NIH Start-Up Exclusive License Agreements

The National Institutes of Health (NIH) through the Office of Technology Transfer has developed a new short-term exclusive Start-Up Evaluation License Agreement (Start-up EELA) and a Start-up Exclusive Commercial License Agreement (Start-up ECLA) to facilitate licensing of intramural NIH and Food and Drug Administrative (FDA) inventions to start-up companies. These new NIH Start-up Licenses are offered to assist start-up companies less than 5 years old, with less than $5M in capital raised, and fewer than 50 employees to obtain an exclusive license from the NIH for early stage biomedical inventions. These Start-Up Licenses will be offered to companies developing drugs, vaccines or therapeutics from NIH or FDA patented or patent pending technologies. The start-up company must license at least one US patent and commit to developing a product or service for the US market. They may also include in the license related NIH/FDA patents filed in other countries if they commit to bringing products to markets in those countries as well. This pilot program was originally going to be offered for FY2012, i.e., October 1, 2011 - September 30, 2012, but the NIH has decided to extend this program through at least FY2014, i.e., October 1, 2013 - September 30, 2014. Companies can identify technologies of interest by searching Licensing Opportunities and follow through with the listed licensing contact. For general questions about this program, please contact Richard Rodriguez, Director, Division of Technology Development and Transfer, OTT at rodrigr@mail.nih.gov.

Because many, if not most, of the technologies developed at the NIH and FDA are early stage biomedical technologies, the time and development risks to develop a commercial product are high. Depending on the technology and stage of formation, some companies may prefer to enter into the Start-up EELA to evaluate their interest before committing to a longer term Start-up ECLA.

These new NIH-Start-up Licenses minimize the barriers to entry faced by start-up companies under exclusive licenses and provide a structure that encourages and supports the commercial development of early stage NIH and FDA technologies. While the NIH has been quite flexible in structuring licenses to start-up companies, a major goal of the NIH Start-up License is to further reduce the time to finalize an exclusive license and the initial financial capital needed to execute an exclusive license. In doing so, a start-up company may be able to attract additional investments to develop the NIH technology. SEE TERM SHEET FOR FULL DETAILS OF THE OFFERED AGREEMENT. In summary, some key features of the NIH Start-up License Agreements and process are:

  • Identification of NIH or FDA technologies available for licensing from http://www.ott.nih.gov/opportunities (or subscribe to the RSS feeds - http://www.ott.nih.gov/category-index).
  • Submission of a business plan by a start-up company that is tailored to the initial stages of product development and can be revised as the company progresses further along the development pipeline towards the commercial product or service.
  • A 15-day public notice in the Federal Register, the minimum required by statute, of NIH’s intent to grant an exclusive license to the applicant company
  • Either (A) a one-year exclusive evaluation license with a $2,000 execution fee that can be amended to an exclusive commercialization license; or (B) an exclusive commercialization license which includes:
    • A delayed tiered upfront execution royalty which would be due to the NIH upon a liquidity event such as an IPO, a merger, a sublicense, an assignment, acquisition by another firm, or first commercial sale;
    • A delayed minimum annual royalty (MAR) or a MAR that is waived if there is a Cooperative Research and Development Agreement with the NIH (or FDA) supporting the development of the licensed technology and provides value comparable to the MAR. Additionally, the MAR will be waived for up to 5 years during the term of a SBIR or STTR that supports the development of the licensed technology;
    • An initial lower reimbursement rate of patent expenses which increases over time to full reimbursement of expenses tied to the earlier of a liquidity event, an initial public offering, the grant of a sublicense, first commercial sale, or upon the third anniversary of the effective date of the agreement;
    • NIH will consider all requests from a start-up company to file new or continuing patent applications as long as the company is actively and timely reimbursing patent prosecution expenses;
    • A set earned royalty rate of 1.5%;
    • A set sublicensing royalty rate of 15%;
    • Anti-stacking royalty payment license provision can be negotiated by company if it encounters a stacking royalty challenge;
    • Mutually agreed upon specific benchmarks and performance milestones, which do not require a royalty payment, but rather ensure that the start-up licensee is taking concrete steps toward practical application of the licensed product or process.

The certainty and structure provided by these financial terms will facilitate and ease the burdens of start-up companies when they commit to develop NIH and FDA early-stage technologies into commercial products. Additionally, these NIH Start-up Licenses will greatly reduce the negotiation time leading to an earlier executed license agreement. By licensing FDA and NIH technologies under these terms, start-up companies will be in a better position at an earlier point in time to attract financial investments as needed to successfully develop a commercial product that will benefit public health.