Investment is key for the growth of biotech ventures, where it funds long, costly R&D, clinical trials, and regulatory approvals for products, often long before sales revenue can be generated. Investment drives innovation in areas like mRNA vaccines, antibody therapeutics, gene editing, and personalized medicine. Furthermore, it supports global health needs, such as combating pandemics and chronic diseases.
Together with Managing Associate Lionel Newton, we discuss the importance of Intellectual Property (in particular patents) in driving such fundamental investment in biotechnology.
This is a discussion about building an IP portfolio, more particularly a patent portfolio, for fund-raising biotechs. A good place to start is to ask, why this is important for attracting funding?
To answer this question, it is useful to begin by considering the sheer scale of funding and time required to bring an advanced therapeutic to market. That is, likely millions or billions of USD and 12 plus years of clinical development. These numbers here reflect not only the enormous cost of the R&D required to arrive at a clinical grade therapeutic product, but also the need to negotiate a notably complex regulatory process required to bring an advanced therapeutic to market.
A start-up or SME biotech will likely eventually need to work with, or even be acquired by, a big biotech or pharma company. That being said, the venture and the science need to get to a point that big pharma would be willing to entertain such a costly partnership or acquisition. However, reaching such point itself will likely involve a notably expensive journey, requiring multiple rounds of fund raising to progress an asset to a stage where it is sufficiently advanced to attract a large partner. Which means that recruiting investors during the venture-building journey is crucial, and likely over the course of multiple funding rounds.
In this regard, the IP position of a biotech company is key to its commercial prospects, especially for start-ups and SMEs for which sales revenue is likely far in the future. As just alluded to, marketable therapeutic products must navigate long and costly development pathways before sales provide any return on investment. Attracting investors to support this journey requires prospects for achieving a sufficient reward if the asset is successfully commercialised. Absent exclusive and enforceable rights, then the potential reward for the development of the asset is reduced, and so too are investor incentives.
Because of this, a biotech’s IP portfolio is amongst its primary commercial assets, protecting technologies arising from its R&D activities. A biotech company’s value can be directly linked to the strength of its IP position, and indeed IP due diligence forms a key part of an investor’s analysis of a prospective investment opportunity. In addition to seeing the potential of a great team and an exciting technology, they would need to know what would prevent a competitor from replicating it after all the biotech’s development efforts.
How early should a biotech start-up be thinking about their IP strategy, and do you have some examples of strategy points that you have seen successful ventures focus on in the past?
Developing an IP strategy early should be amongst the most critical commercial objectives of a biotech start-up from the beginning. It is key for attracting initial seed-funding and generating vital momentum to get the company up and running.
A significant portion of biotech start-ups originate from commercially savvy university or governmental institute researchers, with scientific founders pursuing start-ups with an existing portfolio of “background” IP based on in-licensing IP from their academic or government institute. This background IP may very often protect a “platform technology” or a therapeutic target/ pathway that the business aims to exploit. Examples might include a new form of lentiviral vector providing a broad platform to discover new therapies, or a generic cell re-targeting platform having potential to open up a technology for developing treatments for multiple disease indications.
At this early stage there may be no clear candidate ‘asset’, or if there is, it unlikely in a final form for use as a scalable therapy. But establishing exclusive rights for this technical springboard or platform goes a long way toward providing investor-incentives for critical early stage, or seed, funding. So, when investors see a great team, that are seeking to bring in and build those exclusive IP rights, they see the potential for reward and can be incentivised to invest.
Investors can be expected to perform their due diligence on the company’s existing and emerging IP, as well as the company’s overall IP strategy. In addition to scrutinising existing or background IP, investors are likely to raise questions as to ownership of future IP emanating from the start-up’s own R&D, thus establishing ownership and relevant documentation is likely to be an important factor in investment negotiations. Naturally, there is also the matter of third party IP, and developing a thorough freedom-to-operate (FTO) assessment is likely to be important to demonstrate to investors that the company is not infringing on patents held by a third party.
Is there value in evolving the IP portfolio as the ventures grows and develops its technology?
Considering the IP strategy and generating initial filings is not a one-off task, but rather the strategy should evolve in-line with the companies R&D progress and emerging partnership or commercialisation opportunities.
As a venture grows, we see those that succeed seek to leverage their exclusive platform, and direct their science toward achieving a clinical grade therapeutic product. R&D efforts at this stage may involve making improvements and additions to the platform technology such as certain structural modifications for stability or solubility, or the development of a delivery vehicle to actually get a candidate therapy to the site of the body where it is needed, or making improvements that expand the spectrum of potential disease targets.
We see successful ventures seek to actively grow their IP portfolio accordingly. While the existing background IP remains critical, it will have a finite lifespan. So, seeking bespoke filings for these growing improvements provides new patent terms for some of the technology beginning to show promise for delivering a marketable medical product.
Considering that a venture in this area will likely be going through multiple rounds of fundraising over the years, updating and building the IP portfolio is a key component not only to retaining existing investors, but for attracting new ones as the sheer level of necessary funds increases.
Naturally, this growth comes with its challenges in terms of prioritising what to protect and how to manage costs. We see successful ventures develop very close ties with their patent attorneys during this stage, using us as more than a means to prepare and file applications, but as key advisors to help guide them through these challenges and decisions.
So, it appears that biotechs can generate value by adding layers to their patent portfolio throughout their R&D journey? Do you have any further examples of what other developments could be protected, and what a biotech should be thinking about when deciding which patents to pursue?
Off the back of the improvements just discussed, the next stage might involve pushing a candidate asset, or assets, toward something suitable for clinical study.
For example, the company might progress to developing scalable methods of production to have suitable quantities of GMP compliant material to work with. Pre-clinical work can lead to identification of particularly suitable doses, and can also lead to plausibility of using a candidate asset for new disease indications that may not have been considered previously.
These are opportunities for building yet further layers of protection around technology that may be required for developing a clinically viable asset. At this stage, there is a strong chance that the venture is seeking vital partnerships with large companies to take the asset through clinical development, and very often an exit in the form of an acquisition by big pharma. So, we see successful ventures look to maximise the value of their IP portfolio by expanding their IP portfolio in-line with their strongest commercialisation and partnership opportunities.
Do such opportunities for expanding the IP portfolio, in a way that adds value, arise at even later stages of clinical development?
We see that many successful ventures continue to innovate, and protect these continued innovations, based on insights from clinical trial work. These could involve identifying new combination therapies showing synergy together. Optimal formulations and administration regimens might be devised. Perhaps particular patient subgroups are identifiable as the best responders to a particular therapy, for example those associated with a certain biomarker readout.
These can all be meritorious of their own bespoke patent filings, and thus their own patent terms. Although the term of the original ‘background’ IP may have eroded by this point, continuing to build the IP portfolio at this relatively mature stage of development provides a further 20 year term of exclusivity for particular forms and uses of the asset of direct relevance to the manner in which they can be marketed.
For example, a “composition of matter” patent protecting a key asset per se may have been filed many years before the asset is ready for marketing, such that the patent term will have eroded at the point of market entry. However, once a key dosage regimen for actually using the asset in therapy is devised, the regimen itself may be patentable, thus providing a further period of protection for the practical manner in which the asset may actually be administered.
These later stage filings may well be taking place post-acquisition, after a founding venture has been acquired by big pharma. If not, the founding company may well be working toward an exit at this stage, and we see that the value at exit is closely linked to the strength of the IP portfolio, which was built on the back of a carefully managed IP strategy.
Do you have a case study of biotech start-up that the firm worked closely with to build their IP portfolio from the beginning, and do you have a view of the commercial value provided by the IP portfolio?
We have several such examples, but one company that our firm worked with from start-up through to acquisition springs to mind.
The company in question was spun out of UK government, while obtaining exclusive rights in an early patent portfolio that defined their intended technical space of operation, and this early portfolio allowed for crucial seed funding to get this venture spun out.
As the start-up grew and worked toward a clinical grade asset, while developing technology required to do so, they continued to build their IP portfolio accordingly. Crucially, they did so in a strategic manner with potential partnerships in mind, and consulted with us very often to help direct their growing IP portfolio toward their strongest investment and commercialisation opportunities.
Within less than a decade they built their business from an initial valuation of about $1M at start-up to over $200M when they were acquired by a large biopharma company. The fact that the large biopharma valued this IP portfolio as part of this acquisition can be demonstrated by noting how they continue to grow this IP portfolio, which is going some way to helping them manage their many competitors and maintain exclusivity for key developments.
Do you have a brief ‘take home’ message to conclude with?
The different stages of a growing biotech business do pose different challenges in terms of developing and evolving an IP strategy, but also many opportunities for adding value to the business. In our experience, we find that those ventures that strategically build their IP portfolio, as a key commercial objective, put themselves in a strong position for investment and success.
