Pocket guide to bio and pharma IP due diligence

A practical guide for investors

Investing in biotech startups means investing in their intellectual property (IP). The value of many early-stage biotechs lies not in their current revenue, but in the exclusivity and competitive advantage provided by their IP assets. Here, we provide a practical, investor-focused checklist of the key IP issues to consider when assessing a new investment.

What IP is protected?

Before investing, check what IP the company owns. For most biotechs, patents and trade secrets are the most valuable IP assets.

Patents

Patents provide powerful exclusivity, preventing competitors from making, using or selling an invention for up to 20 years from the patent filing date. Investors should check that the company has a strong and defensible patent portfolio that supports its commercial strategy.

Key questions to ask:

1. What is protected?

Investors should understand exactly which aspects of the technology are covered by the patents or patent applications, e.g.:

• Does the patent protect the commercial product or composition per se (e.g., a therapeutic biomolecule, or a diagnostic compound)?
• Are there any secondary “evergreening” patent filings to delay the loss of exclusivity (e.g. formulations, dosages, administration regimens, new medical uses)?
• Does the patent protect a new method, process or further medical use?

2. What is the status of the patent(s)?

• You should distinguish between granted patents and pending patent applications. A granted patent provides enforceable legal rights, whereas a pending application may still be rejected, amended, or significantly narrowed during examination.
• Verify whether all patents and applications are in force, e.g. have all relevant renewal fees been paid and have all prosecution deadlines been met?
• Are there any ongoing oppositions or third party challenges to the validity or enforceability of the patents?

3. How strong & defensible are the patents?

The value of a patent depends not only on its claim scope, but also on its validity, and so you should consider:

• Novelty & inventive step in view of the prior art.
• Sufficiency of disclosure and support for the claims.
• The breadth of the claims relative to the underlying invention.

Remember: broad patents can be extremely valuable, but only if they are defensible against invalidity challenges.

4. Is the geographical coverage consistent with the commercial goals?

Patent rights are territorial, meaning protection only exists in jurisdictions where patents have been filed and maintained. Investors should always check that protection exists in the key commercial markets. The alignment between patent coverage and the company’s commercial strategy is an important indicator of a well-planned IP strategy.

5. How much patent term is remaining?

Standard patent protection lasts 20 years from the filing date, and so older patents may have limited remaining exclusivity.

In pharmaceutical and biotech sectors, additional protection (up to 5 years) may be available through:

• Supplementary Protection Certificates (SPCs) in Europe.
• Patent Term Extension (PTE) in the United States.

These mechanisms partially compensate for time lost during the drug regulatory approval process.

Trade Secrets

Not all valuable IP needs to be patented. For biotechs, some of the most important assets may be confidential know-how, such as: manufacturing processes, experimental protocols, cell lines, data sets, and algorithms (particularly in digital health or AI-driven biotech).

Unlike patents, trade secrets derive their value from remaining confidential. Investors should check if the company possesses any valuable trade secrets, and if so, whether internal policies are in place to identify, protect and manage the confidential information.

Does the company own the IP?

Establishing clear ownership of the IP is a critical aspect of IP due diligence, and involves determining: (i) where the invention was created, (ii) who the inventors are, and (iii) whether any third parties were involved. Once the inventors have been identified, then determine who legally owns the invention.

Usually, the legal owner is the company, but ownership can be complicated if the work was conducted:

• at a university
• while founders were employed elsewhere
• with external consultants
• through collaborations

Once ownership is verified, ensure that all IP assignment agreements transferring the rights to the company have been executed and recorded where necessary.

Freedom to Operate (FTO)

Ownership of patents does not mean that a biotech company is free to commercialise its product, as the company may hold patents covering its own technology while still infringing a third party patent(s).

An FTO analysis assesses whether any patents held by third parties could block commercialisation. Key questions:

• Has an FTO analysis been conducted?
• Which jurisdictions did the FTO analysis consider?
• Have any third party “blocking” patents been identified?
• Are licences required to commercialise the technology?
• Could cross-licensing arrangements be available?

Failure to address any FTO risks early can result in costly licensing negotiations or litigation later.

Investor checklist:

Before making an investment in biotech, it is prudent to request:

• A patent portfolio list (territories, status & remaining terms)
• Copies of key patents & patent applications
• Assignment agreements confirming inventorship & ownership
• An FTO opinion
• Any licensing agreements relating to the technology
• A summary of other IP assets, e.g., trade marks, trade secrets.