Building Effective Intellectual Property Strategies into Pharma M&A
The impact of IP in pharma business development
Since the larger pharmaceutical companies eliminated large parts of their R&D capabilities over the past few decades, they have relied on third parties to refuel their revenue and growth. Small and medium-sized innovators, universities and research institutes, and other collaborators have all enabled big pharma to remain big. This ecosystem has also facilitated a pharma start-up community that had struggled before.
One other industry this evolution has spawned is counsel to pharma incumbents on how to find, acquire and integrate these third-party assets—of which we are a part, as are university tech transfer departments, accounting firms, consultants, and many others. Having read dozens of articles authored by these experts over the years, we have often found them either lacking any appreciation of the role intellectual property plays in the success of a pharma company, or they stop short of those important details that are required to be comprehensive counsel. This glossing or lack of rigor for an admittedly arcane subject perpetuates common misjudgments when acquiring and integrating third-party assets or collaborating with third-parties.
In the recent article from Boston Consulting Group entitled “Building Effective Business Development in Pharma”, January 2021, BCG very effectively describes six factors to enable better business development decision making for pharma companies. One adjunct to their article is a discussion of where and how IP, and specifically patents and trade secrets, plays a role when management considers the six suggested factors.
Considering BCG’s first factor, prioritizing the drivers of pharma business development, each portion of the BCG matrix has different IP implications for the company. When an executive team is prioritizing these decisions, the IP implications should be considered.
How will your existing IP assets dovetail with the target’s assets?
Synergy between an acquirer and a target works on many levels. IP synergy must be considered along with the typical HR, corporate culture, cost, revenue, and capability synergies. A company will typically own and possess a variety of intellectual property assets, including, patents, trademarks, trade secrets, and copyrights. Companies may also possess valuable licensed rights to technology. It is imperative that a pharma company, or those advising such a company, understand fully the many parts that comprise their own intellectual assets. Once that knowledge is well understood, it is possible to assess how well a target’s IP will synergize.
Obviously, overlap of compounds, optimization of compounds, and overlap of indications can make likely candidates. But, those are not the only way IP, patents, and trade secrets most importantly, can synergize with a target. We have seen successful M&A deals in part due to geographic characteristics of patent portfolios, complimentary age characteristics of patent portfolios, and specialized manufacturing capability or capacity.
How strong is the target’s IP?
Does the target IP portfolio protect the ability to continue practicing their technology and continue to generate revenue? A target might not have had the resources to do all that is necessary for an acquirer to gain the full spectrum of benefits from the IP. For example, have patents been filed in all jurisdictions globally? Can the patents operate both as a sword and as a shield? Has the company maintained its IP? Have patent maintenance fees been paid? Are trademarks being used for all classes of goods and services for which registrations have been acquired? Has there been an effective trade secret protocol in force?
Also to consider is whether there are additional ways that the acquirer can further monetize a target’s IP? Astute companies will leverage innovation to diversify and achieve sustainable growth. Is the target’s IP portfolio ripe with potential?
If there is a mismatch, perhaps an acquisition is not the correct strategy. A company does not need to develop and own all the IP it requires for its business. Companies must differentiate between IP that is fundamental to their business and which they must develop and own, and IP that they tap on a non-exclusive basis or for which they need-only a limited, exclusive license.
What further investment in the IP is required?
Does the combined IP portfolio of the target and acquirer need to be expanded? Are there other aspects of the technology that have not been protected, but should be? Is the target patent portfolio facing a patent cliff that might hinder its ability to extend future earnings or the ability to keep practicing the proprietary technology? If expansion is possible, further investment in extending a patent portfolio can be a great expense that should not be unforeseen. Understanding and planning around the IP portfolio, before executing an acquisition, can be critical to the success of the deal. Assets are never static and those that are acquired will need immediate attention and, very likely, further investment.
What is the competitive IP landscape?
Understanding a target’s competitors’ IP landscape is critical to a successful business development strategy. Will your strategy face minefields that might preclude the intended goals? Is there enough white space, in the proper relative orientation to your own, that will enable expansion and further defensive positions? This analysis requires looking beyond the specific target into the larger competitive space. One should not become myopic when focusing on a deal. As you learn about a target, you are able to better assess its competitors, and that analysis should not be shut off once you have decided on a target.
How are the IP assets integrated?
Integration, while complicated when it comes to IP, is bread and butter for experienced IP attorneys. For executives focused on a higher strategic elevation, however, it would be a mistake to not consider potentially irreparable risks to IP such as existing or threatened litigations that could eliminate entire programs. It is also important that resources are provided to the experts to allow them to do the job properly and thoroughly. Most executives would likely be surprised to learn how long it takes to transfer title in a global patent portfolio.
Part of any effective business development plan for a pharma incumbent will likely comprise both an M&A strategy and a licensing strategy. These strategies should have rigorous IP tactics associated with them. Whether from a consultant or a lawyer, ensure you are properly informed and advised so that your strategy is more comprehensive.
Nothing disclosed in this report is intended to be considered as legal advice and is exclusively for informational purposes only. Nothing in this report is intended to be attributed to any company with which the authors are affiliated and is purely the opinions of the authors alone.
© 2021 Marenberg/Braginsky