As the bioinformatics sector reconfigures in the wake of DoubleTwist''s demise, one company has won a key license to the source code underlying DoubleTwist’s software, and another has discovered the perils of non-exclusive licenses.
Officials from Emeryville, Calif.-based Biotique Systems told BioInform last week that the company has acquired the worldwide, exclusive rights to the d2, d2_cluster, and CRAW software from the University of Houston. The software, co-developed by DoubleTwist and Biotique co-founder John Burke as a UH grad student, served as the base source code for DoubleTwist’s Clustering and Alignment Tools, and could be a cash cow for the young company. More than 30 pharmaceutical and biotechnology companies currently use the software, which was easily DoubleTwist’s most successful product.
However, DoubleTwist wasn’t the only licensee of the UH-held technology: Capetown, South Africa-based Electric Genetics also held a license to the source code, upon which it built its StackPack EST clustering software package. E-Genetics — as well as whoever eventually acquires the rights to DoubleTwist’s CAT software — will now have to license the rights to the source code directly from Biotique. While Biotique and Electric Genetics are still negotiating a new sub-licensing agreement, chances are the terms won’t be as favorable for E-Genetics as they were under the non-exclusive UH license.
The Company You Keep
The situation highlights an underlying risk of non-exclusive deals: Licensees are often at the mercy of the performance of other companies licensing the same tools. Once DoubleTwist went under, UH had the opportunity to terminate its license and revisit the terms of its licensing policy. After a bidding war between Biotique, E-Genetics, and five other undisclosed organizations, the university opted to grant Biotique exclusive rights to the technology (see sidebar).
Robert Riddle, technology licensing associate at UH, noted that the terms of its agreement with E-Genetics permitted either side to terminate without cause. This arrangement is fairly common, he said, and gives young companies wiggle room — for example, if their business model changes and they don’t want to be locked into a minimum payment schedule — but also leaves them at risk to have the license renegotiated out from under them.
Tania Broveak Hide, CEO of E-Genetics, noted that the university’s actions were in line with the agreement, but it was still “quite a surprise for us that the University of Houston chose this route.” The university’s decision to go with an exclusive vendor “seems unusual,” she said, and runs counter to the presumed purpose of university tech transfer initiatives, which she outlined as “wide dissemination of university-developed technology for the public good.”
Hide’s primary concern is that the terms of a sublicense from Biotique may impact the 300 or so academic organizations who currently access StackPack for free. E-Genetics is making “contingency plans” to find or write new code in the event it doesn’t work out, but Hide remains hopeful that the two companies can agree on reasonable terms. “John [Burke] has assured us that they won’t cut us out of the story,” she said.
Stephen Sanders, co-founder and CEO of Biotique, noted that discussions with E-Genetics were still ongoing. Riddle said that free access for academic use is a requirement for anyone licensing University of Houston technology.
Sanders downplayed the significance of the licensing win for Biotique. “It’s not the core component of our business,” he said. The company’s motivation in acquiring the license was to help its customers left “in somewhat of a lurch” after DoubleTwist closed its doors, and its primary intention is to “maintain continuity” for current users of the code, Sanders said. The company has developed its own clustering software for its in-house chip design work, so it has several options now: It can continue to maintain the d2, d2_cluster, and CRAW code for customers and sublicensees, or it can launch its own software product.
CAT Still on the Block
However, Biotique’s plans for the technology are largely dependent on who eventually acquires DoubleTwist’s Clustering and Alignment Tools. Sanders doesn’t expect the licensing change to impact the sale of CAT, a separate transaction in the hands of Los Angeles-based business advisory firm Sherwood Partners. Alex Van Dillen of Sherwood Partners declined to comment on the impact of the new licensing agreement on the sale of DoubleTwist’s assets.
Hitachi, who distributed DoubleTwist’s software in Japan, also declined to comment on whether it put in a bid for the tools with UH or is in negotiations with Sherwood for CAT. “Hitachi has interests in the DoubleTwist software and we intend to protect interests of our current customers who had purchased DoubleTwist products,” said a company spokesperson via e-mail.
Riddle noted that DoubleTwist’s decision to assign its assets to Sherwood Partners for the benefit of its creditors rather than file for bankruptcy was a boon for the university, which wouldn’t have been able to terminate its license in the case of bankruptcy without going to court. DoubleTwist’s downfall turned out to be a learning experience for the UH tech transfer office, Riddle said, because it focused the university’s attention on crafting the language of future licensing agreements to protect its own interests.
But did the university go too far in protecting those interests? The terms of the final agreement may be a win-win for Biotique and UH, but Electric Genetics is now in the delicate position of negotiating the terms of its license with a company that could turn out to be a direct competitor — depending, again, on who acquires DoubleTwist’s IP.
Remaining optimistic, Hide noted that there are “interesting possibilities for synergy” between Electric Genetics and Biotique, but with so much beyond the control of either company, all there is to do right now is “wait and see how it all shakes out.”
What Wins University Tech Transfer Licensing Deals?
The bidding war between Biotique Systems, Electric Genetics, and five undisclosed parties for software held by the University of Houston wasn’t just a question of the highest bid, said Robert Riddle of the UH tech transfer office. When negotiating licensing terms with a university, “intangible factors” weigh heavily in the process, he noted. What other elements does the university take into consideration? Riddle shared a few with BioInform:
• A company’s ability and willingness to disseminate the technology to the general public is a big consideration. For example, a company with a competing product on the market would not be granted a license because it may want to suppress the new technology.
• Smaller companies with new research are favored.
• Companies with links to the university, ties to the technology, or that have pledged to support the university in some way, are favored.
• Research-only use must remain available for academics.
• Up-front license payments are rare. Most agreements tend to be royalty-based.
• Universities benefit from the higher licensing rate of an exclusive license, but non-exclusive licenses allow them to spread the risk of failure across several players. It’s not one-size-fits-all, Riddle said, and tends to be driven by the dynamics of the specific technology in question and the market strategy of the potential licensees.