Tag Archives: biotechnology companies

Protecting the Company’s Crown Jewels: Best Practices for Growth Stage Biotechnology Companies Using Contract Vendors in Support of Basic Research Activities

By Patrick C. Gallagher, Ph.D. and Sandra G. Stoneman

Emerging growth biotechnology companies often need to rely on third-party vendors and collaborators to fuel their research and development efforts.  These vendors and collaborators may perform crucial aspects of the R&D process, such as candidate screening, assay development and validation, and lead generation. To enable this work, biotechnology companies may be required to share their “secret sauce” (or the building blocks to an eventual secret sauce), like antibodies and their targets.  The following recommendations should be taken to account when working with third parties to balance the need to advance R&D with limited internal capacity and the need to maintain confidentiality of trade secrets and other proprietary information:

  • Strong work-product language—Ensure the contract has strong invention assignment and “work-for-hire” language.  Consider calling out specific antibodies and their targets as your “background intellectual property” or your materials. 
  • Confidentiality—Confidentiality obligations in the contract for trade secrets should survive for so long as the information qualifies as a trade secret under applicable law.
  • Subcontracting—Limit the ability of the vendor or collaborator to use subcontractors.  Understand the full supply chain and work flow, and the companies involved in each step.  For example, often vendors and collaborators want the ability to assign/subcontract to affiliates.  If that affiliate not qualified, this could present regulatory and IP protection issues.  Make sure you know who will actually have access to your confidential information and proprietary biological material.
  • Material transfer—If biological material is being transferred, consider entering into a separate “material transfer agreement” because most contract service agreements may not adequately address protections around sharing of material, and each time biological material is shared there likely will be specific limitations that will be appropriate to specify for the vendor.  At a minimum, ensure the contract limits the scope and nature of what the vendor is allowed to do with the biological material.  Also ensure that the contract requires return of all physical materials (often, the return obligations only apply to confidential information), and prohibits copying or replication except to the extent necessary for the contracted work.
  • Diligence your vendor or collaborator—ask for references, visit their location, periodically exercise audit and inspection rights under the contract.

It almost goes without saying that if a company is going to outsource R&D functions, there is some inherent risk that cannot be eliminated, but a good deal of the risk can be mitigated.