Biotech financing: the risk components, ‘going long’ and patents as knowledge currency

The Valley of Death was not a nice place
This is the fifth post in a series of six on biotech. The earlier posts can be found here (introductory), here (ethics), here (case law) and here (strategies for protecting biotech inventions).

This post is focused on financing and protecting research into new therapies, which is what this Kat knows most about. Clearly there are other areas of biotech which are also commercially important, such as industrial biotech, agricultural innovation and the increasingly important bioinformatics sector.

The changing biotech finance landscape

Commercial biotech has different risks depending on the stage of the research. The risk that the technology simply won’t work is always there, and is something that might only be discovered 10 years into a project. Failure rates of around 85% are quoted for biotech research into new therapies. At the early stage there is also a finance risk, the so-called ‘valley of death’, where there is a danger that the small amounts of ‘seed’ funding that are available will not be enough to do the initial research to validate the technology. Until the technology is validated there will be little interest from potential commercial partners or investors.

Until a few years ago many early stage biotech companies would aim to sell themselves to large pharmaceutical companies (‘big pharma’) or launch on the stock market as soon as possible, given the assumption that the science would be likely to fail at some point, i.e. it was about ‘exiting’ quickly. However investors and big pharma are now wiser. Instead of buying biotech companies big pharma now prefers to fund long-term research collaborations, making funding conditional on ‘milestones’ being achieved, and in the process spreading the risk. So biotech companies have been forced to change their short-term thinking to a strategy of ‘going long’. That means having belief in their science and taking a long-term view when making decisions.

The new collaborative way of doing biotech research

Collaborative research is increasingly being seen as a better way of approaching difficult problems. Big pharma now has closer ties to academic research and is developing new ways of sharing data. In general in the biotech sector many more strategic partnerships are happening between companies. Open innovation models are coming into existence in the biotech research ecosystem (see Katpost here for a sceptical and a historical perspective on open innovation).

This Kat believes that within such collaborative research patent rights have a different role. It is less about taking advantage of a monopoly and more about defining what a party is bringing to the research ecosystem. Having specific patent rights as the basis of collaboration negotiations certainly helps to better define each party’s position, allowing the discussion to be more focussed.

Why are the claims so important in defining the invention in biotech?

One must listen very carefully in negotiations
about what the contribution is
As discussed in the latest post in this series (see the T cell example), for biotech the way we understand and define the contribution will determine claim scope. In the engineering field if we set out to make an antigravity machine, and we succeed, then the invention concerns ‘an anti-gravity machine’, and it will normally be apparent what the scope of the claims should be. However in biotech we often have data to which we bring ‘inventor insight’, and that is an important part of the extrapolation that is used to define claim scope. That extrapolation will allow us to see what technology areas the invention can be applied to. Crucially, research companies will often not perform this analysis until they are drafting a patent application. So it is not until they decide to file a patent application that they really know what the invention is, and what its value might be. The drafting of claims is therefore important in allowing the research company to itself see and define the contribution it is making, and so what it is bringing to the negotiating table.

Ideally patent applications should be filed for all significant data, applying ‘inventor insight’ to define the contribution. That will assist the company in deciding which patent rights to give to others, or sell or keep to themselves within the ecosystem.

What does the patent application need to achieve in biotech?
Always consider the entire ecosystem when
deciding on what to file

The development of a new therapy can take 10 to 15 years. Patent applications will be filed for significant data generated during that time. The claim scope of each case will need to contribute to somehow protecting a therapy which is not yet developed, and so a certain level of ‘predicting’ is going to be required. Before a product has been developed most of the value of a small biotech company can be in its patent portfolio. In previous times, when a ‘quick exit’ was the intention, filing many patent applications was important, with less thought being given to how difficult examination would be and the realistic claim scope that would be granted. However, now that ‘going long’ is the new strategy it is more important to consider whether useful protection will actually be obtained, and perhaps be more selective on filing new cases.

What does the patent portfolio need to achieve?

Each patent application will have a place within a portfolio that covers the commercial area of interest, preferably providing several layers of patent protection in important areas. Later cases will normally be more valuable because they are focused on the eventual commercial product and being filed later will protect the product when it is generating most revenue. However earlier cases in the portfolio will be prior art for these later cases, and that must be borne in mind when reviewing the contents of each case. The portfolio also needs to be built at a rate where it is affordable, bearing in mind that patent costs increase with time on a patent case.

Changing patent strategy

In many companies the filing of patent applications is ‘inventor-driven’. The inventors decide which experimental findings are important enough to be brought to the attention of the rest of the company for consideration of a new filing. That will depend on their understanding of the purpose of the research, which might not fully recognise the worth of each finding to other players in the ecosystem.

This Kat believes that collaborative strategies will help to change that situation. If knowledge exchange continues to become a more important part of biotech research, then data will start to be assessed based on its value to the ecosystem as a whole. That means that decisions on which data to file on will increasingly need input from those that understand what might be important to other players in the ecosystem.
Biotech financing: the risk components, ‘going long’ and patents as knowledge currency Biotech financing: the risk components, ‘going long’ and patents as knowledge currency Reviewed by Suleman Ali on Sunday, February 01, 2015 Rating: 5


  1. "In previous times, when a ‘quick exit’ was the intention, filing many patent applications was important, with less thought being given to how difficult examination would be and the realistic claim scope that would be granted. However, now that ‘going long’ is the new strategy it is more important to consider whether useful protection will actually be obtained, and perhaps be more selective on filing new cases."

    Wowser. What a great deduction by the biotech industry. If only us traditional old farts had thought about such strategy in our own industries we may have had some successes.

    What next from Biotech, i wonder. beans on toast as food combo? If only someone would invent the wheel one day our transport problems might be solved. My feet are killing me.

  2. Overall, this has been one of my favorite multi-part series on this blog. Thank you for that!

    Now for the critical review. The law of the horse – or Bio being treated as somehow “special” – seems to appear yet again. Also, several points indicate a protection for “data” but patent protection does not exist for mere data alone – and indications otherwise belie an improper portrayal of patent law.

    Mind you, this might just be a communication issue, but patents do not protect data. Never have – never will.

    Now, some quick comments per section…

    Biotech finance:

    Raises a different issue: possession (and doubly so, given the rather snide comment above – if you know that you don’t possess an actual invention and are driven to “get out quickly” before this lack of meaningful possession is discovered, then this paints a rather dubious view of your efforts – along the lines of knowingly selling a “lemon” of a car and disappearing before the owner can realize what he has purchased.

    New collaborative way:

    Possession issue as well as this factor exists across all art fields

    Claims important:

    Factor fully already exists across all art fields – the ladders of abstraction idea explains this.

    Data – important or otherwise – is NOT an invention.

    Need to achieve:

    Possession (again) and data (again).

    Not seeing the jump in change to protect scope of coverage – even if a longer view is now present, the SAME lack of knowing the future state still exists throughout the development pipeline, thus the change in one is not correlated with any change in the other.

    Portfolio approach:

    Value can be relative – earlier items may provide a wider shield to stop competitors from even attempting to gain a foothold in the space.

    Affordable rate of build – always a factor across all art fields (not only increase in time, but also increase in size of portfolio).

    Patent Strategy:

    Whether driven by inventor or by company is a factor across all art fields. Perhaps with certain medical inventions there is a higher degree of hand holding (I have worked with several deep-seated God-complex stricken doctors), but this again is no reason why patent law is – or should be – different for this sector.

    So while the suggestion that collaborations may help is not in itself a bad suggestion, it is necessarily an incomplete one. It remains – just as in any other art field – the ability of the applicant’s representative to take the invention as viewed by the inventor and climb those next couple of rungs up the ladder of abstraction to provide the maximum benefit of any patent. This is not an exercise that is constrained to any one art field.

    Too much emphasis on mere data again.

  3. Anon at 15:14, although 'going long' sounds obvious it took a while for all the experts to discover technical due diligence (whether the technology would work) was essentially impossible, no matter who you were.

    Anon at 17:35, thank you for your insightful points. Yes, of course you are right on many issues. However on the data point I think biotech is different. Data can show a particular characteristic of a biological molecule, for example, and the inventors might ignore it, whereas a patent attorney might see the worth of filing on the implications of the data. In the post I described the claim scope being derived by data+inventor insight. I think that process is specific to biotech. Certainly mechanical and chemical inventions have much less of that happening during the drafting process.

  4. Dr. Ali,

    Not to pick nits or disagree for the sake of disagreeing, but I hold firm to my position that you cannot patent data - in any form (as data per se).

    What you identify as "showing a particular characteristic" may lead a practitioner to suggest a claim to an invention using that particular characteristic, or some item having that characteristic, but such is clearly different than patenting data.

    Perhaps - as I mentioned - this is a communication issue. I practice in the US, and currently there is a sharp distinction between the attempts to patent "data" per se and the attempt to patent something that falls into one of our four statutory categories. I would then merely reiterate - and draw a sharper distinction - between mere data and as you put it, "data+inventor insight" - trusting that by what you mean by insight is itself more than just data or knowledge.

    I am also further puzzled by your reply to Anon at 15:14. If you are saying that "technical due diligence" is indeed essentially impossible to determine what you actually possessed at the time of filing, then I have even more trouble with the thought of one obtaining patent coverage on such a thing - having possession at the time of filing is not an optional requirement, and patent grants do not cover "possibilities" that something may have the claimed utility, to be determined merely some years later. This then, is perhaps a distinct - and much larger - issue.

  5. Dear Suleman, I too think you posts have been very interested, but disagree with some of you conclusions (hence my snide comment, which I consider mere short and sarcastic, however I agree with the other comments made by the labeler).

    Biotech patent attorneys have always believed their area was different to all others, possibly because they struggled to grasp the patentable inventive concept or appreciate the industrial application, or possbily because they were simply working in a technological area they didn't fully understand. Let us not forget that the vast majority of patent attorneys had/have only a first degree and whilst the profession believed/believes this qualifies them to work in many fields, I am of the opinion that it does not. I know many scientists most dismayed by the lack if knowledge of these mere graduates. Thankfully, in recent years the number of attorneys with PhDs has increased, though still the numbers are too low (in all fields, not just biotech). The best biotech attorneys I know are also pretty hot on the science too.

    Had the biotech industry learnt from other technical fields, they may have considered it obvious to apply their learnings, such as the going-long example. Form a patentability viewpoint such art from other fields may be considered too remote for the skilled person to have considered it, but business doesn't work that way.

    Take a look at the IT industry for example, where eagerness not to miss out on the next big thing caused early large valuations and investments. It probably also happened with Edison and his electricity business long ago.

  6. Anon @19:36, the vast majority of new medicines which are being patented will 'fail' testing at some point during development. They will not be effective, be too toxic, have side effects, etc. The patent system lives with that.

    Anon@19:41. I agree with your points. I would say early stage biotech has had its bubbles and 'hype cycles', but is now a much more sensible and rational area.

  7. Dr. Ali,

    That the patent system in fact lives with applications that may not in fact have the utility claimed at the time of filing is not a good thing.

    Admitting the current status - and then saying "oh well, that's just how it is" is precisely NOT what I would consider discussing the merits of how it should be (and how it universally is, outside of this apparent anomaly).

    In an earlier thread of this series I pointed out that patent law is (except for some minor details) universal for all art fields. I have yet to see any official views that the topic of utility at time of filing is somehow to be treated different for pharma type patents. If you have such a legal citation, I would love to see it.

  8. From 'snide anon'

    Pharma patents are granted to new compounds/new uses etc where the intended utility (treatment of earache) is disclosed in the application and there is sufficient data evidencing compounds having an activity in an assay/model that is supportive of the intended utility. The data from the assay/model is that which the scientists in the relevant area deem realistically indicative of a medical benefit. Such indications are considered so realistic that huge investments are made in clinical trials on the back of them. Thee is little more can be done other than await the result of clinical trials, that must then be held in complete secret. I don't suppose you are in favour of this model which is used by India to assess patentability of secondary pharma inventions?

    This pharma model is not the same as your biotech model. Biotech wants patents on "things" as soon as they are created, irrespective of any reasonable link to a disease.

    To anon at 19:36 you are perfectly correct that possession at the time to filing is not an optional requirement - in the US or Europe or elsewhere. However, did you see our House of Lords Decision in Conor v Angiotec I think this is the one)? Here, the judges gave to much credence to the Biotech-whine.

  9. Thanks anon of 5:30. I don't have an official document, but then Patent Offices are not likely to admit that patentability criteria are different in biotech, or even that they have been getting stricter. As I said in an earlier post biotech practice and case law are changing as the technology advances. That should not be happening but it is. Also bear in mind that a drug can take 10 to 15 years to develop, and so at what point have you shown the utility? You have to file early otherwise there'll be too much prior art to be novel and inventive. I think the UK case HGS v ELi Lilly is very instructive because the High Court and Court of Appeal said there was not enough data in the spec about the function of the new protein. However our UK Supreme Court reversed all of that and said that the spec did have enough information/data. So even experienced courts struggle at getting the issue right. Biotech patenting is filled with grey areas and it's constantly changing. However Examiners and attorneys are attuned to what needs to be shown at filing, and so the system continues to do its function of supporting innovation.

  10. The Supreme Court decision was poor. Very poor.

  11. Anon at 9:22, thank you for your comment which raises a lot of interesting issues. I think that in practice the patent system adapts to the needs of the relevant technology. Conor v Angiotech is interesting because on the face of it it was a very obvious invention, but Hoffmann found arguments to say it was inventive for the purpose of being in line with the EPO, rather than for being 'objective'. So in reality it was more of a policy decision. The parties had already settled so no one suffered the consequences, but Hoffmann said what he had wanted to say to encourage the UK Courts to find more biotech/pharma invention to be inventive.

  12. It was probably the HGS Lilly decision I was thinking about most.

    I don't believe the law is different or its interpretation. The patent system isn't adapting to a technology per se, but more to the state of knowledge at a particular time. hence it is solely fact specific.

    For example, the first person who attempted to patent a polymorph or enantiomer would have been more successful than someone attempting to patent one today. The law hasn't changed or adapted, but the knowledge of the skilled person has.

  13. Anon at 14:02, previously at the EPO where the invention was a new gene one would as a matter of routine get homologues with 70% identity which expressed a functional protein. Now Examiners ask for further structural information, such as which areas of the protein needs to be preserved to retain function. In the same way Examiners want a lot more structural information for claims to antibodies (i.e. not just a description of what it binds). Examiners are asking for more structural characterisation to meet the same sufficiency criteria. That should not be related to the knowledge of the skilled person, but simply to whether it is enabled or not. So to me it seems that the strictness of patentability criteria does reflect the advancement of technology in a way which is more than simply more prior art being available.

  14. If the examiners are learning about the technology then it is their knowledge that is increasing to the extent that they now appreciate what information is required for enablement across the scope of the claim.

    By "knowledge" I wasn't just referring to prior art. It also concerns the scientific understanding of the skilled person.

    Even for polymorph claims the requirements of enablement and sufficiency have advanced over the years.

    I don't see biotech as different.

    We can go all the way back to Biogen v Medeva (happy birthday) where we find Lord Hoffman clarifying for biotech attorneys a simple issue long known to pharma attorneys. Unfortunately, a later court (Generics v Lundbeck) tried to muddy the waters of a pharma case by mis-applying this "new law", only for Lord Hoffman to re-steady the boat.


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