Carolina Express License

1. Carolina Express License Cathy Innes UNC Chapel Hill July 2011

2. UNC Ecosystem • Heavily skewed to licensing in the life science sector (~85% of all agreements in biotech) • Small number of firms work with almost all startup companies (< 5) • Innovation and entrepreneurship are key initiatives for the Chancellor • A total of 59 startups to date; usually 3-5 form per year • Extremely collaborative environment between service providers, VC, universities, non-profits

3. The Carolina Express License • Exclusive, royalty bearing license agreement available to UNC startups • Same financial terms are offered to all • Terms are non-negotiable • Implemented in December 2009 • People either love it or hate it!

4. Objectives and Process • Objectives: • Increase the number of new companies forming • Make the process fast, easy and transparent • Strike a deal that is fair and reasonable to all stakeholders • Term sheet developed by team of: • Faculty serial entrepreneurs • Local venture capitalists • UNC tech transfer (OTD) and legal staff • Agreement negotiated by OTD and three outside business attorneys

5. Financial Terms • “Contractual fee” in lieu of license issue fee • .75% of value of liquidation event or IPO • Non-dilutable • One year delay on repayment of patent costs • Costs incurred prior to the license and during the first year due on one year anniversary • Royalties • 1% on net sales of clinically approved products • 2% on net sales of other products

6. Financial Terms • Annual License Maintenance Fee • $5,000 (non-clinical) or $15,000 (clinical) years 3-5 • $10,000 (non-clinical) or $30,000 (clinical) years 6+ • Credited against annual minimum royalties after first commercial sale • Sublicensing fees • 10% of sublicensing revenue (non-royalty) • 20% of sublicensing royalty revenue

7. Eligibility Requirements • All intellectual property rights must be owned solely by UNC • UNC faculty, student, or staff member must be a founder of the company • A detailed business plan must be reviewed and approved by UNC • The agreement must be executed without modification

8. Benefits to the Startup • Favorable financial terms that are back loaded • One year delay on paying patent costs • Virtually eliminated costs to negotiate the license • Early capital can be directed towards establishing the company, R&D and fundraising

9. Benefits to UNC • Encourages more entrepreneurial efforts on campus • Fosters a collaborative spirit between OTD and the faculty, students and staff who start companies • Is a tool to recruit faculty to UNC who are interested in entrepreneurial activities • Makes UNC-based spinouts very attractive to venture backed investors and other commercialization partners • Amplifies the impact that Carolina has on economic development and improving the health and well being of society

10. Results • In 18 months: • Executed 11 Carolina Express Licenses • Executed 2 other startup licenses • More than doubled the average number of startups per year • Our faculty and entrepreneurial community love the program

11. Unexpected Outcomes • Licenses stall now due to faculty reluctance to sign the license and start the patent repayment clock • Patent payback timeline still too short and not everyone can pay even after a year • Extensive positive press for UNC and interesting allies • Although many TT professionals really dislike this approach

12. Insider Tips! • Make your standard agreement optional • Develop well defined rules for eligibility • Ensure non-negotiable means non-negotiable • Base your financial terms on your historical norms and market sectors • Be willing to risk leaving some money on the table in exchange for getting more shots on goal

13. Thank You! Cathy Innes Director, Office of Technology Development University of North Carolina at Chapel Hill Cathy_innes@unc.edu Otd.unc.edu 919-966-3929