The Fed and the Funnel: How Interest Rates Affect Your Medical Invention

Medical Patents Broker Inc.
By Kenneth Pearce, President

Frequently, the US Federal Reserve is headline news. But how does this affect a medical invention company?

Funneling a medical patent toward FDA compliance can include the industry-standard flowthroughs of straight sales, hybrids, or licenses. But there are other routes available for a hand-off of IP assets. In a nutshell, the price of money affects commerce, and the New York markets can dramatically show an upward gusher or a downward spiral in a single trading session. I learned many years ago: if the risk is too heavy to carry comfortably, don’t take the risk.

In a world of massive debt exchanges, the source of available capital is often the ultimate deal-maker.

The Traditional Path: The Multinational Behemoths

It appears these "Grade A" companies often have sufficient internal cash reserves to buy a preclinical medical patent for a few million dollars if they truly want the technology. If a Grade A company desires to acquire the entire company owning the patent, they have multiple levers to pull: reserve cash, institutional bank loans, issuing new shares, or even adjusting end-user prices on current products to fund the acquisition. While a Fed rate increase can cause these giants discomfort, a rate decrease can significantly boost their net profits.

The Alternative Path: The High-Risk Entrepreneurs

Moving a medical invention closer to market often requires entrepreneurs willing to take on more financial risk than the average American. These bold risk-takers in the Phase II pharmaceutical space are willing to play odds that appear several multiples better than a single number at a roulette wheel. If successful, they can cash out multimillions upon a transfer to a Phase III company.

This Phase II model usually combines investor capital (most likely accredited investors) with "venture debt" or lines of credit to fuel the acquisition and the subsequent regulatory push toward Phase III.

The "Burn Rate" and the Fed

Almost every scientist involved with a medical patent knows that Phases II and III quickly burn up investment capital. This path is much more sensitive to Fed rates. Every quarter-point raise decreases potential profits. Sometimes the risk is worth it; sometimes the risk is a bust.

Which path is right?

• The Alternative Path: These companies are built for agility. However, they are more susceptible to the "macroeconomic weather" created by the Federal Reserve.
• The Institutional Path: This may involve more layers of corporate approval, but it offers a level of stability that isn't as strictly tethered to the daily Fed rate.

Regardless of the type of medical patent or the economic climate, MPB brokerage services can assist in moving the medical invention to the patient.