The Life Sciences Sector

• Author: Sarah Stec and Lacy Kolo
• Pages: 497-531

497

I. Introduction

The life sciences sector, which includes companies with biotechno-

logy, pharmaceutical, and medical device products and services,

is heavily dependent upon registered and unregistered intellec-

tual property. As a result, it is not uncommon for due diligence of

life science companies to involve many technical experts and one

or more intellectual property attorneys to deeply study the tech-

nical aspects of the products and the intellectual property lings

(or lack thereof) that cover the product. Universally, intellectual

property due diligence must answer the same questions:

• What is the intellectual property?

• Is the intellectual property valid and enforceable?

• Who owns the intellectual property, or who has a right to

use the intellectual property?

• Does the intellectual property cover the products or

services?

• Do the products and services have freedom to operate?

Chapter

The Life Sciences Sector

By Sarah Stec* and Lacy Kolo

12

*I would like to express my very great appreciation to Dr. Lacy Kolo for her

advice, guidance, and continued support.

498 CHAPTER 12

• Are there any other persons who may infringe the intel-

lectual property?

• Is there any misuse or misappropriation of the company

intellectual property?

Although many of these issues are covered in the chapters on

patents, copyrights, trademarks, and trade secrets, this chapter

touches on issues specic to life science companies.

It also should be recognized that there are multiple areas of

due diligence unique to life science companies that do not include

intellectual property. Biotechnology, pharmaceutical, and medical

device products are heavily regulated by state and federal agen-

cies in order to protect the public that uses or is treated with

these products. As a result, subject matter experts in the areas of

regulatory issues, manufacturing and packaging, quality control,

quality assurance, and supply chain logistics may reach out to

intellectual property due diligence counsel to discuss aspects of

the products. Because of these considerations, this chapter not

only covers the intellectual property (IP) issues raised in conduct-

ing due diligence in this sector but also discusses unique areas

in which IP counsel may become involved to understand the full

protection and scope of the products involved.

II. Ownership of Life Science

IntellectualProperty

The life science sector tends to have a larger patent portfolio

than other sectors due to the higher cost of development. A 2016

analysis by the Tufts Center for the Study of Drug Development

places the average cost to develop and gain marketing approval

for a new drug at $2.558 billion.1 The $2.558 billion gure per

1. Tufts Center for the Study of Drug Development, 47

J. health econ

. 20-33

(May 2016). The analysis was based, in part, on information provided by ten pharma-

ceutical companies on 106 randomly selected drugs that were rst tested in human

subjects anywhere in the world from 1995 to 2007.

Ownership of L ife Science IntellectualPr operty 499

approved compound is based on estimated average out-of-pocket

costs of $1.395 billion and time costs (expected returns that inves-

tors forgo while a drug is in development) of $1.163 billion. Given

the lengthy amount of time consumed in drug development—

often taking longer than a decade—the drug developer and

associated companies want a guaranteed monopoly on the mar-

kethplace in order to sell the product and make back their money

(and more, it is hoped). In addition, companies publicly le quite a

large amount of information with regard to the drug product with

theFDA, enabling competitors to copy the drug product if protec-

tive measures are not put in place. As a consequence, intellectual

property protection often centers on patent protection.

Like the biopharma industry, the medical device industry

denes success based on the efcacy and safety of a product. As

a result of the regulatory environment, in seeking marketing

clearance or approval, the success or failure of a device depends

heavily on how well it can demonstrate efcacy, and even more

important, safety data. Medical devices are less expensive to

produce, but they do have a high cost associated with develop-

ment and attainment of market approval. A survey of more than

200 medical device companies estimated a total cost of about

$31 million to bring a low- to moderate-risk device from concept to

market, whereas high-risk products averaged $94 million.2 Time

estimates to develop the medical device are shorter than that

required to bring a new drug to market but typically range from

three to seven years from concept to marketing approval. Patent

protection is key to these companies, as it gives the producer a

limited monopoly on the market to try, at the very least, to recover

its costs.

Companies in this sector tend to be sophisticated about pat-

ents and are sensitive about minimizing risks such as patent own-

ership disputes. That being said, it is important to conrm that

all rights, title, and interest to the patents or patent applications

2. David Steinberg, Geoffrey Horwitz, & Daphne Zohar, Building a Business

Model in Digital Medicine, 33

nature Biotechnology

910–20 (2015).