A strong patent portfolio is everything in biotech.
What makes a patent portfolio stalwart, and how does this affect company valuations?
Intellectual property ("IP") (e.g. patents) is the foundation from which all innovations are built upon. Patent protection is what guarantees that a novel invention cannot be easily duplicated by competitors, securing the market exclusivity of the technology once it is ready for consumer purchase. Patents create financial incentives for developing new technologies, and institutional investors (e.g. Big Pharma and venture capital) analyze the strength of an IP portfolio when making acquisition or investment decisions. Without patents, the “upside” of innovating is completely destroyed, and humanity seeks to evolve technologically.
A strong patent portfolio and strategy to build a defensible “moat” around drug assets is crucial in biotech. Not only to protect the future revenues of a drug that is still in the development and may not see commercial success until 5-10 years down the road, but also to secure a flow of capital to fund current development. Patents can broadly be classed into 3 categories: composition of matter, methods of use, and process development. Composition of matter is considered the Holy Grail of technology protection in biotech because it recognizes that the drug itself is truly novel and innovative.
From an investor or acquirer perspective, strong patents are what substantially increase the probability of realizing a return on their investment.
Here are what investors look for in a strong IP portfolio:
- A strategy to protect new technologies that may emerge from ongoing research and development
- A strategy to analyze competitors’ patents to ensure that they do not affect drug commercialization
- Patents being granted in the target geographies that the drug will be sold into
- Early patent filings (before clinical trials) to protect the proof of concept technology
- ”Follow-on” patent filings to create a multi-layered “moat” and extend the duration of protection
- Multiple patent types (composition of matter, methods of use, and process development) to create a strong “moat”
Here's an example of a highly defensible patent protection strategy.
Cytonics has an impressive 22 US and international patents (UK, Germany, France, Japan, Australia, and China) with 5 additional patents under prosecution. Importantly, their intellectual property portfolio contains multiple patent types protecting all of their technologies (APIC therapy, FACT diagnostic, and CYT-108 biologic treatment for osteoarthritis):
- Composition of matter protecting the genetic modifications made to the A2M protein to produce the CYT-108 drug candidate
- Composition of matter protecting the FDA-approved APIC therapy, securing any enrichment of A2M protein as Cytonics’ proprietary technology
- Methods of use securing any use of a synthetic A2M protein (i.e. CYT-108) to treat a multitude of inflammatory diseases (including osteoarthritis) as Cytonics’ proprietary technology
- Method of use securing the use of A2M protein to treat a multitude of inflammatory diseases (including osteoarthritis) as Cytonics’ proprietary technology
- Method of development for the genetically engineered CYT-108 protein
This collection of patents will make it very difficult to copy any of Cytonics’ technology, which will secure the exclusive commercialization of their lead drug asset, CYT-108. A potential acquirer will heavily diligence their intellectual property portfolio to make sure that competitors will not stand a chance at duplicating CYT-108. Cytonics’ broad and defensible patent portfolio is key to the company’s business development strategy, and has been developed to maximize the company’s valuation in the eyes of investors and acquirers.