Going Nonexclusive

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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 (or any health care products for sale outside the major market countries) have even a harder challenge by swimming against the conventional wisdom that a highly-priced, reimbursable product is the only way to profitability. For start-ups, time is money and the shorter time to a product prototype, the more likely is revenue and survival. To fund prototype development, most patch together funding from government (or very rarely, foundation) grants and private sources while trying to convince a major, established company that it wants access to the technology and/or the possibly-resulting products. For a start up developing low-margin/global health products, 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 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. This is all very reasonable, but I think that the exclusive licensing route has enough problems for start up companies, especially those in global health, to consider using a nonexclusive licensing approach.

Of course, nonexclusive licensing is not feasible 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 development, approval, and sale to have a hope of a return on its sizeable investment. That being said, companies with platforms for discovering/creating/delivering drugs or vaccines, diagnostics, or medical devices could license them 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 into 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 an exclusive arrangement
  • multiple similar products generates competition and therefore leads to the 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)
  • more potential licensees, e.g., growing, regional or national companies
  • 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)
  • transaction costs could be high

Looking at the real world, while the large majority of licenses are exclusive, there are examples of successful nonexclusive licensing programs, e.g., the licensing of the Cohen-Boyer and PCR technologies, each netting the licensors hundreds of millions of dollars. In the global health field, Gilead Sciences has an extensive nonexclusive licensing program in which 14 pharmaceutical companies manufacture and distribute generic versions of two of its antivirals in more than 100 resource-limited countries (For Gilead’s partnerships, click here) and that has helped bring the cost of the drugs for HIV/AIDS treatment down 100-fold. And, while there are relatively few early-stage companies that have products in development to address global health/neglected diseases, several are built on platforms that could be licensed nonexclusively to generate revenue for product development. My list includes:

Aktiv-Dry LLC, nano-particle drug delivery

Archivel farma SL, vaccine technology

Diagnostics for All, diagnostics platform

Genocea Biociences, vaccine technology

GenPhar, vaccine technology

Ionian Technologies, diagnostics platform

Rapid Biosensor Systems, diagnostics platform

Xcellerex, biomanufacturing platform

The nonexclusive route is not conventional wisdom, but for start-up companies, especially those in countries with little venture capital investment, it is worth a try.

Chris Dippel