Navigating the regulatory landscape is one of the biggest challenges for med tech startups. The FDA approval process for a medical device or technology is often a significant, expensive, and risky hurdle.
More than three-quarters of the cost to bring a medical device from concept to market in the U.S. is spent on clearing regulatory hurdles. According to a Stanford University report, the estimated cost of clinical trials to support FDA approval ranges from $1 million to over $10 million.
Many startups find this process time-consuming and financially debilitating, leading them to seek alternative strategies.
One effective strategy is licensing. Partnering with larger companies with extensive regulatory approvals experience can help med tech startups overcome these daunting hurdles. Licensing agreements can provide much-needed financial support and resources, making it easier for startups to bring their innovations to market.
The Power of Licensing in Med Tech
Consider the example of a small U.S. therapeutics company that received a $5 million payment from its licensing agreement with a large Chinese biotech company. The deal included exclusive rights for the Chinese company to develop and market the U.S. company’s anti-infection drug for treating community-acquired bacterial pneumonia.
This agreement was part of a larger deal worth over $80 million, which included FDA regulatory approval and commercial milestones related to the drug. Additionally, the Chinese company agreed to pay double-digit royalties on sales in China and other territories.
This case highlights how licensing can be leveraged to form strategic partnerships, enabling startups to overcome regulatory challenges. It demonstrates that licensing isn’t just a financial transaction; it’s a collaborative effort that can drive innovation and market entry.
Why Licensing is Critical
Regulatory approval remains one of the riskiest parts of med tech development. The Medical Device Venture Council, comprising prominent venture firms focusing on medical technology, reports that many startups are going out of business while waiting for FDA guidance, which can take years. Even those that survive often consider launching outside the U.S. due to the protracted approval process.
Licensing offers a viable solution. By partnering with larger companies with the necessary resources and regulatory expertise, startups can accelerate their path to market. Pharmaceutical companies frequently use this strategy. For instance, Genentech licensed its new insulin drug to Lilly for $500,000, plus milestone payments and 6% of sales. Lilly provided the funding and expertise to develop the product, obtain FDA approval, and bring it to market, while Genentech contributed the intellectual property.
Strategic Licensing Models
Another effective licensing strategy is granting exclusive rights to a single market. For example, a global pharmaceutical company entered an exclusive licensing agreement to produce and sell a novel nasal spray in South Korea. Under the agreement, the pharmaceutical company was responsible for manufacturing and supply, while the licensee handled regulatory filing, distribution, and sales. The payment terms included an upfront fee, regulatory and commercial milestone payments, and royalties on sales.
This strategy allows startups to focus on innovation and development while leveraging their partners’ market expertise and regulatory capabilities. It’s a win-win situation that mitigates risk and maximizes potential.
Conclusion
The healthcare industry is becoming more complex and competitive every day. Starting and growing a med tech business is increasingly challenging, especially for small or startup companies with limited resources. Licensing should be a go-to-market strategy when facing expensive development and regulatory approval processes. A larger licensing partner with the right resources and expertise can help achieve key development and regulatory milestones, successfully bringing your IP to the marketplace.
Ready to license your med tech IP? Schedule a short consultation call today to explore your IP and licensing options.
Rand Brenner is an IP professional whose passion is helping inventors, startups, and businesses use licensing to turn their IP into income-producing products, services, and technologies. His decades of experience run the gamut from medical devices to food technology to consumer products. He’s licensed some of the biggest Hollywood entertainment blockbusters, including the Batman Movies (1 and 2) and the number one kid’s action TV show, the Mighty Morphin Power Rangers. Rand speaks about licensing and is a featured speaker at investment conferences, trade shows, colleges, and startup events. His first book, Hidden Wealth: The Money-Making Power of Licensing, was released in 2019 and is available on Amazon.com. He’s also a published writer, and his articles have appeared in several prestigious trade magazines, including The Licensing Journal, Intellectual Property Magazine, and License India.
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