DOC# 1

Startup Building Blocks, Challenges, and Pitfalls

From Formation to Growth

Presented By:

Uri Greenwald, MD, JD

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PAST EMPLOYMENT

• Co-Founder, Greenwald

Technologies, LLC

• PGY4 General Surgery Resident,

LSU Medical Center New

Orleans, LA

EDUCATION

• JD, UC Berkeley School of Law

• MD, NYU School of Medicine

URI GREENWALD

Associate

IP Counseling & Patents

Medical Device Patents

Life Sciences

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Disclaimers

The following is intended to be educational only and

should not necessarily be deemed to constitute my legal

opinion or legal advice

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Startup Fever

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What’s So Great About Startups?

• A startup is the most effective way for you to deliver

your innovation to society

• Licensing your innovation to a third party to develop

is not so simple

• While not impossible, it is believed that a very small

percentage of the patents available for license each year

are monetized, and fewer still are monetized as

individual patents rather than as part of a patent

portfolio

• Patent monetization is typically more common in the

software/electronics/IT space

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What’s So Great About Startups?

• You drive the innovation’s failure or success

• You will guide the development of your innovation

during prototype and validation stages (so that someone else

doesn’t screw it up)

• You will guide the delivery of the finished commercial

product to the targeted customer (so that someone else doesn’t

prevent it from rolling out in the way that you intend it to)

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What’s So Great About Startups?

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Building Blocks Overview

Innovation

Team

Company

License

Intellectual Property

FDA

Pitch*

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• The Innovative Spark: A

perceived need - a mismatch

between how UO was measured

vs. how other patient monitoring

was carried out

• Goals: Reliable and accurate

system that could be cheaply

manufactured and sold

The Automated Urine Output

Monitoring System

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The Automated Urine Output

Monitoring System

• Target Consumer: Hospitals and

Nursing homes (but really

physicians and healthcare staff)

• Potential Competitors:

Competing automated urine

output monitoring technology

priced at ~$2k compared to our

predicted $30-50 price tag (and it

did not work as well as our

technology)

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Every Single Investor We Pitched to Asked…

What would drive hospitals and insurers to pay $20-50

for your system when the old system seems to work

and can always undercut your lowest price?

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Pitfall #1

An innovation that does not

create a clear and simple

pathway to commercial success

is going to be very difficult to

launch

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Suggestions

• Develop a convincing story for how your innovation

will lead to commercial success

• One way for an innovation to do this is by providing

an overwhelming benefit to the target consumer (e.g. for

hospitals as the target consumer - reduced

morbidity/mortality, shorter hospital stays)

• Properly identify potential customers and competitors

• Cheap-and-better often loses to cheapest-and-adequate

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Team: Function + Form

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Function

One Example:

• Physician* = Innovator = CMO/CSO

• Engineer/Chemist = Builder and Developer = CTO

• MBA = Salesman = CEO

*Practically speaking - as a busy surgeon/healthcare provider/scienctis you will not

be able to carry out all of the demands of a growing company on your own due to

time constraints (i.e. let others help you with the heavy lifting)

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Form

• Much of the startup cycle is choreographed

• Early investment decisions are often made with little

real information to go by

• Thus having a “strong, qualified team” is perceived by

many to be a risk minimizing component of a startup,

and is often a necessary component for successfully

raising capital

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Pitfall #2

• Going it entirely alone or with a

very inexperienced team may

suggest a lack of understanding of

the working of the industry to

investors (especially investors in

the healthcare sector)

• The perceived lack of

understanding may further create

a presumption that the founder(s)

will be difficult to work with

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Suggestions

• Network like crazy to build a strong team

• Reach out to “big-name” colleagues to serve on your

company’s Medical Advisory Board

• Be selective

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The Company: It’s Easy, Valuable, and

Protects Your Interests

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Incorporate

• You can fill out the incorporation documents yourself (= Easy)

• Incorporation (at least to some degree) demonstrates an

understanding of the startup cycle and commitment to following

an innovation through (= Valuable)

• Incorporation can serve to clearly delineate the financial interests

of involved parties through ownership of shares (= Protects Your

Interests)

• Incorporation protects you from personal liability* (= Protects

Your Interests)

*With rare exception

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Pitfall #3

Carrying out company

transactions personally rather

than through a corporation

thereby potentially creating

personal liability for

transactions

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Suggestions

• Incorporate yourself

• Incorporate in the state of Delaware (or other

corporate friendly state)

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University License: Don’t Let It Stop

You

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Your Company Needs

An Exclusive License

• For you to pursue your innovation through your

startup, your company will need to obtain an exclusive

license to the innovation from the UC

• For all practical purposes, an exclusive license

provides you with the essential rights that you would

have through an assignment (i.e. ownership), and it is

not typically a hindrance to future partnership and

acquisition

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Potential Sticking Point for Some

• If you are a UC employee, it is extremely likely that

your innovations are owned by the Board of Regents

under your employment agreement (and Bayh-Dole

Act)

• Furthermore, the Board of Regents is not likely to give

you ownership back of the innovation through

assignment to you or your company*, but rather may

provide your company with an exclusive license to use

the innovation

*With one very rare exception

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Pitfall #4

Not pursuing innovation

because of the workings of

the licensing process

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Suggestions

• Confirm that your innovation falls under an obligation

to assign

• If it does, make peace with it. There are some benefits

to having the UC as a partner

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Pitfall #5

Not obtaining terms

that fit your company’s

needs and strategic plan

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Suggestions

• If you intend to be an innovator and company founder, make

really good friends with the Technology Transfer Team

• Be empathetic to their position

• Understand, going in, what is negotiable and what is not

• Involvement of distinguished faculty and/or faculty with a

history of past commercialized innovations may influence the

agreement outcome*

• Really sell it!

*Notwithstanding potential conflicts of

interest

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Intellectual

Property

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Intellectual Property = A Patent

• Intellectual property traditionally encompasses Trademark,

Copyright, and Trade Secret, but for the purposes of the early

stage startup what we mean is a patent

• A patent is a government sanctioned monopoly granted to the

patent owner (or licensee) in exchange for the disclosure to

the public of a novel and non-obvious patentable teaching

• An issued patent provides the patent owner (or licensee) with

the exclusive rights to make, use, sell, offer to sell, and import

an invention as claimed for 20 years*

*Under certain circumstances patent term may actually be

either more or less than 20 years

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Don’t Sleep on Your IP

• The ability to exclude others from doing both exactly

what you plan to do as well as essentially what you

plan to do (i.e. commercially viable workarounds)

• Typically, startups in the healthcare space that do not

have the ability to exclude others are not successful

• Plan to file more than one patent application in order

to build a fence around your innovation

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You Needed to Patent

Your Innovation Yesterday

• You as an inventor will want to get a patent application on

file as soon as is possible but at the same time, you may

need to first collaborate with a co-inventor (e.g. an

engineer or programmer) in order to get your innovation

reduced to practice

• Once your innovation is ready to patent, you will need to

get an application for your innovation on file ASAP.

Needless delay and certain public uses of the innovation

may lead to a loss of rights under the America Invents Act

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A Patent Application vs. An Issued Patent

• A filed (and properly drafted) patent application does

prevent another party from patenting your innovation

as described in your patent application (i.e. prevents

them from stealing your idea) essentially anywhere in

the world

• A filed (and pending) patent application does not grant

exclusivity (i.e. the ability to enforce)

• Only an issued patent provides the ability to enforce

your innovation as claimed within the jurisdiction that

the patent was filed

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Pitfall #6• Junk Patents

• Patents with claims that don’t cover your

commercial product

• Patents with claims that are easily worked

around

• Patents (and patent applications) with poor

or minimal description of your commercial

product so that no valuable claims can ever

be drawn out

• Junk Portfolios

• Haphazardly filed and incomplete

applications that become prior art for your

subsequently filed applications

• Inattention to proper filing formalities and

obligations

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Suggestion

• Get involved

• Read and revise every draft of the application making sure

that your innovation is properly and completely described in

the written description portion

• Help your patent drafter by identifying potential competitors

in the space

• Help your drafter by providing ample figures and data (as

appropriate)

• Engage with the drafted claims and insist that the drafter

walk you through the claims and explain to you the scope

that he or she believes the claims provide

• Have your patent drafter entirely explain their drafting

strategy to you and make sure you agree

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FDA: Plot an Early Course

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Recent Trend

• It is taking longer to clear products through the FDA

in the healthcare space, which means longer times to

launch

• The M&A climate currently is that you will likely be

expected to at least begin the FDA process, by

identifying an approval pathway with the FDA and if

required obtain clinical data

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What Does that Mean for Startups?

• It is strongly to your advantage to understand the

FDA process and have an FDA Story to provide to

potential early investors

• If you have the ability to obtain approval (e.g. through

the 510k process), it will be a huge asset in terms of

the valuation of your company by potential investors

and acquirers

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Pitfall #7

Going to the FDA

without a thought-out

strategy

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Suggestion

• Get help – To help make sure you get the best possible

clearance pathway

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Thank You