Or why a bird in the hand is worth less than two in the bush….
In Part I of this blog, we suggested that academics, universities and TTO’s may see licensing a project as the easier route to commercialisation versus spinning out a new company. In this follow up, we point out the differences as we see them in the approach to commercialisation options and why we believe spinning out a company has longer term value and potential upside for the academic, university and TTO.
In truth, both licensing and spin-out options can be complex and time consuming and, as such, it is worth considering the potential upside of both as opposed to the known downside in relation to effort and cost – see the table below:
|How much work is required?||Significant support required from the university/academic to define the development of a product suitable for licensing – eventually all this work may lead to nothing.||The university/academic can be more passive, although it is preferable for the academic to be involved in Q&A supported by industry/commercial experts.|
|How long will it take?||It can be extremely hard to find a partner company and evaluate them, the deal and the profile of the license deal – this can take years and ultimately fail.||Without a clear understanding of the requirements this can take years and ultimately fail. At PIPE the process is 120-days from project kick off to new company investment.|
|How expensive is it?||This is an unknown as patent costs can be significant and each license arrangement will have a different set of terms – overall costs are unknown and potentially significant.||At PIPE there is a fixed fee to cover 4 x 30-day tranches of work. This means costs are known, budgeted and stable throughout.|
|What will we get back?||That depends on the deal, although it is often single-digit percentage points only.||At PIPE the academic and university are stakeholders in the funded company and are treated as all stakeholders in regard to dividends and commercial value.|
|What does the academic have to do?||Provide significant technical support up to the point of licensing and possibly beyond.||At PIPE the academic is supported by an industry associate and team to define the key development tasks to move the project forward – long term involvement is a choice not an obligation.|
|What kudos does the academic receive?||Their name on the license.||At PIPE the academic can choose to join the core team as a founder or take an advisory position on the board, or even take a back seat if they wish as a shareholder only.|
|How much risk is involved?||The risk can be very high with warranties, indemnities and assurances.||At PIPE, the new company takes the commercial risk, not the individuals.|
|What about the long term?||If all goes well, you will see the company that owns the license make significant gains, whilst you may feel bitter receiving a fraction of those royalties.||AT PIPE as a shareholder benefitting from the overall performance of the company and possibly being involved with the company, you will have far more satisfaction.|
At PIPE we believe there is much greater risk and potential for increased and unknown cost when licensing IP to a 3rd party versus spinning out a new company. We have seen many examples of licensees failing to deliver commercial value either through delays in going to market, delays in development and manufacturing, increased costs thus reducing or removing license fees from the project and increased reliance on the university and academic around the provision of IP protection and evolution.
At PIPE, we believe the true value of R&D/IP can only be realised over the longer term when a spin-out company is formed with a strong management team, defined business plan and adequate funding to move the project from the ‘Lab to IPO’. This is why we developed the PIPE, to formalise the process, fix the cost and drive projects toward team development, funding and long-term financing.
A spin-out company allows the academic to involve themselves as much as they wish or to take a back seat, it allows the academic and the university to have a stake in the future value and direction of the company as shareholders and it increases the overall value of the university R&D/IP balance sheet. It also means the risk is managed by the company and as a shareholder, the university, TTO and/or academic has visibility and input to board decisions, actions and motivations for commercial decision making.
Having a partner, such as PIPE to manage the entire ‘Lab to IPO’ process on a fixed fee that includes incubation, due diligence, team building, planning and financing as well as on-going support, on-going funding (up to €2m) allows the university, academic and TTO to progress projects efficiently and with significant support.
By developing spin-out companies, the university is taking a significant position, alongside their academic and the PIPE company, in the significant financial upside of the PIPE process and the PIPE Exchange and will realise significantly greater returns on R&D/IP and TTO output than through any form of licensing.
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