Commercialization –Practical aspects and problems
Contents
• Introduction
• Commercialization
• Case study 1
• Case study 2
Learning
objectives
• At the end of this lecture, student will be able to:
– Explain the role/significance of commercialisation in
pharmaceutical industry
– Explain the role of IP
– Explain the problems encountered during commercialisation
COMMERCIALIZATION
Commercialization can be defined as the process of turning
aninvention or creation into a commercially viable product, service or process.
• Commercialization may require additional R&D, product
developments, clinical trials or development of techniques to scale-up
production prior to taking the results of research to market.
• This is important because not all inventors or creators
wish or have the resources, skills and appetite for risk to commercialize their
own inventions or creations.
COMMERCIALIZATION-
PRACTICAL ASPECTS
• Not all academic institutions or innovative businesses
have the necessary financial and technical capabilities to take an invention or
creation all the way to market by themselves. Resources required converting an
original/new idea/concept/ design to a desired product so as to reach market
requires:
• 1. Time
• 2. Funds (own or borrowed)
• 3. Creative effort
• 4. Innovative effort
• 5. Persistence
• 6. Focused management of the entire process from idea to
market.
In the case of biotechnology products the main markets for
such tend to be international. In many situations, an organization that owns IP
rights to an invention will need one or more commercial partners. Initial steps
in the commercialization are to determine
• 1. Whether the invention is patentable?
• 2. Whether to take title to the invention and file a
patent application?
• 3. The practical aspects of the patent application, such
as whether funds are available for the application and
• 4. How quickly the patent application must be filed?
Considerations to
file a patent application include:
1. Whether the discovery is patentable;
2. What the likely uses of a discovery are;
3. Whether a discovery has “sufficient” commercial
potential;
4. Whether significant additional investment (research,
development, regulatory approval steps, marketing, and so on) is needed;
5. Whether the discovery is something without significant
commercial value, but nevertheless has potential for social impact through
noncommercial channels.
The decision that an invention has sufficient potential
commercial value for a patent application depends on many factors.
• 1. Future royalty revenue of the license. Ex: Stanford’s
Office of Technology Licensing, refuses to patent inventions that not generate
at least $100,000/year in royalties.
• 2. Whether a commercial entity is already interested in
the discovery and is capable of developing it. (Sponsored research agreements)
• 3. How broad or enforceable the resulting patent is likely
to be, and whether copyright is a more suitable IP tool.
TTO = technology transfer office
MTA = materials transfer agreement
SRA = sponsored research agreement
SBIR = small business innovation research (grant)
STTR = small business technology transfer research (grant)
VC = venture capital
Patent application can take 2 to 5 years. As soon as a
patent application is submitted, TTO will then partner with the inventor to
market the patent to find a licensee to provide resources for technology
de-risking to increase its marketability.
The quality of IP management:
• Technological & commercial merit of IP should be
assessed at an early stage in order that successful commercialization
occurs.
• Each situation should be analyzed taking into account the
nature of the IP, the market conditions, the financial position of the IP owner
and the available resources.
• The likelihood of commercial success increases when
management ensures that there is clear customer demand for new products or
services & a profitable way to bring them to market.
The quality of IP management:
• Specific factors such as speed of market entry, the degree
of control required and the potential for growth are considered important in
selecting the appropriate commercialization vehicle
Legal
vehicles for the commercialization of IP
There are two chief legal vehicles by which owners may
commercialize their intellectual property
1. To sell or assign the IP
2. To license the IP rights.
Assignment / Sale: When rights are assigned (other than
partially), the recipient or assignee acquires ownership of all rights which
previously belonged to the assignor, although the assignor may take a license
back from the assignee.
• This can be done between two independent parties, but it
can also be done on an internal level and form part of employment agreements
and agreements with consultants or contractors.
• Assignments of intellectual property rights can be done
either via sales or via transfers, i.e. with or without direct financial
compensation. Patent laws require the assignment to be in writing to effectively
assign the intellectual property.
– The parties wish to add other conditions to the transfer
of the IP such as a license back to the seller, warranties concerning the IP or
a restraint of trade clause;
– The parties wish to clearly document their intention to
transfer full title to the IP
Checklist
for assignment
1. Do you want to avoid having to enforce the IP?
2. Have you determined that the IP is not a core asset for
the conduct of your business, present or future?
3. Do you want to avoid any future involvement with the IP,
including in particular the ongoing costs and administration requirements in
maintaining registration of the IP?
4. Is any ongoing use of the IP likely to be for a limited
time or purpose?
5. Is the IP unlikely to establish or maintain a strategic
market or alliance position for the enterprise?
6. On balance, is there no alternative approach to
commercialization better suited to your objectives?
Licensing
• Licenses allow patent owners to share inventions or other
intellectual property in a controlled manner and to receive revenue (e.g.
royalties) or other benefits (e.g. access to another firm’s knowledge).
• A public research organization or SME may not be in a
position to undertake the direct exploitation of IP rights.
• Accordingly, assuming that the entity owns the
intellectual property, in order to exploit the financial potential of an
invention fully, it can consider finding an appropriate licensee for the
IP.
• A patent for example is licensed when the owner of the
patent (the licensor) grants permission to one or more entities (the
licensee(s)) to use the patented invention for mutually agreed purposes in a
mutually agreed manner.
• In such cases, a licensing contract is generally signed
between the two parties, specifying the terms and scope of the agreement.
• If a suitable licensee is found and the terms of the
license agreement are properly drafted, such an arrangement can represent a
secure source of income for the licensor while minimizing costs and risk.
• An independent entrepreneur or inventor, it is often
advisable to start the search for licensees as early as possible in order to
guarantee a revenue stream that will be useful to cover the costs of
patenting.
• It is critical to find the right partner(s) to generate
profits from the commercialization of the patented invention.
• The best licensee will probably have a direct strategic
fit with the technology.
• A licensee who seems to have complementary rather than
competing technology and is looking to expand its product range is likely to be
a more suitable partner.
What can be licenced?
• Technical information such as formulae, techniques and
operating procedures,
• Commercial information such as customer lists and sales
data, marketing, professional and management procedures,
• Trade information, process or device occurring or utilized
in a business activity.
Types of licenses:
There are three main types of licensing agreements depending on the number of
licensees who will be allowed to use the licensed intellectual property.
1) Exclusive
2) Sole
3) Non-exclusive
Exclusive license
• A single licensee has the right to use the intellectual
property, which cannot even be used by the owner. An exclusive license permits
only the licensee and persons authorized by the licensee to exploit the
invention.
• Sole license: This permits the licensee to work the
intellectual property, prevents the grant of additional licensees, but allows
the owner to also work the intellectual property.
• Non-exclusive license: This allows the owner to retain the
right to exploit the licensed property as well as the right to grant additional
licenses to third parties. Owner and all licensees the have the right to use
the intellectual property.
Licensee/Licensor
Conditions necessary
to obtain - commercial return
To obtain commercial
returns from IP, certain conditions must exist.
1. The existence of a customer or the ability to create
customers; and
2. An entity controlling the manufacture and sale of the resulting products.
Commercialization-
PROBLEMS
• The development of new chemistry-based products for life
science markets requires the expertise of talented researchers.
• However, these same researchers are typically not prepared
to solve the many other critical problems necessary for successful
commercialization.
• Without the requisite expertise in scale up and
commercialization, many early-stage companies find that competitors beat them
to the market or resources run out before success can be achieved.
Principal
Problems
Four principal problems includes:
1. Scaling manufacturing to meet commercial requirements
2. Ensuring regulatory compliance of products
3. Securing adequate funding for product development and
manufacturing
4. Protecting intellectual property
SCALING
MANUFACTURING TO MEET COMMERCIAL REQUIREMENTS
• Early development stages usually rely on small scale batch
synthesis.
• Drug development, for example, is often done virtually to
minimize costs.
• The conceptual ideas developed are used to attract
additional investments that enable real, but more costly, development activity.
• At larger scales, obtaining raw materials and identifying
appropriate and cost effective manufacturing partners represents a significant
challenge.
• The successful transition of technology from the
laboratory bench to the macro-level within a commercial production environment
is certainly not a trivial undertaking.
• Start-ups must utilize production facilities that satisfy
the necessary requirements of timeliness, cost- effectiveness, regulatory
compliance, and sometimes geographical proximity.
• If the proper manufacturing facilities and/or raw material
providers cannot be located in an efficient manner, irreplaceable time and
money are lost.
ENSURING
REGULATORY COMPLIANCE
• Drugs and other products manufactured for human
consumption must comply with governmental or industryspecific regulations.
• For pharmaceuticals, it is the current Good Manufacturing
Practices (cGMP) of the FDA.
• Food grade and kosher regulations may apply to food and
nutritional products.
• During the R&D phase, companies can minimize
expenditures by producing test quantities using non- compliant batch production
methods.
• However, converting these processes to meet regulatory
requirements for scaled-up commercial production can be extremely
time-consuming and costly.
• Frequently a change in facilities is also needed, further
complicating matters.
• In the production of pharmaceutical products, cGMP
regulations, for example, require that all commercially produced drugs and
pharmaceutical products meet stringent assay, quality, and purity
requirements.
• Facilities must have appropriate quality management systems
in place that can detect, investigate, and correct product quality
deviations.
• Investigational new drug (IND) submissions to the FDA can
easily be delayed and rejected by insufficient data, inadequate reporting or
insufficient cGMP reference standards.
• This may necessitate rapid preparation of clinical trial
batches and validation and/or production of GMP-grade material to serve as a
reference standard itself.
• The supply of specialized intermediates and precursors for
life science applications may necessitate specific ISO certification on the
commercial scale.
• This is becoming increasingly relevant as medical device
companies request custom synthesis services for new excipients and components
for novel drug-device combinations.
SECURING
ADEQUATE FUNDING FOR PRODUCT DEVELOPMENT AND MANUFACTURING
• While there are many potential sources of funding for
product development, obtaining funding is nonetheless highly competitive, and
each investor or funding organization will have different requirements.
• Funding sources include venture capital (VC) groups, angel
investor consortiums, and grant opportunities such as Small Business Innovation
Research (SBIR) available through governmental agencies such as the National
Institutes of Health.
• Identifying the proper grant options for the technology in
question, as well as employing experts with grant- writing expertise, is of
paramount importance.
• It is vital for start-up organizations to “get in front”
of VC and angel boards to make a pitch for their novel technologies.
• External vendors and partners with existing relationships
with such funding organizations are attractive options for young companies in
need of capital.
• In addition, companies can also license their technology
to commercial partners with synergistic or complementary technologies.
• Big Pharma typically leverage their resources in this way
to bolster R&D pipelines.
• In order to do this, however, proof-of-concept work, data
collection, and analysis must be conducted to convince potential investors to
fund its product development activities.
• This is often one of the most expensive and difficult
steps in the life of a start-up.
• While these fledgling companies typically confirm the
bioactivity of a drug candidate on their own, the ability to prepare a
comprehensive technical package suitable for licensing or transfer often
remains beyond their internal capabilities.
• Thus, it is important for these outfits to identify
external resources capable of handling synthesis, testing, and formulation work
at all scales.
PROTECTING
INTELLECTUAL PROPERTY
• Companies must balance the need to avoid any patent
infringements or protect their own intellectual property (IP), and safely share
their confidential process information with development partners.
• IP should be cross-referenced against existing patents and
then protected during development and technology transfer.
• While this is typically conducted internally by legal
staff or through a contracted external law firm, any perceived gaps may need to
be addressed through additional laboratory work.
For instance, a start-up may need to
1. Prepare additional patent example compounds,
2. Quickly synthesize competitive samples,
3. Perform analytical measurements for confirmation of
substantive differences/similarities of target compounds,
4. Identify trace contaminants and
5. Elucidate impurity profiles. A start-up needs this work
performed expeditiously to maximize future income within their limited patent
life.
Memorandum
of Understanding (MOU or MoU)
A memorandum of understanding (MOU or MoU) is a formal
agreement between two or more parties. Companies and organizations can use MOUs
to establish official partnerships.
• MOUs are not legally binding but they carry a degree of
seriousness and mutual respect, stronger than a gentlemen’s agreement.
• Often, MOUs are the first steps towards a legal
contract.
In US law, a memorandum of understanding is synonymous with
a letter of intent (LOI), which is a non-binding written agreement that implies
a binding contract is to follow.
• MOUs are popular in multinational international relations
because, unlike treaties, they take a short time to ratify and can be kept
confidential.
• MOUs may also be used to modify existing legal treaties.
Features of MOU
A Memorandum of Understanding should have the following
features:
1. It should specify the name & other details of the
parties between whom memorandum of understanding is being signed.
2. It should clearly specify the purpose and the goals for
which the memorandum is being signed.
3. It should specify the plan for the meetings between the
parties. E.g. the parties can decide to meet at least once in a quarter.
4. The memorandum should specify the amount of capital
contribution to be made by the parties.
5. It should also mention the person authorized to make the
major financial decisions.
6. The financial record keeping of the assignment/program
being undertaken should also be maintained.
7. Management: The memorandum may provide for the
appointment of the persons to take care of the day to day operations of the
program. The role, responsibilities, and remuneration should also be mentioned.
8. Once the MOU is prepared and agreed upon by parties involved,
it should be signed and dated by the authorized individuals representing each
party or organization.
9. The memorandum should specify the duration of such an
agreement between the parties i.e the beginning and the ending dates of the
memorandum. Also, it should provide for the circumstances in which such
memorandum will be terminated.
Legal validity of MOU
in India
• A Memorandum of Understanding (MOU) does not constitute a
legally enforceable obligation. It is commonly used for a non-binding contract
that describes the intention of the parties or businesses to work together.
• If a MoU has been drawn for consideration, like for
exchange of money, etc., the document would become binding on the parties, else
it is a non-binding contract. The intent of the parties can be deciphered from
the contents and the material provision of the MOU. Clauses such as
jurisdiction clause, applicable law, indemnification have binding effects to
the agreement. Thus the legal nature of an MOU rests on the rights, duties,
obligations, it creates among parties.
• In the Indian legal scenario, nomenclature of an agreement
is irrelevant thus simply calling an agreement a Memorandum of Understanding
does not automatically denote that a contract is non-binding.
Enforceability of
Memorandum of Understanding as per Law
• MOU is governed by the Indian Contract Act, 1872, and if
conditions under the Indian Contract Act are fulfilled, then the performance of
an MOU can be enforced under the Specific Relief Act, 1963 where a Specific
relief is granted when compensation cannot be ascertained in monetary terms.
• In case where the conditions under the Indian Contract
Act, 1872, are not fulfilled, the MOU is not recognised as a legally valid
contract. But, it can still be enforced in the court of law based on the
principles of promissory estoppels and equity.
Stamp Duty on MOU
• Normally, no stamp duty is payable on MOU. However, if the
MOU incorporates an agreement to purchase immovable property worth more than
Rs. 100/- and if you need to produce it in the court, it should be stamped.
• A stamp duty paid document gets evidentiary value and is
admitted as evidence in court. Document not properly stamped, is not admitted
as evidence by the Court.
Confidentiality
Agreement
A confidentiality agreement is a legally binding contract
used to protect confidential or proprietary information shared between
businesses or individuals. The parties agree not to disclose the information
outlined in the agreement for the duration of the relationship, or for a
specified period.
A confidentiality agreement is also referred to as a:
• Non-Disclosure Agreement (NDA)
• Confidential Disclosure Agreement (CDA)
• Proprietary Information Agreement (PIA)
• Secrecy Agreement
There are two types of confidentiality agreements:
• Mutual
confidentiality agreement: used when both parties disclose and receive
information that must remain confidential.
• Unilateral
confidentiality agreement: used when one party discloses confidential
information (disclosing party) while the other party receives and promises to
keep the information confidential (receiving party).
When should I use a
confidentiality agreement?
• If you and another individual or business wish to pursue a
relationship that requires the disclosure of confidential information, you
should use a confidentiality agreement. For example, if you’re engaging with:
• Employees: New
hires should sign an employee confidentiality agreement that lasts for the
duration of their employment, or a specified time period after termination.
• Independent
contractors: Prevent independent contractors from sharing sensitive
information with competitors.
• Consulting firms:
Ensure your internal information is safeguarded during and after an audit.
• Businesses: Protect your proprietary information when
pursuing joint ventures, partnerships, mergers, and acquisitions.
• Interviewees:
Protect the information shared with a candidate during the interview process
with an interview confidentiality agreement.
• If you’ve been asked to enter into a non-disclosure
agreement, it’s important to understand when you should (and shouldn’t) sign an
NDA.
What does a
confidentiality agreement protect?
• A confidentiality agreement protects any information
you’ve categorized as confidential in your form. For example, the following
information may appear in a business confidentiality agreement form:
• Marketing strategies: long- and short-term plans for
marketing a company’s products and services to customers
• Product plans: every stage of product development from
ideation, beta testing, to product launch
• Financial information: all documentation and procedures
that make up a company’s finances, including forecasts, reports, taxes,
expenditures, profits, losses, and more
• Source code: original code created by programmers employed
or contracted by the company
• Intellectual property: copyrights, patents, and trade
secrets developed or purchased by the company
• Although confidentiality agreements are legally binding,
they’re not all-encompassing. Learn what information you can and can’t protect
with an NDA.
• Source code:
original code created by programmers employed or contracted by the company
• Intellectual
property: copyrights, patents, and trade secrets developed or purchased by
the company
• Although confidentiality agreements are legally binding,
they’re not all-encompassing. Learn what information you can and can’t protect
with an NDA.
What must I include
in my confidentiality agreement?
• A standard confidentiality agreement should include the
following information:
• Receiving and
Disclosing Party: If either party is a business, you’ll need to specify
which type (LLC, corporation, etc.) and where it was formed, as well as include
a representative’s name, title, and contact information.
• Confidential
Information: Specify the types of confidential information protected by the
agreement.
• Non-Compete Clause:
Decide whether or not to include a non-compete clause, and specify when the
non-compete period ends.
What must I include
in my confidentiality agreement?
• Non-Solicitation Clause: Restrict the receiving party from
hiring your employees for a period of time by including a nonsolicitation
clause.
• Term: Outline how long the confidentiality agreement will
last
— This is often how long the potential business
relationship.
• Duration: Define how long the receiving party must
maintain confidentiality after the agreement ends.
• Jurisdiction: Establish which state’s laws will govern the
agreement.
• Effective Date: Decide when the agreement goes into
effect.
How do I ensure my
confidentiality agreement form is valid?
• Although state laws differ, your confidentiality agreement
form will be legally binding and enforceable if:
• It’s signed & dated by both the receiving and
disclosing party
• The confidential information defined in the agreement is
unavailable to the public
• The scope of the agreement is not overly broad
• An item listed as confidential, such as a product design,
can’t be developed/replicated easily without access to the designs
• Just because your confidentiality agreement is valid,
doesn’t mean the other party will adhere to it.
Breach of
Confidentiality Agreement
Step 1: Investigate
and Gather Evidence
• When you suspect that an NDA is broken, the first thing
you must do is investigate the breach and gather all the facts. This is by far
the most important step because the evidence you obtain will determine whether
or not you can seek retribution and prevent the further loss of confidential
information.
Step 2: Consult with
your Attorney
• The next step is to have your attorney review the NDA
together with the evidence so that they can suggest the best course of action.
If the evidence is substantial, the most likely course of action will be to
send a cease and desist letter. Also known as a ‘Demand Letter,’
• At this juncture there are usually two outcomes:
A. The breaching party stops and you come to a settlement.
or
B. The cease and desist letter is ignored.
Step 3: Take Legal
Action
• If the cease and desist does not work, then you and your
attorney must discuss what legal grounds you have to sue the person leaking
confidential information. Depending on your case, there are few legal claims
that you can make, such as misappropriation of trade secrets, Copyright
infringement, Patent infringement etc
• Hopefully, the court will rule in your favor and order an
injunction, which will require the breaching party to stop disclosing the
information and return it back to the owner. In addition, the court may order
the breaching party to pay monetary damages.
• It will be up to you and your lawyer to determine the
dollar value of the total damages that you have suffered as a result of the
breach. Unfortunately, it is likely the damages awarded to you will not
sufficient in remedying the loss of your company’s trade secrets.
• Once the trade secrets have been released, the damage may
be irrevocable.
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