Five key IP considerations for early-stage and spin-out biotech companies

In this third, and final, article of our three-part series - Thinking early: key legal points for early-stage biotech companies - we are focusing on intellectual property (IP). For early-stage and spin-out biotech companies especially, establishing a strong IP foundation is crucial for maintaining a competitive edge. IP not only serves as the backbone of innovation, offering the means to acquire market exclusivity, but also acts as a core asset when attracting investors and securing strategic partnerships. Without a robust IP framework, companies run the risk of losing control over their core innovations, potentially leaving them vulnerable to competitors and legal challenges. This article outlines five key IP considerations that early-stage biotech companies should prioritise to protect their innovations.

1. Secure IP Assignments 

Early-stage biotech companies often rely heavily on third party service providers (such as CDMOs and CROs) and consultants to carry out drug discovery and development work. One of the most critical steps for any early-stage biotech company to protect innovation relating to its development pipeline is to ensure that all IP developed by service providers and consultants is properly assigned to the company. It is essential to have clear and robust agreements in place from the outset of any engagement that detail the ownership of any IP. 

These agreements should provide that any IP developed during the services is assigned to the company. The detailed assignment provisions should be scrutinised to ensure that the assignment is effective and sufficiently broad. Deficiencies in IP provisions can result in ambiguity or third parties owning IP relating to the company’s assets. This can be costly to rectify or may result in the potential loss of critical IP assets. Given the pressure from investors and other stakeholders to make quick progress in development, companies may be tempted to authorise a service provider start work early before the relevant service agreement has been negotiated. This risks service providers retaining ownership of new IP so if an early start cannot be avoided, the company should seek to agree an IP assignment, or limit the activities carried out until an agreement has been executed. 

As mentioned in our article on employment considerations, it is also important to be clear about the employment status of individuals (i.e. whether employed or acting as a consultant). While IP developed by employees in the course of their employment should be owned by the company, the same is not true of consultants so IP assignments become crucial. With that said, IP should also be addressed in employment contracts (in addition to confidentiality and restrictive covenants) to protect the company’s IP assets.  

2. Use Non-Disclosure Agreements (NDAs)

Confidentiality is key in the biotech industry, where sensitive information and trade secrets may need to be shared with potential investors, partners, and collaborators. Early-stage companies who need to exchange commercially valuable proprietary information, such as experimental data, drug formulations, and preclinical findings should always ensure they have an NDA in place. NDAs should be signed before any discussions take place to ensure that information is safeguarded from the outset. The consequences of not using an NDA can be significant, including potential loss of patentability (and therefore exclusivity) as making a non-confidential disclosure of a patentable invention prior to filing for a patent can mean the invention is no longer patentable.  

When putting in place an NDA, a company should not only ensure that it prohibits disclosure of the company’s confidential information, but that it also prevents misuse of the information. Companies should ensure that the purpose for which the recipient may use the information is clearly and narrowly drafted narrowly to ensure the recipient may only use the confidential information as intended.

3. Comply with IP Licences

Biotech companies which have spun-out from a university or research institution are likely to have an IP licence agreement under which the institution has licensed foundational IP. Alternatively, a biotech may have in-license certain key technology owned by a third party. In both cases, it is crucial to be aware of and comply with the terms of these licence agreements, as non-compliance could result in termination of the licence and loss of access to the underlying IP. 

Key provisions to monitor and comply with include diligence obligations, confidentiality restrictions, financial terms (such as milestone payments and royalties), restrictions on sublicensing and subcontracting. A clear understanding of the obligations and restrictions under the licence is vital to ensure compliance. This is especially important as these terms may “reach through” to subsequent contracting relationships (e.g. by stipulating requirements for subcontracting or sub-licensing) and may require the company to pass through certain terms to contractors. 

4. Develop a Comprehensive IP Strategy

Having a clear IP strategy is important for the long-term success of a biotech company. An effective IP strategy should consider how best to protect a company’s valuable IP assets (whether through patents, trade secrets, or other means) and how to protect the company against the risk of infringing third party IP. In particular: 

• What and when to patent should be considered, as should the jurisdictions in which to seek protection, and how best to manage and enforce the IP portfolio. For startups operating on limited budgets, patents in key markets, such as the UK, EU, and USA, should be prioritised. Some innovations may also be better protected by keeping them confidential. 

• Freedom-to-operate analyses to map the IP landscape of the relevant field should also be considered. Infringing existing third-party IP rights could lead to costly litigation, and early identification of issues can enable companies to devise mitigation strategies (whether that be in-licensing IP, or modifying products in development to avoid infringement).  

  Additionally, IP strategy should align with business plan milestones: whether that is securing seed or follow on funding, entering partnerships, or launching products into the market. It is also important to factor in the impact of relevant tax regimes when formulating an IP strategy. For example, biotechs holding IP in the UK may be eligible to benefit from the Patent Box regime and/or R&D tax reliefs, which could potentially significantly enhance the financial return on innovation.

• Finally, regular IP audits can ensure that an IP portfolio and any associated systems remain robust and up-to-date. These audits can also help identify any gaps in IP protection, ensure that all IP assignments and agreements are in place, and assess the value of your IP assets. For example, a company might discover that patent fees are outstanding in a critical jurisdiction and establish a more reliable monitoring system for future payment.

5. Don’t Forget Trade Marks

While much of the focus from an IP perspective is understandably on securing patents and protecting valuable confidential know-how, early-stage and spin-out biotech companies should not lose sight of the importance of branding. Founders and investors may spend significant time prior to launch choosing a name and brand for the company, but without some careful planning, may later find that the chosen company name or brand (or something similar) is already in use by a third party. A clear brand strategy should therefore be developed from the outset alongside the patent strategy. In practice, this means selecting a name for the company that is distinctive and capable of protection, carrying out appropriate clearance searches to reduce the risk of infringing third-party rights and reduce the risk of costly rebrands, and securing key domain names early. Trade mark protection is the primary tool for protecting brand identifiers (such as names and logos) and trade marks can prevent competitors from adopting confusingly similar branding. As with a patent portfolio, brand protection needs active management, including consistent use of trade marks, implementing clear brand guidelines, and monitoring for third-party filings/misuse; this type of brand maintenance can help maintain distinctiveness and enable early, cost-effective enforcement.

Conclusion

By securing IP assignments, using NDAs, complying with IP licences, developing a comprehensive IP strategy and protecting their branding, biotech companies can safeguard their innovations, build investor confidence and position themselves for long-term success.