In pre-revenue Biotechs, two things are vital to attract investment: (i) proof of principle experiments, showing efficacy against the target and an acceptable toxicology profile; and (ii) a strong patent portfolio. The patent portfolio is really the only protection the company has for their assets, and so the only thing that protects an investment and the ability to recoup expenditure. A well-designed patent strategy really can add several zeroes to a Biotech’s valuation.
The need for investment
The journey from bench to patient is a long one, requiring plentiful and diverse resources. From proof-of-concept science, attracting investment, through clinical trials and regulatory approvals to product launch takes many years and costs millions of dollars. Navigating the various legal and regulatory requirements for a multi-national launch, where the requirements differ in each jurisdiction and are in a state of constant evolution, is a huge undertaking.
Start-ups and scale-ups in the sector are commonplace in the early stages in this development pipeline. Small groups, often through collaborations with universities or contract research organisations, are able to complete the proof-of-concept science efficiently and cost-effectively – many will see products into at least Phase 1 clinical trials. However, as the cost ramps up through the clinical trial process, attracting the necessary investment becomes harder and harder; this is, after all, a process which terminates the development of the majority of clinical candidates.
Big Pharma are natural investors/acquirers. They have the infrastructure in-place to drive assets through the regulatory process, and the knowledge and expertise to bring a product to market worldwide. And, it probably goes without saying, they are cash-rich with some estimates putting the total current investment-ready capital at over $1tn.
To strengthen their pipeline, acquisitions by Big Pharma have become common place – the number of M&A transactions in this space generally increased year-on-year over the last decade (taking out the COVID years, which caused a slow-down in transactions). Given the well-publicised impending patent cliff (patent protection for a large number of blockbuster drugs will expire before 2030), we expect the number of acquisitions to increase in coming years as Big Pharma look for the next big earners. Recent deal valuations range from several million up to around $2bn – with prices dependent on the stage of drug development and also typically including contingent value, with some value only paid on achievement of milestones.
Pharma start-ups and scale-ups are operating in a crowded market of competitors seeking investment. What can these companies do to stand out? How can IP be used to maximise company value?
Investment readiness
Solid IP protection can be worth millions of dollars daily at the end of patent term for a blockbuster drug. Accordingly, getting the right IP in place which will stand up to scrutiny in 15-20 years’ time is vital. Extensions to patent term are available in some jurisdictions for pharmaceutical products (to compensate for loss of effective patent term due to delays in marketing authorisation); ensuring your patent strategy takes advantage of these extensions is also worth huge sums. The timing of patent filing should be influenced by envisaged clinical trial timescales – there must be sufficient patent term remaining once a product hits the market for an investor to see a return on their investment. Moreover, secondary protection (i.e. not just protecting the new chemical or biological entity, but also covering the delivery vehicle, composition/formulation, polymorphs, combination treatments, dosage regimes, novel treatments and targeted patient groups) can, when used well, effectively extend the patent monopoly scope and term.
Of course, the point at which investment is sought is much sooner and the IP needs to be ‘investment ready’ at that stage. An IP strategy which demonstrates that robust protection for the lead asset can be obtained easily (i.e. before investment is sought), is also needed.
Another important factor for Biotech valuations is knowing your likely (or preferred) investors early. The IP strategy should make a portfolio as attractive as possible to your buyer, and pegging a patent filing plan against that used by your potential acquirers is likely to generate a portfolio that is as attractive as possible.
An IP strategy which looks at the 3-5 year and the 15-20 year horizon requires careful design, but makes a significant difference to company investability and value. Done poorly, and it may be difficult to attract any investment; done well, and the company valuation at investment may increase 10-fold or more!
Tim Belcher is a partner in the Elements team at EIP, and leads the company’s Stratiphy offering – a service specifically aimed at early stage (bio)pharmaceutical companies, which combines intellectual property, commercial, regulatory and legal advice to maximise clients’ business value and investment potential.