Starting Uphill

Start up companies face a tough go- converting a new technology into saleable products on minimal funding- and those aiming at products for global health have even a harder challenge by swimming against the conventional wisdom that a highly-priced, reimbursable product is the only way to profitability.  But one piece to solving the currently intractable problems in global health is the lever of technology underlying innovative, affordable products.  For all start-ups, time is money and the shorter time to a product prototype the more likely is revenue and survival, and to fund that prototype development stage most start-ups patch together funding from government (or very rarely, foundation) grants and private sources while trying to convince a major, established company that that wants access to the technology and/or the resulting products to foot the product development bill.  For the few early-stage companies in global health, the basic deal is to either convince the major company partner to sell the licensed products at discounted prices in pre-defined low income countries or, when the start-up has a technology platform for creating multiple products, grant the partner rights to only to high income countries.  In these deals, exclusive rights are “demanded’ by the partner so that it can control product development, exploit the most profitable markets, and maximize profits, all very reasonable.  However, I think that the exclusive licensing route has enough problems for global health product companies to warrant use of a nonexclusive licensing approach.  (If anyone has an example of the exclusive licensing strategy working for a global health company, please comment below).

I should first note that a nonexclusive licensing to multiple companies is probably not workable when the prototype is for a drug, given the large investment needed for product approval and the need for the licensee to control all aspects of the product development, approval, and sale to have a hope of a return on its sizeable investment in product testing and approval.  That being said, companies with platforms for discovering/creating drugs or vaccines or for delivering them or for diagnostics or for medical devices could license nonexclusively to multiple companies.  For global health companies, by  lowering the barrier to product development and creating competition among multiple licensees, they advance their goal of getting low cost products in use fast.

So in broad strokes, the advantages to pursuing a nonexclusive licensing strategy are:

  • products using or discovered using the licensed technology get to market faster than a single product developed under and exclusive arrangement;
  • multiple similar products generates competition and therefore leads to lowest costs and prices;
  • the licensor may pursue development of products that are specific to its interests (e.g., low-cost diagnostics for treatments for neglected diseases sold to public sector customers);
  • lower transaction costs (less complicated negotiations and licenses);
  • licensing to less wealthy, non multinational, companies; and
  • licenses may be modified to be IP only or include technology transfer or co-development depending on abilities and interests of the licensee.

Of course, there are disadvantages:

  • the revenue from the multiple licenses needs to come quickly (e.g., as up-fonts) and must be significant;
  • pricing needs to be well-thought out to be both attractive and non-negotiable (first-in should have the best pricing); and
  • transaction costs could be excessive.

Looking at the real world, while the large majority of licenses are exclusive, there are examples of successful nonexclusive licensing programs and nonexclusive licenses.  Two of the best known programs are for two core biotechnologies (and therefore may not be good examples):  the Cohen-Boyer gene engineering platform which was license broadly by Stanford University to start the biotech industry and the polymerase chain reaction (PCR) technology licensed to many companies by Roche, mostly for molecular diagnostics, starting in the 1990s.   And, of course, in the global health field, and also may be not a good example since the licensor is an established company, there is the nonexclusive licensing by Gilead Sciences of its antiviral, tenofovir, to several generics manufacturers (American article).

In the category of a smaller company licensing to a large company nonexclusively, I noted the German biotech MorphoSys recently closed a nonexclusive license and technology transfer agreement with Pfizer for a platform for gene and protein libraries (FierceBiotech article).  In the diagnostics industry, I found multiple examples:

  • Epigenomics to multiple companies for a cancer biomarker (Epigenomics);
  • Epoch (Nanogen) to Celera for its platform (Epoch);
  • Xceed Molecular to Gen-Probe for a microfluidics platform (Xceed);
  • Roche to Aligent for its “melting curve analysis” technology (Agilent);
  • Orion Genomics to Novartis Diagnostics for its MethylScreen platform (Orion); and
  • Pathways Diagnostics to Quest Diagnostics for “hetereoduplex tracking” technology (Pathways).

As I have noted in previous postings, there are relatively few early-stage companies that have products in development to address global health/neglected diseases.  But several of these are built on platforms that could be licensed nonexclusively to generate revenue for product development, e.g.,:

  • Aktiv-Dry LLC, nano-particle drug delivery (Aktiv-Dry);
  • Archivel farma SL, vaccine technology (Archivel);
  • Claros Diagnostics, microfluidics platform (Claros, Claros);
  • Diagnostics for All, diagnostics platform, (DFA);
  • Genocea Biociences, vaccine technology (Genocea and Pipeline);
  • GenPhar, vaccine technology (GenPhar);
  • Ionian Technologies, diagnostics platform (Ionian);
  • Rapid Biosensor Systems, diagnostics platform (RBS);
  • Xcellerex, biomanufacturing platform (Xcellerex).

The nonexclusive route is not conventional wisdom, but I think it is worth a try.

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