LICENSING AND TECHNOLOGY DEVELOPMENT-
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Hurdles to Licensing Early Stage Technologies

The flow of new technologies from universities to industry was greatly enhanced with the enactment of the Patent and Trademark Law Amendments Act of 1980, more commonly known as the Bayh-Dole Act. In exchange for the right to retain ownership of their patents on inventions developed using federal funds, universities are now charged with the responsibility to pursue the commercial development of these technologies through licensing. While the Bayh-Dole Act facilitated technology transfer, matching a university technology with a suitable licensee remains a challenge due to the very nature of the technologies themselves.

In contrast to the applied research generally conducted at for-profit institutions, most scientific research conducted at universities is directed toward gaining a better understanding of nature. As such, the results of university research frequently have great scientific, but not necessarily immediate commercial, significance. In a typical university disclosure, such as the report of a novel protein with speculative ties to clinical relevance, a specific product to be commercialized is often not defined. For other technologies, a prototype or proof of principle may be lacking. Because these inventions require significant further development, they are difficult to value and are commonly referred to as “Early Stage Technologies.”

Even with a product in hand and proof of principle firmly established, members of the business community still consider many technologies to be early stage. For example, a compound that has not successfully completed Phase I clinical trials is viewed as an early stage technology by the venture capital community no matter how promising the results of experiments conducted in vitro may appear.

The reasoning behind this characterization is based upon risk. The estimated cost of post-discovery R&D to bring one drug to market-readiness is approximately $580 million over the course of 13 years (Boston Consulting Group, November 2001). Much of this expenditure can be attributed to high rate of failure that occurs between target identification and regulatory approval. Because their further development is such a long-term high-risk proposition, industry is reluctant to invest in early stage technologies.

Initial hurdles encountered in the process of licensing early stage technologies include identifying and enticing potential licensees. Frequently, university investigators and technology managers focus on deep-pocketed big businesses that have, or are developing, products in the field. While industrial behemoths including pharmaceutical companies will, on occasion, license university technologies, these establishments are traditionally conservative and rarely express an interest in developing early stage technologies. Rather, the licensees of early stage university technologies are more likely to be small established businesses and less frequently, start-up companies. Fortunately, this reality is consistent with the provisions of the Bayh-Dole act that mandate universities give preference to small business firms (fewer than 500 employees) provided such firms have the resources and capability for bringing the invention to practical application.

Despite their marketing efforts, technology managers rarely find themselves in the coveted position of being able to select one licensee from among multiple companies that are interested in obtaining the exclusive rights (in the same field of use) to a technology. In fact, many university inventions do not receive any serious inquiries from industry. Consequently, such technologies do not get patented, and become part of the public domain.

Finding a company that expresses an interest in developing a particular early stage technology is only the first step to securing a licensing agreement. Often these companies will review the invention under a Confidentiality Disclosure Agreement (CDA), yet still elect not to license the technology. While upon close scrutiny the company may find fault with a particular technology, there are many reasons why even the most scientifically sound inventions are not licensed.

Money is usually at the root of the decision to or not to license. Rarely if ever, though, are the financial terms of a licensing agreement the deal breaker. Instead, the technology must out-compete other technologies for a finite pool of research and development resources within the company. These competing technologies could be similar technologies, some of which may be further along in development, or technologies that are part of unrelated projects within the commercial entity. Often these competing projects will have originated within the company and have the advantage of a strong internal champion. External financial factors relating to competition and the potential size of the market for the developed product are also important factors that companies will consider before entering into a licensing agreement.

Less obvious and further removed from the dollar are those factors relating to the nature of the intellectual property environment surrounding a technology. Because patents give their owners the offensive right to exclude others from practicing, but not the right to practice themselves, the owners (or licensees) of a patented technology do not necessarily have the right to sell, develop, or even to use the technology. Frequently, additional licenses to dominating patents that cover the general field must be secured in order to practice the invention. In carrying out their due diligence prior to licensing a technology, an experienced company will make sure that all rights necessary to practice an invention can be obtained. Difficulties in securing the rights to any piece of the complete intellectual property portfolio may prevent a company from licensing and pursuing the development of the specific university technology at issue.

In spite of these obstacles and the recent tight economy, early stage technologies created at Johns Hopkins Medicine continue to be successfully transferred to the biomedical industry. Such technologies exclusively licensed during fiscal year 2003 are now, or soon will be, in commercial development for diverse applications including medical device, diagnostics, prophylactics and therapeutics.