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Out-Law Analysis | 22 Apr 2021 | 11:12 am | 7 min. read
Investors considering whether to put their capital into a biotech company will inevitably want to consider a target’s intellectual property (IP) strategy before doing so.
World IP Day 2021 focuses the spotlight on SMEs and how they can use IP rights to build stronger, more competitive and resilient businesses. Here, our experts take a look at how robust IP strategies are essential for both SMEs and larger, well-established biotech companies and why it is important for investors to understand the different approaches to IP strategies that biotechs can adopt.
Developing an effective IP strategy can help biotechs impress prospective investors by offering them an insight into how it plans to protect and commercialise its innovation
Interest from investors in the booming biotech sector is growing around the world, particularly given the resilience it has demonstrated during the Covid-19 pandemic. While access to finance remains one of the biggest barriers to innovation in the sector, particularly for SMEs, the increased interest enables biotechs with a compelling proposition to be a bit more selective about whom they take money from. Ultimately, however, biotechs need investors who are in it for the long term, providing SMEs, in particular, with increased stability and certainty.
Serious investors will do their due diligence. They will look at companies' assets, including their IP, for evidence of their current value and growth potential. Developing an effective IP strategy can help biotechs impress prospective investors by offering them an insight into how it plans to protect and commercialise its innovation. This is particularly important for biotech SMEs that often face acute financial pressures, particularly at an early stage, but that will nevertheless need to develop a strong IP strategy, often with limited professional guidance.
Some of our biotech clients that have gone through funding rounds have said they would like investors to know most about their IP strategies. Four main themes emerged:
Patents are always the IP asset that gets the most attention when investors are looking at the value of a life sciences company – the value of world class science and innovation is often assessed in terms of its translation into patents. However, and while patents can be hugely valuable, good opportunities in biotech could be missed if this is the only indicator taken into account. There are a number of reasons for this.
Firstly, there are some things which you simply cannot patent – especially in the field of life sciences. For example, you cannot get a patent for a method of treating someone, while patents for inventions which make use of human embryos for industrial or commercial purposes are considered immoral and not patentable. There are lots of other examples of biotech inventions which are not quite so stark but nonetheless do not meet the patent eligibility criteria. Biotechs by their nature are constantly pushing boundaries and cannot always get patents to protect these inventions. This does not mean that there is no value in the technology.
A subtle variation to a biotech process can be hugely valuable – enough to build a business off the back of – but can't necessarily be protected by the patent system
Second, it can be really challenging and expensive to persuade patent offices to grant patents in certain areas and so some biotech companies, particularly those with limited resources, might not even try, even if there is much to gain in the event they are successful in demonstrating patentability. Instead, many will keep their patent portfolio focused and mainstream in nature.
In biotech, the reality is that there are often many aspects of the technology which are simply best kept as trade secrets. A subtle variation to a biotech process can be hugely valuable – enough to build a business off the back of – but can't necessarily be protected by the patent system. There is robust legislation in Europe and the US to support such an approach. Trade secrets should not be under-estimated but are harder to document than patents so could be tough to pin down in any due diligence exercise carried out by an investor.
The reality of other barriers to entry is another reason why patents are not the only factor to be taken into account. Technology, for example, has advanced way beyond chemically synthesised compounds which can be exactly copied. We are now in a world looking at biological treatments – those based on cells and genes, for example. Even if a biotech announced to the world exactly what they are doing in this space, the reality is in many cases, the technical and logistical barriers are such that they could not easily be copied. There would be so many deterrents that, by the time patents were considered, many competitors would have long given up.
One size does not fit all. Different technologies will often be protected in different ways. A biotech company that has developed a new drug might have just a handful of patents protecting that drug. In comparison, a medtech company which has developed a smart device could have lots of patents around the technology.
IP strategies vary significantly and it is important for investors to bear this in mind when benchmarking. They need to be sophisticated about who they benchmark a company against.
Investors will often look at the number of patents as an indicator of value. While that can be a crude indicator, and initially unhelpful for start-up biotechs, a large portfolio could deter competitors for fear of infringing or because challenging so many could be expensive and an unwelcome distraction. Ultimately in enforcing any patent you only need one patent to stick against a competitor to be in a strong position to strike a deal even if the rest of the portfolio collapses under challenge.
A company with a limited portfolio is not necessarily a bad investment choice and one with lots of patents is not necessarily a good one
However, the perceived value in having lots of patents filed is often misguided. In life sciences especially, it can be as important to have one patent, which is valid and broad enough to cover multiple competitors, than multiple patents which are weak or narrow in scope. SMEs should bear this in mind: quality and not quantity is often a differentiating factor.The real question investors will want to ask themselves is whether the patents have any value.At the heart of the answer to this question is whether the patents are actually valid. It is not unusual to see tens of pages in a patent application, but that does not mean it is worth anything. It can be relatively easy to create what looks like a significant patent portfolio for an unsophisticated investor.
It can be important, therefore, to scratch beneath the surface and consider whether patents applied for will actually be granted and how broad the level of any patent protection is. Patents do not confer a right to do something. They provide a right to stop others doing it – so a valuable asset will be one which is wide enough to catch multiple competitors.
There can be good reasons why some companies have lots of patents and others have very few – a company with a limited portfolio is not necessarily a bad investment choice and one with lots of patents is not necessarily a good one.
To be of any value, patents need to be owned by the right person. This can be a complicated area where there have been many different parties involved in developing a new product or process. Investors must undertake their due diligence with care to ensure that the correct chain of title for such rights is in place.
There are two major strategic decisions a biotech has to make to ensure they get a proportionate portfolio of high quality.
There is a constant tension between getting there first and having enough data to ensure your patent can withstand challenge. Factor into that dilemma the fact that many biotechs, especially university spin-out companies, have academics at the helm who, often encouraged by the university or the scientific community, want to publish their work early – such an approach would be a death knell to any hope of getting a patent and often puts pressure on biotechs to file early.
A good example of why this matters is the huge ongoing global debate over who filed protection first for 'CRISPR', a technology which enables people to edit genes simpler, faster and more economically than ever before. It is a platform technology – so has a vast array of potential applications, not just therapeutic but for example in developing new species to clean up oil spoils or to ensure new-born babies are resistant to HIV. It is worth billions, but a big battle is ongoing which turns on whether the key patents were filed too early.
Maintaining a patent portfolio, especially a global one, can be extremely costly, so companies have to decide where to file.
A strategy focused on important markets for the company and where competitors operate, as opposed to a global filing programme, can often be the best approach for a biotech.
Biotechs should be as bold in their IP enforcement strategy as they are in their approach to innovation
A patent is of limited use if it is not deployed effectively. A due diligence which reveals oppositions at patent offices or litigation in the courts is not necessarily a bad thing. Businesses only tend to fight over patents which matter – where there is commercial value, and where there is value there is always a deal to be done. Litigation can be proactively and effectively deployed to get to that deal.
The value of litigation is that it can give biotechs the confidence to be bullish in negotiations and to get a good deal. Biotechs should be as bold in their IP enforcement strategy as they are in their approach to innovation.
Both large and small biotech companies should align their IP strategy and commercial goals. While monetising core patents assets is critical, as explained, consideration should be given to all IP assets, the overall IP strategy and the bigger picture to achieve the best outcome for the business.
Pinsent Masons’ Biotech Express solution offers start-up biotechs companies the comfort of operating on a sound legal footing for a fixed-fee.
23 Feb 2021
Pinsent Masons advises on L Catterton’s sale of Sweaty Betty to Wolverine World Wide Inc