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Biotech Boot Camp
Session 2 – The business lifecycle of a biotech company
Presenter: Nick Weston
Melbourne, Brisbane, Sydney
28 May – 18 June, 2014
• 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
• 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
•Biotech is driven by science
•Biotech is all about the money
Paradox
4
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
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
• 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
The ‘Valley of Death’
8
The ‘Valley of Death’
9
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
• 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
Pyramid of biotech success
12
Finance
Access to market
Robust IP
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
• 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
• 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
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
• 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
• 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
•
Then apply to register the name as a trade mark
Forming the business
19
Naming the business
Sole trader
Partnership
Private company
Public company
Trust
Joint venture
Forming the business
20
Structures
Forming the business
21
Startup documents – 4 buckets
Incorporation
documents
Founder
documents
Employee
documents
Third party
agreements
• Certificate of Incorporation
• Constitution
• Minutes of meetings and resolutions
Forming the business
22
Incorporation documents
• 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
• 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
• NDAs
• Consulting agreements
• In-licences
Forming the business
25
Third party documents
Financial and project record keeping
must be systemic
Get organised
26
Record keeping
• 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
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)
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
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
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
• 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
• 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
• 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
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
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
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
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
• 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
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
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
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
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
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
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.
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
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)
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
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
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
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
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
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
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
• 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
• 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
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
• 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
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
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
• Types of intellectual property
• Idiosyncrasies of protecting biologics
• Aligning IP and R&D with business strategy
61
Session 2 Overview
Intellectual property
• 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
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?
• 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
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
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
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
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
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
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
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
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
Intellectual Property
73 http://ipparalegals.com/media/blogs/experts-quill/what-is-a-pct/
Typical PCT process
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
• 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
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
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
• 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
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
• 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
• 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
• 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
Intellectual Property
Designs
• Aesthetical in
nature
• Technical
features not
protected, still
need a patent to
protect the
technology
83
• 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
• 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
• 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
• 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
• 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
• Expression vs. idea
• Expression protected – not ideas
• Your independent creation as you expressed it
• Copyright protection is free and automatic
Intellectual Property
89
Copyright
• 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
• 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
• 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
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
• Types of intellectual property
• Idiosyncrasies of protecting biologics
• Aligning IP and R&D with business strategy
94
Session 2 Overview
Intellectual Property
• 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
• 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
• 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
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
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
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
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
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
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
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
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
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
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
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
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
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
• 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
• 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
• 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
• Types of intellectual property
• Idiosyncrasies of protecting biologics
• Aligning IP and R&D with business strategy
114
Session 2 Overview
Intellectual Property
• 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
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
• 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
• 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
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)
• 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
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
Typically a biotech TS will deal with the following:
• Pre-commercial payments
• Commercial payments
• Manufacturing IP rights
Term sheets
122
Let’s take a deeper dive
Term sheets
123
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
Milestone payments
• eg: payable per indication comprising
1. Development milestones
2. Regulatory milestones
3. Sales milestones
Option exercise fees
Pre-commercial payments
125
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
Change of control
• Variation of rights of not?, eg if competitor takes over
Pre-commercial payments
127
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
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
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
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
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
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
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
• 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
• 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
Get protection
137
• Risk management strategies
• Governance policies
• Insurances
• Due diligence
The business lifecycle of a biotech company – step 6
Biotechs have need of
• D&O coverage
• Side C – shareholder actions
• Business interruption
• Public liability (slip and trips)
• Travel policies
Get protection
138
Insurances
Case study
Get protection
139
Due diligence
• 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
Get tough
141
• Disputes
• Mediation
• Experts
• Arbitration
• Litigation
• Injunctive relief
The business lifecycle of a biotech company – step 7
• 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
The business lifecycle of a biotech
143
Exits
• IPO
• Reverse listings
• Trade sale
• Valuation
• Structuring the deal
• Succession planning
• Winding up

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Nw biotech fundamentals day 1 session 2 the business lifecycle of a biotech

  • 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
  • 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
  • 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