The lesser known spin-off strategy is when the original parent company breaks off to form a new company. The primary reason for this, is that companies may want to market a new product under a different name, or divert attention to R&D projects that languish due to not fitting into current strategies of the parent. Packaging the project as a standalone entity creates a focus and may potentially grow the development of the technology. This option may be suitable for technology companies that have a pipeline of IP and products. A biotechnology company for example, may spin out parts of its biotech developmental pipeline into a separate company. At Inner Maven we can assist inventors to consider the pros and cons of spinning out your IP into a separate company.
- Forming a spin-off can highlight the value of a division that has been overlooked within the parent company. Breaking off into a new company will motivate previous managers to have a greater sense of responsibility in terms of performance and provides greater clarity. Alternatively a new, highly focused CEO might be recruited to drive the company and commercialisation of the IP.
- A spin-off allows the inventor (usually a company) to retain direction of the invention and allows them to retain the ability to develop and control know-how and future IP.
- The inventor may be interested in taking on more or a partial role in the commercialisation process rather than licensing out the technology.
- The technology in question may require further development; breaking out can accelerate the speed of commercialisation, compared to retaining it as part of a large development portfolio.
- Outside parties that may not have been interested in the activities of the parent company, but are interested in the technology of the spin-off, can be brought in as equity partners.
- The company could lose the synergistic benefits of having multiple business units working together and face increased risk due to lessened diversification.
- Financial risk: The spin-off may not perform as well as expected. By breaking off, the new company will sacrifice the security of having costs covered by the parent.
- High cost: Being an independent company means the spin-off company will incur additional corporate costs associated with certain service and internal management systems which have been previously provided by the parent company. These additional costs can be quite high.
- Reduction in the economies of scale including borrowing capacity, costs of employment and general operating expenses.
Start-ups are small, newly created and in a phase of development seeking growth and entry into markets. The entire concept is considered quite risky as business outcomes are unknown and high amounts of resources and time are required by the founder. Arguably, more than any industry, medical device and biotechnology companies have the potential to have a measurable impact on healthcare, medicines and other world issues. Entrepreneurs in this field face the additional challenge of melding science with business, with high expenditure on research & development. As an entrepreneur, running your own company requires great persistence, flexibility and hard work, but the end result is the ability to create a product that may benefit the health of countless individuals, and hopefully reap financial benefits as well.
Here are the pros and cons of embarking upon a start-up:
One of the main reasons why inventors decide to ‘go it alone’ in their commercialisation, is the perks of flexibility and control – eg. setting up your own hours, creative control and unlimited earning potential. Entering into partnerships or joint ventures means you also need to consider the needs of the other party, which may be contradictory to your own needs.
Increased productivity in decision-making
As a sole owner, the only party that is involved in decision-making is you. No voting, collaborations or team meetings.
As a sole proprietor, your vision is uncompromised. Having a singular vision can provide direction, in contrast to partners that may have differing views that lead to compatibility issues.
In contrast to partnerships and joint ventures where there is a degree of risk sharing between parties involved, start-ups face a higher risk of business failure. A recent Harvard study noted that 75% of startups fail.
Failures and Setbacks
One of the unique challenges faced by biotech and medical device companies are dealing with setbacks and failures. A technology may fail in the final stages of clinical trials and adverse events and regulatory inaction can delays the commercialisation of a product. Embarking upon a start-up is not for the faint of hearted, but requires extreme persistence and commitment.
Running out of cash
A fundamental reason for start-up failure is running out of capital. The CEO or director must understand the funds available and how much capital needs to be raised to achieve certain milestones. Patenting an invention, then commercialising your idea can be expensive and full costs often aren’t known up front.
Specialist knowledge in capital raising is often crucial to getting a start-up off the ground and through the early stages; this is where Inner Maven as a trusted advisor can assist.
Joint ventures are a form of strategic alliance where a temporary partnership is formed between two or more parties, seeking to leverage shared markets, IP, knowledge and, of course, expenses and revenue. The degree of ownership is dependent on the agreement. Partnerships and joint ventures are quite similar; however the underlying difference is that partnerships may involve continuing a long-term business relationship, whereas a joint venture may be based on a single business or project. Beginning a joint venture with a business that has complementary abilities and resources can make a lot of sense and assist in the commercialisation pathway, but the pros and cons need to be considered before embarking on this strategy:
- Joint ventures agree to share profits and losses in a particular ratio. This also implies that risk and costs are spread amongst the parties
- Diversification of businesses allows companies to enter related businesses by producing new products
- Opportunity to gain access to new markets. This is of particular relevance if it is a foreign collaborator.
- Opportunity to learn new expertise and gain commercialisation and research and development capacity
- Greater access to resources including specialised staff and technology. Partners may complement one another in that one may have access to new and improved technology but lacks capital, whereas the other may have capital but does not have the technology.
- Use of existing marketing arrangements, distribution networks or advisors (ie. Patent attorneys, business consultants or grant writing specialists) is possible to save on time and resources. Increased flexibility as joint ventures have a limited life span and only serve a proportion of each partner’s business.
- Slower decision making as the objectives and management style of each partner/ inventor may differ, leading to the need to compromise
- Time and effort to find a new partner that is an organisational and cultural fit. A lot of time is needed to establish a positive relationship.
- Imbalance in the share of capital, resources, investment, etc. may create tension points in the relationship.
- Poor integration and poor co-operation may lead to the collapse of a business. Up to 60% of joint ventures end up failing.
Inner Maven can assist in defining and managing a clear path to market and in establishing the correct structures and relationships along the way.
Licensing agreements are contractual arrangements that allow a licensee to use, manufacture or sell particular assets with permission from the contractual owner. Licensing has been integral for smaller companies to gain access to resources, including specialist regulatory expertise or manufacturing and marketing capabilities. These are usually only resources that larger pharmaceutical partners or medical device companies may possess. The essential component is to be able to adequately evaluate the technology on offer, to ensure all value is captured. Here are the pros and cons of licensing agreements from the licensor’s perspective:
The biggest advantage to a licensing agreement is the potential for the inventor to earn revenue passively, through a continuous stream of income without having to exert effort or lose ownership rights. In other words, the licensee does most of the commercialisation work to make profits and the licensor will receive a percentage of the profits, without outlaying capital to fund the venture. In addition, the licensor will not have to incur expenses related to product distribution, marketing, sales, manufacturing, design work, etc. This revenue stream may continue for many years.
It may be more efficient to license out new products if the firm does not have the funding capacity or commercialisation resources to take up production of the intellectual property themselves.
A licensing agreement may enable a firm to enter foreign markets more quickly. There are fewer risks imposed upon the firm compared to the regulatory and financial ramifications of setting up locally. A license will also allow for products to be supplied locally when there is no opportunity to manufacture in the locality. The licensor may also learn about new customer segments and the possibility of redesigning their products to meet their needs. Overall, licensing may assist the company to commercialise its IP or enter new markets more effectively and with greater ease than on its own.
Risking Loss of the IP
Intellectual property owners assume risk when they choose to license their products. A licensing agreement may open the doors for piracy or owners may have the technology stolen or replicated in the absence of good legal representation and a strong patent strategy. Monitoring a licensee’s use of the licensed product is also costly. A good example is software piracy and its illegal distribution.
When the licensor is licensing the technology in exchange for royalties based on sales, then the proportion of revenue earned is dependent on the performance of the licensee to make sufficient levels of sales. The licensor is also dependent upon the licensee to make quality products with its technology, to ensure that its reputation is maintained. In these instances, it may be worth negotiating a guaranteed annual minimum royalty.
Control of Technology
A negative aspect to licensing is that a company’s control over the technology is weakened. The technology has been transferred to the licensee, who is free to use the technology to their discretion.
At Inner Maven, our consultants can assist you to look at the pros and cons of your considered market strategies, to ensure your technology reaches the market in the most profitable manner. In addition we are well versed in the many factors you must incorporate into a well-developed licensing agreement.
Determining the best market strategy can go a long way for the profitability and commercialisation of your technology. The following are the most common ‘go to market strategies’ for biotechnology and medical device companies.
Licensing agreements are contractual arrangements that allow a licensee to use, manufacture or sell particular assets with permission from the contractual owner. The earliest licensing agreement in biotech was the licensing of Genentech’s first therapeutic, recombinant insulin, to Eli Lilly. Since then, licensing agreements have become commonplace in the industry. Licensing has been integral for smaller companies to gain access to resources, including specialist regulatory expertise or manufacturing and marketing capabilities, that larger pharmaceutical partners or medical device companies may possess. The essential component is to be able to adequately valuate the technology on offer, to ensure all value is captured. Learn more about licensing here.
A partnership is an association of people who carry on a business as partners who receive income jointly (ATO). The partners are all joint owners of a business and equally responsible for decisions made on behalf of the company. In other words, all profits, losses and responsibilities are equally shared, unless specified otherwise in a partnership agreement. Sharing a partnership with a medical institution for example, can foster medical device innovation providing access to patients during early stages of product development. Learn more about partnerships here.
‘If you can’t beat them, join them!’ Joint ventures are a form of strategic alliance where a temporary partnership is formed between two parties, seeking to leverage shared markets, IP, knowledge and, of course, expenses and revenue. The degree of ownership is dependent on the agreement. An example of a joint venture is the partnership formed between Unilever and lluminage. The relationship will leverage Unilever’s global expertise in development and marketing of beauty products, with the technical expertise of Syneron’s aesthetic devices. Learn more about joint ventures here.
From Facebook to Apple, these large innovative companies that we know today, all started as start-ups. Start-ups are small, newly created and in a phase of development seeking growth and entry into markets. The entire concept is considered quite risky as business outcomes are unknown and high amounts of resources and time is required of the founder. Medical or biotech entrepreneurs face the additional challenge of melding science with business with high expenditure in research & development. Running your own company requires great persistence, flexibility and hard work, but the end result is the ability to create a product that may benefit the health of countless individuals, and hopefully reap financial benefits as well. Specialist knowledge in capital raising is often crucial to get a start-up off the ground and through the early stages, this is where Inner Maven can assist. Learn more about start-ups here.
The lessor known spin-off or spinout company, is when the original parent company breaks off to form a new company. The primary reason for this is that companies may want to market a new product under a different name or divert attention to R&D projects that languish due to not fitting into current strategies of the parent. Packaging the project as a standalone entity creates a focus and may potentially grow the development of the technology. A biotechnology company for example, may spin out parts of its developmental pipeline into a separate company, snagging interest from venture capitalists and advancing the development of these products. Learn more about spin-offs here.
At Inner Maven, we have experienced all kinds of market strategies. Our consultants can assist you to identify the best market strategy and guide you through the process.
A patent is a legally enforceable right granted for a new or inventive device, substance, method or process that provides exclusive right for the holder to commercially exploit their invention for the life of the patent (IP Australia). We all have ideas, and as the late Robin Williams once stated ‘no matter what people tell you, words and ideas can change the world’. Great ideas have the capacity to solve a market need and create significant wealth for the inventor. However, with the risks involved, insufficient resources and the strong resilience required for commercialisation, very few ideas become truly profitable opportunities. Many individuals choose to patent their idea – an expensive exercise that won’t necessarily lead to commercialisation. In fact, 97% of all patents never make any money. Whether a patent is an asset or liability is a question that all inventors need to carefully consider. Let’s take a look at the pros and cons of owning intellectual property:
Limit the Competition
Patenting an idea can assist a business in limiting the competition. It prevents other parties from manufacturing and/or selling your invention in jurisdictions in which a patent has been granted. It also allows users to undertake license agreements or to take legal action on the grounds of unauthorised use. Therefore early market entry may assist businesses to establish dominant market share and establish a monopoly.
The exclusivity that accompanies patents, grants the holder with the potential to earn revenue from licenses or sale. As mentioned, licence agreements allow other parties to use the technology in return for an upfront license fee plus royalties. This is a common avenue for commercialisation of medical device and surgical device inventions. Although a patent is an intangible asset, it can also be sold upon valuation of its worth.
Having a patent can add credibility to your product if your company decides to apply for commercialisation grants to raise much needed capital. The novelty or innovative aspects of the technology can be critical to meeting eligibility criteria for the success of a grant. This is of particular importance to ICT (information and communications technology) projects where inventions relating to software and web development activities are deemed ‘day-to-day’ rather than innovative. A patent supports the idea that your product is novel, useful and of potential commercial value.
Patents are not cheap and can become an expensive exercise. Application, examination and maintenance fees can accumulate to thousands of dollars worth of fees over the life of a patent. If any of these fees aren’t paid, the application will not be granted or the issued patent will expire. Consider whether the value of your technology exceeds the time, effort and cost in filing and maintaining an application.
Some patents require public disclosure of the intricacies of an invention. This exposes the product to potential infringement or parties improving upon the original idea. The limited life of a patent may also place undue pressure for businesses to make enough sales to sustain the operations of a business.
Unwanted lawsuits can be associated with patents. Consulting patent attorneys about the legal ramifications of potential lawsuits from competitors is a necessary endeavour. Competitors may try to invalidate a patent or you may need to sue another party for infringing upon your patent.
Ownership of an idea can be a complex exercise. At Inner Maven we can assist entrepreneurs and inventors to devise a patent strategy that suits their commercial goals. Patent strategy development is essential to the protection of your technology. If necessary, we can also direct you to specific patent attorneys that specialise in your area and have the necessary skills we deem appropriate. Don’t start the commercialisation process alone!
Defining your technology’s value proposition is pivotal for successful commercialisation. It’s the promise of value and the belief that value will be delivered and experienced by the end users of your technology. In the case of medical devices and biotechnology, value may extend further into national and international benefits, solving problems that can have a positive impact globally. Investors want a defined value proposition before backing you and Government grant programs always ask for companies to define their value proposition in applications.
The most important step to defining value proposition is defining the problem that your technology is intended to fix. Consider the following in determining whether your target problem is worth solving:
- Need: Is there a lack of solutions to the problem or a lack of competitors in the field? Is your target market dissatisfied with current alternatives?
- Target: Who is your target market?
- Opportunity: Is there an area of opportunity for you to exploit?
- Unworkable: Does your technology fix a problem that is currently unworkable or creating negative implications?
- Features: What is the key problem-solving capability of your technology?
Finally, evaluate whether technology is unique and compelling. Does your technology reflect the following:
- Discontinuous innovation: offer a benefit that is superior to the current status quo by looking at a problem differently, e.g. a catheter that results in superior fluid flow and reduced blockages compared to existing catheters
- Defensible technology: offers intellectual property that can be protected to create a barrier of entry to others
- Disruptive business models: yields value and cost rewards that help catalyse business growth
Once you have thought of these elements, you can start building your value proposition. At Inner Maven, we have assisted many entrepreneurs in the medical space to define their value proposition.
A generic drug is considered identical or bioequivalent to its branded cousin. Upon patent expiry of the branded version (generally 20 years), other pharmaceutical companies jump on the opportunity to create a cheaper, generic version. As the drug is not developed from scratch, the cost of commercialisation is significantly reduced. As such, generic drugs are typically sold at a discounted price, saving consumers billions of dollars a year at retail pharmacies. An example of a branded drug would be Panadol by GlaxoSmithKline. Generic versions exist as a generic paracetamol.
In many countries, pharmaceutical companies seeking approval for generic versions of approved drugs need to demonstrate that their drug is equivalent to the branded version. Product quality and bioequivalence data are required before a generic product can be registered in Australia or listed on the Pharmaceutical Benefits Scheme (PBS).
Substantial equivalence needs to be demonstrated with:
- Active ingredients
- Dosage form
- Route of administration
- Bioequivalence – i.e. the generic is absorbed and distributed to the part of the body in a similar manner to the branded drug
Similar to all drugs, generics must also be manufactured under strict, controlled conditions that assure product quality. Drug companies must submit an abbreviated new drug application (ANDA) for approval to market a generic product.
Regulatory agencies internationally protect consumers by ensuring that they are receiving the same benefits from a generic as they do from branded versions.
During the commercialisation process, entrepreneurs may consider developing a presence in various international markets. Before embarking on this journey, it’s crucial for the foreign company to understand a specific country’s culture, market need and customs, that will ultimately assist a new medical device to be tailored and distributed within a new jurisdiction. Even if both the countries are in the same continent, the cultures and business etiquette may be vastly different. For example, Hong Kong (being an ex-British colony) has more Westernised customs, compared to countries such as Japan.
Here are several things to consider when engaging with others in the international market:
Familiarise yourself on the customs and business etiquette of your target country.
Many large international companies are familiar with engaging with foreign companies, however; local customs and cultures are still very much present. For example, in Japan, politeness is a key aspect of Japanese culture. The Japanese may shower praise for your product, but may have no intention of doing any business. Often using an interpreter will allow the Japanese to be more forthright, as they are not rejecting you directly.
Gather historical data and understand the country’s currency and pricing mechanisms.
Spend the first month doing business in your chosen target country aggressively networking and information gathering. Know the market value of your target country, do not assume this will be similar to your home country or other countries. Not understanding the value of your product, means foreign distributors may markup your product without passing a fair percentage to you. By comparing your home market statistics, you should also be able to extrapolate some reasonable revenue forecasts, that may be useful during the contract negotiation process for new distributors, etc.
Become an expert on the country’s laws governing business
Understanding a foreign market – particularly non-English speaking countries, can be difficult. Find local representation if possible or even set up a local office to manage and monitor the performance and relationships with local distributors, suppliers, etc.
Conduct Market research
For medical devices this may involve contacting Key Opinion Leaders in a specific medical field and asking them to provide feedback or to trial your device in the field. This may serve as useful development feedback and to identify the needs of your target market.
Compare with your competitors
How have others in the medical device field entered this target market? What obstacles did they face? How did the company approach the new market? What can you learn from their process?
At Inner Maven we have launched countless Australian products into international markets such as the USA, Europe and Japan.
Patent law can be a complex topic that leaves entrepreneurs perplexed and out of pocket. It can be a costly exercise, but is absolutely necessary in protecting your invention or medical device for successful commercialisation. Here are some basic principals in patent law.
What is a patent?
It is a property right granted by a government that permits the patent holder to exclude others from making, using, offering for sale, selling or importing the invention for a limited time in exchange for public disclosure of the invention. In other words it commercially excludes others from ‘copying’ or replicating your invention for a specified period of time. In Australia, this period of exclusivity may last up to 20 years from the filing date.
But remember, just because you have a patent, does not mean you have the right to use them. This is dependent on the claims and there may be dominant patents owned by others.
What is patentable?
Patentable subject matter includes:
- Process – eg. Method of making a drug, software that can be industrially applied, etc.
- Machine – eg. Medical imaging machinery
- Composition of matter – eg. New drug
- Article of manufacture – eg. New medical device, New diagnostic kit, New drug formulation, New computer hardware, etc.
What is not patentable?
- Laws of nature
- Physical phenomena – eg. biological mechanisms, biological pathways, chemical reactions, etc.
- Compound in state of nature (Refer to blog Challenges to Patentability in Biotechnology)
Requirements for patentability
Just because you have an idea, doesn’t mean it is instantaneously patentable. There are specific requirements that an inventor must be aware of. The invention must:
- Be novel
- Be useful
- Involve an inventive step (Anticipated by prior art, not obvious)
- Have sources of known prior art
- Be written description in “best mode”
The “best mode” requirement is a safeguard against an individual’s desire to withhold information and to obtain patent protection without making a full disclosure.
Inner Maven has extensive experience working with inventors and patents, and can make introductions to patent attorneys who can also guide inventors through this process.