By Allain C. Andry, Robinson, Bradshaw & Hinson, P.A.
Allain Andry
The past few years have been tumultuous for biotechnology. All companies and institutions have felt the effects of the general economic recession since 2008. More specific to biotech, the intellectual property, regulatory and reimbursement environment in the United States has been in a state of flux and uncertainty.
On the other hand, basic scientific and technological advances in genomics, cancer therapies, diagnostics and other fields continue to astound.
A fundamental challenge in biotechnology always has been to translate scientific discoveries into commercial products. The past few years have magnified that challenge. Venture capital and other sources of funding – especially for start-up and early-stage companies – have been extremely tight.
New companies willing to tackle innovative biotechnology R&D struggle in their search for capital while, at the same time, big pharma has sharply reduced its budget for basic research and early-stage development. These tough circumstances call for new creativity in the effort to advance new and promising discoveries.
New Licensing Approaches
Licensing is often a key transactional element in biotechnology development. A typical example is an academic research institution seeking to license a new scientific discovery to a start-up company that can take over from there, raising capital and developing the technology to the point of commercialization. But the challenges of finding funding, the high costs of product development and testing and the inherent risk in new technologies have hampered this traditional path of technology transfer.
One innovation in licensing is the standardized form license, exemplified by the Carolina Express License Agreement which was developed by a committee at UNC Chapel Hill that included faculty, the Office of Technology Development and outside venture capitalists and lawyers. The goal of the standardized form license is to streamline the process of licensing a new technology.
Licensing has often required lengthy, complex and expensive negotiations involving the inventor/faculty member, the university technology transfer office, the new company and its financial backers. The standardized license, which can include pre-established economic terms, such as milestone payments or royalty rates, is intended to reduce some of these obstacles.
A different approach
Another approach is seen in start-up companies that seek to focus narrowly on the research and proof of principal stages of technology development. This approach seeks to avoid raising the very large amount of capital necessary to finance a product to later stages of development.
Rather, the company intends to advance new technology only to the stage where it will first become attractive to larger companies. For these early-stage development companies, the ability to source (in-license) and exit (out-license) a large number of technologies in an efficient manner is critical.
A third approach is the licensing out of technology not by research institutions but by established biotech companies. As larger companies sharpen their focus on core interests, they may discover that they have previously developed or acquired a promising technology that they cannot pursue internally. One solution is to license that technology to a small company, sometimes with financial and other support from the larger company. \
The licensee will then add its own capital and expertise in an attempt to commercialize the technology. If the larger biotechnology company wants to retain rights to reacquire the technology (e.g., through a right of first refusal or right to sub-license) such licenses can quickly become quite complex.
The biotechnology industry has been and will continue to be challenged by economic and regulatory uncertainties. But there may be a silver lining to these tough times. The need to trim transactional costs and streamline technology development promotes creativity in biotechnology transactions, particularly technology licensing. The whole industry stands to benefit as these challenges produce efficient and productive innovations not only in the science of biotechnology but in its business and legal structures as well.
This article is the third in a four-part series that examines the emerging biotechnology and life sciences industries in the Southeast. The final entry will examine how North Carolina has fostered continued life sciences growth and emerged as one of the country’s leading areas for biotechnology development.
For Part one see: Economic incentives available to biotech manufacturers ; For Part two see: Five Keys to North Carolina’s successful biotech cluster
Allain Andry serves as chair of the Life Sciences Practice Group at Robinson Bradshaw & Hinson, a corporate and commercial law firm with more than 125 attorneys. The firm has offices in Charlotte, the Research Triangle and Rock Hill, South Carolina. He can be reached at 704-377-8359 or aandry@rbh.com. On the Web at www.rbh.com.
Southeast Venture Conference, February 29 – March 1, 2012 at the Ritz Carlton in Tysons Corner, VA – Where Smart Money Meets Smart People.
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