NIH Start-Up Exclusive License Agreements
The National Institutes of Health’s patent and license functions were decentralized from the Office of Technology Transfer (OTT) to individual NIH Institutes/Centers (IC) and the Food and Drug Administration (FDA); the Centers for Disease Control and Prevention (CDC) patent and license functions have moved to the National Institute of Allergy and Infectious Diseases (NIAID). The use of the start-up license program is currently determined by individual ICs on a case-by-case basis. Therefore, license applicants are encouraged to contact the appropriate NIH Technology Transfer Professional to see if such an agreement may be available for the licensing of a particular technology of interest.
Before the current decentralized technology transfer model, the NIH, through the OTT 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 CDC 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 or CDC for early stage biomedical inventions. These Start-Up Licenses were offered to companies developing drugs, vaccines, therapeutics, and certain devices that NIH determined would require significant investment to develop, such as those undergoing clinical trials to achieve FDA approval or Class III diagnostics, from NIH and CDC 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/CDC patents filed in other countries if it commits to bringing products to markets in those countries as well. Companies can identify technologies of interest by searching Licensing Opportunities and follow through with the listed licensing contact.
Because many, if not most, of the technologies developed at the NIH and CDC 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 minimized the barriers to entry faced by start-up companies under exclusive licenses and provided a structure that encouraged and supported the commercial development of early stage NIH or CDC technologies. While the NIH was quite flexible in structuring licenses to start-up companies, a major goal of the NIH Start-up License was 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 or CDC technology. In summary, some key features of the NIH Start-up License Agreements and process were:
- Identification of NIH or CDC technologies available for licensing from /adv?ott%5BrefinementList%5D%5Btype%5D%5B0%5D=technology&ott%5BrefinementList%5D%5Btype%5D%5B1%5D=technology_bundle&ott%5Bquery%5D= (or subscribe to the RSS feeds - https://www.ott.nih.gov/feed).
- Submission of a business plan by a start-up company that was tailored to the initial stages of product development and could be revised as the company progressed further along the development pipeline toward the commercial product or service.
- A 15-day public notice period 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 could be amended to an exclusive commercialization license; or (B) an exclusive commercialization license which included:
- A delayed tiered upfront execution royalty which would be due to the NIH or the CDC 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 was waived if there was a Cooperative Research and Development Agreement with the NIH (or CDC) supporting the development of the licensed technology and provided value comparable to the MAR. Additionally, the MAR would be waived for up to 5 years during the term of a SBIR or STTR grant that supported 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 or CDC considered all requests from a start-up company to file new or continuing patent applications as long as the company was 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 could be negotiated by company if it encountered a stacking royalty challenge;
- Mutually agreed upon specific benchmarks and performance milestones, which did not require a royalty payment, but rather ensured that the start-up licensee was taking concrete steps toward practical application of the licensed product or process.
The certainty and structure provided by these financial terms would facilitate and ease the burdens of start-up companies when they committed to develop NIH or CDC early-stage technologies into commercial products. Additionally, these NIH Start-up Licenses would greatly reduce the negotiation time leading to an earlier executed license agreement. By licensing technologies under these terms, start-up companies would 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.