A Checklist of pointers and topics to help guide the biotech entrepreneur in developing and implementing a Life science / biotech organization--- from concept to planning, startup, expansion and operations, to stay ahead of the competition. Though not advice,these topics may help you navigate a complex and difficult path to success. 

This includes an example of a common IP problem of research work agreements for large companies. You should learn basics of business, contract law, IP law, Licensing, financing proposals, etc..  It is not a chronological step-by-step, but topics to know. 

  It's lonely on the way and at the top. You have to be fast, energetic, smart, focused, brave yet cautious, willing to learn business and law basics, persistent and able to handle rejection and temporary failures.

You will have to be a top scientist, and learn to think like a business person (know law basics, know your "elevator pitch", key business ratios, how to "make deals", etc.). 

Get a top scientist to help research prior art and papers, and to help "perfect", perhaps improve and assess your hypothesis and potential.

 
Focus on asking the right questions the right way. The answers should be "dispositive".

Get a top outside scientist to study your scientific rationale for flaws and weaknesses, also in relation to "do-ability", practicality and then possible scalability.

If for a life science business, hire an outside scientist who has some business training or experience to help identify the market gaps and niche to target, and the economic risks, factors and potential. This should be considered early, before the months and years of work.

An area with high competition, or high regulations may not bode well, unless the innovative concept is revolutionary by a factor of 2 or more in costs, quality, purity, safety or ease of production. 

Your business success is more likely in a high growth field and niche with growing investor interest (like AI, biologics - therapeutics, regeneration, carbon capture, energy storage, mRNA technology, next-gen treatments such as cell and gene therapy).  

Protect your concept as IP, limiting all disclosure and all details. Keep the exposure to one or two "perfection assistants" convered by an NDA. 

Seek an expert with high credentials, a PhD from a USA (or UK) A-School, degrees and work from two or three of the top 6 biotech universities in USA and a member of Phi Kappa Phi Honor society, majoring in fields that underlie the science of your concept and are most predictive. 

You need such caliber of scientist to assess and vouch" (if so) as an independent opinion of your concept's solid science, importance and scalability.

A TopPhD-biotechConsultant-tm scientist  may be able to "rescue" a potentially big hypothesis from a flaw, without which "fix" your concept would fail and be worthless. That "fix" is not part of the original concept or disclosure, nor just an improvement--- so there may be some negotiation before such a major correction (contribution) is disclosed. So labor for the last few hours may not be charged if you don't want the fix. 

A TopPhD-biotechConsultant-tm is reasonable: If the solution to rescue the concept is highly valuable, then a small royalty, such as 1.5% on sales may reasonably be requested in exchange therefore, plus the labor to date of finding and explaining it would be charged.

   so you can avoid problems, claims, etc, and have a better idea of how to manage lawyers, scientists, workers, situations and valuable things like: intellectual property, licensing, license agreements, work agreements (for individual, lab or team), contracts for deal-making, financing-money raising, and basic business principles (planning, strategy, enforcing strategy, QA/QC, project management (Pert CPM, etc), HR, marketing, business ratios, etc.)    

   If it were mine, I would not disclose or talk in any detail about an innovative concept, especially any details.. with anyone not bound by a NDA agreement. NONE OF THIS PAGE IS LEGAL ADVICE (merely what I would do); Seek competent legal advice in the field. 

Avoid the academic tendency to want to "publish" or even outline the concept or its' approach, method or applications. An academic Grant team member will likely want you to have a partner of some kind, or other "depth" of experience, resources, lab access or some funds. Venture capitalists or potential stretegic alliance "partners" (not legal partner) will require that you published Nothing, told almost no one, and that only one or two perfection assistants helped you, under NDA's.

  such as Contract Researcher work agreements/NDA/NCA. You likely do not want to mix up or disclose even part of your own personal IP, in the course of work; Be sure if you do that you use only a small part (portion) of your IP, and be ready to prove or document that this part was discovered by you personally well-prior to the research contract and is YOURS and will require a separate Royalty agreement if they want to use it. Have and keep safe your prior-dated notes for that IP portion discovery without having to disclose more (your main concept/process) in case of suit or their likely attempt to misappropriate your IP portion (or both). Inventors use a witness (or perfection assistant) who periodically signs your notes or lab-book as a witness and the date: 

signature, "Witness" __date__. Evidence you may have to prove your prior discovery may have to be disclosed and "authenticated" (such as context, file/email date/print of file directory and a detailed sworn affidavit by you) (you move to have secrets "under seal" in court). The smart thing is to not use or disclose even part of your own previous discovered secret process, or make it clear in writing with acceptance by the big company in writing that your IP portion, if they want to use it, is separate from the work contract. 

Be sure that they do not see or have enough detail to actually make it work without YOU, nor enough to derive your delicate final adaption-customization to their problem (inefficient old process). Prepare for a controversy and hard negotiation (or departure, injunction or suit). (See below section on Law): You are starting such contract with intent to help them part way, then require a License to use the part of your trade secret and for your help to complete and develop the process. Near-complete Documentation comes only when royalty or other payments have come steadily, and is, and to be kept under lock, key and high secrecy, only one or two-person-access.

 expect a 3-step high-level preliminary disclosure of only field, topic, usage, etc. before negotiating and signing an NDA. Check that the person has no history of disclosing others' secrets and has a high reputation (as on Kolabtree).

IP- Intellectual property is only as valuable as it is secret (until a patent or a partitioned secret process in multiple steps and locations is set up). Read about historically wealthy efficient companies like 

WD-40 ($1,259,838 revenue per employee) based on a trade secret formula, or McIlhenny Co.'s secret sauce Tobasco ($230,000 sales / employee). These companies have kept their secrets for over 60 yrs.

If the concept as IP appears potentially very valuable, legal protections against larger companies or competitors begin to take priority, especially if such client sees some offshoot or derivative from your own IP main concept, which they could exploit.. or try to claim entirely. (See Law section below)

Do not neglect or abandon this, especially if they have a lot of money and some piece of your concept.
 

  who may not be able to produce in volume or take customers away from large competitors. This is similar to the business concept of using larger "channels of distribution", which sales networks and established clients are not very accessible otherwise, in a reasonable time frame.

Licensing rates vary, but standard rates in biotech are published. Variance from these standards should be argued if your process or more pure product for resale is much cheaper than their abiliity to produce it. Then, instead of a 3.5% to 6% royalty for license, you might argue the greater cost savings deserves a higher license fee, even 8%-10%. At least probe reaction to that argument. You might enjoy 7% of $5 billion/yr ($350 million) instead of 5%.

A License is under a "Licensing Agreement" which can include multiple types of IP,
 

   as a royalty on anything that produces revenue, which you control. This can be important in a possible alternative means of gaining resources, including cash funds upon which to start or expand, as mentioned below.

That is, you might offer a royalty on your future revenues for advances on resources. There are some caveats, and always consider securities laws, parts of which may or may not apply.

  The trade secret IP owner conducts secretive secure operations and prevents disclosure and dissemination as possible. 

There is high risk on any outside licensing of part of, or the secret concept-process, as there is less actual control if another company signs a license and agreement to conceal and protect the process. If there is a product (not process), that is subject to reverse-engineering, a trade secret approach may be inadequate.

Ultimately, it seems that if there is no evidence the concept was stolen, but a patent of the core secret is granted, the trade secret would appear to be in danger.

 (we have not studied the law on this).

The trade secret holder might be able to file for injunction if the patent issued recently and the holder has strong evidence (notes, dates, steps, witness-sign pages ) of the prior invention of the concept.

If you see a rule or case on this, please let us know. 

   Of course you might prefer friendly voluntary sales relations with a big company. There is considerable "bluffing" about not accepting ideas from outside the big company, and one-sided agreements for contract labor. In the real legal world, not all takeovers of a niche market, or the compelling of legal duties of corporate officers--- are friendly: Every officer of a big company, and even mid-employees have "fiduciary duty" to "examine" improvements or innovations (opportunities) that are "material" to the corporation, typically 3% to 4% affect on revenues or profits. Their standard notices that "anything freely presented becomes their property" must be expressly avoided, denied, contested, and DO NOT freely expose the trade secret (or fully how it works), Ever... or it's gone, unless patented.    (ASK A LAWYER)

 Mainly, a trade secret openly presented would automatically destroy its' huge value, as not being constantly kept secret with security measures and stamps of "Confidential Proprietary Information", as required to protect the claim.  You can't "let the cat out the bag" and expect it to come and crawl back in.

Only an IP trade secret lawyer, versed in licensing and marketing, can coach you through that.  "Don't try this at home".  Obviously a proposal would have to claim "materiality". and "disclosure" only be gradual in phases, to few top Officers, witnessed with Stamped Notices of being Proprietary, Secret, wholly owned by {You].  The trick is to EVER get an officer to sign an NDA-NC.  

Ask a lawyer about the business "trick" of keeping each phase of disclosure in a sealed envelope with a Notice to anyone who opens it that the act of opening to view signifies acceptance that it is a trade secret (step of disclosure in confidence), not being freely given, and signifies agreement to not use or disseminate without express written consent and under a license or sale agreement of the secret owner with the company so opening and viewing it.

If the lawyer is not over 50 yrs old and highly experienced in this, and acts unfamiliar or skeptical, .. you might not have the right lawyer.

ALWAYS hold back at least one KEY part of the secret-invention.. as insurance. (the How to).

Try to focus on affects on sales and profits, and potential cosst savings, general descriptions,

and leave the "How to" as sketchy as possible (saying more could be disclosed on a formal commitment and "general intent" to asses potential, if your claims are near accurate.

Likewise, EVER getting a funding VC or Angel or Investment Banker to sign...  Not Easy.

After some target Directors and Sales execs are informed of the nature and value of innovation offered by you (possibly starting with a few lesser-status officers and employees, (especially sales and marketing execs who would love to be able to sell a more pure product at a lower price)), you work up the status levels and top down within the Board; The CEO and President are last. Letting the latter know that important people in the company have been told that materially better alternatives are available, their resistence may be lessened (which should never have existed under fiduciary duties).  Obstinance must yield to their duty.

   Excuses will focus on your weak points: that you are small, new, hard to work with, etc.. 

If you come by way of the Board and Marketing VP, that is not credible.

That is where serious financial and legal backing would be helpful. You do not want to fail an agreesive approach and them push a "blacklist" against you. But there are other means to essentially force a hostile takeover to undercut their inefficient production or high cost product. The power of alternative supply to their customers with samples and low "introductory pricing" might be a "compeling argument".  A TopPhD-biotechConsultanttm and your lawyer can discuss this. Be prepared to even buy a few shares and bring a "derivative action", to compel review of a material improvement, or even sue officers personally (individually) for slander. 

  Dangling potential higher profits and very general nature (in steps) and affects, and letting them know a new competitor (you or a large corporation who WILL take it) could arise  (carrot and stick (Greed and Fear))... Might get their attention.

Later, "Hardball" methods might, too.  But talk to a great lawyer.  It's "tricky business".

Hence, ANOTHER reason to try beginning with some limited Royalty exchange for Advance.

Also seeking a more conventional "wholesaling" approach through a large channel of distribution could be considered.

But, the  hardball techniques are a last resort, dangerous and could backfire and lose opportunity forever. However, corporations and their officers a) are usually "paper tigers", 

b) will be counseled of their legal duty, and c) do not want bad publicity of breaches of duty, gross failure to improve, denying holders better profits, and risking suit by implicit or overt slander. "Nobody believes you until they are served."

A form of "service of process" (of legal claims, demands and notice) is next, and common: 

 Talk-- the instrument, lab, space or equipment-- provider into not beginning billing for 2 or 3 months while you are "getting started". You may have to offer a kicker (a higher or full cost to you):

You negotiate the best possible price, then offer to pay 10% more if they will defer a while.

You may also negotiate a "balloon" payment near the end of the term to shift costs forward.

With that, you may want a "rollover" option or maybe seek "forbearance" from payments if cash flow is tight, if prospects are good of income soon. These terms are verbal, a "side agreement" or preferably written onto the lease, as addenda.

This is a complex subject to study.   Here are some highlights.

  Licenses (are usually to resell or produce your product or use your more-efficient process) are the main means that small companies multiply their abilities.

Licenses acan be partitioned into regions, sub-industries and final end-users type and category or by individual product. That way you sell multiple areas and are not dependent on just one or two customers (resellers). 

P ayments from Licenses as a percent of sales are called royalties, to the royalty holder.

(An override)

First look at typical conventional royalties for products made by others by your method.

(Typical, most common).

Royalties are negotiated based on prevailing rates/averages in historical case law rulings, but more often by methods developed by CPA's based on reasonability and about 15 factors, one of which is basing on 25% of expected profits in a medium profit level business. [4] So, a company making a fairly large 30% profit on your product/process,--- then 25% of 30% is a 7.5% Royalty--- is called "reasonable".   Only the CPA's (and courts) use profit ratio as a "guide" and a "cross check" as to what royalty  can be sustained (supported), thereby "reasonable.  Those are levels likely to work out from "negotiations".

There is little provision for (nor bumping into)  the e "very high margin" product.

So, as above with Branson  "selling", you have to point out HOW your high-margin (efficient) process (if they use it) falls outside the "standard" royalty percent range.  That is how it is "distinguished".  That is typical for "patents".

You can see that if your more-efficient process might give near 50% profit, then a royalty of even 10% to 12% could be sought (likely settling back a percent or two). That is, your process giving near 50% profit under efficient and correct process production at prior or better purity/ quality... could get you up to about 9% to 10% Royalty for your license, and still be called "reasonable" by their CPA.

On a large company with a billion in therapies  annual sales, you could receive $100 million per year.

They are almost happy... because they are making twice the net profit they were previously.

The Board and CEO/President of that company have fiduciary legal duty to the corporation and shareholders to examine and consider that more-efficient process as "highly material". There could be almost no excuse for not securing and exploiting your technology; To not do so would breach their duty to seek good opportunities for the company.  They usually fail this duty.

  In some jurisdictions, breach of fiduciary duty can result in a court "clawback" order, that the Officers blocking a clear means to doubling profits must give back all prior pay and benefits. (Harsh!) 

Fiduciary duty is the highest standard requiring absolute good faith to do what is in the shareholders' *or company you work for's) best interest.   Think about it. 

How could it be any other way?

Note [4]: But C.F: In the damages portion of a suit (after establishing liability), some USA state case law may not allow computation of displaced royalties due as damages from infringement based on royalty computation based on profits, although full CPA methods cited are more often used today. See the Robert Kearn v. Ford case above (disallowed computation of damages as displaced royalties on revenues, because profits are undetermined, uncertain), The Kearn vs Ford case is enlightening as to how severe a state court can be when you sue a "native son" corporation (Ford).  Modern biotech royalty cases appear more straightforward, using the CPA methods or industry standard rates.

Fiduciary duty: Executives, officers and Board of Directors have high fiduciary duty to absolutely always act in the best interests of stockholders and the company. Any legitimate offer of a product or process that would be "material" (exceeding about 3% increase in sales or in profits  (i.e.:  20% to 21%, for example))... obligates the executives to fairly and fully consider such offer or process if offered at a price or royalty that would profitably enable such improvement.

It could improve profits by cutting costs or improving yield or purity, or simply be a better product that will win share.

 
Average shareholders and even Boards may not even realize officers, lawyer and employees’ high duty to always do what is in the best interests of the beneficiary party (stockholders) (to seek higher profits, prudently). 

If holders knew and were organized, not so many corporations would  be msmanaged and run as little fiefdoms.

   Fiduciary duty is imposed on you when you become an officer, employee or Board member of a corporation formed to sell your innovation or invention, process or cheaper/better product.

That is, you become burdened with high duties to investors, to "act in best interests of all holders".  If you "sell stock", those duties to investors  become yours.

Someone may argue or even sue you (luckily that does not apply for simple poor business judgement). Now you know another reason delay or avoid selling portions of a business to VC's and shareholders. There may be some structures to avoid some of that risk.

 SEEK COMPETENT LEGAL ADVICE 

 The other type of royalty is a type of right to a small or fractional percent of future sales (forever or a set period, like 10 years).

This may be a possibility for negotiation with suppliers and providers of resources, as previously discussed, as  a "royalty exchange for an advance" (of funds and/or resources).

That is vaguely similar to the above standard royalty on a license to use your patent or process.

Both are getting a "right to a profit or part of revenues"  based on the superior performance of your invention.

In this case, the right is to a small part of your future sales.  Again, to reserve ownership to reach large capital by "equity offerings" later---early royalty percents in exchange for resources must be small and total not more than about 9% of sales, for all, ONLY if you are certain that gross profit margins will be high (over 50%%).

The key analysis is "How big is the niche or market, and what percent of that can you win, if your product is better andsells for about 80% of current prices?"

The potential could be very high royalty payments from you company if it reaches a billion$ in sales in about 8 years, for that small $100,000 to $500,000 advance of funds or resources (a lab or 2 benches and space, instruments or supplies)

Contact us to explore and discuss what resources are most needed and who might be interested in advancing resources. Ultimately, you would negotiate that deal.

 SEEK COMPETENT LEGAL ADVICE 

  These pages may contain errors and -->may entirely not be suitable for your situation. 

Do not rely solely on the information in this website. 

It is general, not advice for your specific situation.

None of the information here is guaranteed.  Confirm and do your own due diligence.