A New Way of Business: Why is a Service Provider Buying the Patent?

Medical Patents Broker Inc.
By Kenneth Pearce, President

It appears some Contract Research Organizations (CROs) are changing the business. Previously, CROs were strictly "fee-for-service" entities hired to conduct trials. In today’s climate, some CROs are becoming owners of the technology. Most CROs understand: there is more risk associated with ownership, but there can be a much greater reward.

1. Maxing Out the CRO’s Expertise: The Difference Between Owning and Renting

With hands-on experience, the CRO frequently knows more about the viability of an invention than the inventor. Real-time raw data and daily FDA interactions allow them to identify market possibilities early. Buying the patent before the next phase gives the CRO “skin in the game,” allowing them to upload the invention to the next Phase with a substantial ROI. The inventor gets a fair exit, the CRO gets the upside, and the eventual Phase III acquirer gets an almost market ready asset. With this gameplan, everybody profits.

2. Creating "Hybrid" Business Models

Medical patenting is a risky business—some are successful, others are not. Mid-cap CROs are now testing the waters with “Asset-Centricity.” A CRO may buy a medical patent from a university or small inventor because it fits their specific expertise or successful history with similar technology. By buying the patent, the CRO becomes the "Next-in-Line Incubator," betting that the risk is worth taking in anticipation of a 6x to 10x exit.

3. Owning the "Platform," Not Just the Product

Sometimes a CRO buys a patented Method of Use or a Diagnostic Platform to use across all their clients' trials. Under US Patent law (MPB’s attorney tells me 35 U.S.C. § 287(c)), while individual doctors are often immune from "pure procedure" patent suits, that immunity does not extend to commercial laboratories or CROs. This means the patent remains enforceable against competitors. If other players in the "medical games" want to use that superior method, they must use the CRO that owns the patent.

4. Minimizing a Sponsor’s Liquidity Crisis: Some Money is Better Than No Money

Small biotech "Sponsors" can run out of cash halfway through a trial, leaving millions owed to the CRO. If the trial data is looking affirmative, the CRO has a choice: take a tax write-off (which squeezes cash flow) or take the asset. By buying 100% ownership of the patent, the CRO can settle the debt, complete the Phase, and flip the technology to a larger player, minimizing the financial mess.

The President’s Viewpoint

When a CRO puts its own capital on the line to buy an invention, it sends a powerful signal to the market that the technology is sound. It is the ultimate vote of confidence. Medical Patents Broker Inc. (MPB) can facilitate these high-level transfers for the "Service-to-Owner" transition.