Ask the CAMTech Expert: Medtech IP & Business Strategy with Grace Sweeney
The Ask the CAMTech Expert series features voices from CAMTech’s diverse community of global health experts and thought leaders who share their knowledge, experience and resources to those working in medtech innovation. Today, we’re talking about intellectual property law and business strategy with Grace Sweeney. Grace is Associate & Patent Agent Trainee at Magyar, Bogle & O’Hara LLP, a firm specializing in the life sciences sector, including biotechnology, medical devices and wearables, pharmaceuticals, chemicals, and other technology-based companies.
The firm assists startups in the both the U.S. and Canada, along with public companies, venture capital funds and private equity firms. Grace has mentored at several CAMTech hack-a-thons, and helps coach innovators through the legal complexities that may arise when staring a new company, such as sourcing capital, formalizing, protecting, and maximizing intellectual property rights, and overseeing licensing transactions, financings and mergers and acquisitions.
Why do you believe IP law is so important for today’s medtech innovators and startups?
At the seed stage, a company cannot secure a strong valuation or the financing it needs in the absence of a concrete understanding of its value, and the ability to communicate that value. If businesses secure IP protection and can contribute to a sustainable advantage, they can mitigate risk and substantially increase their business’ medium- and long-term value. As the portfolio and the company grow over time, this helps to enhance the company’s competitive position, profitability, market adoption, and market share.
What startups do by securing IP protection is immediately communicate all of the above value-add to investors, on paper, in a language they understand.
You’ve been a mentor at several CAMTech hack-a-thons – what are some of the questions you hear from teams as they work on their projects and what are some of the key things you tell them to think about?
The hack-a-thons are an exciting opportunity to work with visionary entrepreneurs and to help them advance category-defining, meaningful life sciences work. Usually in the process, teams are operating at Mach 3, and my job is to ensure the legal issues that are core to those businesses’ success are taken care of.
I’m often asked later stage questions (i.e., liability consequences of business activities) and I will address those, while also encouraging founders to realistically contemplate the scale of capital required to accomplish those business activities, and where it will come from. At the early stages, companies should consider their goals, both short-term and long-term, and evaluate the structure and capital they need to facilitate those goals and to achieve rapid adoption and scale.
You were a recent presenter during a Post-Opioid Epidemic Hack-a-thon Webinar on MedTech IP and Business Strategy. Although the session was for teams from that event, these are important factors for all medtech innovators and teams to think about. Can you touch on the importance of things like deciding on a formal business structure and setting up key contracts and agreements?
A formal business structure can pre-emptively determine the capital a founder is capable of attaining. For example, angel investors usually like the tax benefits of an LLC structure, while established VCs generally like to see companies organized as C corporations. Obviously, these decisions are important considerations, and depend on the specific situation of the company.
Beyond the reality of sourcing capital for operations, it’s also important to mitigate risk and to conduct a robust audit of the company’s assets and how to leverage those as part of a larger, defined strategy. At this stage, a company’s value is based on people and assets (usually IP assets), and so it is critical that companies have contracts in place that define and protect those assets. Key contracts include employment and consulting agreements, financing agreements, and even shareholder agreements.
How do these initial steps influence potential funding and investments down the road?
It’s difficult to make generalizations as these steps are generally tailored for my clients individually based on their business model, but the common thread is that these initial steps can mean the difference between a business that takes off, and one that never receives the capital injection it needs to realize on its innovations.
As an example, many private equity investors preferentially invest in C-Corps over LLCs; if private equity investment is a goal, consulting with an attorney enables startups to approach those investors with the correct framework in place, assure them of the competency of management and the certainty of their investment, and to ultimately secure the capital necessary to disseminate life-saving medical devices and technologies.
What are some of the liability risks that healthcare startups need to think about? (i.e. how this plays into forming partnerships and 3rd party agreements)
Healthcare startups need to be concerned with the liabilities that are common to all companies – ensuring payment for goods and services, dealing with potential breaches of contract, and pro-actively accounting for potential liability in those contracts, whether third party or otherwise.
Additional concerns relevant to this sector involve rigorous compliance with privacy law (HIPAA, FDA, and FTC) and the safeguarding of personal health information (PHI), FDA compliance for medical devices, apps, and technologies (in addition to drug and biologic products and their delivery systems), product liability, clinic licensure requirements and regulations prohibiting non-physician controlled entities from practicing medicine, and the invocation of physician-patient relationship and accompanying liability (particularly for telehealth companies practicing in multiple states). This is by no means a conclusive list, and these concerns, particularly in our post-Theranos climate, are critical to address in the early stages.
During the first year of development, it’s not uncommon for a company to experience shifts and changes, such as original team members leaving the group. How can innovators make sure their ideas are protected?
Ideas, as they evolve, can assume many forms, all of which may be copyrightable, patentable, trademarkable, or a combination. It is important that innovators work with an attorney early to decide, strategically, which ideas or trade secrets are deserving of formal protection, and to take steps (such as employment agreements with confidentiality and non-compete clauses, or having staff and independent contractors sign non-disclosure agreements) to protect those ideas.
Patent applications are also critical in this area. Costs are critical, but at same time, you need patents. If innovators are willing to provide an initial writeup of their concept, there are many efficient, cost-effective firms like ours that are willing to work with inventors at prices that are reasonable.
What about data security? What do healthcare innovators need to think about laws like HIPAA and other PHI matters?
There is a rigorous set of rules governing compliance with privacy legislation, including HIPAA, FDA and FTC regulations, which can apply to both treatment providers and associates handling PHI. The most powerful tool in a company’s arsenal is education, and the most important takeaway is that compliance is not a static process. From the outset, innovators should fully inform themselves and equip their companies with the administrative, technical, and physical safeguards involved in compliance, particularly in light of recent cybersecurity concerns, limit PHI use and sharing, audit third party agreements, and establish protocol governing PHI.
Entering into the world of medtech innovation is exciting but can be daunting, especially when it comes to IP law – what is the best way for medtech innovators to make sure they are protected and complying with industry protocols and standards?
At risk of sounding self-serving, the best advice I can offer is to forge a relationship with an attorney who you trust with your business goals, who can intuit your needs before you do, and who can help you understand, communicate, and maximize the value of your company. This type of relationship brings much more value to the table than merely eliminating unseen liability, and presents significant upside for founders and investors.
With these tools, you can focus on, and enhance, the important work of delivering life-saving technologies into the hands of people that need them.