Don’t put the CAR-T before the (due diligent) horse

Chimeric antigen receptor (CAR)-T cell therapy has achieved remarkable success over the past decade in the treatment of blood cancers, with six CAR-T cell therapies approved in the US so far (four of which are approved in Australia). With recent advances in the treatment of autoimmune conditions and solid tumours, the global CAR-T cell market is anticipated to reach around USD 88.5 billion by 2032¹.

The intensifying competition in the CAR-T cell therapy market and ever-increasing R&D costs mean that there is typically a need for companies developing CAR-T cell therapies to collaborate with, license, or be acquired by, another entity to bring their CAR-T cell product to market.

Whether you are a startup, a research institution or Big Pharma, IP is often one of the company’s most important assets. Whilst the strength of that IP can determine the value of a corporate transaction, third-party rights may also significantly impact a company’s freedom to operate (FTO), and consequently, its value. Despite the crucial role IP can play in business transactions, IP due diligence is often one of the last factors considered. This article outlines the role IP due diligence plays in transactions, particularly in the CAR-T cell therapy space.

Why IP due diligence matters

IP due diligence is the assessment of the IP owned, used and/or licensed by a company and how it protects their products and/or services. It often involves an assessment of third-party IP rights which may impact on the company’s business and/or ability to operate.

Earlier this year, Bristol Myers Squibb (BMS) and Cellares announced a $380 million deal to enhance the manufacturing capabilities for CAR-T-cell therapies². With Cellares Cell Shuttle^TM automated and high throughput manufacturing platform underpinning the agreement, IP no doubt played a role in the value of that transaction.

The need to undertake IP due diligence in the CAR-T cell therapy space can occur in many different circumstances, including:

• company takeover
• sale of a company and/or assets
• Initial Public Offering (IPO)
• raising external investment capital
• mergers and acquisitions
• supply and manufacturing agreements
• in-licensing a technology.

The extent and scope of due diligence will differ depending on the circumstances, and is often dictated by transaction size, risk appetite and commercial objectives.

Before the deal is done

The starting point for any IP due diligence process is a clear understanding of the key products and/or processes, as well as their respective stage(s) of development. This information will inform whether the IP estate is commercially relevant and, the extent of FTO analysis required.

Parties involved in the transaction should consider each component of the CAR-T cell asset and, as applicable, the intended therapeutic uses and any other aspects associated with its manufacture or delivery. Indeed, the manufacturing processes can be as valuable as the product itself and should not be disregarded. Last year, in a landmark CRISPR patent dispute, the Federal Court of Australia found that none of the claims in ToolGen Inc.’s accepted patent application for platform CRISPR technologies, which provided a significant advance in the generation of CAR-T cells, were valid³.

Once a clear understanding of the commercially relevant products and/or processes has been identified, a review of the IP portfolio should be undertaken and will typically involve one or more of the following:

• examination of the existence, validity and enforceability of the IP rights, and how they relate to a company’s business.
• assessment of ownership or chain of title of the IP, including any agreements in place (e.g. license/sublicense, research/collaboration, merger/acquisition, divestiture agreements) and whether those rights are free of third-party claims.
• evaluation of the scope of protection and geographical extent and length of the IP rights and commercial relevance.
• review of all threatened, pending, ongoing or concluded third party disputes and litigation (e.g. oppositions, PGR/IPR, interferences) and assessment of risks related to infringement of third-party rights.

It is worth noting that a review of the company’s IP portfolio can be conducted at any time and does not necessarily need to be done as part of a corporate transaction.

In addition to a review of the company’s IP portfolio, IP due diligence typically involves performing an FTO analysis on the company’s products and/or services to assess any potential infringement of third-party rights. A detailed discussion of the types of searching that may be undertaken in the CAR-T cell therapy space can be found in our earlier article here.

Identified IP associated with the product(s) and/or processes involved in the transaction, including third-party IP, can be leveraged in discussions or used to create bargaining power with competitors or other parties to the transaction. Furthermore, developing invalidity positions on any identified IP in place can also be useful to avoid litigation and/or during settlement negotiations.

With the significant damages and settlement payments awarded in US CAR-T patent disputes, there is no doubt that such disputes are inevitable in Australia. Having a clear strategy in place before entering into such discussions can assist in mitigating risks and minimising costs associated with litigation.

Getting the deal done

With the rapidly growing CAR-T cell therapy market, a continued increase in the total number of collaborations, licences and acquisitions in this sector is likely. Earlier this year, AstraZeneca announced the acquisition of Gracell and their FasTCAR-enabled BCMA/CD19 dual-targeting autologous CAR-T cell therapy, with a transaction value of about USD 1 billion dollars⁵.

When engaging in any due diligence process, not only is it important to understand the product(s) and/or processes involved in the transaction and associated IP, but all parties should consider also the following:

• Are non-disclosure agreements between the parties involved in the transaction in place?
• Is a data room required? If so, what documents are in it and who will have access?
• Has a timeline for each stage of the due diligence been established?
• Are there any ‘red flags’ (such as ongoing litigation or disputes) to be raised?
• Are there any third-party agreements, assignments or licences in place (including contract research organisation (CRO) or contract development and manufacturing organisation (CRMO))?
• Has an inventorship audit been completed?
• Are there any encumbrances (e.g., third party inventors)?
• Has a FTO search been conducted?

Irrespective of which side of the transaction you are on, when approaching due diligence discussions, it is worth requesting questions in advance, discussing these with patent counsel and knowing what information you want to provide. Remember you don’t need to provide everything just because the other side asks for it!

Summary: The critical importance of IP due diligence

IP due diligence is a complex process and an important part of any corporate transaction. While the scope of IP due diligence should be dictated by the circumstances of the transaction being considered, thoroughly conducted IP due diligence allows parties involved in the transaction to make more informed decisions. Failing to adequately do so can result in significant costs as a result of lost transactions, jeopardise years of product development or lead to the acquisition of IP assets that do not adequately protect the key CAR-T cell products and/or services or technologies, potentially causing future legal conflicts.

We recommend engaging experienced IP counsel to assist with the IP due diligence process to minimise these risks while maximising the value of the present IP portfolio and its future potential.