Successful Biotech Licensing
- Mar 6, 2017
- 4 min read
Congratulations! Your tireless business development efforts have finally paid off and a large biotech company wants to partner with your company! That’s wonderful news, but the hard work isn’t over yet. You must first negotiate and sign a definitive license agreement between your two companies that will take weeks, if not months, to finalize. The terms of this important agreement could catapult your business to the next level, or could end up creating significant (even insurmountable) problems for years to come.
How do you make sure that your license agreement will pave the way to success and not the road to disaster? It’s simple really. Follow the five tips below, and you will be well underway!
Tip #1 – make sure that you really have a deal
For a licensing arrangement to be successful, you must have a true meeting of the minds. If you don’t, you may spend all kinds of time, effort and money bogged down with paperwork on a deal that never gets done. For that reason, a good license agreement usually starts off with a detailed term sheet. Working on a term sheet will allow you and your partner to focus on the most important matters rather than the less important details.
A good term sheet is one in which both parties are comfortable with the fundamental terms of the arrangement. There will inevitably be more details to be worked out in the definitive license agreement, but sometimes companies fail to spend enough time on making sure that all the key issues are resolved before moving into the more involved process of preparing a full license agreement.
Tip #2 – prepare the first draft of the definitive agreement, if possible
The licensee (larger company) typically has a stronger financial position than the licensor (smaller company). Because of this, licensors may be tempted to shift the cost of preparing a first draft of a license agreement to the licensee. You should resist this temptation, if you can. As would be expected, the first draft of an agreement prepared by the licensee has terms and conditions that strongly favor the licensee. You will spend a lot of time and effort trying to negotiate more balance into the deal and it may actually end up costing you more in the end. You would be well advised to create the first draft of the agreement so the document sets out the terms in the way you want and keeps the overall agreement balanced and fair. Although there will be a cost upfront to produce the first draft of your agreement, handling it this way will ensure that the agreement reflects a good deal for your company and will also reduce the time and cost needed to finalize the agreement.
Tip #3 – know your bottom line and stick to it
I know that you really want this deal and you are willing to give up some of your wish list to get it done. Give and take is normal in the license negotiation process. However, there should be a limit to what you will give up and you should not waver from it. Your potential partner might be asking for more than you can (or should) give up. Common issues along these lines include preferential rights in your company’s stock, license terms that unreasonably extend the scope of the deal, and termination provisions that could leave your IP damaged and unsalvageable. Entering into a license agreement is the beginning, not the end, of a relationship that will go on for (hopefully) a long time. Think about your deal in those terms and you will understand that there are certain things you won’t be able to live with in the long run.
Tip #4 – understand the restrictions that will be placed on you
In return for financial support and other consideration, your partner will likely ask you to accept certain restrictions on your activities. These restrictions might include making similar products, doing research in the same field, hiring your partner’s employees or sharing information with third parties. Agreeing to such restrictions could have a significant impact on your business well into the future, even long after the deal ends. After negotiating the best arrangement possible for your company, be sure that you understand the restrictions and feel comfortable abiding by them now and later.
Tip #5 – carefully consider the termination provisions of the agreement
Nobody likes to think about the end of a partnership before it even starts, but it is critically important for you to do so! Remember that the end of a relationship is not the best time to be asking for your partner to reconsider or renegotiate these important terms. Corporate breakups (much like personal ones) can often be ugly and messy, so you want the terms to clearly spell out what happens if there is a breakup. Be sure to walk through all of the likely scenarios of how things might end and make sure that the agreement is clear on what happens and who is responsible for doing what. There should be as little ambiguity as possible around the circumstances under which each party is allowed to terminate the agreement and what happens after one of the parties wants out. Take time to review these provisions carefully to ensure that the terms put you in the best position possible to move forward after the partnership ends.
Licensing is a tricky business and TriUnity is here to help!
TriUnity Law Group was set up to help companies just like yours to avoid the many potential pitfalls faced by emerging life science companies. My partner, Mike Rivard, and I are seasoned biotech executives who have spent most of our legal careers as in-house counsel to small- to mid-sized life science companies. In that setting, we learned very well how to balance financial reality with the legal, intellectual property and business needs of the company. We are experienced at identifying issues early on and preventing them from becoming major problems. We work efficiently and do our best to provide services in the most cost-effective manner. We focus on delivering value and that is what sets us apart from traditional law firms. Please visit our website at www.triunitylaw.com or contact me at wendy@triunitylaw.com if you think that TriUnity Law can help you with your legal, intellectual property or business needs.
Wendy Rieder, Esq.,
SNIFE Provider & Life Sciences Business and Intellectual Property Lawyer
http://www.snifco.com/attorneys
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