It's not business as usual:
While the halls of biopharma partnering conferences have refilled, it is definitely not business as usual in the industry. Valuations are down sharply from their pandemic highs, especially for preclinical and early-stage clinical companies, and transaction volumes – both M&A and licensing - have languished. And while in 2023, VC funds have raised respectable levels of fresh capital, much of it is expected to be consumed by existing companies rather than for company creation. Simply put, deals are harder to come by and require a lot more time and effort. This makes for a very challenging time for TTOs, who typically have a host of research projects frequently set at the beginning of a long, expensive and uncertain development path.
So how should the typical TTO address the above and navigate the current harsher climate? This is where experience and expertise really tell. A handful of TTOs – no more than two or three dozen worldwide – are responsible for a large majority of academic licensing deals and spin-outs, and these have built the specialisms afforded by critical mass of deal-flow as well as developed the institutional memory that comes with having navigated the past three or four biotech boom-bust cycles. Many others, frequently the smaller TTOs, suffer from overstretch, i.e., too many choices, insufficient manpower to effectively cover the remit and workload, and lack of industry knowledge and experience in triaging opportunities that arise from the research base.
Based on our work in the area over the past 15 years, we’ve outlined a number of strategies, actions, and learning points that can be helpful to TTOs wrestling with these challenges:
I. Prioritize and Focus:
Where one of the perennial issues is limited resources to prosecute projects, it obviously makes sense to ruthlessly prioritise work on those with the best prospects. Regular triage of developing projects is therefore essential to obtain a clear picture of technical status, development feasibility, commercial opportunity and route to market, and to be able to allocate resources accordingly. It also pays to regularly review the whole portfolio to test whether the business rationale for each project is still intact, and the science and intellectual property are still competitive. Does the market opportunity still exist or have alternative solutions obviated or shifted the need? Has the competitive or regulatory environment changed? Do the results still look best in class? Does biopharma still have interest in the target or mechanism?
Especially in a difficult funding environment like that which has prevailed over most of the past two years, criteria for project selection should focus both on their technical and commercial merits as well as consider the issue of “fundability”, i.e., is it possible, at the current time, to find resources to progress the project to commercial engagement, or at the very least, to a de-risking technical milestone, which could then unlock further funding? If the answer to any of these is negative, it is well to consider cutting the project sooner rather than later. Regrettably, all too often projects remain on TTO books when prospects are weak or non-existent, while consuming increasing patent prosecution fees as they proceed to the expensive regional/national phases. In the most extreme case we have seen, a university TTO had spent in excess of $290,000 prosecuting a small patent portfolio covering oligonucleotide therapeutics and imaging agents over several years, which sadly had no prospect of commercialization, and which in any event was too narrow to afford effective protection.
II. Plan, Plan, Plan:
The old saying, often attributed to Benjamin Franklin, goes “If you fail to plan, you are planning to fail”. This is as true in technology transfer as it is in business, government, or any other long-term endeavor. It would seem intuitively obvious that if the objective is to commercialize innovative science, then an appraisal of its route to commercialization, and the steps required to get there, needs to be made even before any attempt to protect IP is made. After all, in the absence of any commercial revenues, patent filing and management is simply a financial burden.
Surprisingly, we find that institutions still vary widely in the degree to which they plan for progression of projects to commercial engagement - although, on average, performance has improved considerably over the past two decades. While use of invention disclosure and assessment forms is almost ubiquitous, these vary greatly in the degree to which they factor in commercial considerations crucial to successful exploitation of the IP. And often, the next necessary step – to identify the appropriate milestone for commercial traction, whether through licensing or spin-out and develop a plan to achieve it – is absent, vague or unrealistic.
The most frequent deficiencies in planning we see are:
- Failure to understand industry requirements: While many TTOs correctly identify potential commercial utility, they often fail to consider the extent of technical de-risking required before the project would become attractive to prospective commercial licensees or investors. In this event, even successful delivery of the development plan can leave a project high and dry, unable to secure industry interest, rendering the translational research investment worthless. Correctly identifying the target can sometimes be difficult because the industry’s point of engagement can change over time due to both the economic cycle and stage of evolution of a technology area.
- Failure to deliver the evidence base required by industry: A key issue is to understand what data will help biopharma companies to readily assess a project and ‘sell it’ internally. Common errors include using the inventors’ own experimental, or other unfamiliar, disease models – in vitro or animal – rather than standard ones used in industry, failing to include “standard of care” positive controls, having insufficient replicates to generate reliable data, or omitting key experiments required to address issues of particular industry concern (for example, to investigate selectivity, biodistribution, off-target effects etc.). Doing the requisite homework will quickly address these issues.
- Hand-to-mouth planning: Faced with a dearth of translational research funding, the temptation can be to take any funding, when available, and progress the project in fits and starts. Not only is this approach inevitably slow and inefficient, it is also suboptimal, in that the work is adapted to the amount and conditions attached to the funding rather than the real needs of the project. And it may well be wasted if the project cannot be continued to the requisite milestone. The emergence of translational research grants as well as internal captive ‘proof-of-concept’ funds has to some degree created a vehicle to obviate this problem.
- Falling foul of internal bias: Once investigators and their program teams recognize the relationship between planning assumptions and funding (relative to other institution programs), bias can creep into forecast assumptions for cost, risk, time, and return. It is important for TTOs to include some objective input to program planning if the results will be used to prioritize resource allocation. It also helps to have external advice to overcome any university politics that can sometimes distort decision making.
Best practice is to create an integrated commercial development plan, which combines an assessment of the commercial potential of the invention, it’s possible route (or routes) to market, a technology development project plan of the tasks, with associated costs and timelines, to take the invention to a point where it is licensable or can be spun out, and an IP protection strategy.
III. Think Before Filing:
Problems often start with a premature patent filing. The priority filing starts a 12-month countdown clock running in which an inventing team can struggle to produce the evidence needed to exemplify the claims or to explore the full breadth of the disclosed invention, either through lack of time or lack of funding. The resulting weak IP position can reduce the attractiveness of the technology or even kill its licensing prospects completely.
Several factors can drive a premature filing, ranging from the inventors’ desire to publish, fear of being pre-empted by competition or simply lack of proper planning. A well thought-through project plan, as described above, will facilitate identification of the evidence required to set an innovation on a commercialization trajectory, with its associated steps and timetable, one of whose elements will be an IP protection plan. The IP protection element of the plan must address not only the issues of the breadth of patent filing, but also the adequacy of protection afforded. In these circumstances opting to delay filing is not prevarication but a positive and conscious decision to strengthen the IP first, and ultimately increase the prospects of licensing.
IV. Drive for the Deal:
The overriding objective in technology transfer is to get the innovation "out the door" into the commercial domain. While some TTOs operate a well-honed machine, even proactively creating new business models and funding mechanisms as vehicles for technology transfer, it is surprising that others still are remarkably complacent in tolerating a portfolio of maturing non-performing assets. In the most extreme case we have seen, a TTO portfolio review revealed that almost three quarters of an aging and increasingly expensive IP portfolio had received no attempt at attracting industry partners.
Almost from first disclosure, the TTO needs to think about route to market, prospective licensing partners and/or creation of spin-out vehicles, and the likely evidence base and timing required. This should be formalized in a commercial development plan (as described above), which is periodically updated in the light of additional experimental data, availability of translational funding, competitive activity, and any feedback from prospective partners (see our paper "Planning for Partnering"). Once the technical data package is available, the TTO must be ready with its prioritized target company list, non-confidential and confidential pitch-decks - and an engaged inventor! – to lead the outreach process. As for all partnering activity, it is important, as far as possible, to avoid serial discussions to avoid losing time, and to keep multiple options in play to maintain competitive pressure, until Non-binding Term Sheet.
During the partnering process, the TTO together with the inventors, needs to be mindful of the hundreds or thousands of similar opportunities prospective partners will be invited to review, and remain very responsive to any requests for additional information. Our experience, from technology scouting projects for biopharma companies looking to in-license assets, is that TTOs vary widely in their ability to respond to questions, with some so glacially slow that we have doubted their interest in licensing at all.
Mirroring the need for responsiveness by the TTO, the university’s back-office internal approval and legal processes also need to be slick to ensure a swift progression from Non-binding Term Sheet through to completion. This is even more the case for spin-out deals than licensing transactions. Spin-outs consume at least an order of magnitude more time and effort than licensing transactions or industry collaborations and, because of this, need to be undertaken selectively and only when all the stars align. Spin-outs are typically challenging for university governance, and arise sufficiently infrequently at many institutions, that appropriate approval processes and experienced legal representation are not in place, and the TTO itself is inexperienced and struggles to provide a clear lead. This can lead to a prolonged and fraught negotiation. We have seen two situations where a prospective spin-out was in negotiation with university authorities for over two years - and in both cases the inventing scientist left in frustration, to join a more accommodating institution. There is no magic bullet for solving this problem, but recruiting experienced lawyers who can advise and guide the university goes a long way to addressing it.
V. Recognize The Win-Win:
True, there are many examples of successful technology transfer transactions that have underpinned the launch of successful spin-out companies and licensing of blockbuster therapeutics, but the process of dealmaking, often with smaller TTOs, can be fraught with frustration, discontent, and unnecessary effort. This is mostly due to their unfamiliarity with standard licensing or spin-out deal terms, and a tendency to overvalue the transacted assets because of an under-appreciation of the time, costs, and risks associated with full development and commercialization. This is compounded by a cautious approach to handling public assets and may result in a struggle to recognize a win/win situation when one is offered.
This problem also sometimes manifests in negotiation of spin-out terms, creating a source of friction both with the founder teams and with prospective investors. Issues regularly arise with terms for the technology license, especially regarding improvements, and also with the university’s rights of Board representation and consents. However, the biggest bone of contention is typically the size of the equity stake that the university seeks in the pre-finance spin-out company, especially when the university is also seeking royalties on the licensed IP. These difficulties have the potential to completely scupper a spin-out and arise principally because of the inexperience of the TTO and institutional approval bodies. Recognizing the problem, TenU, a grouping of leading university technology transfer offices in the UK and US, recently published the University Spin-out Investment Terms Guide (the USIT Guide), a set of best-practice investment and licensing terms for spinout company formation.
In conclusion
The bottom line is, in the current harsher climate, all TTOs may have to adopt a more narrow focus only on the best opportunities and prosecute them as efficiently as possible, which we understand is no easy task. TTOs from leading research institutions may be better positioned, having honed their technology transfer operations over the past 2-3 decades and weathering several biotech boom-bust cycles. Smaller, less well established TTOs will need to rapidly build the requisite expertise, whether by learning from peers, such as via the TenU initiative, or by bringing in outside expertise on a deal-specific basis. Otherwise, the cost of maintaining low value IP, combined with thinning translational research budgets backing projects with low chance of commercial translation, can result in a loss-making portfolio. It’s a challenging moment, but being proactive, diligent and selective with the research projects your organization chooses to take on and maintain, can make a substantial difference in getting through it.
About the Author:
- Simon Turner, PhD, FRSC, Managing Partner:
Simon has almost three decades of experience managing and advising on strategic and product development issues in life sciences, and over the past 15 years has focused on commercialization of technologies in early-stage life science companies, as entrepreneur, executive, venture capital investor and advisor.
Learn more about Simon
About our TTO Support:
Alacrita works with universities, research institutes, and centers of innovation to help them understand the commercial viability of their programs, bridge the gap between them and the industry, and guide them towards successfully partnering, licensing or spinning-out scientific discoveries. In the current funding environment, tech transfer offices may be forced to carry programs for longer due to the shortage of private money, placing even more importance on optimizing and prioritizing resource allocation.