The importance of patents to biotech start-ups

This is the second article of a two-part series on intellectual property for biotech start-ups. Read the first article here.

 

 

Why do patents matter to biotech start-ups?

Early-stage biotech companies are often founded based on the exciting results of pre-clinical research relating to a new product or treatment.  However, due to the need for refinement/development, as well as the extensive work required to demonstrate safety and efficacy in order to obtain regulatory approval, early-stage biotech companies are often a long way away from bringing a new drug or therapy to market.

Unlike in many industries where a new company will have a product/service that can be readily commercialised to generate revenue, early stage biotech companies often find that they have a concept for a new product/treatment that could ultimately generate billions of dollars in sales annually, but have no obvious way to commercialise or finance the technology in the short-term.

This problem is compounded by the very large amount of capital required to advance a new drug or therapy from the pre-clinical stage to treating patients in the clinic.  The Tufts Center for the Study of Drug Development (CSDD) estimates that it now costs more than USD 2.5 billion to bring a new drug to market.

The ability to attract investment is therefore critical for an early stage biotech company to thrive.  In the absence of a tangible product, would-be investors will look at the potential future commercial revenue if the product or treatment makes it to market.  The decision of whether or not to invest, and the scale of any investment, is based on how well the technologies that form the core of a company have been protected.  This is where patents come in.

As the actual and potential scope of commercial exclusivity is the basis for the value proposition, investors look very closely at patent portfolios.  Essentially, potential investors ask ‘what can this company do that no other company can do without their permission?’  Any serious investor will usually undertake thorough due diligence of the patent portfolio, looking not only the granted patents, but also at the pending patent applications, to understand what protection the company already has, and what they are seeking protection for.

Patents can also be useful for generating revenue in the short-term.  Patents and patent applications can be sold, or licensed to other parties that wish to use the invention.  Licensing agreements can also form the basis of collaborations with other companies or research institutions, which can in turn lead to improvements to the technology.

Having patent protection, or the opportunity to obtain patent protection, covering the core technology of the company, and being able to present a plan for generating future IP, can be key to the success of a biotech start-up.

 

Others’ patents

As well as working to generate and manage their own patent portfolio, biotech start-ups also need to be aware of patents owned by other parties.  Having a granted patent does not give you the right to do anything; rather, patents are rights that can be used to stop others from doing something.  Companies need to think about relevant patents that other parties may have, because they could be used to prevent a new biotech start-up from bringing a product/treatment to market, to sue them for damages, or otherwise cause problems with commercialisation.

It is therefore important to undertake searches at the appropriate time to identify patents and patent applications owned by other parties that could be problematic.  These so-called freedom to operate (FTO) projects are often carried out by potential investors as part of the due diligence exercise, and the results can again influence the decision to invest.  However, increasingly, potential investors are asking early-stage biotech companies to demonstrate that they have given some thought to their FTO position.

Once potential problems have been identified, strategies can be developed to address them, or to minimise the risk they present.  Depending on the facts, it might be possible to re-design the treatment or product, or to work with the owner of the patent/application to acquire a licence to work their patented technology.  In other cases, it might be preferable to take action to try to have the patent revoked or prevent the patent from being granted in the first place, or to influence the scope of the claims that will be granted.

It can be impressive to show potential investors that you have done some work to identify potential problems, and have developed strategies to address them.

 

A final practical tip

In order to obtain a granted patent for an invention, it must be new and non-obvious over everything in the public domain.  An all too common mistake we see is researchers presenting their research publicly before having filed an application for a patent, which can make it impossible to obtain protection for an invention.  This can in turn have a significant negative impact the value of your company.

So, think ‘patent’ before you publish, and don’t disclose any details of your invention in a non-confidential setting before you have filed an application for a patent.  Drafting and filing a patent application can be a quick process, so it doesn’t have to delay publication, or impede your researchers.

 

Photo: www.ipwatchdog.com

Got an interesting topic about bio-entrepreneurship which you would like to share? We’d love to hear from you! Please send articles, ideas, requests and feedback to daphne.ng@biotechconnection-sg.org. We welcome all contributions!