Biotechnology start-ups face a dizzying array of business and legal requirements and a limited budget forces them to prioritize their expenditures. Companies rush to stay cash-flow positive, attract investors, and expand the platform while at the same time feeding as much capital as possible into research and development (R&D) efforts to accelerate the maturity of the product line and its commercialization. In the process, start-ups must make tough choices about the legal issues that require a share of the capital as well.
Although each business is unique, there are certain common experiences. The following is a top-10 list of critical legal issues that biotech start-ups should make an effort to address with the aid of legal counsel, even when the capital squeeze is intense. An investment upfront can secure long-term dividends for the financial stability and profitability of the venture.
1) KNOW THY IPFor biotech start-ups, intellectual property (IP) is its most valuable asset. The success of the start-up rests on the value of its IP, which determines whether the company will be able to attract investors and strategic partners. The IP is not only the product line, but also the data, ideas, trademarks, trade secrets, know how, and copyrights that accompany it. Companies should undertake basic IP due diligence to confirm the legal status of key IP components. The start-up must keep abreast of the competition. It is essential to know who the competition is and what the competition is doing. It is recommended that before any major research or development endeavors are started, a patent landscape search be conducted in the field of related research, products, and services to gain an accurate assessment of what IP protection might be obtained by the company and the potential market value of such IP. Information concerning competitors' IP should be updated on a regular basis and must be disseminated to the business people and researchers so that informed decisions concerning IP and products can be made. Obtaining and maintaining patents involves risk management as well as asset protection, which can take up a significant portion of the company's IP budget. Consequently, the biotech start-up must choose wisely which innovations to protect and must put in place internal mechanisms for ensuring ownership of its IP and protecting the confidentiality of its business.
2) TALENT SEARCH
Capital resources are best used for recruiting top-notch researchers to establish a high quality research program and to provide sufficient funding for researchers to pursue their ideas for a prolonged period of time. Careful attention to the employment contracts, with specific attention to stock options and compensation provisions as well as IP provisions, is essential. Employee agreements are typically used to assert company ownership of IP developed by employees during their employment and obtain an agreement to assign and execute all assignments and other documents necessary to secure ownership of IP in the company. The employment contract should also include an obligation of confidentiality with respect to the company business and IP and non-compete provisions, thereby preventing employees from leaving with valuable IP and joining the competition. IP provisions should also be included in any agreements with consultants and anyone who works directly or indirectly in the company's R&D.
3) KEEP IT SIMPLE
A key element in any successful IP and regulatory strategy is developing a plan that is simple enough to be understood and communicated by all—the business, technical, and legal staff—who will ultimately be responsible for carrying out the plan. Consultation with legal counsel for developing this plan to make sure that it covers the most critical regulatory concerns as well as encourages a culture of compliance consistency within the organization is helpful and provides a useful compliance foundation as the company grows.