FTO or Get Sued: How Freedom-to-Operate Searches Saved $12M for a U.S. Biotech

Gaurav Khandelwal
7 days ago
4 min read

Nexgen Biologics, a California biotech company, had only six weeks to go before they could release their groundbreaking cell preservation technology.

Their plans for celebration were short-lived. A routine message from their IP counsel brought the bad news: an initial review had revealed a possible patent infringement problem threatening not just their launch but the existence of the company.

This situation—a time-sensitive patent revelation threatening years of R&D investment—repeats itself with chilling regularity throughout the biotech industry. What distinguished Nexgen's tale from that of innumerable failed start-ups, however, was a single pivotal decision made 18 months prior: spending money on thorough Freedom-to-Operate (FTO) analysis.

The $12 Million Near-Miss

Nexgen's cell preservation technology was a breakthrough in maintaining viability for transplant tissues. Backed by $43 million of venture capital and pre-launch bookings from three large medical centers, the company estimated first-year revenues of $15 million.

The patent that almost killed everything was owned by a European research organization that had licensed its technology to one of Nexgen's rivals. The rival's lawyers already had a cease-and-desist letter prepared when Nexgen's FTO search results uncovered the pivotal discovery.

"We were literally days from a legal nightmare," says Dr. Sarah Chen, Chief Scientific Officer at Nexgen. "Without our Freedom-to-Operate analysis, we would have marched into a textbook willful infringement situation with possible treble damages.

The Anatomy of an Effective FTO Search

In contrast to patentability searches that merely discuss whether you can gain protection for your innovation, Freedom-to-Operate searches answer the question of whether you can commercially develop your product legally without infringing on others' rights. Nexgen's method demonstrates the key components of good FTO analysis:

1. Early Integration into Product Development

Instead of viewing FTO as a pre-launch legal checkbox, Nexgen integrated it into their product development 18 months prior to planned commercialization.

"We incorporated FTO milestones into our product development schedule," comments Michael Harrington, CEO of Nexgen. "This wasn't legal compliance—it was core risk management of our business strategy."

This earlier incorporation provided enough time to:

Recognize likely infringement problems

Create technical workarounds

Estimate for possible licensing requirements

Rebase launch schedules if needed

2. Exhaustive Search Process

Nexgen's FTO search went beyond mere patent database searches to encompass:

Patent applications pending in prosecution

International filings with likely U.S. equivalents

Expiring patents for freedom from prior constraints

Licensable technologies in neighboring disciplines

Non-patent documents disclosing possible trade secrets

"The European patent that would have sidetracked us wasn't immediately apparent," says Chen. "It had different wording to denote the same preservation mechanism we'd come up with. Only by semantic analysis and scientific translation did the possible conflict arise."

3. Geographic Jurisdiction Analysis

With phased international expansion plans, Nexgen's FTO analysis charted patent hurdles between territories and found:

Smooth roads to market in some Asian nations

Licensing needs for commercialization in Europe

Unfettered access in many emerging markets

Cross-licensing complexity in North America

This territorial mapping proved to be essential when the risk of infringement arose since it charted alternative paths for commercialization while licensing negotiations continued.

From Crisis to Strategic Advantage

As soon as the potential infringement was recognized, Nexgen's broad FTO information turned a crisis into an opportunity:

Technical Design-Around: The FTO analysis had already pinpointed three likely changes that would avoid a problematic patent claim. Engineers incorporated the changes simultaneously with other alternatives.

Negotiation Power: Equipped with FTO information demonstrating the specific limits of possible infringement, Nexgen negotiated with the patent owner on strong ground. "We knew precisely which claims related to our technology and which did not," says Harrington. "This kept the patent owner from overplaying their hand."

Litigation Risk Assessment: FTO analysis involved claim construction analysis that identified various vulnerability points in the European patent. "We were able to show substantial questions about claim validity that made aggressive litigation less attractive to the patent holder," says Chen.

Alternative Commercialization Strategy: With jurisdiction-specific FTO mapping, Nexgen rapidly shifted to launch first in those territories with fewer limitations while addressing the U.S. issue.

The $12 Million Calculation

Nexgen eventually won a licensing deal on much more favorable terms than industry norms, with multiple key patents cross-licensed to generate shared value.

The company's finance group estimated the cost savings from its preemptive FTO strategy:

Avoided litigation expense: $3.8 million (using averages of biotech patent litigation expenses)

Prevented delay in product launches: $5.2 million in retained first-year revenue

Optimized license terms: $2.1 million in lowered royalty payments

Decreased remediation expense: $950,000 in emergency redesign avoidance

"Our $175,000 investment in exhaustive FTO analysis paid a 68-to-1 dividend," says Harrington. "But the true return was existential—without it, our company may not have been able to survive the infringement claim."

Applying FTO Best Practices

Biotech firms can apply Nexgen's winning strategy by:

Scheduling FTO milestones into development timelines at least 18 months ahead of product launch

Allocation of sufficient funds for exhaustive search methodology beyond simple database queries

Aligning commercial strategy to FTO results across geographies.

Developing contingency strategies for possible licensing or design-around situations

Recording FTO due diligence to help avoid willful infringement exposure in case of litigation

"Freedom-to-Operate is not merely a legal necessity—it's a business imperative," Harrington stresses. "In biotech, where one patent may mean an absolute impediment to commercialization, thorough FTO analysis is not a choice—it's a matter of survival."

For Nexgen Biologics, that survival meant a successful product launch, followed 14 months later by a $210 million buyout—a result that all but evaporated in the space of an email regarding a hitherto unknown patent.