1. Patents and Licensing)
Entrepreneurship Series
University of California, San Diego
(March 2019
Patents and Licensing)
Miranda Biven, Partner, WSGR
Donna Shaw, Assistant Director, Life Science Licensing

2. Overview

3. Overview Introductions Accessing technology & creating value
Potential partnering structures
Typical pre-partnering 3rd party relationships
Key license terms that impact partnering
Building a successful relationship with OIC 3

4. Wilson Sonsini Goodrich & Rosati
Since
1961 16
Offices Worldwide
750
Attorneys
3,000+
Private Clients
300+
Public Clients *

5. Talent pool from surrounding universities
Why Are We Here?
Southern California is the 3rd largest Venture Capital ecosystem in the U.S.
Many factors have led to growth in investment interest & investor communitie
Talent pool from surrounding universities
Technology infrastructure services make building companies cheaper
Strong exit activity 5

6. Close Ties with the Venture Capital and Private Equity Funds Most Active in Life Sciences:

7. Select University and Institutional Spin-outs
Stanford
University of Chicago
UProspie
UCSan Diego, UCLA, & other UCs
TOROMEDES
Other Universities
DMD Therapeutics
Other institutions
*Some former or acquired clients included 7

8. UC San Diego’s Tech Transfer Overview
UC San Diego's Office of Innovation and Commercialization (OIC) executes hundreds of agreements each year, including confidentiality agreements, MTAs (for outgoing materials), and licenses
It has received an average of 90 new US patents a year for the past 5 years
It has approximately 400 active licenses of UC San Diego's intellectual property, with around half in California and around 10% to entities outside the US. 8

9. Licensing & Partnering: Accessing Technology & Creating Value

10. Key Forms of IP Protection
In an innovator company (e.g., a life science company), a large part or even all of the value in the early stage is found in the IP
The key types of protection are:
Patents
Trade Secrets
Copyrights
Trademarks
FDA exclusivity (for life sciences companies)
Most companies use all forms of protection, to some greater or lesser degree
Patents are without doubt the most important form of IP for innovator companies 10

11. Comparison of Key Forms of IP Protection

12. Building Company Intellectual Property
Founders
Spins/Parents
Formation
Acquisitions
Internal
Development
Growth
IPO
Merger/Sale
Exit
Joint Ventures/ Collaborations
Licenses
Open Source

13. Life Science Startup: Typical Growth Strategy
Developing and commercializing safe, effective and competitive products on a global scale is too complex and expensive for many companies to go alone
3-6 YEARS
6-7 YEARS
0.5-2
YEARS
PRE-DISCOVERY
DRUG
DISCOVERY
PRE
CLINICAL
CLINICAL TRIALS
FDA
REVIEW
LARGE
SCALE
MFG
IND SUBMITTED TO FDA
NDA SUBMITTED TO FDA
PHASE 1
PHASE 2
PHASE 3
Number of Volunteers
20-100
PHASE 4: POST MARKETING SURVEILLANCE
5,000-10,000
COMPOUNDS
250 5
ONE
FDA-
APPROVED 13

14. Life Science Startup: Typical Growth Strategy
So startups transact and partner with third parties to achieve the following:
Obtain funding
Share risks
Obtain technology
Secure infrastructure
Access expertise
Access new channels
Access new territories
Enhance credibility
Shape industry standards
Goal = Establish pre-partnering arrangements to advance product development without limiting partnering / exit opportunities 14

15. Potential Partnering Structures

16. Progression of Structures
Primary/Basic Structures
Partner obtains exclusive license (or an option to one on pre-agreed terms at trigger point (e.g., IND filing, POC))
Partner acquires startup or program (or an option to do so) by:
Acquiring program assets
Acquiring startup + spin-out of other assets (if necessary)
Alternative Potential Structures
Co-Development/Co-Commercialization
Funded multi-product collaboration
Regional deals
Strategic equity investment 16

17. Common Pre-Partnering Third Party Relationships

18. Key Pre-Partnering Third Party Relationships
In-Licensing foundational IP/technology
Academic Institution licenses
Business-to-business licenses
Financing Transactions
Grants
Equity
Fundamental Research
Sponsored research agreements
Material transfer agreements
Service Agreements
Pre-clinical research; formulation development; data analysis, etc.
Clinical trial agreements
Manufacturing/Supply agreements 18

19. Licensing: Steps for Success with Academic Institutions
Get Prepared
Get an Option / Negotiate a Term Sheet
Create a Schedule
Use the University’s License As a Starting Point
Make it Win-Win 19

20. Licensing: Steps for Success (contd.)
Get Prepared
Understand what you want to license and the business opportunity
Do due diligence
Negotiate a term sheet or LOI
LOI: Exclusive right to negotiate a license to technology of interest for a defined period
Term Sheet: Agreement in principle on key business terms
Use University’s template
Using university template usually facilitates negotiations
Discuss with OIC most appropriate template for your company’s needs
UCSD has initiatives to facilitate licensing for start-ups (more to come on this)
Remember that negotiating the license is just the beginning of the relationship 20

21. UC San Diego: License for Start-Ups
Eligibility
Up-front license fee
Past patent costs
Future patent costs
Maintenance fees
Milestone fees
Equity and participation rights
Assignment fee

22. Key License Terms that Impact Partnering

23. Diligence Obligations and Milestones
Academic institutions need to ensure technology generated at the institution is developed for the public’s benefit
Key mechanism in license agreements to achieve this result are diligence obligations
Commitment to use specific level of efforts to advance development of licensed IP
Diligence standards
“Commercially Reasonable Efforts” / “Diligent Efforts” / “Best Efforts”
May also include obligations to meet certain technical milestones by specified dates
Institution’s remedy for non-compliance important to consider
Termination of license or conversion of exclusive license to non-exclusive 23

24. Diligence Obligations and Milestones (contd.)
Partners and acquirers will focus on diligence obligations they will inherit
Make sure diligence obligations and milestone deadlines are achievable
Anticipate “the unexpected” in technology/product development
Consider seeking rights to obtain extensions
Delays outside the company’s control (e.g., regulatory delays)
Paid extensions? 24

25. Sublicensing Rights
Need right to grant sublicenses to be able to partner successfully
Third party service providers
Pharma/biotech partners and their affiliates
Regional sublicenses
Spin-outs
But academic institutions want to know who they are dealing with
Restrictions on sublicensing to watch for
Limited to one tier
Termination of sublicensee’s rights if main license terminates 25

26. Sublicensing Rights (contd.)
Obligations to be inherited by a sublicensee
Indemnification; limitations on liability
Reporting and payment timelines
Audit provisions

27. Assignment Provisions
Licenses of foundational or core IP should be assignable to an acquirer
Acquisition of whole company vs a program (e.g., in a spin-out)
Consider conditions to be satisfied prior to assignment
Preferable if licensor’s prior consent not required
Payments owed in connection with assignment
Not in breach of agreement
Notice to licensor
If notice is required, preferable if it is after assignment
Obligations of confidentiality and timing of transactions may make notice prior to assignment impractical 27

28. Financial Provisions
Payments to licensors should take into consideration the risk and resources necessary to further develop product
Financials should leave room for those bearing risk of future development to obtain a reasonable return
Royalties
Consider payments necessary for other IP for the product
Consider basis for royalty
Sublicense consideration sharing
Obligation to pay licensor portion of amounts received in consideration for grant of sublicense
Can be a very significant payment at the time of partnering
Be clear about what consideration is subject to sharing
Typically tiered rates that decrease over time or as product development advances
Need to keep in mind when negotiating partnering economics 28

29. Building a Successful Relationship

30. Compliance & Communication
Negotiating a license is just the beginning of the relationship with an academic institution
Once license is signed, establish timetable for obligations to track and ensure compliance
Payments to be made
Reporting
Diligence milestones and achievement dates
Keep OIC Informed
Foster relationship with OIC
Provide diligence reports in a timely manner
Ensures that you don’t only reach out when there is a problem 30

31. Questions?