Biotech IP Protection: Key to Success

The Sustained Strength of Biotech Innovation and Investment

The biotechnology sector experienced unprecedented investment in 2020, with $28.5 billion distributed across 1,073 transactions. This robust market for novel advancements continues to demonstrate considerable strength.

Notably, a growing proportion of these innovations are originating from early-stage startups and the scientific researchers who initially developed them within academic institutions.

The Role of Academic Research

U.S. universities facilitated $79 billion in sponsored research in 2018, largely supported by federal funding. This figure experienced a significant increase during the pandemic and has the potential to grow further.

President Biden’s proposed infrastructure plan, which allocates $180 billion towards bolstering research and development (R&D) initiatives, could contribute to this expansion.

University Technology Transfer

Since 1996, approximately 14,000 startups have acquired technology licenses from universities. A substantial 67% of these licenses were secured by startups or smaller businesses.

Currently, the typical increase in valuation between seed and Series A funding rounds for biotech companies is 2x. This is a higher rate than observed in other funding stages, indicating sustained investor interest in biotech startups at their earliest phases.

Navigating the Biotech Startup Landscape

These favorable conditions present significant opportunities for biotech startups and their founders. However, securing initial funding represents only the first step in a complex process.

Successfully bringing a product to market requires securing further investment, forging strategic alliances, and effectively managing competitive pressures. Protecting intellectual property is paramount to a biotech company’s success.

Key Considerations for Biotech Startups

Here are three crucial areas for startups and founders to focus on as they begin their ventures:

• Intellectual Property Protection: Safeguarding core innovations is essential.
• Strategic Partnerships: Developing collaborations can accelerate progress.
• Continued Funding: Securing ongoing investment is vital for long-term growth.

Initiating with an Option Agreement

The genesis of many nascent biotechnology companies lies within the confines of a university research laboratory. Subsequently, a technology disclosure is submitted to the university's technology transfer office, and a patent application is filed, anticipating the eventual commercialization of the innovation – potentially through a newly formed startup. Frequently, the mechanism for achieving this is a licensing agreement.

Securing a licensing agreement is crucial as it demonstrates to potential investors that the company possesses exclusive rights to the technology. This exclusivity, in turn, facilitates the attraction of the necessary capital for substantial growth, enabling the recruitment of personnel, the establishment of strategic alliances, and the execution of further research.

However, immediately pursuing a comprehensive licensing agreement isn't always the optimal initial strategy. An option agreement often presents a more advantageous approach.

According to Lisa Dhar, Ph.D., Director of New Business Ventures for Engineering at Northwestern University, “Licenses are highly detailed regarding commercial milestones, timelines, and financial benchmarks, which can impose significant constraints on early-stage entrepreneurs.” She further explained, during a recent webinar, that a six- or twelve-month option period allows founders to retain exclusive control over the intellectual property while simultaneously evaluating its market viability.

Unlike a standard licensing agreement, an option agreement typically omits specific details concerning term sheets or royalty rates. Instead, it generally provides a broad overview of the license terms that will be negotiated at a later date. Nevertheless, a degree of adaptability exists.

For example, certain investors might request the inclusion of a preliminary term sheet or the establishment of approximate ranges for financial parameters. Paul Bertin, of Grove Biopharma, which successfully utilized an option agreement to secure $5 million in seed funding, emphasized, “It proved essential in signaling to the market that we had access to the technology and were empowered to negotiate a license.”

Securing a Licensing Agreement

As you prepare to finalize a licensing agreement, remember that its construction carries substantial consequences for future opportunities. The primary objective should be to create a document that prospective investors will view favorably, inspiring confidence and encouraging investment.

Therefore, negotiations should be guided by the expectations of sophisticated investors – a key reason why utilizing an option agreement for initial market testing is beneficial. According to Dhar, establishing financial terms without understanding market acceptance is a significant misstep.

University tech transfer offices, though appearing as counterparts in negotiation, are fundamentally collaborators in this process. They understand that successful technology commercialization requires attractiveness to potential partners. Furthermore, they are well-versed in typical royalty rates and generally adhere to consistent benchmarks across institutions.

Founders should, however, be mindful of certain potential issues. Pre-existing or unincluded rights can compromise the exclusivity of the license, presenting a challenge. Achieving a suitable equilibrium concerning combined products and royalty stacking is also crucial.

Bertin emphasizes the need for adaptability, allowing product integration while ensuring the overall royalty burden doesn’t jeopardize financial viability. A balance must be struck to ensure long-term success.

Key Considerations During Negotiation

• Exclusivity: Ensure the license is truly exclusive, free from conflicting rights.
• Royalty Stacking: Manage potential royalty obligations when the technology is combined with others.
• Combination Products: Maintain flexibility for product integration without creating unsustainable financial pressures.

Successfully navigating these points will result in a licensing agreement that not only protects your interests but also attracts the investment needed to bring your technology to market.

Developing an Intellectual Property Strategy: A Foundational Step

Protecting a company's intellectual property (IP) requires proactive planning. Founders should integrate their IP considerations with overall company strategy from the very beginning, even during the initial stages of formation. Delaying this alignment can result in significant operational and financial challenges.

A crucial early decision involves determining the geographic scope of IP filings. Founders must assess which countries align with their business objectives and justify the costs associated with international patent applications. For IP originating from universities, effective collaboration with the institution is essential to establish a cohesive global strategy.

Structuring Your IP Portfolio

IP strategy extends beyond geographic considerations and delves into technical aspects. The structure of an IP portfolio should reflect the intended use of the protected assets. For example, platform IP with broad licensing potential requires a different approach than IP tied to a specific product, like a lead compound.

Consider the scope of patent claims. A single invention disclosure can often be divided into multiple applications, each focusing on different facets of the technology. This might involve a broad claim encompassing a class of compounds, alongside narrower claims detailing specific molecules or their applications.

The Benefits of Broad and Narrow Claims

The U.S. patent system generally supports this approach. A diverse range of claims, from broad to narrow, can create a robust protective barrier against competitors. This comprehensive coverage can effectively safeguard market position.

However, this strategic division is most effective when initiated early in the process. Attempting to dissect a single, all-encompassing patent application later can be considerably more complex and less advantageous.

Leveraging the Current Biotech Landscape

The current market conditions are particularly favorable for early-stage biotechnology companies. While innovation is paramount, securing and strategically utilizing IP is equally vital for attracting the right partners and successfully navigating the path to market.

It’s tempting to prioritize rapid advancement, but neglecting a long-term IP perspective can be detrimental. Consistent communication with investors, technology transfer offices, and legal advisors is key to maximizing the value of your intellectual assets.