IP Based Special Purpose Vehicle model for Financing of Small Biotechnology Companies

Abstract

Biotechnology sector is attracting increasing amount of financing year by year. These investments are not only in existing products but also in new developmental and advance technologies like gene therapy, immune therapy, RNA interference etc. Most innovative companies are small, pre revenue companies in need of funding, where most of them are backed with IP and Know-how from these technologies. IP help investors to separate investment without commingling of other assets of investee, but risk diversification with ownership and returns are at the center of investment decisions. Historical evidences have proved that Special Purpose vehicles were effective in attracting financing for new technologies for big biotechnology companies, so the study focuses on effective use of such financial instruments to finance IP based small biotechnology companies.

The major objective of this study is to generate Special purpose Vehicle (SPV) structure which can fulfill the minimal needs of most IP financing transaction and facilitates efficient IP usage in small biotechnology firms. The research aims to understand and answer the major questions namely 1) what are the subject-specific needs of biotech industry, 2) what are their common IP monetization practices and their limitations 3) How SPVs can be modified to benefit both investors and IP based small Biotechnology Firms. The resultant Proposed SPV model is not only helpful for small biotechnology companies but also can be useful to other IP centric companies with different technologies. A systematic approach of understanding development of modern IP monetization practices, their limitations and then using SPVs to minimize observed risk is the applied methodology of current research.

The research unwind the current research problem in six chapters, First chapter is Introduction, Second chapter is Biotechnology innovations and importance of IP, this chapter helps reader to understand the nature of biotechnology research, their types, protectable and non-protectable areas of research, its importance from all perspectives like from company, investor and country. This chapter latter precisely explains how the patents from biotechnology inventions deserves more importance than other industries and how can become helpful to design new models. The chapter three is Biotechnology Company financing, it gives an idea about the mechanism of financing that runs in biotechnology industry. It discusses those internal and external factors affecting the returns on investment, who are the dominant players, especially the role of Venture financiers. It provide the evidences that how historically special purpose corporations have helped big biotechnology companies in getting fundings from new investors for developing new products. It also talks about the recent scenario and how patent based approach is in process for financing biotechnology industry. Chapter four is Patent backed financial models, NPEs have played positive and important role in development of IP based financing market with their abundant funds and patent portfolios. These efforts resulted in generation of various specific NPEs and their concern financial models like in Litigation, management and operations. This chapter explains the idea of utilizing firms IP for getting financed. It also discusses the general models and NPE based models like patent Loans, SLB, and Securitization etc. in detail which evolved over a time in this process. Chapter five is Biotech firms and suitable IP financing structures, this is not only a longest chapter in this research but also very crucial too. It starts with the explaining common practices that biotech firms use to monetize their IP. It mainly indicate s the models in it and the pros & cons of current system. Latter it states about various approaches that can be used to minimize the risk in such transactions like by putting options or equity interests. The main concept of this whole research revolves around SPVs, so this chapter latter explains the concept of SPV in detail i.e. its structure, types, advantages, dis-advantages, its market reputation, its development etc. then chapter tries to explain, how this SPVs could be helpful for startups to attract financing, case studies, the possible modifications to make them compatible in modern times etc. and eventually this chapter explains the proposed model which talks about utilizing biotechnology firms IP as a collateral in SPVs and latter using these SPVs in tracking, monetization and financing. The sixth chapter is conclusion and Future Remarks

Proposed SPV model is comprised of series of contracts mainly regarding IP transfer, lease back, service and future technology control, which is supported with Options and transparency indicators. The practice of such model by small biotech companies is believed to benefit most of the IP transactions right from all types of licensing, securitization, litigation financing, spin-out management etc. Use of proposed SPV model is supposed to minimize prosecution cost over patents (in case of technology transfer from parent company), can provide a ready-made infrastructure of intermediary in transactions like SLB and securitization, minimize parent companies risk in patent loan default, also beneficial in cross-licensing projects and Litigation financing programs. These SPVs are assumed effectively separating IP from firms other assets and avoid commingling of investors funds with other projects and also facilitate the easy-simple tracking of funds and their returns through SPV. In this way, model benefits IP owners to attract secured financing, whereas for investors it allows IP specific safe form investment. Mentioned use of contracts not only allows the parent company to reuse IP, but also provide the future control over technology with Call option. Thesis further suggests that, enablement of such model in Securitization require alterations in concern statutory laws. The governments are suggested to figure out, whether is it possible and adjustable in current form of law or new special law is required to deal with this issue to facilitate the patent based securitization in country and promote the genesis of IP based financing.

Proposed Special purpose vehicle (SPV) structure fulfills the minimal needs of most IP financing transaction and also facilitates efficient IP usage and tracking to small biotechnology firms. Thesis promotes the idea of SPV usage by early stage companies by collateralizing patents from biotechnology industry which are considered as comparatively risky but still valuable too.