Working the Supply Chain from the Customer to the Licensee

Working the Supply Chain from the Customer to the Licensee

xray teethDental x-rays are a contributing factor to mouth cancers. A dental school professor at a major US university invented a new way to mitigate the damage due to x-rays of teeth.  As the university was not interested in pursuing commercialization, the professor was able to obtain full rights to the invention. The rights granted by the university, together with the test results from the prototype and a business plan, enabled her to raise angel funding and start a small business. However, the professor could not find a licensee. We were hired to help.

Solutions

The first thing we did was a conduct a due diligence check on ownership. We ensured that her patent could not subsequently be challenged on the grounds it was disclosed before filing, was already invented by someone else, or patented elsewhere in the world. Next we spoke to beta testers, other dentists, and patients. Unsurprisingly, no one liked excess radiation. This confirmed that the invention met a need in the market.

However, we discovered that the invention suffered one drawback: the prototype used lead to block radiation, which made it heavy. With some research we discovered new high-tech composites existed which blocked radiation as well as lead but were much lighter. A new prototype using this material was made. This change lead to a new patent filing as the initial provisional patent application only covered lead as a protective material.

During our market research we also explored price, and found that patients would not pay more for radiation protection. They felt that the dentist, as a health care professional, was already obligated to do so – after all, lead shielding was already used to cover the body and neck. With some engineering, we were able to reduce the price of the new device so that it would cost around the same as a bite-wing holder. This would allow the dentist to substitute the technology for the bite-wing holder and bite-wing, without any significant cost impact. Next we needed an imperative for the invention to be bought now, rather than later. Fortunately the American Dental Association and the US Food and Drug Administration were already exploring guidelines and regulations in this area.

We now had a good value proposition. All we needed was the licensee.

In the course of our research, we found that most dentists bought their supplies through catalogues from major distributors like Henry Schein. So we called up several distributors, and asked if they would be interested in including the device in their catalogues. We would then ask the interested parties who their suppliers were, as our client was a small research and development company. Each distributor gave us a couple of names. One distributor even asked for samples to test with their customers before giving us the name of their suppliers. That company was our favorite – we knew that if they tested it and got positive feedback, that they would help us do the deal with the supplier. After all, they want to make money, and a product customers want to buy is a good thing to sell.

Sure enough, the feedback was positive and the catalogue company gave us the name of a few vendors he liked. One of them, a European company, licensed the technology.

We negotiated an exclusive license with an upfront fee and payments due if milestones on the path to market introduction were missed. A running royalty with minimum payments kicked in once the product was introduced. If milestones were repeatedly missed, the license was voided. All of these clauses ensured the licensee actively pursued commercialization. Under the terms of the deal, we granted them the right to file and prosecute, in our customer’s name, patents in other jurisdictions. The advantage of this approach for our customer is that they avoided the cost of global filings.

Lessons Learnt

1. Follow the money. What the end-user will pay to use it is all the money there is to divvy up between everyone else in the supply chain. Find out what the ultimate end-users want then follow the supply chain that sells your kind of products, services, or technology to them. Work back up the supply chain until you find a vendor with the absorptive capacity to adopt, make, and sell your invention.

2. Identify the value proposition. A value proposition is a short statement that describes why the end-user should buy something. In the context of an end-user, a technology has four reasons for acquiring it:

a. Performance. Performance consists of the hard, measurable engineering specifications. It uses this much power. It is this big. It blocks this much radiation.

b. Ease of Use. If a technology requires extensive training to know how to use it, special infrastructure, etc. then the hassle of adopting and implementing it rises. Usually, as the hassle of  adoption increases, so does the cost of acquisition and implementation.

c. Price. There cannot be “sticker shock” or no one will buy the technology. What constitutes sticker shock varies between applications. In each arena, buyers are used to spending some level of money.

d. UMPF. UMPF is a made-up term which means there is some imperative to buy this good now rather than later. When water is scarce, gardeners are more likely to buy drip irrigation systems. When it is plentiful they are less likely too.

3. IP is a tool. It is a necessary but not sufficient condition for a deal. Once the other party is ready to do a deal, you can use the economic terms of the license agreement to ensure they pursue commercialization as aggressively as they say they will.


ForesightContributed by

Phyl Speser, J.D., Ph.D., R.T.T.P.
Foresight Science & Technology Pte Ltd
27 West Coast Highway, #02-22, Office 10, SG,
117867
Singapore Office: Phone: +65 8357 2808,
Email: thom.abbott@foresightst.com


With three offices in North America and offices in Europe, South America, and right here in Singapore, Foresight Science & Technology is celebrating its 35th year in technology transfer and commercialization.

Foresight works across the breadth of science & engineering and the global economy. Its methodological approach is described in the best-selling textbook The Art & Science of Technology Transfer (Wiley, 2006) by CEO and founder, Phyl Speser, J.D., Ph.D., R.T.T.P., who wrote this case study.

At the heart of the method is the centrality of understanding the needs of the people who will use a technology, which we call the end-users. After all, if there is no end-user willing to buy the technology, it is hard to see how it can be commercialized. Foresight’s customers come from every sector of the global science, engineering, and technology ecosystem. Major product lines are Assessments Consulting, Training, Deal-Making, IP Management, and Data.

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