Random Ramblings about stuff I see going on in biotech, internet and the stuff I read.

Thursday, October 06, 2005

Tracking a Technology Portfolio

Oh my... We have a lot of licenses. Both in and out. We haven't got them very well organized, so I decided to do something about this, as I am the one who gets the nasty grams from people we haven't paid. This entry should serve as a note to those of you who didn't really pay too much attention during the LES or AUTM seminars (that would be me...).

I have started on the task of "self-auditing" ourselves to make sure that every license is being tracked for how much we pay them, when we pay them, what we pay them for ( a description of the technology), and when we stop paying them.

Going forward, all of this information will be entered when a license is done, but I just wanted to touch on the high points of things that you need to look out for.

  • when do you pay them?
This matters on the cash flow front, and for when you have to make a decision to renew or not. If you pay quarterly, you will have more snap shots in to how that license is performing, and will know more accuratly when to kill than if you pay yearly. Yes, you can always get the number from current sales etc... but it is easier if you work with static numbers.
  • When do you stop paying them?
This matters as I am sure every company has paid past when they were supposed to or allowed to. Everywhere I have been I have seen that we pay past the end of a license. Few people have ever complained about this, but when you realize you have done it and you try to renew, they do have you over a barrell as you have been selling without a license for awhile and that is, as a general rule, bad.
In addition, many of our license say "Until expiration of the patent" which is hard to figure out when is at the best of times. For this, you very frequently need an IP attorney to sort it out. Not a good thing, as they are expensive. However, paying people past the end of their patent is also stupid. Anyone who didn't know that Roche PCR patents were expiring (was hiding under a rock) would have kept paying steep royalties longer than they had to. That is many % margin that you are throwing away, so you have to find this out and track it...
  • When do you have to tell them x?
Where X= "we would like to terminate" or "we would like to extend" or "we would like to exercise the option we have" or ......
If you don't know the date, you are likely to miss it. Missing is bad (or innocuous, but certainly rarely good).

  • What did you license, in language that the people who need to figure out which license applies to which products can understand. Legalese should be banned from this section. In my world, I am reducind this to molecules, vector names, cell lines, techniques, whatever that the people who decide which license applies will understand.
    • This can't be emphasized enough. If people don't know what licenses are available/already licensed, they will not apply the right royalties to anything. Just won't work out, and if you get audited you will be dead in the water.
How Much?
  • Upfront Money? How much money do you have to lay down when you sign the deal. Frequently called a "license fee" but if sometimes dressed up in other names. Ranges from $1,000 to over $1M. You pay more for an Exclusive license than for a non-exclusive.
  • Royalty? what is the royalty rate and what is it computed on? Net Sales? Gross Sales? We nearly always (can't think of an exception right now) go with Net Sales, but that is just us right now. There are plus's and minus's of all computations, so just make sure you know those. Overall, a rate you pay.
  • Combo Clause? If you sell the product in a "kit" with another product, what percentage of the sales price of that kit should you pay royalties on?
  • Royalty Reduction? If someone else has a patent, that you don't currently know about, how much does the royalty in this agreement fall in order to cover the cost of that patents royalties if you have to license it as well?
  • Yearly Minimums? Creditable? How much money do you have to guarentee for every year. For that money, how much of it is creditable against your royalty payment. Ultimatly you want to make sure that it is and that you sell more than what it takes to cover it. If we are paying minimums, we want out of the deal, as obviously something is wrong. The only exception to that is if by paying the minimums you are holding the exclusive on something that is blocking a competitor. You don't have to use it, you just have to be in their way. This is slimy....but....
  • Transfer pricing? If you aren't paying a royalty (and sometimes even if you are), this is the price that you agree to get product from them for. Make sure to cap price increases, as these folks will have a very good idea of how badly you need a product. If they get mad at you, look for some steep price increases if you haven't capped the price increase per year.
So - you go through and trap all of this info. Then add in a bunch of columns of royalties, and then you have a mega-momma sized spread sheet. If you haven't become a black-belt in Excel, you are screwed. For anyone looking to get in to the business side of things, buy a book on excel or take a class or teach yourself. What ever - just do it. Without Excel jujitsu you are hosed.

...this post has rambled on enough, and it is late and I have to get up early, that I will carry on tomarrow. Class, please talk amongst yourselves.....but don't bring up databases and say "why are you doing it in Excel and not building a DB" , as the answer is not one I am proud of....Essentially, I am not allowed to. I love IT.

No comments: