Intellectual Property: A Cornerstone in Life Sciences
Intellectual property is a valuable asset in every industry. It usually does more than secure the exclusivity of a concept: it protects fundamental business assets which are essential to a company’s core services and long-term viability. In the life sciences sector, it does all of this but serves other purposes while being subject to industry specific pressures. IP rights like patents are key drivers in the dynamics of the market: sometimes exclusivity is vital in some segments while in others, patent licensing is an effective way of adding value for both the licensor and the licensee. Different circumstances call for different approaches but, in every case, IP rights are of primary importance.
As a private sector business, a life sciences company is subject to market forces and the availability of funding like any other enterprise. Its products are designed to improve and save lives, which makes them very different from the creations of most other private sector firms. Some drugs and treatments prove to be immensely successful while others – for any number of reasons – never even reach the market, even though significant investment has gone into their development.
The cost of research and development in life sciences is uniquely high. For example, between 2007 and 2016 $1.36 trillion was invested in pharmaceutical R&D, which is more than the total value of the world’s biggest companies. What makes life sciences R&D different is that vast amounts of the investment never sees a return. This is not because the industry is inefficient, but simply because the nature of life sciences research is so uncertain. Every new project is one of pure innovation: there are rarely any successful models to copy or adapt.
If the revenue of a life sciences company comes from only a proportion of its development projects then it becomes a matter not just of sustainability but survival that they should leverage the full protections of their IP rights to maximise the income that they do generate. Successes subsidise the inevitable failures.
The market for life sciences products generally divides into three categories: biotech, medical devices and pharmaceuticals. We will look at the different roles IP rights play in each of these.
Much of the biotech market consists of kits and assays which are based on molecular biology. It also includes some of the simpler medical equipment such as point-of-care devices. Despite this apparent simplicity, a single tag or antibody of broad application can represent enormous value. The patent is worth a lot of money to its holder as a sole use item, but even when it is out-licensed, the royalties it generates will be considerable. The royalty model produces a much higher return than conventional product sales, but this depends on secure IP protection. Patent litigation is therefore not uncommon, although its purpose is rarely to seek a court judgment – it is more often a process of clarifying the legal positions of parties to a licensing agreement.
This is a broad category that comprises most forms of technological innovation and all the more sophisticated equipment that falls outside the remit of biotech. Examples include CT and ultrasound scanners, infusion pumps, defibrillators, pacemakers, cochlea implants, catheters and even certain types of wheelchair. In order to qualify for IP protection, the device needs to possess a key feature which is judged as ‘best in class’, whether this is the user interface, easily changed consumables or any one of a number of functionalities distinct enough to warrant a patent. Initially, the IP protection may guarantee a period of exclusivity to the developer, in order to recoup the development costs, but eventually, the technology will be shared on commercial terms. It may be that only certain features of a device are patented, but this is still valuable to the patent holder, because other manufacturers will pay to license that part within their own product.
Research and development in this area of the life sciences is generally the most expensive, partly because of the time it takes from concept through development, testing and certification before it gets to market. IP rights are vigorously defended in this field and even when the patent comes to the end of its life, it is possible to obtain a Supplementary Protection Certificate (SPC), which extends the protection of patented ingredients which form part of a pharmaceutical product. SPCs can be short-lived but any level of extension is of value. In any case, pharmaceutical companies will routinely supplement existing IP with patents for additional formulations and even trademarked designs. It should be remembered that IP rights are not valid in every jurisdiction, which is why cheaply produced imitations can circulate freely around the world, but pharmaceutical companies will usually institute litigation against any infringement where its IP rights are valid.
The life sciences industry relies upon extremely high levels of investment. This makes it particularly challenging for a startup or scaleup to attract funding from the usual sources of venture capital. A fledgling company may have plans to develop a range of products for which they have clearly identified a market but they are unable to rely on a track record of success. Early stage European biotech companies can often be disadvantaged by this lack of demonstrable revenue generation, but they are also in competition for the same funding with the giants of the US pharmaceutical industry.
There is no easy way to attract funding. Investors will require convincing evidence that what they are investing in will deliver lucrative intellectual property. But if a company can show a comprehensive understanding of the importance of IP rights, the ability to navigate the legal structures involved and a core aim of developing unique, protectable properties, a strong business case can be made.