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NIH streamlines invention licensing process for healthcare startups

on September 20, 2011 Source: Kauffman Foundation

Ask an entrepreneur how he or she feels about dealing with the government and you’ll likely get an earful of metaphors about root canals and going 15 rounds with Mike Tyson in his prime.

Healthcare startup owners know those types of responses all too well. Getting government approval to go forward with products and services unique to the healthcare sector – things like drugs, vaccines and therapeutics – is usually a time-consuming, anxiety-generating process.

The federal government, to its credit, recognizes the bottlenecks that over-regulation can create, and is taking steps to speed things up from a regulation point of view.

Exhibit “A” is the White House’s new program to streamline the ability of healthcare startup owners to license inventions for “groundbreaking medical technologies” that were developed at the National Institutes of Health (NIH).

The idea is to cut the costs and time associated with startup owners who want an exclusive option agreement to leverage the myriad patents available to private sector businesses in the NIH portfolio.

On October 1, healthcare startup owners (or “biomedical entrepreneurs” as the government calls them) can apply for any available patents linked to drugs, vaccines or therapeutics available through either the NIH or the U.S. Food and Drug Administration.

The goal is a long-term one: Get entrepreneurs on a path to profits using NIH/USFDA inventions as a springboard. "By obtaining access to such inventions, a startup company may be able to attract additional investments to develop the NIH and FDA inventions into marketable products," said Mark Rohrbaugh, Ph.D., J.D., Office of Technology Transfer director.

So here’s the skinny. For $2,000, small business owners can get a startup evaluation license which – in the course of one year – can be converted into an exclusive licensing deal. Companies will have to meet the following government mandates before the application is accepted:

  • Include a business plan with their application
  • Own a company that’s less than 5 years old
  • Have fewer than 50 employees
  • Have investment assets of no more than $5 million

As always, Uncle Sam wants his slice of the pie, too. But the government will defer any royalties earned from the license agreement for three years, or “until the company experiences a liquidity event.” Fifty percent of fees related to patent expenses are deferred, too.

Also, royalty payments on product sales are limited to 1.5 percent of sales.

One potential fly in the ointment for entrepreneurs is a “use it or lose it” issue. John Conley, writing in Genomics Law Report says that the NIH is reluctant to pull patents away from companies to which they’ve already awarded them. The “exclusivity” factor – meaning patent holders don’t have to share the patent with other manufacturers, even if they’re not pushing the product forward – is facing pressure from healthcare lobbyists. That could mean even more changes for the NIH licensing initiative.

Still, it’s about time healthcare startup owners earned some relief from onerous government regulations. In this instance, it looks like Uncle Sam should be more of a help than a hindrance.

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