BOSTON – Universities and the companies that license biotechnologies from them expect to enter into more patent license agreements in 2007 than they did in the past two years, according to the preliminary results of a survey by Boston-area law firm Foley Hoag.
In addition, the initial results of the survey indicate that a majority of biotech licensing deals involve products at the earliest stage of clinical development. These agreements entail relatively low up-front payments and as much as a 10-fold increase in payment rates as products reach specific clinical milestones.
Foley Hoag released the initial results of its survey at the Biotechnology Industry Organization annual conference held here last week. The survey reflects responses collected from biotechnology companies, universities, and other research institutions between mid-April and May 3, and is intended to identify trends in university licensing deals, Foley Hoag said.
“Biotech companies are frequently licensing patent rights to technologies from universities and research institutions, but there is no public data [on deal terms] for them to turn to,” Jeffrey Quillen, a partner in Foley Hoag’s life sciences practice, said during a BIO discussion panel.
In addition, Quillen said, it is often difficult for licensees and licensors to assess financial models for many university-licensed technologies because they are typically so nascent.
“Smaller research institutes in particular seem excited about having access to this information,” Quillen said.
In conjunction with the release of the initial survey results, Quillen moderated a special panel on negotiation tactics for licensing deals entitled “Get Smart: Successful Strategies for Negotiating with Research Institutions.” (See related story, this issue)
Although the survey data reflects the responses of only 35 respondents thus far, some trends appear to be taking shape, including a continued uptick in university-based licensing activity in biotechnology.
According to Foley Hoag, approximately 60 percent of respondents believed that the number of patent agreements they will enter into this year will increase as compared to 2005 and 2006; while 38 percent said that they expected licensing activity to stay the same.
In addition, respondents provided information about the number of licensing deals they executed over the past two years and shared terms associated with single specific licensing deals. According to Foley Hoag, more than 61 percent of those licensing agreements related to products in the earliest stages of clinical development.
Due to the high risk of failure of early-stage products, these license agreements typically provided for relatively low up-front payments, with a median of $50,000, and much higher payments upon achievement of clinical milestones, with a median of $500,000 for Food and Drug Administration approval, Foley Hoag said.
“Biotech companies are frequently licensing patent rights to technologies from universities and research institutions, but there is no public data [on deal terms] for them to turn to.”
Once a product is approved, the license agreement usually requires the licensing company to pay the research institute a mean of 2.25 percent of its revenues from sales of that product. In approximately 15 percent of the license agreements surveyed, biotechnology companies – especially startups – issued stock to the research institution typically in the range of one percent to 10 percent.
According to the survey results, the trickiest agreement terms to negotiate included milestone fee amounts, royalty rates, and indemnification and termination provisions.
The full survey will include detailed information on annual license maintenance fees, exclusivity, rights of research institutions to purchase stock of biotechnology companies, and rights of companies to access future inventions made by research institutions.
Foley Hoag will continue to collect survey responses through June 30, after which time the law firm said it will provide a written report of the results to all companies, universities, and other research institutions that participated.
Representatives from the firm were handing out copies of the survey at BIO, but Foley Hoag is also urging potential participants to complete the survey on its website.
Quillen stressed that only those participating in the survey will receive the full report detailing results. Foley Hoag said that all responses will be kept anonymous.