal:

  • US$60 million upfront
  • up to US$200 million in development and approval milestones
  • up to US$100 million for approval and subsequent indication milestones
  • tiered royalty payments
  • and up to US$340 million in sales threshold milestone payments
  • Cardiome retains a U.S. co-promotion right
  • Merck will be responsible for all future costs associated with the development, manufacturing and commercialization
  • Merck has granted Cardiome a secured, interest-bearing credit facility of up to US$100 million that Cardiome may access in tranches over several years commencing in 2010.

Cardiome and Astellas Pharma U.S., Inc. have a deal for vernakalant (IV) in the United States, Canada and Mexico; and this deal provides a Merck affiliate, Merck Sharp & Dohme (Switzerland) GmbH, with exclusive rights to the IV formulation outside of the United States, Canada and Mexico.

Effectiveness is subject to the HSR clearance, as well as other customary closing conditions.

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