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05 October 2015

TECHNOLOGY TRANSFER MODELS

Whitepaper Series Part 1 – An overview of technology transfer models currently used

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Introduction Since the introduction of the Bayh-Dole Act in the USA, universities worldwide have been actively pursuing technology transfer activities via patenting and/or licensing. For many years, the way in which the universities set up their Technology Transfer Offices (TTOs) and their tech transfer activities was very similar if not the same. However, since 2009 different models are beginning to emerge. The primary reason for this is that the classical model of technology transfer is becoming increasingly difficult to implement. Therefore, additional models have been developed that are used in parallel to the classical model. This paper discusses the various models currently used highlighting the strengths and the weaknesses of each. Note: This is the first Whitepaper in a series of three. Part 1 focuses on the current models used by TTO’s across Europe and US. There are other variations known but as they are more specific to individual institutions and not as widely adopted as the models above, the variations are not discussed here. Part 2 of the Whitepaper series focuses on some of the trends in industry. Part 3 of the Whitepaper is a new collaboration model for academia and industry taking into account the issues that have been discussed in the Part 1 of the Whitepaper series and the trends as discussed in Part 2 of the series.

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Drivers for Technology Transfer Before going into the various models, the three drivers for engaging in Technology Transfer (TT) activities are explained. It is important to understand the reasons why an institution chooses to be active in this area. The way in which an institution carries out tech transfer should follow from the weighting it applies to these drivers. This will be explained later. However, for many universities the drivers and the model(s) they choose are not aligned properly. The three drivers that can be identified are: societal, financial and economic. A societal driver relates to the motivation of the institution to help innovations reach the market so that they may improve the lives of all citizens through the creation of new products and/or patients suffering from diseases. It is about having an impact on society overall or a specific group. Technology Transfer can sometimes lead to very profitable licenses, which have been granted to Third Parties. Institutions then get a certain percentage of royalties on products that have successfully been taken to market. Most royalties will be between €50 and €100K annually, once the product generates sales. In some cases, the royalty stream may be as high as €1M or more per year. The latter are referred to as “cash cows”. The duration of royalty streams varies but is often tied to the expiration of the patent life. For many finance departments in universities, licenses are viewed as a way of generating additional cash streams and technology transfer in these institutions may have a (strong) financial driver as a result. The third driver is more focused on generating an economic impact. This includes generating more jobs – often locally – through spinouts and startups but also improving the overall local economy. These three drivers can be plotted on a 3-dimensional graph. Most universities will have all three drivers but the weight they allocate to each driver may be different. Depending on the order of the drivers, the way in which universities engage in technology transfer should flow from their ranking of the drivers.

Classical Technology Transfer Model The classical technology transfer model is the basis for most universities. At the time it was introduced in the early 1980’s, the model worked quite well. However, thirty years later, the world has changed a lot. Yet, the way in which universities do their technology transfer activities has not really changed. As it still works to a certain extent, it remains the basis for almost all universities. However, as will be discussed below, there are some issues with this model and there seems to be a growing need to do things differently as a result of this. Although many universities claim that they do not engage in Technology Transfer to make money, this model actually has a strong financial driver. This is reflected in the license agreements. Each license agreement is negotiated individually and the TTOs seek to negotiate the highest royalty rate possible as well as upfront payments and milestones.

Process The classical technology transfer process begins with the academics. Academics have, in addition to their teaching activities, their research – which is often fundamental in nature. The results of their research are published in scientific journals. In some cases, the research and its results can lead to a more translational

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program that aims to identify the commercial potential of the new research results. It is the academic who initially makes the first decision of what is fundamental research and which results may have commercial application; the academic filters his/her own results. Depending on their choice of results that may have commercial use, the ideas are brought forward to the Technology Transfer Office (TTO). The TTO staff will evaluate the ideas as well. In essence, this is a second filtration step. Of those assessed by the TTO staff, some will move forward to being patented and others will not. The patenting of inventions needs to be done before there is a publication as most countries in the world maintain a “first-to-file” system with a ‘no prior public disclosure’ criteria. After the invention has been patented to its full scope, the academics in most cases are free to publish. The TTO then starts looking for potential licensees, or companies that are willing to invest time and money in the invention to develop it further. Sometimes, potential licensees are suggested by the academics themselves. They may have discussed the idea with companies they have met at conferences or companies may have approached them over certain know-how or expertise in this area before. Once an interested party has been found, the TTO and the company start negotiating a license agreement. This agreement typically gives the company the economic right of the patent. The ownership of the patent remains with the institution. In some cases, the institution will transfer both the economic right as well as the ownership. This is called a transfer of rights. Transfer of rights should be considered carefully as it means that the institution may no longer allowed to carry out (commercial) research under some laws as it no longer “owns” the IP. Although many countries have a research exemption, the transition from fundamental research to translational research is a grey area. In addition to the transfer of the economic right, the license agreement will arrange for publication permissions and terms, royalties etc. A research collaboration agreement is often negotiated as well as in most cases additional research is required. Many of the inventions licensed out are very early stage – particularly in the Life Sciences. For the company to take the research further, the expertise of the academics if often required for the next few stages.

Strengths The strengths of this model are that it offers the universities a way to translate their research efforts into patents, which can subsequently be transferred to companies. Having protected IP is important for companies, as many of these inventions require a significant amount of investment. If the IP is not protected, competitors will copy the product once it reaches market. Therefore, to ensure that the company sees a maximum return on its investment, IP is protected at the earliest stage possible – by the institution. The license negotiations give the universities an opportunity to negotiate an arms-length deal with commercial parties. For this reason, the model has a strong financial driver.

Weaknesses This model also has some weaknesses. Some of these weaknesses are as a result of flaws in the model; others are the result of the changing world around the universities. To begin with the former, the biggest flaw as a result of the design of the model is the 2-step filtration process. As there are usually a limited number of people in the TTO that can screen and evaluate new inventions, it is the academics who initially decide which results to take forward to the TTO and which ones are merely for publication. Of the inventions brought forward, the TTO screens and evaluates these ideas for their commercial application, patentability and market

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potential. As a result of this 2-step filtration process, there is a large likelihood that TTOs as well as the companies do not always get the best ideas presented. A second flaw is that the universities are not guaranteed of the full financial benefit that is negotiated. Milestone payments are often linked to specific events but when they are not reached because further research shows that the idea does not work, then the payments are not received. In the event the product does make it to the market, there is the issue of the market share. If the company is an SME, then it will not have a large market share unless it strategically partners with a larger firm that has the right distribution channels and connections already in place. This is something the university has no control over. Other flaws as a result of the design of the model include the time required to find potential licensees and the time required to negotiate a license. These flaws have become stronger and more problematic over the last few years as a result of the changing business environment, particularly in the Life Sciences. Since the late 90’s, the pharmaceutical industry has been dealing with a “patent cliff” – a term used to describe the end of the patent life of many cash-cow inventions for the pharmaceutical industry. Partly due to the result of lower revenues and the introduction of cheaper generic products due to the loss of protection, many pharma companies have had to reduce their early stage R&D expenditures. This was picked up by the biotech industry early 2000 and an enormous rise in biotech SMEs was seen. The problem for the TTOs with this development is that it now has become more difficult to identify the right partner simply due to the number of SMEs. In addition, biotech companies are also often very limited in their product portfolio – and furthermore to this, are often limited in the amount of cash that they have available. In practice, this means that it takes longer to find the right partner and the institution will need to carry the initial burden of the patent costs longer as well. Consequently many potentially good inventions are dropped by the TTO for budgetary reasons. As there are many more SMEs than multinationals, the networks of the TTO staff are becoming increasingly more important. However, there are limitations to the number of conferences you can go to and SMEs you can meet. In practice, most SMEs that take a license from a university are either existing partners and/or spinouts – which may not always be the best solution. In the event a partner is found, the negotiations with SMEs are often very different than with multinationals. First of all, SMEs often do not have the legal support that big companies have. Secondly, they do not have the same R&D budgets. Upfront payments, milestones and royalty rate negotiations are therefore quite strenuous.

The Classical Model with an economic driver Some institutions will seek to identify their partners locally rather than across the entire country or internationally. If this is the case, the classical model is also referred to as the Economic Model. The process of identifying and licensing out technologies is often exactly the same. The only difference is the location of the licensees.

Easy Access Easy Access is a model that first came into use about 6 years ago. The idea behind Easy Access is to make technologies more easily accessible to companies by taking away the negotiation step in the classical model through using standard license agreements that companies can download from the website of the TTO and send

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back to the institution. In addition, there are no costs for the company in taking a license– no upfront payments, no milestones, no royalties. The IP is made freely available. Some universities have adopted a derivative of Easy Access through mechanisms such as Express Licensing, which makes use of standard license agreements. However, these license agreements do not waive all royalty income but often offer a low fixed rate.

Strengths The strengths of this model are quite obvious. The negotiation time is reduced and companies have no financial burden. This model is particularly strong if a university has social impact and economic impact as the strongest drivers.

Weaknesses The weakness of this model does not lie in the model itself but in the way many institutions have implemented Easy Access. It is often used consecutively to the classical model and in some cases in parallel. If Easy Access is used consecutively, it means that inventions are first offered to companies in the Classical way – where license agreements are negotiated. If no licensee can be found or no license agreement can be concluded, then the invention is offered via Easy Access. If Easy Access is used in parallel to the Classical model, some inventions will be offered as a license to be negotiated whereas other patented technologies will be offered for free. Both approaches of using Easy Access in this way, as opposed to using it as the sole model the TTO works with, causes some issues with the companies. Many companies feel that the universities you use Easy Access consecutively, offer the technology for free because there is either no market. If the universities use Easy Access in parallel to the classical model, companies often have doubts as to why one invention is offered for free and others are not. Whether justified or not, it comes across to many companies as picking and choosing the most valuable inventions from the pile and “the rest” is offered for free. This implies “the rest” is less valuable to the TTO; is it because the TTO is unsure of a market or does the TTO not really believe in the technology? If either one is true, then why would it have any value to the companies?

Innovation Commons Innovation Commons is yet again a different model and seems to move more towards the evaluation of the ideas that are coming out of the institution as well as highlighting under-exploited IP. Innovation Commons, as Easy Access, is used as a tool in the Classical Tech Transfer model.

Process The process is different from the two approaches described above. Here, a community is formed consisting of TTO staff, consultants and investors. It is a closed environment with a maximum number of community members. The TTO organizes theme-based campaigns where ideas and under-exploited IP in a certain area are shared amongst the community members. The purpose of these campaigns is for investors and consultants to take these ideas forward as an alternative way of exploiting ideas and research results.

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Strengths The strength of this model is that it brings various IP and ideas together and outsiders get an insight into a broader range of know-how and expertise as opposed to only the patented IP that is presented via the TTO. Also, by bringing a group of externals together, fresh ideas for exploitation may arise. If investors and/or consultants wish to take a part in the exploitation, license agreements are negotiated and the process essentially follows the classical model.

Weaknesses The weakness of this approach is that the community is limited to only consultants and investors. In some universities, the group has been widened to other TTO members and government agencies and a few large multinational companies. However, the community is limited in size. As a result, the majority of companies do not get this insight. Whilst investors may invest in new startups, consultants in general will not be able to contribute in the same way to the exploitation.

Conclusions More and more institutions use the above-described approaches together, in parallel or consecutively. However, the basis of the tech transfer activities remains the classical model. Looking at figures of a recent study1 carried out, a total of 68 Easy Access deals were reported by 18 organisations. These organisations have been partners in the Easy Access scheme for different lengths of time. Over the period of time that they have been a partner in the scheme, approximately 1.8 deals per organisation were done. To put this in context, 14 of the same organisations also provided data on the number of other licensing deals (non-Easy Access), which they have completed over the same time period. A total of 677 non-Easy Access deals were reported. This resulted in just over 23 deals per organisation during each year that they have been a partner in the Easy Access IP scheme. Innovations Commons is an even more recent model and no figures or studies have been carried out yet to evaluate the performance and outcome. For any of these models, it is important to understand that it will take 3 to 5 years before the first evaluations can be done and any conclusions can be drawn. However, it is clear that many universities are beginning to acknowledge that the classical model is not producing the same results as in the past and new ways of engaging with industry are being sought. Although there is some justification for the approaches selected, it seems that it still does not align very well with the trends observed in industry. These trends will be discussed in Part 2 of this Whitepaper series. Note: This is the first Whitepaper in a series of three. Part 1 focuses on the current models used by TTO’s across Europe and US. There are other variations known but as they are more specific to individual institutions and not as widely adopted as the models above, the variations are not discussed here. Part 2 of the Whitepaper series focuses on some of the trends in industry. Part 3 of the Whitepaper is a new collaboration model for academia and industry taking into account the issues that have been discussed in the Part 1 of the Whitepaper series and the trends as discussed in Part 2 of the series.

1 Report: “Easy Access: A preliminary assessment of the initiative”; IP Pragmatics Ltd

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Background Bob Smailes, Partner Gunn & Twynmore

Background Hester Tak, Partner Gunn & Twynmore

Contact details Crown Business Center Keypoint Schipholweg 103 2316 XC Leiden The Netherlands Tel. (H. Tak): + 31 6 28 98 66 60 Tel. (B. Smailes): + 31 6 28 98 66 61 E-mail: gt@gunntwynmore.com Website: www.gunntwynmore.com Twitter: @GunnTwynmore Skype ID: Gunn Twynmore

Bob Smailes has 26 years experience in establishing and heading Research & Technology Transfer Offices in all scientific areas in both the UK and the Netherlands. He has extensive experience in company formation, licensing and wide knowledge of Intellectual Property Rights. He is also widely experienced in working with universities, government agencies, multi nationals and SMEs. Prior to the university sector he worked in chemical and material science industries in research, marketing and strategic planning roles. He has a PhD in Chemistry and his MBA dissertation was on the motivation of academics in research.

Hester Tak has been engaged in technology transfer for more than 10 years. Her work experiences include working for De Brauw in the patent department as a non-legal biotech specialist but also working for a CRO, actively engaged in clinical trial projects and responsible for the analyses and exports of data. In the last 9 years she has worked for a university tech transfer office. She holds 4 MSc degrees in Biomedical Sciences, Science Based Business, Business Valuation and Finance. She is currently doing a PhD on ‘Evaluating and improving efficiency in the Healthcare valorization chain for various stakeholders.’

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