Negotiating the Tech Transfer Process
William J. Garner, Managing Director, EGB Advisors, LLC
The story of Inverseon, a clinical-stage company that reprofiles drugs for chronic diseases, offers an interesting case study illustrating the importance of effective negotiations within the technology transfer process and the impact those negotiations can have on the success of technology commercialization. In the area of technology transfer and commercialization, negotiations are represented by what I describe as three distinct phases: 1) the trust-building phase; 2) the intellectual property (IP) negotiations phase; and 3) the post-licensing phase.
The Trust-Building Phase
The trust-building phase is really an exploratory phase and one of courtship. This phase precedes formal engagement of the tech transfer office and is characterized by working to understand clearly the technology, performing due diligence, and building relationships. It can take years to move a technology along and can occupy a significant piece of an entrepreneur’s life, so these endeavors are taken very seriously, and the trust that must be built is critical.
Some companies simply want to license the technology and never deal with university professors. At EGB Advisors, LLC, a pharmaceutical investment advisory firm, we have a different view and recognize the importance of the quality of the individuals involved, what they can bring to the table, and how those relationships can be mutually beneficial.
As managing director of EGB, I spent considerable time working with the Office of Technology Commercialization at the MD Anderson Cancer Center to augment its licensing efforts. I met Professor Richard Bond after attending a local biotech meeting and asking people in tech transfer at the University of Houston if there were any professors working on new pharmaceuticals. A confidential meeting with Bond was later arranged at which I learned he had unpublished data that might provide a novel approach to asthma therapy but could also offer a possible explanation for the success of only some beta-blockers in the treatment of congestive heart failure.
This data on asthma represented a potentially huge advance in medicine if it panned out in people. For decades we did not prescribe beta-blockers for congestive heart failure, which would have positively impacted millions of people. Inverse agonists were working in other disease management; we simply needed to apply the paradigm to asthma, which has grown to be a huge health problem with a huge market begging for additional treatment options. We now had something very powerful that could be generalized.
I decided in the first couple of minutes that I liked Bond and we could work together. He was at a good point in his career, and he had experience as well as enthusiasm. Combined with the promise of the drug, this made for an excellent opportunity, and I knew EGB could represent him well. At the time, I told him all I could promise was to organize a team to move his work into a small, clinical trial and that Inverseon would likely never be able to conduct Phase III trials. We agreed, and with a clear understanding, a shared vision, and a willingness to work things out we moved ahead.
The IP Negotiations
While the University of Houston is home to the largest medical center in the world and has about $75 million in annual research funding, it is well known that technology transfer offices and startups outside of California and the Northeast tend to commercialize a relatively disproportionate number of technologies. Initially, the University’s intellectual property committee had a lengthy debate on whether to support the patents or assign them to Bond. After considering their budget, the University assigned him the original patent filing with an agreement that it would keep a minority interest in what he could negotiate.
The University administrators could have chosen to sit indefinitely on the technology or could have wound up in endless negotiations. Instead, they recognized that it was a powerful technology with tremendous potential, but for which the University lacked the know-how and resources to optimize and fund it. In fairly atypical fashion, they saw the value of moving the technology forward and gave Bond the ability to do it.
EGB issued equity in Inverseon as consideration for the IP filing. Inverseon brought in IP attorney Tom Jurgensen and began sifting through the IP with Amie Franklin, PhD. Both Jurgensen and Franklin later became cofounders. At one point in his career Jurgensen was vice president and general counsel for The Salk Institute and head of all of Salk’s technology transfer. He also worked at like positions at Ligand Pharmaceuticals, Inc., Molecular Biosystems, Inc., and in-house at 3M. Franklin began working with Bond to write two Small Business Technology Transfer program (STTR) grant proposals, which were eventually awarded and shared with him and the University of Houston.
We all worked together to build a scientific advisory board (SAB) (check out this related article on SAB’s). I will never forget asking Bond if he could bring some people to the table to assist. Finally after a couple of months he mentioned Sir James Black, the father of the beta-blocker and H2 Blockers, such as Tagamet, might be willing to help. We learned that Bond was very connected in industry in addition to being a world authority in the pharmacology of inverse agonists.
We then worked together to identify a clinical investigator, and we began to work with Professor Nick Hanania at the Baylor College of Medicine. It took about six months of writing the protocol and the Investigational New Drug application since this therapy was a completely novel approach and was counter to decades of clinical teaching.
Trish Costello, founding director of the Kauffman Fellows Program, introduced us to Tracy Taylor, president & CEO of the Kansas Technology Enterprise Corporation (KTEC). Taylor was interested in funding a clinical proof-of-concept study as he recognized that this is the major value inflection for a company like ours.
By the time the FDA allowed us to proceed, we had seed capital from KTEC, so we could begin the study. Bond and the University of Houston were featured in Nature magazine; we knew we were on our way. As this was an open-label study, we knew the results in almost real time. The first patient did not respond on the first few doses. Mike Flashner, PhD, another cofounder with twenty years of drug development experience, reminded us to be patient because the science called for an improvement in response over time unlike with many therapies where the drug response wanes over time. In fact, the second patient responded, then another and another. There was consensus that what Bond had seen in mice was now being seen in asthma patients.
This process underscores the importance of having champions who are experts and can work together as a team, which in turn creates a high level of confidence in the ability to succeed. All of these individuals have significant experience and are highly qualified. They understand the issues and provide added legitimacy when it comes to negotiating.
The post-license phase represents the continued involvement we have with the University and Bond, keeping them informed about what we’re doing and seeking their collaboration.
Data on the asthma therapy were presented in May 2006 at the meeting of the American Thoracic Society. Inverseon is in discussions with multiple pharmaceutical companies for licenses to the asthma intellectual property. In addition to developing the drug we tested, Inverseon is in a position to license IP, which could extend franchises to some of the large pharmaceutical companies. We have decided to advance the company (our next indication involves the central nervous system) through corporate partnerships. We turned down an offer of between $10 and $20 million in venture financing because the deal was structured to take the lead asthma program, essentially orphaning the remainder of the company.
An important by-product of the post-license phase and of ongoing communication is the company’s willingness to serve as resources for new post-doctoral recruits in Bond’s lab. These scientists can help others understand the tech transfer process, how to recognize opportunities, move technologies out, and get deals done. It’s part of perpetuating a virtuous cycle that ultimately ensures valuable technologies do not sit idle, but rather they are championed and moved out of the lab for the greater benefit of all.
© 2006 Ewing Marion Kauffman Foundation. All rights reserved.