Commercialization – Practical Aspects and Problems
Learning objectives
- At the end of this lecture, students will be able to:
– Explain the role/significance of commercialization in the pharmaceutical industry
– Explain the role of IP
– Explain the problems encountered during commercialization
COMMERCIALIZATION
Commercialization can be defined as the process of turning an invention or creation into a commercially viable product, service or process.
- Commercialization may require additional R&D, product developments, clinical trials or development of techniques to scale-up production prior to taking the results of research to market.
- This is important because not all inventors or creators wish or have the resources, skills and appetite for risk to commercialize their own inventions or creations.
COMMERCIALIZATION- PRACTICAL ASPECTS
- Not all academic institutions or innovative businesses have the necessary financial and technical capabilities to take an invention or creation all the way to market by themselves. Resources required converting an original/new idea/concept/ design to a desired product so as to reach market requires:
- 1. Time
- 2. Funds (own or borrowed)
- 3. Creative effort
- 4. Innovative effort
- 5. Persistence
- 6. Focused management of the entire process from idea to market.
In the case of biotechnology products the main markets for such tend to be international. In many situations, an organization that owns IP rights to an invention will need one or more commercial partners. Initial steps in the commercialization are to determine
- 1. Whether the invention is patentable?
- 2. Whether to take title to the invention and file a patent application?
- 3. The practical aspects of the patent application, such as whether funds are available for the application and
- 4. How quickly the patent application must be filed?
Considerations to file a patent application include:
- Whether the discovery is patentable;
- What the likely uses of a discovery are;
- Whether a discovery has “sufficient” commercial potential;
- Whether significant additional investment (research, development, regulatory approval steps, marketing, and so on) is needed;
- Whether the discovery is something without significant commercial value, but nevertheless has potential for social impact through noncommercial channels.
The decision that an invention has sufficient potential commercial value for a patent application depends on many factors.
- 1. Future royalty revenue of the license. Ex: Stanford’s Office of Technology Licensing, refuses to patent inventions that not generate at least $100,000/year in royalties.
- 2. Whether a commercial entity is already interested in the discovery and is capable of developing it. (Sponsored research agreements)
- 3. How broad or enforceable the resulting patent is likely to be, and whether copyright is a more suitable IP tool.
TTO = technology transfer office
MTA = materials transfer agreement
SRA = sponsored research agreement
SBIR = small business innovation research (grant)
STTR = small business technology transfer research (grant)
VC = venture capital
Patent application can take 2 to 5 years. As soon as a patent application is submitted, TTO will then partner with the inventor to market the patent to find a licensee to provide resources for technology de-risking to increase its marketability.
The quality of IP management:
- Technological & commercial merit of IP should be assessed at an early stage in order that successful commercialization occurs.
- Each situation should be analyzed taking into account the nature of the IP, the market conditions, the financial position of the IP owner and the available resources.
- The likelihood of commercial success increases when management ensures that there is clear customer demand for new products or services & a profitable way to bring them to market.
The quality of IP management:
- Specific factors such as speed of market entry, the degree of control required and the potential for growth are considered important in selecting the appropriate commercialization vehicle
Legal vehicles for the commercialization of IP
There are two chief legal vehicles by which owners may commercialize their intellectual property
- To sell or assign the IP
- To license the IP rights.
Assignment / Sale: When rights are assigned (other than partially), the recipient or assignee acquires ownership of all rights which previously belonged to the assignor, although the assignor may take a license back from the assignee.
- This can be done between two independent parties, but it can also be done on an internal level and form part of employment agreements and agreements with consultants or contractors.
- Assignments of intellectual property rights can be done either via sales or via transfers, i.e. with or without direct financial compensation. Patent laws require the assignment to be in writing to effectively assign the intellectual property.
– The parties wish to add other conditions to the transfer of the IP such as a license back to the seller, warranties concerning the IP or a restraint of trade clause;
– The parties wish to clearly document their intention to transfer full title to the IP
Checklist for assignment
- Do you want to avoid having to enforce the IP?
- Have you determined that the IP is not a core asset for the conduct of your business, present or future?
- Do you want to avoid any future involvement with the IP, including in particular the ongoing costs and administration requirements in maintaining registration of the IP?
- Is any ongoing use of the IP likely to be for a limited time or purpose?
- Is the IP unlikely to establish or maintain a strategic market or alliance position for the enterprise?
- On balance, is there no alternative approach to commercialization better suited to your objectives?
Licensing
- Licenses allow patent owners to share inventions or other intellectual property in a controlled manner and to receive revenue (e.g. royalties) or other benefits (e.g. access to another firm’s knowledge).
- A public research organization or SME may not be in a position to undertake the direct exploitation of IP rights.
- Accordingly, assuming that the entity owns the intellectual property, in order to exploit the financial potential of an invention fully, it can consider finding an appropriate licensee for the IP.
- A patent for example is licensed when the owner of the patent (the licensor) grants permission to one or more entities (the licensee(s)) to use the patented invention for mutually agreed purposes in a mutually agreed manner.
- In such cases, a licensing contract is generally signed between the two parties, specifying the terms and scope of the agreement.
- If a suitable licensee is found and the terms of the license agreement are properly drafted, such an arrangement can represent a secure source of income for the licensor while minimizing costs and risk.
- An independent entrepreneur or inventor, it is often advisable to start the search for licensees as early as possible in order to guarantee a revenue stream that will be useful to cover the costs of patenting.
- It is critical to find the right partner(s) to generate profits from the commercialization of the patented invention.
- The best licensee will probably have a direct strategic fit with the technology.
- A licensee who seems to have complementary rather than competing technology and is looking to expand its product range is likely to be a more suitable partner.
What can be licensed?
- Technical information such as formulae, techniques and operating procedures,
- Commercial information such as customer lists and sales data, marketing, professional and management procedures,
- Trade information, process or device occurring or utilized in a business activity.
Types of licenses: There are three main types of licensing agreements depending on the number of licensees who will be allowed to use the licensed intellectual property.
1) Exclusive
2) Sole
3) Non-exclusive
Exclusive license
- A single licensee has the right to use the intellectual property, which cannot even be used by the owner. An exclusive license permits only the licensee and persons authorized by the licensee to exploit the invention.
- Sole license: This permits the licensee to work the intellectual property, prevents the grant of additional licensees, but allows the owner to also work the intellectual property.
- Non-exclusive license: This allows the owner to retain the right to exploit the licensed property as well as the right to grant additional licenses to third parties. Owner and all licensees the have the right to use the intellectual property.
Licensee/Licensor
Conditions necessary to obtain – commercial return
To obtain commercial returns from IP, certain conditions must exist.
- The existence of a customer or the ability to create customers; and
- An entity controlling the manufacture and sale of the resulting products.
Commercialization- PROBLEMS
- The development of new chemistry-based products for life science markets requires the expertise of talented researchers.
- However, these same researchers are typically not prepared to solve the many other critical problems necessary for successful commercialization.
- Without the requisite expertise in scale up and commercialization, many early-stage companies find that competitors beat them to the market or resources run out before success can be achieved.
Principal Problems
Four principal problems includes:
- Scaling manufacturing to meet commercial requirements
- Ensuring regulatory compliance of products
- Securing adequate funding for product development and manufacturing
- Protecting intellectual property
SCALING MANUFACTURING TO MEET COMMERCIAL REQUIREMENTS
- Early development stages usually rely on small scale batch synthesis.
- Drug development, for example, is often done virtually to minimize costs.
- The conceptual ideas developed are used to attract additional investments that enable real, but more costly, development activity.
- At larger scales, obtaining raw materials and identifying appropriate and cost effective manufacturing partners represents a significant challenge.
- The successful transition of technology from the laboratory bench to the macro-level within a commercial production environment is certainly not a trivial undertaking.
- Start-ups must utilize production facilities that satisfy the necessary requirements of timeliness, cost- effectiveness, regulatory compliance, and sometimes geographical proximity.
- If the proper manufacturing facilities and/or raw material providers cannot be located in an efficient manner, irreplaceable time and money are lost.
ENSURING REGULATORY COMPLIANCE
- Drugs and other products manufactured for human consumption must comply with governmental or industryspecific regulations.
- For pharmaceuticals, it is the current Good Manufacturing Practices (cGMP) of the FDA.
- Food grade and kosher regulations may apply to food and nutritional products.
- During the R&D phase, companies can minimize expenditures by producing test quantities using non- compliant batch production methods.
- However, converting these processes to meet regulatory requirements for scaled-up commercial production can be extremely time-consuming and costly.
- Frequently a change in facilities is also needed, further complicating matters.
- In the production of pharmaceutical products, cGMP regulations, for example, require that all commercially produced drugs and pharmaceutical products meet stringent assay, quality, and purity requirements.
- Facilities must have appropriate quality management systems in place that can detect, investigate, and correct product quality deviations.
- Investigational new drug (IND) submissions to the FDA can easily be delayed and rejected by insufficient data, inadequate reporting or insufficient cGMP reference standards.
- This may necessitate rapid preparation of clinical trial batches and validation and/or production of GMP-grade material to serve as a reference standard itself.
- The supply of specialized intermediates and precursors for life science applications may necessitate specific ISO certification on the commercial scale.
- This is becoming increasingly relevant as medical device companies request custom synthesis services for new excipients and components for novel drug-device combinations.
SECURING ADEQUATE FUNDING FOR PRODUCT DEVELOPMENT AND MANUFACTURING
- While there are many potential sources of funding for product development, obtaining funding is nonetheless highly competitive, and each investor or funding organization will have different requirements.
- Funding sources include venture capital (VC) groups, angel investor consortiums, and grant opportunities such as Small Business Innovation Research (SBIR) available through governmental agencies such as the National Institutes of Health.
- Identifying the proper grant options for the technology in question, as well as employing experts with grant- writing expertise, is of paramount importance.
- It is vital for start-up organizations to “get in front” of VC and angel boards to make a pitch for their novel technologies.
- External vendors and partners with existing relationships with such funding organizations are attractive options for young companies in need of capital.
- In addition, companies can also license their technology to commercial partners with synergistic or complementary technologies.
- Big Pharma typically leverage their resources in this way to bolster R&D pipelines.
- In order to do this, however, proof-of-concept work, data collection, and analysis must be conducted to convince potential investors to fund its product development activities.
- This is often one of the most expensive and difficult steps in the life of a start-up.
- While these fledgling companies typically confirm the bioactivity of a drug candidate on their own, the ability to prepare a comprehensive technical package suitable for licensing or transfer often remains beyond their internal capabilities.
- Thus, it is important for these outfits to identify external resources capable of handling synthesis, testing, and formulation work at all scales.
PROTECTING INTELLECTUAL PROPERTY
- Companies must balance the need to avoid any patent infringements or protect their own intellectual property (IP), and safely share their confidential process information with development partners.
- IP should be cross-referenced against existing patents and then protected during development and technology transfer.
- While this is typically conducted internally by legal staff or through a contracted external law firm, any perceived gaps may need to be addressed through additional laboratory work.
For instance, a start-up may need to
- Prepare additional patent example compounds,
- Quickly synthesize competitive samples,
- Perform analytical measurements for confirmation of substantive differences/similarities of target compounds,
- Identify trace contaminants and
- Elucidate impurity profiles. A start-up needs this work performed expeditiously to maximize future income within their limited patent life.
Memorandum of Understanding (MOU or MoU)
A memorandum of understanding (MOU or MoU) is a formal agreement between two or more parties. Companies and organizations can use MOUs to establish official partnerships.
- MOUs are not legally binding but they carry a degree of seriousness and mutual respect, stronger than a gentlemen’s agreement.
- Often, MOUs are the first steps towards a legal contract.
In US law, a memorandum of understanding is synonymous with a letter of intent (LOI), which is a non-binding written agreement that implies a binding contract is to follow.
- MOUs are popular in multinational international relations because, unlike treaties, they take a short time to ratify and can be kept confidential.
- MOUs may also be used to modify existing legal treaties.
Features of MOU
A Memorandum of Understanding should have the following features:
- It should specify the name & other details of the parties between whom memorandum of understanding is being signed.
- It should clearly specify the purpose and the goals for which the memorandum is being signed.
- It should specify the plan for the meetings between the parties. E.g. the parties can decide to meet at least once in a quarter.
- The memorandum should specify the amount of capital contribution to be made by the parties.
- It should also mention the person authorized to make the major financial decisions.
- The financial record keeping of the assignment/program being undertaken should also be maintained.
- Management: The memorandum may provide for the appointment of the persons to take care of the day to day operations of the program. The role, responsibilities, and remuneration should also be mentioned.
- Once the MOU is prepared and agreed upon by parties involved, it should be signed and dated by the authorized individuals representing each party or organization.
- The memorandum should specify the duration of such an agreement between the parties i.e the beginning and the ending dates of the memorandum. Also, it should provide for the circumstances in which such memorandum will be terminated.
Legal validity of MOU in India
- A Memorandum of Understanding (MOU) does not constitute a legally enforceable obligation. It is commonly used for a non-binding contract that describes the intention of the parties or businesses to work together.
- If a MoU has been drawn for consideration, like for exchange of money, etc., the document would become binding on the parties, else it is a non-binding contract. The intent of the parties can be deciphered from the contents and the material provision of the MOU. Clauses such as jurisdiction clause, applicable law, indemnification have binding effects to the agreement. Thus the legal nature of an MOU rests on the rights, duties, obligations, it creates among parties.
- In the Indian legal scenario, nomenclature of an agreement is irrelevant thus simply calling an agreement a Memorandum of Understanding does not automatically denote that a contract is non-binding.
Enforceability of Memorandum of Understanding as per Law
- MOU is governed by the Indian Contract Act, 1872, and if conditions under the Indian Contract Act are fulfilled, then the performance of an MOU can be enforced under the Specific Relief Act, 1963 where a Specific relief is granted when compensation cannot be ascertained in monetary terms.
- In case where the conditions under the Indian Contract Act, 1872, are not fulfilled, the MOU is not recognised as a legally valid contract. But, it can still be enforced in the court of law based on the principles of promissory estoppels and equity.
Stamp Duty on MOU
- Normally, no stamp duty is payable on MOU. However, if the MOU incorporates an agreement to purchase immovable property worth more than Rs. 100/- and if you need to produce it in the court, it should be stamped.
- A stamp duty paid document gets evidentiary value and is admitted as evidence in court. Document not properly stamped, is not admitted as evidence by the Court.
Confidentiality Agreement
A confidentiality agreement is a legally binding contract used to protect confidential or proprietary information shared between businesses or individuals. The parties agree not to disclose the information outlined in the agreement for the duration of the relationship, or for a specified period.
A confidentiality agreement is also referred to as a:
- Non-Disclosure Agreement (NDA)
- Confidential Disclosure Agreement (CDA)
- Proprietary Information Agreement (PIA)
- Secrecy Agreement
There are two types of confidentiality agreements:
- Mutual confidentiality agreement:used when both parties disclose and receive information that must remain confidential.
- Unilateral confidentiality agreement:used when one party discloses confidential information (disclosing party) while the other party receives and promises to keep the information confidential (receiving party).
When should I use a confidentiality agreement?
- If you and another individual or business wish to pursue a relationship that requires the disclosure of confidential information, you should use a confidentiality agreement. For example, if you’re engaging with:
- Employees:New hires should sign an employee confidentiality agreement that lasts for the duration of their employment, or a specified time period after termination.
- Independent contractors:Prevent independent contractors from sharing sensitive information with competitors.
- Consulting firms:Ensure your internal information is safeguarded during and after an audit.
- Businesses:Protect your proprietary information when pursuing joint ventures, partnerships, mergers, and acquisitions.
- Interviewees:Protect the information shared with a candidate during the interview process with an interview confidentiality agreement.
- If you’ve been asked to enter into a non-disclosure agreement, it’s important to understand when you should (and shouldn’t) sign an NDA.
What does a confidentiality agreement protect?
- A confidentiality agreement protects any information you’ve categorized as confidential in your form. For example, the following information may appear in a business confidentiality agreement form:
- Marketing strategies: long- and short-term plans for marketing a company’s products and services to customers
- Product plans: every stage of product development from ideation, beta testing, to product launch
- Financial information: all documentation and procedures that make up a company’s finances, including forecasts, reports, taxes, expenditures, profits, losses, and more
- Source code: original code created by programmers employed or contracted by the company
- Intellectual property: copyrights, patents, and trade secrets developed or purchased by the company
- Although confidentiality agreements are legally binding, they’re not all-encompassing. Learn what information you can and can’t protect with an NDA.
- Source code: original code created by programmers employed or contracted by the company
- Intellectual property: copyrights, patents, and trade secrets developed or purchased by the company
- Although confidentiality agreements are legally binding, they’re not all-encompassing. Learn what information you can and can’t protect with an NDA.
What must I include in my confidentiality agreement?
- A standard confidentiality agreement should include the following information:
- Receiving and Disclosing Party: If either party is a business, you’ll need to specify which type (LLC, corporation, etc.) and where it was formed, as well as include a representative’s name, title, and contact information.
- Confidential Information: Specify the types of confidential information protected by the agreement.
- Non-Compete Clause: Decide whether or not to include a non-compete clause, and specify when the non-compete period ends.
What must I include in my confidentiality agreement?
- Non-Solicitation Clause: Restrict the receiving party from hiring your employees for a period of time by including a nonsolicitation clause.
- Term: Outline how long the confidentiality agreement will last
— This is often how long the potential business relationship.
- Duration: Define how long the receiving party must maintain confidentiality after the agreement ends.
- Jurisdiction: Establish which state’s laws will govern the agreement.
- Effective Date: Decide when the agreement goes into effect.
How do I ensure my confidentiality agreement form is valid?
- Although state laws differ, your confidentiality agreement form will be legally binding and enforceable if:
- It’s signed & dated by both the receiving and disclosing party
- The confidential information defined in the agreement is unavailable to the public
- The scope of the agreement is not overly broad
- An item listed as confidential, such as a product design, can’t be developed/replicated easily without access to the designs
- Just because your confidentiality agreement is valid, doesn’t mean the other party will adhere to it.
Breach of Confidentiality Agreement
Step 1: Investigate and Gather Evidence
- When you suspect that an NDA is broken, the first thing you must do is investigate the breach and gather all the facts. This is by far the most important step because the evidence you obtain will determine whether or not you can seek retribution and prevent the further loss of confidential information.
Step 2: Consult with your Attorney
- The next step is to have your attorney review the NDA together with the evidence so that they can suggest the best course of action. If the evidence is substantial, the most likely course of action will be to send a cease and desist letter. Also known as a ‘Demand Letter,’
- At this juncture there are usually two outcomes:
- The breaching party stops and you come to a settlement. or
- The cease and desist letter is ignored.
Step 3: Take Legal Action
- If the cease and desist does not work, then you and your attorney must discuss what legal grounds you have to sue the person leaking confidential information. Depending on your case, there are few legal claims that you can make, such as misappropriation of trade secrets, Copyright infringement, Patent infringement etc
- Hopefully, the court will rule in your favor and order an injunction, which will require the breaching party to stop disclosing the information and return it back to the owner. In addition, the court may order the breaching party to pay monetary damages.
- It will be up to you and your lawyer to determine the dollar value of the total damages that you have suffered as a result of the breach. Unfortunately, it is likely the damages awarded to you will not sufficient in remedying the loss of your company’s trade secrets.
- Once the trade secrets have been released, the damage may be irrevocable.
FAQ
What is the significance of commercialization in the pharmaceutical industry?
Commercialization is essential as it ensures that innovative pharmaceutical products reach patients, generates revenue for companies, and provides a competitive advantage in the market.
What role does Intellectual Property (IP) play in pharmaceutical commercialization?
IP, including patents, protects pharmaceutical innovations, allowing companies to exclusively market and profit from their discoveries. It also facilitates licensing agreements and partnerships.
What are some common challenges encountered during pharmaceutical commercialization?
Common challenges include navigating complex regulatory pathways, securing market access, determining pricing and reimbursement, facing competition, and maintaining a robust supply chain and distribution.
Why is regulatory compliance a significant challenge in pharmaceutical commercialization?
Regulatory compliance is challenging due to the strict standards and complex approval processes required for pharmaceutical products. Ensuring that a drug meets regulatory requirements is crucial for market access.
How do pharmaceutical companies negotiate pricing and reimbursement during commercialization?
Negotiating pricing and reimbursement involves discussions with healthcare payers, government agencies, and insurers to determine fair pricing and access for patients while ensuring profitability for the company.
What is the role of competition in pharmaceutical commercialization?
The pharmaceutical market is highly competitive, with existing treatments and patent challenges. Companies must strategize to differentiate their products and gain a competitive edge.
How does supply chain management impact pharmaceutical commercialization?
Effective supply chain management is crucial to ensure the timely production and distribution of pharmaceutical products, preventing shortages and disruptions in the market.
Why is protecting Intellectual Property vital in the pharmaceutical industry?
Protecting IP is essential because it encourages innovation by providing companies with exclusive rights to profit from their discoveries. It also facilitates collaborations and partnerships.
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