There has been a lot of excitement over the announcement that a leading tech incubator — Y Combinator — is moving into the life sciences. We think this is great news and agree with the various plaudits for the move. There has also been criticism, as well as take-down of that criticism, both are conveniently found in this article by well known life science investor Bruce Booth, Here.

What has been overlooked in the discussion of capital needs and timelines of tech versus life science investing, however, is the single most critical distinction between the two: in life science companies patents are *mandatory* — there is simply no way to proceed without them. With tech startups, in contrast, patents are optional, and indeed many tech investors are decidedly anti patent (or at least anti software patent). A call for the abolishment of software patents can be found in this article by well known tech investor Brad Feld, Here

With the rise of ‘virtual’ biotechs, as pointed out in the articles in support of Y-Combinator’s move, it has become easier for some select life science innovations to get to a proof-of-concept stage in a shorter period of time and with fewer financial resources than was typically the case since the advent of the biotechnology business. This is becoming true for certain medtech and medical device technologies as well.

Accordingly, other tech accelerators may follow Y Combinator in reaching out to the life sciences. We think this is an excellent development for scientific and economic advancement, but it is important that all of these new entrants to the life science entrepreneurial space understand that patents are an indispensable component to the bioscience business model, and core to the entire venture.

Without both defensible core patents and freedom-to-operate, there can be no biotechnology company. Intellectual property strategy then is mandatory and a key distinction between tech and life science companies. As tech investors expand their investment theses to include life science bets, understanding the patent strategy of accelerator applicants must be a required component of their screening and diligence process. If exhaustively executed, these efforts will undoubtedly aid in improving the opportunities for success. Once this distinction is woven into the new life science investor’s DNA we see a bright future for tech incubators and accelerators moving into the life sciences.

¹ It should be noted that many large tech companies that were once considered anti-patent have become, in recent years, significant patent holders. See, e.g. Google, Here.

 

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  • David Poticha

    Bruce makes a great point near the end regarding the value that can be added with incubation to counter the myth that small investments can’t help biotech and that biotech is somehow too expensive and time consuming to properly foster this way. The State of Colorado BDEG program is an excellent example of how a small amount of money can be leveraged if the right projects are funded and the right teams are assembled. There, grants as small as $50K and as high as $200K have helped a very significant number of programs to make large leaps towards commercialization. Most of those companies start off mean and lean, but a large majority of them are still going strong, and when we’ve looked back at the historical performance we see far more (at least 10X) money coming in as follow on capital than we spent to get these projects going. In regards to this article’s main point, outside of diagnostics which can move forward with trade secrets, the necessity of patents for biotech explains the fervor in which that sector fights for strong and survivable patent protection. While companies like Google may be big players in the patent world now, I wonder if much of that is necessitated by the troll problem and whether it would change or be different if they didn’t have to face that issue.

  • http://collectiveip.com Adam

    @disqus_aOlqAPSKkj:disqus Excellent example, the State of Colorado Bioscience Discovery Evaluation Grant Program has had a material impact on early-stage life science technologies/companies, and proves a little can go a long way. Where the context of “way” is leading to follow-on financings. Here is the 2013 report detailing 45 companies receiving $27.4MM of State fund leading which had lead to $418.6MM in follow-on capital. REPORT: http://d3moqqx2p23xht.cloudfront.net/sites/default/files/Assets/IncentivesFinance/Documents/BDEGP_AnnualReport2013.pdf

  • Alexander Mark

    Adam, correct me if I’m wrong, but the reason that life science (read: pharmaceutical) patents are mandatory is because of the relative difficulty and expense of development in addition to their relatively small first mover advantage.

    I think this is changing. The speed and cost of developing new biotech is dropping, and the first mover advantage in technology is shrinking because of increased competition. They are more similar than ever before (which is why Y combinator is interested).