Andrew Strong, partner in the Hogan Lovells mergers and acquisitions practice area, and a self-described start-up lawyer, framed the panel by noting that successfully launching a biotech company is all about having the right velocity and trajectory for the company starting on the day it is formed. Biotech companies consume a lot of money early on, and a key challenge from day one is ”valuing” the company for the purposes of raising capital through the sale of equity. Strong recommended that companies think along a three-year horizon: what are the key inflexion events over this period of time, such as filing an Investigational New Drug (IND) Application, which will be needed to develop and advance the technology? Even if framed as a best case scenario, this thinking will help to anticipate when capital will be needed, as well as where valuation and funding inflexion points will likely occur. These early drug development decisions can make or break a company’s timeline and cash burn.
Strong noted that the first thing of value put into a new company is most often its intellectual property (IP). This may require in-licensing from academic institutions or other parties, as well as securing naming and trademark rights, or access to appropriate website URLs. Once the IP is secured, technology advancements will further create value for the company. Having a management team who knows how to raise capital and a savvy and experienced Board are also crucial in a competitive market. Strong also highlighted the importance of a good public relations team in order to look professional to investors. Founders should also be prepared to answer why their technology is unique and different compared to the competition. Strong also provided tips on company valuation at various financing stages.
Building company value is an iterative process, continued Barry Burgdorf, also a partner in Hogan Lovells’ mergers and acquisitions practice. Analogizing to assembling a jigsaw puzzle, Burgdorf emphasized that building an IP portfolio will help to provide freedom to operate and IP protection for the company’s technology, but will also complement the value building that comes through equity, debt and non-dilutive funding of the company. A forward-looking licensing strategy will help in moving the company along the right trajectory that Strong emphasized.
Burgdorf noted that, often, business-critical IP will need to be obtained through licensing from research institutions. What will it take monetarily to acquire this IP and what further transfer rights might be necessary to execute on this strategic plan? Burgdorf noted the importance of relationship building and aligning interests with relevant technology transfer offices (TTOs), their university administrative teams, and the principal investigators, “so that when your technology makes it to the marketplace, to the bedside, that the tech transfer office also wins”.
Turning to key considerations in negotiating an exclusive license, Burgdorf outlined parameters involved in IP diligence considerations. While the patent portfolio may be the foundation, Burgdorf also outlined the importance of the complete IP portfolio, such as know-how that may be relevant to manufacturing, copyrights that may be relevant to executing algorithms, and trade secrets. Balancing the economics of up-front fees with future milestones is also important, Burgdorf noted, so that early sunk costs are weighed against revenue, which may be several years away. Companies should consider the importance of sublicensing rights and control of prosecution strategy. Finally, sponsored research programs can also be a great way to create goodwill with university researchers.
In addition to the patent life cycle analyses of existing IP, Burgdorf also highlighted the importance of partnering with the regulatory perspective of program moderator Mike Druckman, partner in the Hogan Lovells pharmaceuticals and biotechnology regulatory practice group, in obtaining regulatory exclusivity to extend or sit parallel to the patent term of the company’s product portfolio.
Burgdorf rounded out the panel by highlighting key considerations in negotiating an exclusive license, such as the definition of the licensed product. Burgdorf also noted the importance of avoiding royalty stackings that will undermine the value of the product, and in the context of combination products, avoiding obligations outside of the segment that the company’s product contributes.
This article is the ninth in our 2022 series, “Trends in Cell, Tissue, and Gene Therapies,” which aims to help you stay informed about the broad array of legal and regulatory issues affecting companies operating in the regenerative medicine space. From clinical studies, to obtaining patents, to scaling up manufacturing, our global team will discuss novel issues arising in all parts of the world, including unique deal-making, litigation, and inspections concerns for CTGT companies. Ensure you are subscribed to Hogan Lovells Engage to receive these new insights weekly!
Authored by Kristi McNamara