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Starting Out
Bio-pharma businesses, more so than many other businesses, have a considerable number of legal hoops through which to jump. Such a business might start up by way of development undertaken at, for example, a university. An academic or team of academics might have developed a platform technology - for example, a drug formulation or delivery system or a biological system with the potential to deliver a number of opportunities and/or products. Here we set out some of the issues to be aware of, if you have a platform technology and wish to take it to market.
Setting up a "spin-out" company
The first hurdle is getting the technology out of the originating entity. Depending on the nature of the contract which any individual is working under (as employee/contractor/academic/student), the entity where the technology and all relating intellectual property rights ("IPR") originates will almost always own any IPR which is created. A bio-pharma business often begins as a spin-out from this entity, in order that the risk of developing the new technology can be separated from the existing business.
The first step is to ensure that the spin-out company ("NewCo") has sufficient rights to all the relevant IPR to the extent necessary to allow it to further develop the technology and take it to market. An assignment of all relevant IPR, including know-how, is ideal as it provides outright ownership. However, often development companies will agree to operate under exclusive licences. This is not necessarily a bad approach as an exclusive licence would also give NewCo the exclusive right to develop and commercialise the IPR. As with all legal documentation the terms of the licence must be clear and cover all relevant aspects of the legal and commercial arrangement. For example, the provisions on IPR should include a provision that any improvements created by NewCo should be owned by NewCo.
Once the chain of ownership is clear, NewCo is at liberty to approach third party investors to raise funds to further develop the IPR. Attracting such third party investment will be extremely difficult unless there is clarity of title of the IPR. It is vital that legal advice is sought with regard to this issue. If the chain of ownership is not clear, not only are the chances of attracting an investor significantly reduced, but also any monies which the founders have put into the company may be depleted by trying to iron out these issues post signature.
When resolving the IPR issue it makes most sense to set up NewCo so that any IPR vests in NewCo and not jointly with any other entity or person. Joint ownership of IPR can create a messy situation and one which potential investors may well run shy of. Setting up a company is not difficult and can be done by purchasing an off-the-shelf company with standard articles and memorandum. However, it will be necessary to sort out directorships and shareholdings. It is also advisable to have a shareholders agreement drawn up. However, if NewCo is shortly to seek investment it may want to wait before incurring this expense, as an investor is likely to become a shareholder and this agreement will therefore need to be negotiated with them.
Fund raising is something which is usually done in stages, depending on the clinical stage in which the product is in. A company wishing to seek funding will usually approach appropriate investors dealing with similar products. Individuals are always encouraged to tap their contact lists for names of people they know who may be potential investors! A personal introduction is often better than cold calling, no matter how cutting edge your technology.
Investors want to see a well prepared presentation given by capable individuals who can discuss their technology in depth but also, if possible, show that they understand how a business is run. When taking new technology 'on the road' to attract investors you should seriously consider only showing your technology to those investors who will sign a confidentiality agreement. In practice there are many developers who do not do so, but the fact is that your IPR is your only real asset at this stage and therefore needs to be fiercely protected.
If a start-up "NewCo" is successful in raising funds through an investor then a whole new set of legal documentation needs to be considered. Standard off-the-shelf company articles and memorandum may need to be amended, as an investor is certainly going to seek a percentage of shareholding. This will also necessitate the investor's participation in the company's shareholders agreement. Finally, the investor may also want to add various other terms and conditions to its offer to invest.
Once the fundraising has been completed NewCo may start to further develop its product, usually (but not always) by seeking development and /or commercialisation partners. For further information see Developing IP, Protecting IP and Exploiting IP.