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With an ever-growing pipeline of clinical candidates and a number of new drugs being approved annually, the vast potential of biotechnology has finally begun to be realized. The road to regulatory approval and commercialization of a new drug, however, is a long � often decade-long � and unpredictable one. Prior to the first sale at the end of this long road, the most valuable asset a company, especially a smaller one, has can be its patent portfolio. Successfully developing a patent portfolio that can generate revenue can supply the fuel a company needs to keep driving to the end of the road to drug approval. As such, a well-reasoned approach to development and management of one’s patent portfolio is essential. Not surprisingly, no foolproof formula exists for crafting a patent portfolio that can carry a small company with good technology, talented scientists and a promising lead drug candidate through its first 10 years or so. What follows, however, are some hints a small biotech company might find helpful in developing and using a patent portfolio to realize the evolving goals of the company as it matures. First, the adage that bigger isn’t always better certainly applies when it comes to building a successful, revenue-generating patent portfolio. Merely filing on every advance that is potentially patentable can, indeed, yield a large portfolio that with some luck might cover subject matter important to the company’s business plan. Luck, however, should not be a prerequisite for obtaining meaningful patent coverage. Rather, from the outset, a patent filing strategy should focus on one or more specific objectives that should evolve in parallel with strategies for generating revenue � either directly or indirectly � from the portfolio being developed. Clearly a prime objective should be to build a portion of the patent portfolio that covers the inventions the company expects to develop or partner into commercially valuable products. The importance of seeking and obtaining coverage for the company’s lead subject matter cannot be overstated. Potential investors, licensors and partners will very closely analyze the company’s intellectual property holdings pertaining to the company’s leads. Any shortcomings in this regard may very well doom the company. Coming up with what products and methods a company will focus on generally requires the business and scientific gurus of the company to formulate and apply a complex equation that takes into account such variables as market needs, promising scientific results and useful gaps in others’ patent coverage. Once identified, constructing a patent portfolio covering the company’s putative commercial leads can begin. Two sources for initial portfolio The initial portfolio is generally derived from two sources. First, it is not uncommon for at least a portion of a startup company’s portfolio to comprise existing intellectual property the company in-licenses from a third party, e.g., a university or other research institution, that is identified as covering or related to the subject matter chosen for commercial development. Second, the company will generally file new patent applications covering its own discoveries, including applications directed toward commercially relevant compositions of matter and methods, including methods of treatment, diagnosis, synthesis, screening, etc. With respect to the licensing of the existing third-party intellectual property, obtaining rights under this intellectual property in the commercially relevant fields removes any freedom-to-operate or commercialization impediments the third party’s rights might have posed. To maximize the company’s ability to exclude potential competitors and to obviate any concerns potential investors or partners might have in this regard, however, it is generally advisable that the company secure an exclusive license to such third- party patent rights. Of course, after the initial gathering of third-party rights and filing of company-owned patent applications, the job of portfolio development is not complete. Rather, the portfolio should evolve and grow in concert with the company’s development of its leads, to continue to advance the company’s coverage of its commercially valuable inventions. As the portfolio relevant to the developing commercial product grows, the complexity of strategic decisions involving, for example, the content and timing of new filings and the relationship between subject matter disclosed in the company’s earlier, versus subsequently filed, applications, also grows. While a meaningful dissection of the issues to keep in mind is beyond what can be addressed here, a key is to view this portion of the patent portfolio as a whole and to keep the ultimate goals in mind: maximizing the breadth and term coverage for what will ultimately be commercialized, and, to the extent possible, minimizing any possible third-party impediments to commercialization, e.g., via in-licensing of necessary third-party intellectual property rights. Although the first commercial sale may be many years off, a well-designed patent portfolio can be put to work early generating revenue for the company � either directly or indirectly. For example, one of the first things a new company generally needs to do is to secure funding through a successful round of financing. The best business plan and the most convincing science cannot overcome a lack of sufficient intellectual property coverage and/or significant freedom-to-operate impediments. No investor will sink millions of dollars into a company without the assurance that the company has amassed the intellectual property rights necessary to develop and commercialize its lead discoveries. Thus, in addition to reviewing business plans and proof of principal data, potential investors will conduct a diligence of the company’s intellectual property position relevant to its lead products and indications, and will seek to identify any potential freedom-to-operate issues that might pose a problem for ultimate commercialization of the company’s leads. If the company has followed the approach to construction of its initial patent portfolio whereby it has amassed relevant third-party rights and has begun to put into place its own coverage as discussed above, the portfolio can indirectly generate revenue by providing a key element necessary to a successful financing. Partners and licensees As the company matures and its lead products begin to exhibit success in pre-clinical and clinical trials, the company may also seek to attract partners or licensees, who can bring license fees, potential milestone and royalty payments, and other revenues, including possible equity investment, to the company. The same principles apply when attracting partners and licensees (as well as potential acquirers), as they too will conduct diligence on the company’s intellectual property portfolio prior to completing any transaction. In fact, potential partners and licensees may be even more thorough in their examination, as they likely will be acquiring rights to the company’s intellectual property at significant expense. As such, this is another way that a thorough, focused patent portfolio can be key to bringing revenue to the company. How well-defined and validated the company’s product candidate or technology is at the time of partnering or licensing will naturally have a major bearing on the value the company will be able to extract from the transaction. The quality and scope of the underlying intellectual property rights, however, will likely be the most heavily weighted factor in determining whether a potential partner or licensee is interested in pursuing a transaction with the company at all, and, if so, the price range the party is willing to consider paying the company for such rights. In addition to covering its own commercial leads, a company’s patent portfolio can include other elements designed to bring revenue to the company. For example, specific objectives for a patent portfolio development can include creating intellectual property that can prevent likely competitors from practicing in the relevant commercial space. This can be accomplished, for example, by attempting to identify and cover likely design-around opportunities that a potential competitor might use to get around the patent coverage the company develops for its lead products or technology. For example, the company can identify and file on variations of its lead compounds that a competitor might attempt to develop. If the company develops intellectual property covering products or technology under development by a competitor, the company can utilize the exclusive right a patent provides in different ways, including offering a license or asserting its patents against the competitor. The course of action the company decides to take will be based on a variety of factors, including maximizing short- and/or long-term revenues, how directly competitive the third party’s product is, how close the company’s own product is to commercialization, and how the action taken will affect the company’s ability to develop strategic relationships, whether with the company’s competitors or others. Ancillary inventions Yet another important facet in patent-portfolio development can flow from the company’s identification and coverage of inventions outside of, or ancillary to, the company’s targeted commercial space that nonetheless may be attractive to specific third parties or to a broader sector of the field. For example, the company might develop a technology that, while not directly relevant to its own commercial leads, may have broad appeal and applications. In addition, while the company might not be able to develop each and every potentially efficacious compound or method it identifies, the potential value of obtaining patent coverage for such subject matter should be evaluated. Even if further development will not fit into the company’s research and development budget, an early priority date on a groundbreaking discovery can be a powerful force, that is, a revenue generator, in the field. In particular, such inventions should be assessed to determine whether obtaining patent coverage for them might present potentially lucrative outlicensing opportunities. For example, an audit of potential invention disclosures placed against a landscape analysis of companies in potentially relevant fields may reveal that intellectual property stemming from one or more of these discoveries is relevant to a particular other company’s technology or products, thereby suggesting a possible exclusive outlicensing opportunity. Discoveries giving rise to intellectual property with broad applications can also provide the company with a number of options for generating a recurring revenue stream. For example, a licensing or partnering arrangement involving a platform technology, such as a drug screening technology, can be set up between the company and a single licensee, e.g., a large pharmaceutical company. Alternatively, the company may decide to set up a nonexclusive outlicensing program that makes rights with broad applications readily available to multiple entities. Through either of these options, the company can generate license fees, royalties and other revenue from its licensee(s). Alternatively, the company may decide to keep such technology in-house and develop a revenue-generating service business around it. If the technology relates to product development, e.g., drug discovery, and the company continues to be engaged in its own product development efforts, a licensing program is likely a better choice in that competitors are unlikely to hire the company to perform services through which elements of their own development activities will be disclosed. Finally, a company should monitor its inventions to identify subject matter that might form the basis for purely defensive patent filings aimed at preserving the company’s freedom-to-operate options. That is, the company may identify certain subject matter that should be filed on so that a third party would be precluded from subsequently filing on and obtaining coverage for the subject matter. For example, a company may develop an underlying technology it believes may ultimately be useful in manufacturing or formulating its commercial product. Even if the company concludes that it would likely never assert claims to the technology against a third party or likely offer license rights to the technology, it might make business sense to file solely to preclude others from subsequently filing. So, as briefly touched upon herein, although a small biotechnology company may face a long, unpredictable road to regulatory approval, the company can help maximize its chances of successfully making it to the end of this road by creating a multifaceted patent portfolio built with direct and indirect revenue-generating opportunities in mind. Nikolaos C. George is a partner in the New York office of Jones Day. His practice focuses on the biotechnology and pharmaceutical fields, with an emphasis on development of product-driven biologics and molecular diagnostic patent portfolios. Spencer Simon, an associate in the firm’s Palo Alto, Calif., office, provided assistance with this article.

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