Converting Your Intellectual Property (IP)
- May 21, 2021
- Phil Bergamo
Once entrepreneurs have secured their intellectual property (IP) and received that first round of funding, they have to strategize how to convert it into a fundable business. Not all product development initiatives progress smoothly from discovery to inventory to commercial enterprise and the road is typically a bumpy one. In fact, only 5-10% of IP ever becomes commercial products. The problem is it’s a long process from the entire development process to reach commercialization.
According to George Kottayil, CEO and founder of Grace Therapeutics, Inc., a New Jersey-based pharmaceutical company with a focus on rare and orphan disease, one of the critical documents every founder should have is a well-thought out and detailed business plan.
“A business plan includes detailed information about the idea (including a high-level development timeline) as well as details surrounding the problem that the idea solves in the marketplace,” he said.
He specified the business plan should include discussions around (1) the competitive landscape of the market and how the product fits in amongst competitors, (2) the overall addressable market for the product/solution in dollars and patients served, (3) the expected return on investment and (4) estimated development timeline and goals of the business.
“The business plan will be a key document as you develop your product, as it serves as a guideline to the business and roadmap for which the activities of the business can be judged,” he added. “The business plan will be presented and defended to various key stakeholders which may include future investors or sources of grants.”
Another key document to consider is a product development plan. A product development plan is a detailed roadmap and strategy for advancing the IP from the lab through each stage of development and ultimately into a commercial, marketable product.
Mr. Kottayil noted that the product development plan should include the components and active pharmaceutical ingredients that make up the product including how to source those products, the product delivery system and all other key aspects of taking a product through the development (regulatory, commercialization, etc.) continuum. The development plan should outline, in detail, key nonclinical and clinical studies as well as key details around future manufacturing and commercial launch activities.
Some of the key items to consider as an entrepreneur puts together a development plan are 1) the team that helps bring the product to market and 2) what kinds of additional resources will be needed to achieve development goals and timeline.
One of the challenges of any founder is identifying and hiring key employees and external advisors that will help reach the development goals. A founder must be able to trust that his team has the ability and know-how to execute on the product development plan and strategy. Accordingly, the ability to leverage past relationships could be extremely helpful for a founder to surround themselves with those that have done it before. A founder would be wise to continue to network to identify experienced individuals that may be able to help bring the product to the next level through innovative ideas or past experiences. Many times key processes are outsourced to third parties. For example, clinical research organizations (CROs) can provide the experience, know-how and qualified professionals to guide the company through the regulatory approval process. Other key functions that may be outsourced to third parties are the legal duties to attorneys, to provide confidence that the company’s IP is properly protected and that it is not violating key laws and regulations. Additionally, certain other functions such as accounting and human resources can be outsourced to third parties to reduce the administrative burden.
There are incubator facilities located throughout the United States that provide early-stage companies with functional laboratories and office at a subsidized rate. Additionally, there typically are several other companies in the same stage of their life cycle in the incubator encouraging information sharing around raising future funds, attending conferences, meeting advisors, etc. Additionally, incubators often will organize meetings and networking events, as well as bring in third-party advisors such as accountants and patent attorneys that can help in growing the company.
In Mr. Kottayil’s first venture, he outfitted his own lab, which took about six months and therefore delayed possible research and development activities. However, founders should be ready to present and defend their business plans to be accepted into an incubator.
As development progresses and the company grows, there will likely be a need to raise additional capital. Companies should be prepared to present their business plan and strategy to future investors and should always maintain accurate financial records to be able to articulate where prior funding was spent and how they are prepared to continuously monitor the spending of new funds.
Developing a product for commercialization can be an expensive and time consuming project. It is important that there is a clearly defined business plan and strategy to articulate and guide the activities of the company. With proper planning (and a little bit of luck), IP can be developed into a fundable business.
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Phil Bergamo is a Managing Director overseeing engagement teams that perform financial due diligence on buy and sell-side transaction.
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