Because the R&D process in the biotechnology field can take more than a decade and cost more than one billion dollars to complete, patents and other IP protections, such as SPCs and trade secrets, are particularly important. Approximately one in five drug candidates survives clinical testing. As a result of the high risks of failure and the high costs, R&D must be funded by the few successful, on-market products. Table 5.1 shows the different phases of development and the cost associated with each, including the cost of failures. Again, it should be noted that the costs described apply to the authorization of all drug products and not specifically to biotechnological drugs.
This type of venture is not amenable for the risk-averse investor. And those who are willing to take the risk will require a modicum of assurance. Strong and predictable patents are the main assets – besides SPCs and data exclusivity – utilized to assure investors of their return in risky biotechnology endeavors. These patents are also the assets utilized in knowledge transfer in the collaboration and sharing of technology between a university or a company and its partner(s). Accordingly, any perturbations that call IP rights into question are likely to create more unpredictability in an already risky commercialization endeavor.
Biotechnology patents
Most countries allow patents on biotechnology inventions directed to products, processes, methods and uses. In each country, the product or process must meet the requirements for patentability and not be directed to subject matter that is excluded from patentability in that country. Common patentable products of biotechnology innovation include proteins (polypeptides) described by their functional or structural properties, proteins (polypeptides) described by their amino acid sequences, plasmids, vectors, antibodies, antigens, epitopes, viruses, phages, bacteria, fungi, plant and animal cells, hybridomas, plants (as inventions, not varieties), animals, small molecule therapeutics, nucleic acids (polynucleotides) described by their nucleotide sequence, and the like. Plasmids and vectors can be identified in terms of their components, restriction map or their sequence. Microorganisms can be described by their properties; if these are not known or readily available, the description may have to refer to their deposit number in a qualified collection center under the Budapest Treaty administered by WIPO.
Patentable processes or methods may include methods for producing a particular substance, the process of developing new microorganisms, methods to create new probes, methods for treating a condition, methods for diagnosing a condition, methods for imaging, methods for the amplification of vectors, and so on. A patentable invention can involve the use of a known substance or product in any of a variety of ways that would make it patent-eligible, including but not limited to novel assays and the treatment or diagnosis of a particular disease.
Intellectual property and financing biotech products
Often a biotech company’s first (and constant) task is to attract and raise financial capital, typically through the sale of stock in the company to investors. In fact, a biotech company will often spend its first year or two of existence acting essentially as a virtual entity to determine whether it will be able to raise adequate funds to pursue further development and its only asset is its IP portfolio. To attract the level of financing required to survive the lengthy and expensive regulatory path to bring a therapeutic to market, biotech companies must possess from their inception a strong IP portfolio (in particular, patent rights) and a well-defined IP strategy. The startup will pitch its IP assets and strategy, along with its development plan, to investors (often angel and seed investors, but possibly also venture firms, established biotech companies, nonprofits, etc.).
Investors will expect to be reassured as to how their investment in the startup will be protected from an IP perspective. The startup should be able to explain the breadth of its current portfolio and how it will serve to exclude others from introducing alternative products in the marketplace. The startup will be asked whether it has conducted a freedom-to-operate (FTO) analysis to determine whether there are patents and/or pending patent applications that could potentially block its ability to develop or sell its products. Another common question asks what happens if the startup’s lead product fails – does it have the ability (largely in view of its IP portfolio) to pivot, diversify and/or pursue secondary indications? Additionally, the startup should have an elaborate IP strategy that encompasses patent filings, FTO analyses, competitive IP landscape mapping and lifecycle management to ensure a robust defense against market competition and to facilitate potential pivoting opportunities.
Box 5.1 provides an overview of and further information about IP and financing.
In biotechnology, it is generally accepted that the potential for a company to make money is closely linked to its IP portfolio. This is one of the reasons why biotech companies with little to no revenue can still be worth billions. In fact, most biotechnology companies do not have incoming revenue and actually lose money.
For example, Kite Pharma was acquired by Gilead in 2017 for nearly USD 12 billion, largely in view of Kite’s robust chimeric antigen receptor (CAR)-T cell therapy IP portfolio – yet at the time of the deal, Kite Pharma had more than USD 600 million in accumulated debt (https://www.businessinsider.com/gilead-to-buy-kite-pharma-for-12-billion-a-cancer-immunotherapy-company-2017-8).
Investors and executives in the biotech sector are required to predict, often many years into the future, how valuable a company may be based on various factors and moving targets, including the company’s IP portfolio and strategy, the chances that the company’s products will receive regulatory approval and whether physicians will use those products, etc.