maureen japha is director of regulatory policy at FasterCures, a Washington-based center of the Milken Institute focused on speeding up and improving the medical-research system.
Illustrations by Jude Buffum
Published January 17, 2017
In the traditional paradigm of medical research, academic researchers led and philanthropies followed, allocating funding for what they were told might be the Next Big Breakthrough. But now, no longer content to watch passively from the sidelines waiting to see whether their grant dollars will generate promising discoveries, a new breed, dubbed venture philanthropies, are taking a new approach. They are investing in identifying unmet needs in specific fields of research, along with figuring out how they can most effectively leverage their funding to maximize therapeutic advancement.
How they go about this, of course, varies from organization to organization; one size doesn’t fit all. But they do share similar strategies, exploring how to:
• Partner with research institutions to identify licensees for their innovations who can best move promising technologies from the lab to patients
• Overcome the barriers to sharing data, tools and research results, which too often impede progress
• Create mechanisms that enable donors to share in revenue generated by commercializing the research they fund, so the money can be recycled
Nontraditional relationships between researchers and philanthropies have the potential, in the long run, to be both more effective and more sustainable. However, the new order of things is bound to generate growing pains for universities as they redefine their roles in more flexible partnerships. Without clearheaded management of these partnerships, the resulting uncertainty could delay research and add to costs, when the goal is just the opposite. This is making the role of university technology-transfer offices all the more important, because they work with both the researchers at their institutions and the research sponsors to ensure that the new model helps rather than hinders innovation.
Delays in negotiating agreements that spell out the goals and divide the responsibilities of the partners are particularly frustrating. Two years ago, FasterCures set out to expedite the transition to these new sorts of partnerships, exploring what facilitates efficiency and economy. Through a series of discussions with a diverse group of stakeholders representing both academia and foundations, we identified three principles of engagement to facilitate this process. Here, we introduce these principles, discuss why they matter and identify ways to implement them.
Principle 1: Partnerships for Purpose
It comes as no surprise that priorities and expectations can differ between universities and charitable foundations. But it is important not to lose sight of the enduring truth that both are mission-driven organizations with ethical (and legal) obligations to serve the public good. When negotiating agreements, decisions should always be made with an eye toward delivering safe and effective therapies as efficiently as possible.
For many medical foundations, it is critical to work with research institutions that are equally dedicated to ensuring that promising technology continues to advance, even after the institution has licensed it to a third party. Identifying a licensee with the capability, expertise and motivation to move a product forward is therefore critical — and increasingly, foundations want to play a role in the selection process. Indeed, many patient-focused foundations have broad networks and extensive technical expertise that they are more than willing to tap into during the search for suitable licensees.
Many of the institution representatives who participated in FasterCures’ roundtable discussions on this topic said they welcome this input. However, they pointed out that grant provisions removing final decision-making authority from the university can be hugely problematic. For example, requiring preapproval of a licensee can unduly delay or even derail license negotiations.
In one case, an institution was prepared to enter into a license agreement with a drug maker to continue development of its researchers’ technologies. But some of the research had been supported with foundation funding, and that foundation required detailed information on the licensee (a pharmaceutical company) along with patenting and progress reports that the company was reluctant to share. Although the foundation ultimately expressed a willingness to compromise, the deal fell apart.
This example highlights the need for funders and universities to engage more fully. Technology-transfer offices are highly motivated to see intellectual property succeed for both their institutions and the individual researchers. They are experts in crafting and securing effective diligence provisions. Accordingly, provisions preserving an option for the grantor to take ownership of intellectual property after it has been licensed to a third party — known as march-in rights — or clauses that give funders preapproval over third-party licensees may be not only unnecessary but also potentially detrimental, as they delay licensing or alienate potential licensees altogether.
Foundations can add value far beyond funding by supplying their experience, resources and contacts. However, it is critical for them to signal their intent to participate in the licensing process. Working together with the aim of forming an ongoing partnership rather than a one-time transaction is likely to serve the interests of both institutions and foundations, and ultimately the research.
Working together with the aim of forming an ongoing partnership rather than a one-time transaction is likely to serve the interests of both institutions and foundations, and ultimately the research.
We believe these guidelines can help foundations preserve a role in licensing without compromising the technology-transfer office’s prerogatives:
• Foundations interested in collaborating to identify potential licensees should make this intent clear in the grant agreement. This can be as simple as including a sentence that states:
Given Foundation’s network and expertise, both parties recognize that Foundation can be a valuable partner in the search for a licensee of technology that may result from research funded by this grant.
• Foundations need to specify a timeline that identifies when and how the foundation will be brought into the licensing discussion. For example,
The parties agree that within 30 days of the decision to pursue patent protection, the Foundation will be offered an opportunity to confer with the Institution to identify and suggest potential licensees.
Principle 2: Communicate Early and Often
Nearly all conflicts, missed opportunities and disagreements involving funders and research institutions can be traced back to miscommunication. In FasterCures’ roundtables, foundations and universities alike acknowledged they could do more to ensure that their counterparts were kept informed. Remedies included relatively straightforward actions like identifying a single contact at each organization to facilitate coordination. Another disarmingly simple suggestion: create universal directories of relevant contacts at both institutions to minimize search time and cost.
Because this sort of back-and-forth is not yet happening organically across all organizations, foundations should look to build in the dialogue by establishing milestones in the grant timeline at which the parties confer. While it may be relatively easy to facilitate such check-ins during the term of the grant, many stakeholders have pointed out that it may be just as important to maintain the dialogue after the term has ended.
For example, a check-in would enable the university’s technology-transfer office to update the foundation on its efforts to identify a licensee. This gives foundations a chance to weigh in, suggest alternatives and perhaps propose a licensee unknown to the researcher or technology-transfer office. Such post-grant check-in calls would short-circuit potential misunderstandings that reduce the partners’ trust — not to mention the prospects for further collaboration.
Technology-transfer offices, for their part, pointed out that streamlining reporting requirements to coincide with obligations they already have to government sponsors like the National Institutes of Health would minimize administrative burdens while still ensuring that foundations are kept informed. Some practical steps to this end include:
• Establishing single points of contact in the research institution and the foundation to avoid multiple, potentially conflicting conversations between the funder, researchers, the technology-transfer office, research administration and other stakeholders.
• Laying out explicit terms for when and how a foundation will be notified of key developments, including invention disclosures and patenting decisions.
Principle 3: Transparency, Within Reason
Transparency can be beneficial in any negotiation but has even more upside where (as here) there is such significant alignment of purpose between the negotiating parties. Some foundations, especially those funding early-stage research, prioritize partnering with researchers and institutions willing to share resources with the goal of accelerating progress in the field as a whole. Foundations may write this into their grant agreements, obligating grantees to participate in workshops or closed discussion groups with other grantees.
Some grant contracts may include research-use-only licenses, ensuring that other research institutions will have access to nonexclusive licenses to utilize research funded by the foundation for noncommercial purposes. Because a degree of confidentiality and exclusivity is usually required to obtain patents or to set the stage for journal publication, it is important for foundations and institutions to be open about the risks they are willing to accept in the name of diffusing knowledge rapidly.
The benefits of transparency can be effectively demonstrated through the example of negotiating revenue-sharing clauses. In particular, an open dialogue on why revenue sharing is being proposed and which terms would be deal-breakers is critical to minimizing misunderstandings. When FasterCures initiated stakeholder discussions on these issues, many participants viewed a formula that distributed revenue in proportion to the funder’s contribution as the fairest way to allocate income from licensing. As one foundation stakeholder explained: “We want to benefit when the university benefits, but commensurate with funding.”
However, as discussions proceeded, university representatives made clear that while they share that inclination, flat royalty rates capped at reasonable multiples of the awards are appealing because they are much more straightforward to calculate.
Participants pointed out that the reasonableness of the negotiated rate depends on the degree to which the foundation contributes to ancillary costs, such as patent expenses and overhead, as well as to the cost of the specific research being funded. Universities also said that setting a revenue threshold that must be reached before the foundation's right to share income kicks in avoids the administrative burden of dividing up relatively small amounts of revenue, while also giving the university a chance to recoup some of its costs.
In negotiating grant agreements, university and foundation partners can enhance transparency in a number of concrete ways:
• Exchange term sheets in advance of entering into license agreements with third parties. This can be hugely effective in addressing misperceptions about a university's willingness to impose stringent diligence requirements while also giving foundations the opportunity to propose changes.
• Require foundations interested in promoting sharing of early-stage research or resources to communicate with partner institutions to ensure that the sharing policies in place are reasonably tailored for the technology and stage of research.
• Ensure that foundations seeking a share of licensing revenue as part of a grant agreement articulate their goals and put some thought into deciding what constitutes a fair division. This might take the form of a simple proportional share of revenues, but it could be a flat-rate royalty limited by a threshold requirement, or a cap, or both.
Down the Road
It’s not surprising that there are real differences of opinion between venture philanthropists and research institutions on the appropriate terms for this latest generation of partnerships. After all, the new emphasis on sustainability, on both sides, is forcing all parties to reconsider how success will translate into income. What’s important to keep in mind, though, is that everyone involved agrees that the first priority is getting effective and efficient treatments to patients. Managed with care and foresight, this transition will better equip all the stakeholders to build longer lasting, more productive partnerships.