How biotech SMEs can change to adapt to the New Normal

By Ramakrishna Damodharan

BIOTECH has been identified as one of the key contributors for the Malaysian economy by 2020 and beyond. At an estimated 15% annual growth, the size of the Malaysian bioeconomy sector is projected to grow to RM149.1 bil in 2020 and RM181.2 bil in 2030.

In addition, former prime minister Tun Abdullah Badawi at the launch of the National Biotechnology Policy in 2005, had placed emphasis on reviewing ownership of intellectual properties (IP) and regulations relating to biotech processes and business to foster innovation and safeguard investment in the biotech sector as among its nine policy thrusts.

He also stated that Malaysia, blessed with rich natural resources that are useful as a basis for biotech research and development (R&D), is ranked 12th in the world as a mega-diversity nation and fourth in Asia, behind India, China and Indonesia.

However, despite Malaysia’s intense efforts to push the biotechnology sector to the nation’s economic forefront with due emphasis on technology & IP management through increased expenditure of RM69.9 mil in the 8th Malaysia Plan to RM100 mil in the 9th Malaysia Plan, biotech development in Malaysia has been dismally slow.

Why is the industry then not experiencing significant success; and secondly, why aren’t our biotech SMEs enjoying the same success stories as their counterparts in other countries?

Comparisons to biotech SMEs in Malaysia with those of other leading industrialised countries such as the US and the EU and even our neighbours like China, India and Singapore, all of which are strong believers in owning and developing patent rights, suggests the general lack of prioritisation on patent rights in biotech SMEs in Malaysia. Even if they do at all, they engage little in the active monetisation of their patent rights.

The first move for biotech SMEs in Malaysia to be global players is to learn from other global biotech SME players in major markets on how they leverage and protect their patent rights through the adoption of best patent policies and strategies.

This is the ultimate requirement bearing in the mind the current difficult times due to the Covid-19 pandemic in Malaysia and beyond.

Biotech SMEs in the nation can adopt five patent strategies to leverage on their patent rights to generate a continuous stream of income.

1 Erecting a ring-fence, starting from the top

For Malaysian biotech companies whose operations are not yet sustainable, one thing is pivotal. It is high time that biotech SMEs’ top management start to place high importance in the management of patents.

Though an intangible asset, patent rights must be accorded the recognition they deserve; in fact in some countries, patents can be used as collateral when applying for bank loans.

For a start, companies can define an explicit strategy and the financial commitments for patent management as no generic system will work for every enterprise, and every decision on patent should be undertaken with the active participation of the senior management; e.g. top management meeting.

Biotech SMEs should start viewing patents as a business asset and integrated into the company’s day-to-day operations with those of other functions.

To further create a successful patent monetisation culture in their organisation, participation and recognition of employees is as crucial.

An incentive programme such as salary increase, promotions and awards to be bestowed on researchers or investors who are empirically involved in the successful patenting of a key area technology within the company.

After a patent is treated as the cornerstone for a successful company, our biotech SMEs can also learn from the perspective of the biotech SMEs in foreign countries.

Many biotech SMEs in Singapore, for example, when they possess a patent particularly important, will often seek and secure protection for the technology in Singapore and other major markets such as the US, China and the EU to avoid infringement of the patent.

It is therefore important for biotech SMEs in Malaysia to understand that if they do not protect their patent rights, they cannot monopolise or fully exploit the exclusive rights of their inventions.

Nevertheless, having a patent on home ground does not stop someone in Germany from copying the idea, producing similar technology and selling it there, or even exporting them to anywhere else in the world except Malaysia.

When patent infringement cases like this happen, it will be hard for the biotech SMEs in Malaysia, already saddled with budget and resource limitations, to take action against the infringer because they failed to protect their invention in Germany.

Hence, most patents are filed in multiple countries and key territories to provide international protection.

2 Creating strong patent portfolios to minimise litigation risk

Patents granted and acquired serve as an important notice to others in the market that the SME has proprietary rights such as patents in certain specific product features in the entire biotech production system.

With a strong patent portfolio, a company is seen as the leader in the relevant technology and this gives it a competitive edge when negotiating contracts with others.

There are two aspects to a company’s patent strategy. A patent portfolio can be used both offensively, as a “sword” to strike competitors, and the conventional approach, defensive, as a “shield” to avoid competitor attacks.

Defensively, the shield serves as a bargaining chip against a competitor who threatens to sue for patent infringement of one of the competitor’s patents.

For example, although its business model has since changed, the genomics enterprise Incyte acquired a substantial patent portfolio from patents on mostly novel, full-length genes and a few partial sequences obtained through its computer system.

This strategy discourages competitors from taking similar inventions to market, and it allows the enterprise to collect potential licensing fees in the future besides helping it to strengthen and enhance its patent portfolio.

3 Formulating a value chain for each patent portfolio

In the biotech industry, a strong portfolio contains patents along the entire value chain. To the fullest extent possible, an enterprise should seek patents that not only cover its products, but also that protect against what others in the market are likely to do.

A strong patent portfolio may discourage others from bringing a suit. For example, companies might be reluctant to sue Affymetrix, which obtained a record 37 patents in 2006 alone.

4 Alliance and licensing

Companies in the biotech industry typically require partners as they complete the product development cycle. Many entities, including universities, government agencies, commercialisation organisations and clinical trial speciality companies may have resources or technology needed to complete the cycle.

A typical scenario for a biotech enterprise or investor involves looking to entities upstream for basic research or platform technology, and looking downstream for commercialisation and to fund costs of clinical trials.

Alliances also provide an effective means of broadening a patent portfolio where patent ownerships are also important bargaining chips for companies in the negotiation of alliances with other business partners.

It has long been acknowledged that new innovations build on previous ones. Examples include the Cohen-Boyer patent on the technology for inserting foreign genetic material into bacteria, the Genentech patent on a technology for getting foreign genes to “express,” and other patent technologies.

The salient feature of such a patent is that it is efficient to let firms other than the patent holder use it. The reason is that the follow-on innovator typically needs to obtain the right to use the previously patented innovation.

It would thus normally be licensed, and the relevant notion of “lost profit” include lost royalties.

5 Conducting due diligence

Patent due diligence is the detailed patent investigation of a business, it involves taking a strategic approach:
· Identify the company’s key product candidates and platform technologies.
· Identify all the patent rights owned by the company and the length of each patent’s unexpired term.
· Protect them wisely: Have these been protected in key territories, and are procedures in place to ensure that all renewal fees have been paid for those territories?
· Attribute ownership of the patent so that others know who owns it.
· Develop and adhere to corporate policies and practices about handling and managing patent.

Essential moves

While many SMEs in Malaysia face problems related to financing which is a critical issue in the development of the biotech sector because of the research-intensiveness of the SMEs in this sector, securing their patent rights should not take a backseat; rather, they should consider outsourcing patent jobs to experienced patent agents in Malaysia to work hand-in-hand with them.

Doing this would require a major change in the biotech SMEs’ attitude towards patents. They should identify good practice standards in patent management and analyse supporting services relating to national policies regarding patent rights among biotech SMEs in successful nations and engage positively with all stakeholders involved.

BioNexus companies which enjoy a list of privileges such as funding support, continuous support and assistance can take full advantage of the financial support system and start embedding the patent DNA into their patent policy and R&D efforts to increase their competitive edge regionally and globally.

Successful companies are those that take on a holistic way to protect their patents to achieve the real commercial objective – exploit the assets to generate revenue and to maximise profit. – May 13, 2020

Ramakrishna Damodharan is founder and managing director of Adipven (M) Sdn. Bhd, a leading intellectual property consultancy and commercialisation firm

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