In an increasingly hot biotech market, protecting IP is key

John FlavinContributorShare on TwitterJohn Flavin is founder and CEO of Portal Innovations, LLC.More posts by this contributor

• 2021 should be a banner year for biotech startups that make smart choices early

Kevin O'ConnorContributorShare on TwitterKevin A. O'Connor, Ph.D., is a partner in the Intellectual Property practice group at Neal Gerber Eisenberg.

After a record year for biotech investment in 2020 - during which the industry saw $28.5 billion invested across 1,073 deals - the market for new innovations remains strong. What's more, these innovations are increasingly coming to market by way of early-stage startups and/or their scientific founders from academia.

In 2018, for instance, U.S. campuses conducted $79 billion worth of sponsored research, much of it thanks to the federal government. That number spiked amid the pandemic and could increase even more if President Biden's infrastructure plan, which includes $180 billion to enhance R&D efforts, passes.

Since 1996, 14,000 startups have licensed technology out of those universities, and 67% of licenses were taken by startups or small companies. Meanwhile, the median step-up from seed to Series A is now 2x - higher than all other stages, suggesting that biotech startups are continuing to attract investment at earlier stages.

When it comes to protecting IP, early and consistent communication with investors, tech transfer offices and advisers can make all the difference.

For biotech startups and their founders, these headwinds signal immense promise. But initial funding is only one part of a long journey that (ideally) ends with bringing a product to market. Along the way, founders will need to procure additional investments, develop strategic partnerships and stave off competition. All of which starts by protecting the fundamental asset of any biotech company: its intellectual property.

Here are three key considerations for startups and founders as they get started.

Start with an option agreement

Most early-stage biotechnology starts in a university lab. Then, a disclosure is made with the university's tech transfer office and a patent is filed with the hopes that the product can be taken out into the market (by, for instance, a new startup). More often than not, the vehicle to do this is a licensing agreement.

A licensing agreement is important because it shows investors the company has exclusive access to the technology in question. This in turn allows them to attract the investments required to truly grow the company: hire a team, build strategic partnerships and conduct additional studies.

But that doesn't mean jumping right to a full-blown licensing agreement is the best way to start. An option agreement is often the better move.