Stanford Webinar - Biotechnology Law with Vern Norviel, a Fireside Chat & Q&A

Key Concepts

Biotechnology Law: A specialized area of law focusing on the strategic legal issues critical to life science companies, encompassing patents, regulatory affairs, contracts, and more.
IP Strategy: A comprehensive plan for securing and leveraging intellectual property, crucial for attracting investment and ensuring market exclusivity in the life sciences.
Freedom to Operate (FTO): The ability to commercialize a product or technology without infringing on the intellectual property rights of others.
Strategic Partnering: Collaborations between small and large life science companies to share the risk and cost of drug development.
Present Value Calculation: A financial analysis used to determine the current worth of a future asset, such as a drug, considering factors like patent protection and market exclusivity.

Biotechnology Law: A Strategic Imperative

Vern Norviel defines biotechnology law as a critical area for life science companies, emphasizing that legal considerations are strategic, not merely tactical. He argues that C-level executives in life science must be well-versed in legal matters due to the high stakes and unique challenges of the industry.

Differences from Other Industries

Biotechnology law differs significantly from legal considerations in software or semiconductor industries.

Patents: In semiconductors, cross-licensing is common, and patents are less often used to completely block competitors. In contrast, life science companies rely heavily on patents to ensure exclusivity and protect their substantial investments.
Investment: Developing a drug can cost upwards of $2 billion, compared to the $200 million it took Facebook to become profitable. This necessitates high gross margins and strong patent protection in the pharmaceutical industry.
Regulatory Law: Regulatory law is a relatively small part of tech companies, but it is a critical link in the chain for life science companies.
Strategic Partnering: This type of collaboration is unique to life science and involves complex contracts that require specialized legal expertise.

The Three Links in the Chain

Norviel identifies three essential legal links in the chain for building a successful life science company:

IP Strategy: A well-defined IP strategy is crucial for attracting investment and ensuring market exclusivity.
Regulatory Strategy: A clear FDA strategy is necessary for navigating the regulatory landscape and bringing drugs to market efficiently.
Strategic Partnering Contracts: These complex agreements are essential for collaborations between companies and require specialized legal expertise.

Developing an IP Strategy

An IP strategy is pivotal for a life science company's investment thesis. Key considerations include:

Scope and Breadth of Patents: The strategy should consider broad, medium, and narrow patents to cover various aspects of the technology.
Timing: Issuance of patents can significantly impact partnering and M&A discussions. Issued patents carry more weight than pending applications.
Diligence: Thorough due diligence is essential for every financing and partnering discussion. Big pharma companies often conduct deeper diligence than in lawsuits.

Freedom to Operate (FTO)

FTO is the flip side of patent protection, ensuring that a company can commercialize its products without infringing on the rights of others.

Early Studies: FTO studies should be conducted early in the development process to identify potential problems.
Acquisition of Problematic Patents: Companies may choose to acquire patents that pose a threat to their FTO.
Risk Aversion: Venture funds are highly risk-averse and will not invest if there is a significant FTO risk.

Cost of Patents

Initial Filing: $15,000 - $30,000 per patent application.
PCT Filing: $5,000 - $10,000.
International Filing: $100,000 - $150,000 for a thin portfolio (Europe, Japan, China), potentially hundreds of thousands for a broader portfolio.
Litigation: Average lawsuit costs $10 million.

Norviel equates the cost of filing a patent to hiring one or two full-time scientists, emphasizing the significant financial commitment required.

Global Perspective

IP strategy must consider global markets, including Europe and Asia. C-level executives need to understand the differences between US and European patent law.

Patent Searching

Databases: Multiple patent databases are used to conduct thorough searches.
Fault Intolerance: Patent searching is a fault-intolerant system, requiring the identification of all potential infringement risks.
University Programs: Some law schools offer programs where students conduct FTO studies under the supervision of a lawyer for free.

Example: A class project at Berkeley identified a problematic patent abandoned by Northwestern University that could have covered all of gene editing.

Changes Over Time

Early Days: Alex Zaffaroni recognized the importance of IP early on and prioritized legal expertise in his companies.
Venture Community: The venture community has become increasingly sophisticated and knowledgeable about science and law.
Case Law: Venture partners now ask about specific cases and their impact on IP strategy.

Trade Secrets

Trade secrets are often a result of cost constraints rather than a deliberate strategy. They are not highly valued by acquiring companies due to the difficulty of maintaining secrecy.

Opportunities in Genetics and Biomarkers

Recent case law developments have created opportunities to patent the use of drugs in combination with genetic tests, potentially extending patent protection and protecting against generics.

Biotechnology Law Course at Stanford

Norviel teaches a course at Stanford that covers various areas of law relevant to life science, including securities law, contract law, patent law, data privacy, and regulatory law.

Goal: To equip students with the knowledge to ask intelligent questions of their lawyers and respond to questions from investors and partners.
Assignments: Students perform a present value calculation for a drug and develop a pitch book for a hypothetical company based on a university technology.

Target Audience

The course is designed for individuals with a strong interest in technology and a technical background, including scientists, engineers, medical students, and master's students in translational medicine.

Specialization

While specialization is helpful, Norviel believes that individuals with strong technical skills can learn new areas quickly. He emphasizes the importance of interdisciplinary collaboration and adaptability in a rapidly changing field.

Q&A Highlights

Patent Expiration: Norviel suggests that lawyers can manipulate the situation to prevent patents from expiring, but he acknowledges that this may not be in the best interest of society.
Generics: If patents never expire, drugs may not become available as generics, potentially limiting access.
Orange Book/Purple Book: The Orange Book lists patents for small molecule drugs, while the Purple Book (for biologics) does not require patent listing.
Patents vs. Access: Patents incentivize drug development but can also restrict access. Congress may need to address this issue.

Conclusion

Biotechnology law is a complex and strategic area that requires a deep understanding of science, law, and business. Life science companies must prioritize IP strategy, regulatory compliance, and strategic partnering to succeed in this highly competitive and regulated industry. The increasing sophistication of the venture community and the evolving legal landscape necessitate that C-level executives and legal professionals stay informed and adaptable.