What we have learned from multiple transactions
How do new technologies that are discovered by academic institutions find their way out of the university and into the commercial world? The process involves a commercializing party, a Tech Transfer Office (TTO) and an inventor. A technology transfer is the process that universities use to translate research discoveries or scientific findings into new products, technologies or drugs that benefit the public. It is a lengthy process with many negotiating parties that have aligned interests yet different motives. This three-sided negotiation is often complex and delicate but has given rise to incredible successes, such as Gatorade, the drug Humira and countless other conveniences and life-saving technologies.
Kiley Grant
– CEO of Oleolive, Inc.
If you are interested in pulling a technology out of a university, how do you start? What are key terms that matter and what are the expenses that will surprise you? I am going to try to lay out the answers to these few questions over the course of the following paragraphs as succinctly as possible; however, these are nuanced questions that will differ with every transaction.
Where do you start?
I believe that most people inexperienced in university tech transfer may be thinking that the TTO is the place to start, but that isn’t necessarily the case. Since the inventor of the technology (usually a professor at the university of interest) has a vested interest in the commercialization of their invention, a relationship with them is the best way to start. Also, there are generally multitudes of unpublished and tacit knowledge associated with the invention that is held by the inventor that a licensing party would not get the benefit of if not for a relationship with the inventor (or could be negotiated in a license deal). Start by reading the publications that are available by the inventor. Establish realistic questions and begin to develop a rapport with the inventor. Once you know you can work with the inventor, have them facilitate an intro to the TTO.
What are popular key terms?
Key Term A: FOU, aka Field of Use. FOU determines how you can use the tech. If you are licensing a drug to treat gout, but the FOU is for glioma, you will not get far commercially.
Key Term B. Royalty Rate. This rate determines how much of the money that flows into the commercial partner flows back to the university. Royalty rate could be looked at as a cost of goods sold and directly affects gross margin. As the commercial partner, you want the royalty rate as low as feasible.
There are many other terms that can be segmented into economic terms (what will impact the costs) and non-economic terms. Many times, the university will put more weight on the non-economic terms than the commercializing partner and these can be used to help negotiate a license where both parties are satisfied.
What expenses will surprise you?
To be frank, there are many. Most licenses oblige the commercial partner to reimburse the university for intellectual property (IP) filing related expenses and maintenance of that IP moving forward. This will be tens of thousands of dollars over the course of the tech’s life…potentially more. It won’t be spelled out in the license, but you will get a bill. Additionally, most licenses will have milestone payments associated with the development of the tech. As you hit commercial milestones, the university will want to share in that success. These costs need to be built into financial forecasts since they will be a direct hit to cash flow, potentially at a critical time in the development cycle.
Considering the above, what should be the goal of negotiation as the commercializing party?
To put it simply, risk sharing. Find places within the agreement where you can share in the risk associated with development with the university. If a large upfront fee is being requested, try to work it into a promissory note so that the university assumes some risk. While the university has borne all the development costs to date, in general, there is an order of magnitude more work to do and costs to bear. Additionally, prioritize the relationship between yourself and the inventor, as a strong alignment will save significant costs at the early stage and years of development time.
Tech transfer is an excellent way to start an entrepreneurial endeavor. It allows for deep expertise on impactful solutions to niche problems. The initial hurdles of filing and being awarded intellectual property protection have been jumped and proof of concept studies have been completed that will allow commercializing entities to seek funding from dilutive and non-dilutive sources.
Our company, Oleolive, has implemented this model effectively for more than five different technologies from four different universities and has found it to be a rewarding and exciting adventure. The first technology that Oleolive licensed has now made its way all the way to the market. That success came about from a University of Louisiana Monroe (ULM)-licensed technology researchers say has the potential to aid the body in maintaining the health of the brain, heart and joints by supporting a healthy response to inflammation among other novel mechanisms. Oleolive and ULM’s School of Pharmacy inked a contract to license an extraction method and application for oleocanthal, an active compound of olive oil.
If you would like to learn more about that product, you can visit www.oleocanthal.co. For more information on Oleolive, please visit www.oleo.live.
BRF’s Entrepreneurial Accelerator Program (EAP) has worked closely with Oleolive, Inc. EAP is made up of a team of financial analysts committed to helping launch startups in North Louisiana. The EAP team helps young companies in many different respects. If you have an idea for a startup company or an invention and are looking for help to launch, look no further than Shreveport’s own EAP.
