The business life cycle of a biotechnology company • Key personnel and their roles • IP • Finance and Valuation – navigating the ‘Valley of Death’

1. Biotech Boot Camp
Session 2 – The business lifecycle of a biotech company
Presenter: Nick Weston
Melbourne, Brisbane, Sydney
28 May – 18 June, 2014

2. • Get organised
• Get funded
• Get the IP rights
• Get it made
• Get it sold
• Get protection
• Get tough
• Exit strategies
2
Session 2 Overview
The business lifecycle of a biotech company

3. • Get organised
• Get funded
• Get the IP rights
• Get it made
• Get it sold
• Get protection
• Get tough
• Exit strategies
3
Session 2 Overview
The business lifecycle of a biotech company – step 1

4. •Biotech is driven by science
•Biotech is all about the money
Paradox
4

5. Get organised
5
• Get help by putting a team together
• Develop a business plan
• Set up the company
• Decide owners rights and agree a shareholders
agreement, partnership agreement, joint venture
agreement and that sort of thing
• Set up operations
• Set up a website and manage data privacy and other
online menaces to navigation
The business lifecycle of a biotech company

6. Chair, BoDs, CEO, COO, CFO, CSO, CoSec, HR, CMC
(Chemistry, Manufacturing, Controls), GC, who else?
Accountants, auditors, grant writers, regulatory advisors…
Get organised
6
Roles in a biotech company

7. • This phrase is often used to connote the vast number of
companies that are unable to raise the needed capital to
progress a new drug from preclinical development to a
proof of concept clinical trial
• “Ultimately, the valley of death reflects the perceived
imbalance of risk and reward for an investment at this
stage as well as the resulting difficulty for a biotech
company in raising capital during this time”*
Plan to survive the ‘Valley of Death’
7 * Dspace@ MIT 2014

8. The ‘Valley of Death’
8

9. The ‘Valley of Death’
9

10. 1. Large and attractive markets
• Significant growth
• Huge unmet need in major diseases
• Ageing population
• Patient ‘pull’
• Attractive public valuations
2. Good probability of getting there
• Good horse (product)
• Good jockey (management)
Business fundamentals
10

11. • Private
• Works in human therapeutics with an R&D focus
• Three-quarters of all companies have fewer than 50
employees
• Does not have a commercialised product
• Has less than 12 to 18 months of funding
A typical biotech company is . . .
11

12. Pyramid of biotech success
12
Finance
Access to market
Robust IP

13. Commercial environment
13
• Slow and expensive cost of
regulatory approval
• Limited and deteriorating market
access
• Biosimilars
• Declining physician numbers
Negative Forces
Positive Forces
• Favourable economic environment
• Improved patient advocacy
• Biotech addressing unmet medical
needs

14. • Low probability of clinical success
• Regulatory inefficiency
• Fair chance of new entrants
• Market access barriers
• Niche specialty areas can be costly to service
• Too few or too many therapeutic areas
• No guarantees, even at Phase III
• Many diseases are multi-factorial
• Placebo-controlled trials (the paradox)
Barriers to entry
14

15. • Lengthy ethics approvals
• Phase IV gets bigger and bigger
• Competition from well-resourced Bigpharma
• Salesforce size
• Promotional spend
• Lobbying power
• Legal, sales operations, market research, business analysis,
competitive intelligence, manufacturing capability, GxP expertise,
medical services, customer relationship teams.
• Bundling power
Barriers to entry
15

16. Business planning
16
The product life-cycle (PLC) describes distinct stages in the sales history of
a product. Each stage poses different threats and opportunities that dictate
changes in market (and pricing) strategy.
Product
Category
Sales
(in real dollars)
Profit
per Unit
(real dollars)
Time
(years)
Growth
Competitive
Turbulence
Maturity Decline
or Extension
Introduction
Sales
Profit/Unit
Life Cycle
Extension

17. • Choose a name
• Conduct searches of the IP Australia register of trade
marks
• Conduct ‘common law’ clearance searches using google,
trade publications, to check for brands with a “common
law" reputation in Australia
• Check ASIC’s business name and company name
register for conflicts
Get organised
17
Naming the business

18. • The proposed name
• cannot be confusingly similar to a name that is reserved or
registered under the Corporation Regulations or included on the
national business names register
• cannot be “misleading or deceptive“ within the meaning of the
Consumer and Competition Act 2010 (Cth)
• cannot be substantially identical to a registered trade mark
• cannot "pass off" goods of the business as the goods of another
• cannot be offensive or include the words such as "Olympics" or
"Donald Bradman" and so on
• Then apply to register the name as a trade mark
Forming the business
18
Naming the business
•

19. Then apply to register the name as a trade mark
Forming the business
19
Naming the business

20. Sole trader
Partnership
Private company
Public company
Trust
Joint venture
Forming the business
20
Structures

21. Forming the business
21
Startup documents – 4 buckets
Incorporation
documents
Founder
documents
Employee
documents
Third party
agreements

22. • Certificate of Incorporation
• Constitution
• Minutes of meetings and resolutions
Forming the business
22
Incorporation documents

23. • IP Assignment
• Confidentiality deed
• Non-compete agreement (ie: not competing with the
company, not soliciting customers, not poaching
employees and not interfering with suppliers)
• Shareholders Agreement – founder v. investor rights
• Employee Share Option Plan (ESOP) - not tax effective but
57%* of Australian start-ups still use them
• Employee Remuneration trusts (ERTs)
Forming the business
23
Founder documents
*Source: Deloitte

24. • ESOPs can apply to employees, advisors, directors and
consultants as well as founders
• Letter of offer or long-form contract
• IP Assignment
• Confidentiality deed
• Non-compete agreement (ie: not competing with the
company, not soliciting customers, not poaching
employees and not interfering with suppliers)
Forming the business
24
Employee documents

25. • NDAs
• Consulting agreements
• In-licences
Forming the business
25
Third party documents

26. Financial and project record keeping
must be systemic
Get organised
26
Record keeping

27. • Get organised
• Get funded
• Get the IP rights
• Get it made
• Get it sold
• Get protection
• Get tough
• Exit strategies
27
Session 2 Overview
The business lifecycle of a biotech company – step 2

28. Get funded
28
The business lifecycle of a biotech company – step 2
• Figure out funding options
• Debt
• Equity (FFF, angels, incubators, venture capital, venture capital,
large company collaboration, JVs etc)
• Non-dilutive (R&D Tax Incentive, CA grants, etc)

29. Global Dow 1.5%
Dow Jones China 88 - 6.5%
Hang Seng (HK) - 5%
ASX All Ords 2.2%
NASDAQ Comp -1.49%
NASDAQ Bio Index 4.11%
Nikkei 300 - 11.2%
2014 YTD Financial Markets
29 Source: WSJ, Yahoo, CNN 2014
@ 30 April 2014

30. It is hard to raise funds when sentiment is against a sector
Prana (70%), Bionomics (-74%), Reva (-63%) and
QRXpharma (-80%) all blowing up in April 2014 will have
hurt sentiment
The GI Dynamics raising on at the moment will give some
indication of current biotech sector sentiment
Sentiment matters
30

31. Rallies tend to last 9 – 15 months
Droughts tend to last 3 – 5 years
Raising, listing is easier when ‘the window is open’
Biotech is cyclical
31

32. • Establish a finance strategy with an incentive matrix for all
positions in the company
• Figure out how much needs to be raised and when
• Milestones to demonstrate viability, progress and newsflow
• Allow up to 6 months to receive funds from TS/LoI
• Tax
Get funded
32
Capitalisation

33. • Make sure the founders’ are happy with their
shares/options incentive arrangements
• Establish a vesting schedule, though VCs may reverse it
later
• Anticipate up to 50% dilution for first/second rounds
• Set aside around 20% for early stage employees
Get funded
33
Capitalisation

34. • Individuals - invest in their own passions, ideas, dreams,
fields of expertise
• Angels - invest in Individuals… perceived winners
• Corporations/Strategic - invest to forward their corporate
initiatives
• Venture Capital – VC’s invest in teams, “secret sauce”,
portfolio needs and trends that produce 20x returns
• Funds - invest in 12-18 month IPO that produce 40%
returns
Species of investor
34

35. Early development stage asset (Development Candidate
through to Phase 1)
Big problems in large markets with unmet medical needs
(must know the three hows: how many (patients, Dxs, Rxs),
how long (length of therapy), how much (price, CoGs))
Analysis of how much of the market Newco is likely to get
Good probability of getting there
What appeals to VCs?
35

36. Experienced people with a track record of competent
execution
A clear development plan with definitive Go / No-Go
milestones on the way to human proof-of-concept
Strong IP position
Evidence of patient value (better, cheaper)
What appeals to VCs?
36

37. Syndicated deals (other VCs coming in)
Robust path to product, revenue, profits (eg: a Pharma
partner who is interested in acquiring (or re-acquiring) the
project in the future)
News flow and potential for a number of upcoming product
development, scientific or partnership milestones
What appeals to VCs?
37

38. Typical questions:
• What kind of business do I want to build?
• What are its capital needs?
• My short and long term role(s)?
• What is my time frame?
• What are the company’s acceptable exits?
• What are my acceptable exits?
VCs start with one eye on the exit
38

39. • Elevator Pitch “So what do you guys do?”
• Executive Summary - Emailed, retold at partners meeting
• One pager - Corporate Fact Sheet
• Gun Founders/Senior Management
• Market
• Business Development Needs
• Board/Advisors
• PowerPoint deck - 10 minutes but modular - 10, 3, 1, Powerful, Mini-
Business Plan)
• Business Model / Financial Model
Typical pitch documents
39

40. Copyright , confidentiality and reliance statements
Table of Contents
Mission and Vision
Key Milestones
Executive Summary
Business Overview
Market Opportunity
Management Team
Barriers to Entry
Positioning and Competition
Marketing Strategy
Financials
The business plan
40

41. Copyright , confidentiality and reliance statements
Table of Contents
Mission and Vision
Key Milestones
Executive Summary
Business Overview
Market Opportunity
Management Team
Barriers to Entry
Positioning and Competition
Marketing Strategy
Financials
The business plan
41
To protect strategies and IP

42. Copyright , confidentiality and reliance statements
Table of Contents
Mission and Vision
Key Milestones
Executive Summary
Business Overview
Market Opportunity
Management Team
Barriers to Entry
Positioning and Competition
Marketing Strategy
Financials
The business plan
42
The opportunity

43. Copyright , confidentiality and reliance statements
Table of Contents
Mission and Vision
Key Milestones
Executive Summary
Business Overview
Market Opportunity
Management Team
Barriers to Entry
Positioning and Competition
Marketing Strategy
Financials
The business plan
43
12 & 24 month milestones, launch, seed funding secured,
initial staff and exec team in place, project development and
regulatory stages, budget met ($), funding rounds raised,
marketing launch, alliances secured, revenue targets met

44. Copyright , confidentiality and reliance statements
Table of Contents
Mission and Vision
Key Milestones
Executive Summary
Business Overview
Market Opportunity
Management Team
Barriers to Entry
Positioning and Competition
Marketing Strategy
Financials
The business plan
44
Patient outcomes, value proposition

45. Copyright , confidentiality and reliance statements
Table of Contents
Mission and Vision
Key Milestones
Executive Summary
Business Overview
Market Opportunity
Management Team
Barriers to Entry
Positioning and Competition
Marketing Strategy
Financials
The business plan
45
Business overview, market opportunity, management, barriers
to entry, positioning, competition, project plan, regulatory
strategy, marketing strategy, financials, use of funds,
proposed exit.

46. Copyright , confidentiality and reliance statements
Table of Contents
Mission and Vision
Key Milestones
Executive Summary
Business Overview
Market Opportunity
Management Team
Barriers to Entry
Positioning and Competition
Marketing Strategy
Financials
The business plan
46
Epidemiology, total available market, serviceable available
market, addressable market - market share projections, next
target market/s

47. Copyright , confidentiality and reliance statements
Table of Contents
Mission and Vision
Key Milestones
Executive Summary
Business Overview
Market Opportunity
Management Team
Barriers to Entry
Positioning and Competition
Marketing Strategy
Financials
The business plan
47
Founders, senior management (committed or not), directors,
KOLs, advisors, partners (service providers)

48. Copyright , confidentiality and reliance statements
Table of Contents
Mission and Vision
Key Milestones
Executive Summary
Business Overview
Market Opportunity
Management Team
Barriers to Entry
Positioning and Competition
Marketing Strategy
Financials
The business plan
48
Technology, patents, trade marks, data exclusivity,
first mover, distribution deals, competence/savvy,
scale/leverage

49. Copyright , confidentiality and reliance statements
Table of Contents
Mission and Vision
Key Milestones
Executive Summary
Business Overview
Market Opportunity
Management Team
Barriers to Entry
Positioning and Competition
Marketing Strategy
Financials
The business plan
49
Uniqueness, knowledge of the space

50. Copyright , confidentiality and reliance statements
Table of Contents
Mission and Vision
Key Milestones
Executive Summary
Business Overview
Market Opportunity
Management Team
Barriers to Entry
Positioning and Competition
Marketing Strategy
Financials
The business plan
50
Approach and tactics

51. Copyright , confidentiality and reliance statements
Table of Contents
Mission and Vision
Key Milestones
Executive Summary
Business Overview
Market Opportunity
Management Team
Barriers to Entry
Positioning and Competition
Marketing Strategy
Financials
The business plan
51
Revenue sources, assumptions, pricing (tiers,
erosion, extensions), reimbursement
(reimbursements models, codes, detailed
expenses (inflation), staffing plan, proforma
balance sheet, income statement, cash flow
analysis, break even, ending cash, low cash,
total funding, EBIT, margins

52. A combination of the following methods and techniques can
be used to value a biotech business:
• Net Present Value (NPV) estimate based on Discounted Cash Flow
(DCF) analysis [value based on discounting the Company’s
projected cash flows back to today’s value]
• Probability adjusted NPV model with risk assessment assigned to
each stage of development [value based on discounting the
Company’s projected cash flows back to today’s value after
assigning failure risk probability to each stage or milestone]
Common approaches to biotech valuations
52

53. A combination of the following methods and techniques can
be used to value a biotech business:
• Comparable company analysis [value based on trading multiples of
similar publicly traded companies]
• Similar transactions analysis [value based on completed and
pending transaction multiples in related industries]
• Book value [value based on based on minimum liquidation value of
the company or the asset/s ignoring its future earning power]
Common approaches to biotech valuations
53

54. A combination of the following:
• Economic modelling based on an analysis of the draft label and
health outcomes sought to be achieved by the product [three steps
are involved]
• Market analysis [three steps are involved to determine market based
estimate of sales and profits]
• Probability adjusted NPV model based on DCF with risk assessment
assigned to each stage of development [value based on discounting
the Company’s projected cash flows back to their present value after
assigning failure risk probability to each stage or milestone]
Our approach to biotech valuations
54

55. • Non-dilutive funding such as the R&D Tax Incentive is largely
directed at the science
• $484.2 million in a newly announced Entrepreneurs’ Infrastructure
Programme and a Single Business Service to deliver it, aiming to
“bring research and business together to develop and commercialise
home-grown ideas and equip small to medium enterprises with the
management and business skills to lead change and expansion”*
• Investor funding, even at seed and VC stages, require that the
business case be fundamentally solid
Other options for funding the paradox
55
* Australian Government, Minister for Industry Media Release : Building a globally competitive economy,
released 13 May 2014, see: http://minister.industry.gov.au/ministers/macfarlane/media-releases/building-
globally-competitive-economy

56. • The National Health and Medical Research Council
(NHMRC) provides grants for research to develop
products, process, procedure or service that aims to
improve healthcare, disease prevention or healthcare
cost savings
• The Victorian Government funds airfares,
accommodation and conference costs for Victorian based
biotechnology companies
• There are more than 600 State and Commonwealth
grants that can be searched using the tool available at
URL: http://www.business.gov.au/Grantfinder/Grantfinder.aspx
Other options for funding the paradox
56

57. VCs do stick to their mandates and guidelines
Investors want a compelling ‘elevator pitch’ (summary of
people, technology or other disruption and market
opportunity) and presentation with a robust path to product,
revenue, profits
A final business plan is not vital but must demonstrate
knowledge of and insight into the space and a clear vision
Execution is key – VCs look for people with a track record
Get funded - takeaways
57

58. • Get organised
• Get funded
• Get the IP rights
• Get it made
• Get it sold
• Get protection
• Get tough
• Exit strategies
58
Session 2 Overview
The business lifecycle of a biotech company – step 3

59. The business lifecycle of a biotech
59
Get the IP rights
• The aim of intellectual property (IP) is to frustrate copiers. A
strong IP position also makes it easier to attract great
people to your company, increases the value of your
shares and options, and makes it easier to obtain
investment
• Build and install processes into the DNA of the business

60. The business lifecycle of a biotech
60
Get the IP rights
Licence or vend in
• Patents
• freedom to operate
• ability of others to design around
• Designs
• Trade Marks
• Copyright
• Confidential Information

61. • Types of intellectual property
• Idiosyncrasies of protecting biologics
• Aligning IP and R&D with business strategy
61
Session 2 Overview
Intellectual property

62. • Types of intellectual property
• What is intellectual property?
• Patents
• Trade Marks
• Designs
• Plant Breeder’s Rights
• Copyright
• Trade Secrets
• Idiosyncrasies of protecting biologics
• Aligning IP and R&D with business strategy
62
Session 2 Overview
Intellectual property

63. Intellectual property (IP) refers to creations of the mind:
inventions, literary and artistic works, and symbols, names,
images, and designs used in commerce
IP is often represented in the form of patents, registered
designs, trade marks, copyright, circuit layout rights, plant
breeder’s rights and trade secrets
Intellectual Property
63 World Intellectual Property Organization http://www.wipo.int/about-ip/en/
What is intellectual property?

64. • Types of intellectual property
• What is intellectual property?
• Patents
• Trade Marks
• Designs
• Plant Breeder’s Rights
• Copyright
• Trade Secrets
• Idiosyncrasies of protecting biologics
• Aligning IP and R&D with business strategy
64
Session 2 Overview
Intellectual Property

65. A patent is a temporary monopoly (generally 20 years-
subject to possible extension for pharmaceutical
substances) in a technological innovation granted to the
patentee
Not more than 18 months after the lodgement of a patent
application, a detailed description of the invention becomes
available for public inspection
Intellectual Property
65
Patents

66. Three criteria for a granted patent
• It must be novel
• It must be non-obvious
• It must have commercial utility
In Australia there are two types of patent applications
available
• Standard Patents
• Innovation Patents
Intellectual Property
66
Patents

67. A Standard Patent
• Specification consists of a description and claims defining the
monopoly conferred by the patent
• There is a need to clearly set out at the filing date how each step of
the invention across the scope of the claims can be carried out and
tested
• Claims define novel articles, parts of articles, substances,
compositions, living organisms, methods of therapeutic treatment or
other uses of the foregoing, and/or manufacturing processes:
• more than one these claim types may be present in a single
patent
Intellectual Property
67
Patents

68. A Standard Patent
• Subjected to examination for novelty, inventive step and
other matters
• Maximum term (subject to possible extension for
pharmaceutical substances) is 20 years from “the
effective filing date”
• In addition to a written description, the specification must
provide sufficient description to enable a person of skill in
the art to practice the invention across the scope of the
claims
Intellectual Property
68
Patents

69. Innovation Patent
• Consists of an abstract, patent request and specification,
similar to standard patents
• Specification has the same description requirements as a
standard patent but can only contain a maximum of 5
claims; all can be independent
• The novelty test for an innovation patent is the same as
for a standard patent, however, a lower “innovative step”
test applies
• Maximum term is 8 years from the effective filling date
Intellectual Property
69
Patents

70. Innovation Patent
Not as commonly used in Biotech Industry, because, unlike
relatively simple mechanical inventions, biotechnology
inventions
• are difficult to describe and
• are inherently unpredictable and
• can have up to 200 pages of specifications
Intellectual Property
70
Patents

71. Patent Cooperation Treaty - PCT application
There is no such thing as an International Patent. A PCT
application is a virtual application in every country that is a
member of the Patent Cooperation Treaty. Each PCT
application then turns into a national application in each
country
It reserves a priority date for the invention to give the owner
extra time to determine where the invention should be
protected. The owner can do additional marketing and/or
research to find out where they would have the most
success in selling the product
Intellectual Property
71
Patents

72. Patent Cooperation Treaty - PCT application
• PCT provides for an application in a signatory country to
be filed as an international application
• Also provides for a preliminary non-binding examination
• A PCT application can progress as a national application
in each designated country
• Signatories include most of Australia’s major trading
partners
Intellectual Property
72
Patents

73. Intellectual Property
73 http://ipparalegals.com/media/blogs/experts-quill/what-is-a-pct/
Typical PCT process

74. Intellectual Property
74 QUT-2004
Typical patent process and cost
$0
$50,000
$100,000
$150,000
$200,000
Provisional
Application
PCT
Application
National
Phase
Entry
Examination Renewals
Months
0 12 30
Patent granted
Cumulative cost
Defence
>$1m

75. • An Australian patent registration only applies in Australia,
it does not apply overseas
• It is common to file in each nation protection is required
• In order to gain a commercial advantage within the
Biotech industry, there is a need to market in the U.S.
• There is a need to use the stringent U.S. standard for
fully describing the invention
Intellectual Property
75
Patents

76. In the U.S. there are three types of patent applications
• Utility Patents
• Design Patents
• Plant Patents
In the U.S. the patent will be granted on an application filed
by the first inventor of the claimed invention
Intellectual Property
76
Patents- US Patent System

77. Utility Patent Protects the way in which an invention is made, how
it is used or how it functions
- Expires 20 years from the effective filing date
Design Patent Protects new ornamental design for an article of
manufacture
- Expires 14 years from the date of grant
Plant Patent Protects distinct and new plant varieties
- Expires 20 years from the effective filing date
Intellectual Property
77
Patents

78. • Types of intellectual property
• What is intellectual property?
• Patents
• Trade Marks
• Designs
• Plant Breeder’s Rights
• Copyright
• Trade Secrets
• Idiosyncrasies of protecting biologics
• Aligning IP and R&D with business strategy
78
Session 2 Overview
Intellectual Property

79. A trade mark is a sign used, or intended to be used, to
distinguish goods or services dealt with or provided in the
course of trade by a person from goods or services so dealt
with or provided by any other person
Intellectual Property
79
Trade Marks

80. • Scope of Protection
• Common Law Rights and Registration
• Registration of a trade mark provides the right to
exclusively use, license, or sell goods and services under
the mark
• No maximum term for which a trade mark can be
registered
• Need to distinguish the goods and services from those of
others, and it must not be one that other traders may
need to use
Intellectual Property
80
Trade Marks

81. • Types of intellectual property
• What is intellectual property?
• Patents
• Trade Marks
• Designs
• Plant Breeder’s Rights
• Copyright
• Trade Secrets
• Idiosyncrasies of protecting biologics
• Aligning IP and R&D with business strategy
81
Session 2 Overview
Intellectual Property

82. • A design is a feature of shape, configuration, pattern or
ornamentation of a product
• A design registration is used to protect the visual
appearance of manufactured products
• The registration of a design provides that party with the
right to exclusively use, license, or sell the design for up
to a maximum of 15 years
Intellectual Property
82
Designs

83. Intellectual Property
Designs
• Aesthetical in
nature
• Technical
features not
protected, still
need a patent to
protect the
technology
83

84. • Types of intellectual property
• What is intellectual property?
• Patents
• Trade Marks
• Designs
• Plant Breeder’s Rights
• Copyright
• Trade Secrets
• Idiosyncrasies of protecting biologics
• Aligning IP and R&D with business strategy
84
Session 2 Overview
Intellectual Property

85. • To be eligible for protection, a plant variety must adhere
to three broad criteria
• Distinctiveness
• Uniformity
• Stability
• Commercial novelty
• the variety must not have been sold in Australia for
more than one year before the application
Intellectual Property
85
Plant Breeder’s Rights

86. • Plant Breeder’s Rights provide commercial rights for 20-
25 years to market a new variety or its reproductive
material
• Selection from nature or discoveries naturally occurring
are not eligible
• The variety must not have been sold in Australia more
than one year before the application
• Must not have been sold overseas for more than 6 years
before the application
Intellectual Property
86
Plant Breeder’s Rights

87. • Types of intellectual property
• What is intellectual property?
• Patents
• Trade Marks
• Designs
• Plant Breeder’s Rights
• Copyright
• Trade Secrets
• Idiosyncrasies of protecting biologics
• Aligning IP and R&D with business strategy
87
Session 2 Overview
Intellectual Property

88. • No system of Copyright registration in Australia
• Many different types of Copyright protection
• Literary works
• Artistic works
• Dramatic works
• Musical works
• Cinematography films
• Sound recordings and
• Broadcasts
Intellectual Property
88
Copyright

89. • Expression vs. idea
• Expression protected – not ideas
• Your independent creation as you expressed it
• Copyright protection is free and automatic
Intellectual Property
89
Copyright

90. • Types of intellectual property
• What is intellectual property?
• Patents
• Trade Marks
• Designs
• Plant Breeder’s Rights
• Copyright
• Trade Secrets
• Idiosyncrasies of protecting biologics
• Aligning IP and R&D with business strategy
90
Session 2 Overview
Intellectual Property

91. • Confidential information or ‘trade secrets’ includes
information such as a formula, pattern, compilation,
program, data, device, method, technique, or process,
that
• derives independent economic value, actual or
potential, from not being generally known to, and not
being readily ascertainable by proper means, by other
persons who can obtain economic value from its
disclosure or use, and
• is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy
Intellectual Property
91
Trade Secrets

92. • Common law protection of confidential information
• Confidential/proprietary information
• that has commercial value to the owner because the
information is not generally available to public, and
• owner takes reasonable measures to keep information
secret
• No formal filing needed
• Trade secrets may include inventions not yet patented or
portions of a work that are not fully protected by copyright
Intellectual Property
92
Trade Secrets

93. Patents Trade Secrets
Protects against independent discovery
No protection against independent discovery
or reverse engineering
20 years of protection Protection lasts as long as secret
Scope for publication of development No opportunity for publication
Enforcement: infringement
Enforcement: breach of confidence, breach of
contract, breach of fiduciary duty
Protection can be broadened beyond
specific discovery/development
Protection specific to particular secret
Intellectual Property
93
Patents v. Trade Secrets

94. • Types of intellectual property
• Idiosyncrasies of protecting biologics
• Aligning IP and R&D with business strategy
94
Session 2 Overview
Intellectual Property

95. • The biotech/pharmaceutical art is crowded
• Scientists may be aware of non-patent literature
• A new generation of scientists is turning to the internet as a
vehicle to post raw experimental results. Such promiscuity with
research data undermines the very integrity of the scientific
endeavour
• ‘Publish or perish’ vs. ‘publish and perish’
• Patent literature may be in advance of scientific publications
Intellectual Property
Idiosyncrasies of protecting biologics- Patents
95

96. • Examination is a different standard to peer review
• Without the rewards provided by the patent system, researchers and
inventors would have little incentive to continue producing better and
more efficient products for consumers
• Association of Molecular Pathology v Myriad Genetics (2013)
• Naturally-occurring DNA is not patent eligible
• cDNA is patent eligible because it is not naturally-occurring
• In Australia, business as usual?
• APO continues to allow patent applicants to claim genetic
material
• Genetic material must have been isolated
Intellectual Property
Idiosyncrasies of protecting biologics - Patents
96

97. • Gene Patent Eligibility Before Myriad (USPTO Utility Examination
Guidelines) – 2001
• An inventor’s discovery of a gene can be the basis for a patent on
the genetic composition isolated from its natural state and
processed through purifying steps that separate the gene from
other molecules naturally associated with it
• Patent Eligibility of DNA Fragments – Post Myriad decision (2013)
• Fragments of genomic DNA are ineligible
• Fragments of cDNA also found in genomic sequence are
ineligible
• Fragments of cDNA not found in genomic sequence are eligible
Intellectual Property
Idiosyncrasies of protecting biologics - Myriad decision
97

98. Data protection as a biologic from date of regulatory approval
• 5 years Australia
• 6 years China
• 10 years EU
• 12 years USA
Intellectual Property
Idiosyncrasies of protecting biologics - Data protection
98

99. Intellectual Property
Idiosyncrasies of protecting biologics - Hatch-Waxman
Act extension (U.S.)
• Provides a patent term extension for patents covering
human drug products that are subject to FDA approval
effectively a credit for the time the FDA spent reviewing
the first drug application
• extension is for a maximum of five years or 14 years of effective
patent life, whichever is less
• must be for a patent that claims either a:
– drug product, which means the active ingredient and any
– approved drug using that active ingredient
– method of using a drug product
– method of manufacturing a drug product
99

100. Intellectual Property
Idiosyncrasies of protecting biologics – Second
Medical Use Patents
• Second medical use patents are those directed to the
protection of the use of a known drug (already shown to
be used in the treatment of a first medical condition) for
use in a second medical condition it is not previously
known to be effective
• Commonly used by generics companies to avoid
infringement of the method of treatment of the second
medical use patent
100

101. Intellectual Property
Idiosyncrasies of protecting biologics – Second
Medical Use Patents
• ‘Skinny-labelling’ is the practice of deliberately carving out
the infringing treatment from the drug product information
document and indicating that the drug is being supplied
for the off patent treatment
• Generics companies will also supply marketing material to
medical practitioners and pharmacists reinforcing that the
drug is only indicated for an off patent treatment
101

102. Intellectual Property
Idiosyncrasies of protecting biologics – Second
Medical Use Patents
• Patentees of the original patents that have a second
medical use have been fighting back under section 117 of
the Patents Act 1990 (Cth)
• Apotex Pty Ltd v Sanofi-Aventis Australia Pty Ltd & Ors
[2013] HCA 50
• Warner-Lambert Company LLC v Apotex Pty Ltd [2014]
FCAFC 59
102

103. Intellectual Property
Idiosyncrasies of protecting biologics – Second
Medical Use Patents
Section 117- Infringement by supply of products
(1) If the use of a product by a person would infringe a
patent, the supply of that product by one person to
another is an infringement of the patent by the
supplier unless the supplier is the patentee or
licensee of the patent
(2) A reference in subsection (1) to the use of a product
by a person is a reference to:
103

104. Intellectual Property
Idiosyncrasies of protecting biologics – Second
Medical Use Patents
(a) if the product is capable of only one reasonable use, having
regard to its nature or design--that use; or
(b) if the product is not a staple commercial product--any use of the
product, if the supplier had reason to believe that the person
would put it to that use; or
(c) in any case--the use of the product in accordance with any
instructions for the use of the product, or any inducement to use
the product, given to the person by the supplier or contained in
an advertisement published by or with the authority of the
supplier
104

105. Intellectual Property
Idiosyncrasies of protecting biologics – Second
Medical Use Patents
Apotex Pty Ltd v Sanofi-Aventis Australia Pty Ltd & Ors [2013] HCA 50
• In a recent High Court case, generics supplier, Apotex
had proposed to supply Leflunomide for the treatment of
psoriatic arthritis and rheumatoid athritis, but had carved
out of their PID the treatment of psoriasis not associated
with symptoms of arthritis
• The second medical use patent in question was a Sanofi
patent for the method of treating and preventing psoriasis
105

106. Intellectual Property
Idiosyncrasies of protecting biologics – Second
Medical Use Patents
Apotex Pty Ltd v Sanofi-Aventis Australia Pty Ltd & Ors [2013] HCA 50
• The High Court decided that it had not been shown that
the generics supplier possessed the requisite reason to
believe that the drug would be put to the medical use
claimed in Sanofi’s secondary patent
• There was no finding of contributory infringement
106

107. Intellectual Property
Idiosyncrasies of protecting biologics – Second
Medical Use Patents
Warner-Lambert Company LLC v Apotex Pty Ltd [2014] FCAFC 59
• Pfizer was the patentee of a patent for the treatment of
pain including, but not limited to, neuropathic pain using
pregabalin
• Pfizer also owned patent relating to treatment of seizures
using pregabalin
• Apotex had registered a generic version of pregabalin for
neuropathic pain and seizures
107

108. Intellectual Property
Idiosyncrasies of protecting biologics – Second
Medical Use Patents
Warner-Lambert Company LLC v Apotex Pty Ltd [2014] FCAFC 59
• CA between the parties limited Apotex’s registration of
pregabalin to seizures
• Pfizer applied for injunctive relief to restrain Apotex’s
supply of the generic, alleging infringement of the pain
patent. The underlying argument was the Apotex’s generic
would be prescribed or provided by pharmacists to
patients for the treatment of neuropathic pain, thereby
infringing the pain patent
108

109. Intellectual Property
Idiosyncrasies of protecting biologics – Second
Medical Use Patents
Warner-Lambert Company LLC v Apotex Pty Ltd [2014] FCAFC 59
• Pfizer was able to show that the prescribing patterns of
medical practitioners are such that they often do not note
the indication for which the drug is prescribed but rather
just identify the drug itself
• Pharmacists have no knowledge of the actual indication
and therefore offering any lower cost generic drug to the
patient, even if the generic drug is not registered for
treatment of the patient’s condition (the second medical
use patent)
109

110. Intellectual Property
Idiosyncrasies of protecting biologics – Second
Medical Use Patents
What does this mean for generics companies?
The Leflunomide case is a warning to generics companies
that the practice of skinny-labelling and even the issue of
marketing material to medical practitioners and pharmacists
reinforcing that a drug us only indicated for an off patent
treatment may not be sufficient to guard against a warning
under s117
The ongoing value of second medical patents to an
originator company in protecting their innovations is
confirmed
110

111. • Trade Marks relate to distinctive words or symbols
applied to products or services by manufacturers
• Help to distinguish the goods of different companies
• Laboratory equipment known by their trade marks
• Branded vs. generic
• Trade mark laws vary in every country but applications
can be made to ensure that trade marks are protected in
multiple countries
Intellectual Property
Idiosyncrasies of protecting biologics- Trade Marks
111

112. • Plant-made pharmaceuticals – growing medicines in
plants
• Modifying algae to produce biofuels, or grow on salt
lakes- reduction of environmental footprint and minimises
pollution (climate change)
• Increased farming efficiency
• Reduce natural toxins in plants
Intellectual Property
Idiosyncrasies of protecting biologics- Plant
Breeder’s Rights
112

113. • Essentially 2 types of trade secret categories:
• Inventions or manufacturing processes that do not meet
the patentability criteria and therefore can only be
protected as trade secrets.
• customers lists or manufacturing processes that are
not sufficiently inventive to be granted a patent
• Inventions and manufacturing processes that would fulfil
the patentability criteria and could therefore be protected
by patents
• SME will face a choice to patent the invention or to
protect it under NDAs or CAs
Intellectual Property
Idiosyncrasies of protecting biologics- Trade Secrets
113

114. • Types of intellectual property
• Idiosyncrasies of protecting biologics
• Aligning IP and R&D with business strategy
114
Session 2 Overview
Intellectual Property

115. • Most inventions involve small incremental improvements to
existing technology
• A successful R&D operation will be directed towards
commercial outcomes
• Commercial considerations and IP are the complementary
driving forces behind any R&D strategy
Intellectual Property
Aligning IP and R&D with business strategy
115

116. Intellectual Property
116
Product
Methods,
Processes, or
Techniques
Flow Chart,
Source
Codes
Name / Graphics
/ Logos
Algorithms
Business
Plan
Marketing /
Product
Launch Time
Table
Designs,
Drawings,
etc.
Trade Secret
Trade Secret
Patent
Copyright
Patent
Trade
Secret
Trade
Secret
Trade Secret
Trademark
Copyright
Copyright
Copyright
Trade Secret
Copyright
Copyright
Patent
Source: Boeing 2011
Aligning IP and R&D with business strategy

117. • If the principal aim is to maximise profit margins, then the
strategy must involve the protection of the products, processes
or services which are identified as being most relevant to
those margins
• If the goal is to penetrate new markets, then the policy may
involve generating new IP, and managing how that product is
marketed, produced and protected
• Or the intention may be to realise cash rewards for a
significant R&D investment, which can be achieved by
licensing
Intellectual Property
Aligning IP and R&D with business strategy
117

118. • Get organised
• Get funded
• Get the IP rights
• Get it made
• Get it sold
• Get protection
• Get tough
• Exit strategies
118
Session 2 Overview
The business lifecycle of a biotech company – step 4

119. The business lifecycle of a biotech
119
Get it made
• Proof of concept, feasibility and prototyping
• Regulatory and contractual parameters
• Inventory management, order fulfilment, logistics
• Manufacture
• Aptuit case study (full Aptuit deck)

120. • Get organised
• Get funded
• Get the IP rights
• Get it made
• Get it sold
• Get protection
• Get tough
• Exit strategies
120
Session 2 Overview
The business lifecycle of a biotech company – step 5

121. Get it sold
121
The business lifecycle of a biotech company – step 5
• Sales strategy (licensing, distribution, JVs)
• Marketing
• price, product, location, promotion, people, process
• Distribution
• appropriate distribution systems
• Reliant on term sheets and deal structures

122. Typically a biotech TS will deal with the following:
• Pre-commercial payments
• Commercial payments
• Manufacturing IP rights
Term sheets
122

123. Let’s take a deeper dive
Term sheets
123

124. Upfront payment
• Yes or no? how much, how characterised? eg: tech access fee
Equity investment
• Yes or no? how much? when? how priced? how characterised?
R&D costs
• eg partner to pay all R&D costs up to $90M
Pre-commercial payments
124

125. Milestone payments
• eg: payable per indication comprising
1. Development milestones
2. Regulatory milestones
3. Sales milestones
Option exercise fees
Pre-commercial payments
125

126. Termination rights
• Mutual: uncured material breach, failure to use commercially
reasonable efforts, bankruptcy
• Unilateral: failure to reach milestone, technology failure, fraud, etc
Reversion of rights on termination
• Where do the rights go? Decide and provide
Pre-commercial payments
126

127. Change of control
• Variation of rights of not?, eg if competitor takes over
Pre-commercial payments
127

128. Licence grant
• What do the rights cover? Are they exclusive or not? Do they cover
new indications/labels/uses/tags/etc?
• eg: Australia only. Licensor to retain ex Australia rights. Other
indications/tags to be subject to separate agreements, otherwise
restriction applies.
Commercial payments
128

129. Sales and commercial costs
• Who is responsible for these? Licensor or partner or split?
Sublicence rights
• On what basis can licensee sublicence? Eg:, sublicensee may sub-
licence without consent of licensor
Royalty or profit split
• Eg: 50% royalty on approved and any follow on products
Commercial payments
129

130. Royalty offsets
• Yes or no? Chargebacks, sunk costs, etc or no provision?
Term of agreement
• eg: Royalties commence on first commercial sale and continue until
the later of expiration of (i) patent in such country or (ii) data
exclusivity period conferred by the regulatory authority in such
country or (iii) 5 years after first sale (11 years for vet applications)
Accounting
• Net sales are typically gross amounts invoiced less standard
definition of customary deductions
Commercial payments
130

131. Who
• One party can have sole and exclusive right and responsibility for all
manufacturing, clinical and commercial or can share
• Who will be responsible for all costs? (eg: one or other party can be)
Governance
• One or other of the parties or a joint steering committee (JSC)
Alliance managers
• Eg: dispute escalation to Chairmen then Arbitration
Manufacturing rights
131

132. Diligence
• Neither party shall cooperate with any third party to develop or use
the technology for applications outside of field or off label use
• Both parties to use commercially reasonable efforts to conduct those
activities assigned under the plan
• Partner to pursue an overall goal of realising the commercial
opportunity for the licensed technology
Options
• Eg: partner to get an exclusive option exercisable at or prior to
completion of a Phase III trial to further develop and commercialise
the technology for up to 3 further indications
Manufacturing rights
132

133. Partnering structures can include:
• Research collaborations
• In-licensing
• Out-licensing
• Options
• CMO and CRO agreements
• JV’s/Partnerships
• M&A
• Spin-out
• Co-promotion
• Other permutations and combinations of these
Deal structures
133

134. Deal structure dependent on and limited by:
• Partnering objectives
• Market
• Therapeutic market
• Disease indication
• Competitive products
• Product differentiation
• Partnering market
• Potential partners
• Competitive products
• Product differentiation
• Creativity
Deal structures
134

135. • Choose friends wisely (careful what you wish for)
• Articulate what it will look like on the other side of the
deal
• Prepare the TS
• Collaboratively arrive at a position in everyone’s interest
• Due diligence
• Close the deal (definitive agreements)
• Relationship maintenance
Getting the deal done
135

136. • Get organised
• Get funded
• Get the IP rights
• Get it made
• Get it sold
• Get protection
• Get tough
• Exit strategies
136
Session 2 Overview
The business lifecycle of a biotech company – step 6

137. Get protection
137
• Risk management strategies
• Governance policies
• Insurances
• Due diligence
The business lifecycle of a biotech company – step 6

138. Biotechs have need of
• D&O coverage
• Side C – shareholder actions
• Business interruption
• Public liability (slip and trips)
• Travel policies
Get protection
138
Insurances

139. Case study
Get protection
139
Due diligence

140. • Get organised
• Get funded
• Get the IP rights
• Get it made
• Get it sold
• Get protection
• Get tough
• Exit strategies
140
Session 2 Overview
The business lifecycle of a biotech company – step 7

141. Get tough
141
• Disputes
• Mediation
• Experts
• Arbitration
• Litigation
• Injunctive relief
The business lifecycle of a biotech company – step 7

142. • Get organised
• Get funded
• Get the IP rights
• Get it made
• Get it sold
• Get protection
• Get tough
• Exit strategies
142
Session 2 Overview
The business lifecycle of a biotech company – step 8

143. The business lifecycle of a biotech
143
Exits
• IPO
• Reverse listings
• Trade sale
• Valuation
• Structuring the deal
• Succession planning
• Winding up