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An IP guide to winning investors for biotech start-ups

Biotech insiders offer advice on how start-up companies should approach patent strategy to guarantee the best chance of gaining investment

Biotech start-ups face a conundrum when it comes to their patent strategy. To get money, they need investors. To get investors, they need patents. To get patents, they need money.

While squaring this circle is difficult, it is not impossible. In-house counsel and investor consultants from the biotech industry in Israel and the US say the key to attracting investors is not always having a large portfolio of patents in every jurisdiction but having a well thought-out business plan that includes a strong intellectual property strategy.

The head of IP strategy for a biotech company in Tel Aviv, a city ranked second as an innovation hotspot by The Economist Intelligence Unit, likens patent strategy to playing chess: “You need to put your pieces in the right place and predict what the other side is going to do.”

He says that just like in chess, the queen’s gambit is timing – knowing when to file and how much scope to claim with the data you have.

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First-mover (dis)advantage

The head of IP strategy says one problem in many start-ups is that patent attorneys feel pressure to be the first to file and then rush a patent application together before they have enough data to support the claim.

“The data you start out with is not the data you end up with. If you file too early, the data you have changes and then that potentially changes your scope of protection.

“The risk is you end up protecting the wrong thing. In the beginning you risk filing to protect one data range, but as your data comes in you realise you need to protect a different range. Your product will evolve, so you have to be careful about when you file,” he says.

Another risk of filing too soon is that early mistakes can end up costing biotech start-ups money they don’t have, when they realise they need to file additional applications to support prior claims.

“Don’t file as early as possible, because patents are expensive. You need to pay to prosecute these patents and then your budget goes up exponentially,” the head of IP says.

“After three years, your budget explodes and then management gets freaked out and tells you to cut back. But if you do cut back, what story does that tell your investors?”

Sheryl Sabban, former associate IP director at Teva Pharmaceuticals and now an IP consultant at Israeli law firm Sabban IP, says an additional risk of filing a patent too early is that it may become damaging prior art when the company later tries to file a more valuable patent claim for the product.

Sabban also advises companies to focus on writing only a few patents that are strong and protect the product, rather than spending lots of money filing as many patents as possible.

There are a couple of commercially successful products with only one or two patents which were well planned with a patent filing strategy which provided protection for over 10 years,” she says.

Where to file

With limited resources to file patents, biotech companies should choose jurisdictions wisely to gain the maximum amount of protection.

Bat Ami Gotliv, in-house IP manager at law firm Lapidot, Melchior, Abramovich & Co in Jerusalem, tells Managing IP that biotech companies have always filed in the US and Europe, but now they should also think about filing in China and other Asian countries.

“The key is to know your competitors. It could be that you have competitors in India and, if so, you need to file there. There is a budget constraint; you cannot file everywhere. But think about that in terms of your business strategy ahead of time.”

The head of IP strategy warns that biotech companies should resist the urge to file everywhere, and instead should only focus on jurisdictions where they could face competition.

“Patents are an expensive business, so for start-ups who are looking at every penny, filing everywhere is a dangerous game. I have worked with start-ups who want to file as much IP as possible, but this is an idealist vision and doesn’t work in the real world.”

Some jurisdictions offer particular advantages for biotech start-ups. On Lu, partner at Nixon Peabody in San Francisco, advises companies to take advantage of the USPTO’s provisional patent application system, which allows inventors to establish an early effective filing date.

“A provisional application is like a time stamp. When you are working with scientists, they often seek perfection and don’t want to file a patent until it’s bulletproof.

“But if you wait until everything is perfect, other inventors may file before you do. You might even miss the market opportunity. Even though the USPTO does not review your provisional, you’re basically securing a date,” he says.

He also advises that biotech start-ups take advantage of the USPTO’s Track One, which is an expedited examination system that guarantees patents will be reviewed within 12 months and costs an additional filing fee of $4,000 for regular-sized companies.

Lu adds that under normal circumstances it can take biotech companies several years to have a patent examined, and getting a decision early provides something they can present to investors.

“Some technologies evolve so quickly that by the time you get the patent, the technology has moved on. The government filing fees for this accelerated examination are relatively inexpensive, about $1,000 for micro entities and $2,000 for small entities.

“But don’t wait forever, only 10,000 applications per fiscal year are approved for Track One,” he says. 

Making the pitch

The former chief vice president for IP at a US biotech company says investors don’t necessarily want to see a giant portfolio of patents, but rather that the start-up has put the time and research into filing a strong patent that can ward off competitors.

“It used to be that you could pile all your patents up on a scale and, the heavier the scale, the more you impressed investors. I think for the unsophisticated investor that still works. You can load up your portfolio with junk and impress people who don’t know anything about patents.

“But the investment community is getting very savvy now, and anybody who knows what they are doing can tell junk from what is meaningful and enforceable. These days funds are looking for quality,” he says.

Sabban agrees and adds that it is important to remember that clinical trials and regulatory approval are particularly expensive for biotech firms. By the time a company has a product on the market, the investors want to know it will get market exclusivity.

“In biotech, regulatory approval is very expensive and risky. What drives investment is knowing that once you have approval, you have exclusivity. From my experience the most sophisticated investors want to know how secure the patent is.”

The former chief vice president says one mistake in early start-ups is that they don’t seek proper advice from external counsel.

“The rookie mistake is to hire a law firm and start filing patents right off the bat. This really comes back to bite them because what they’ll find after a year is they’ve spent a ton of money filing applications that are not strategic that go all over the world, and have spent lots of money filing in places where there is no hope of enforcement.”

Spending lots of money only not to get money from investors is not a winning strategy for any biotech start-up. Putting together an IP game plan that demonstrates a clear vision is the best way to checkmate the competition and prove to investors that you have a winning strategy.

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