The life sciences industry is large and complex, consisting of companies operating in the fields of pharmaceuticals, biotechnology, medical devices, biomedical technologies, nutraceuticals, and cosmeceuticals. Dealmaking among companies within the sector are frequent and often complex.
While dealmaking in the life sciences sector took a major hit in 2022, with only $105 billion in merger and acquisition deals, the lowest level since 2017, 2023 looks far better. Large biopharma companies had approximately $1.4 trillion of “firepower” at the end of 2022 and Q1 2023 is off to an active start. M&A is expected to reach a total deal value in the $225 to 275 billion range across all subsectors. Licensing deals and strategic alliances remain a significant focus for biopharma companies as they seek to strengthen their Phase III pipelines while also taking advantage of lower valuations for preclinical and Phase I/II assets.
Deals in the life sciences industry can be structured in various ways, depending on the specific circumstances and goals of the companies involved. Here are some of the common structures:
Licensing Agreements: Licensing is a common type of deal in Life Sciences. One company (the licensor) grants the rights to another company (the licensee) to use its intellectual property (IP), such as patents, trademarks, or copyrights, in exchange for a fee or other compensation.
Collaborative Research & Development Agreements: In a collaboration agreement, two or more companies come together to work on a project, often to develop a new drug or medical device. The companies share resources, knowledge, and expertise, and typically also share the costs and risks involved in the project.
Mergers and Acquisitions: M&A involves the acquisition of one company by another, either through a stock purchase, asset purchase, or merger. In the life sciences industry, mergers and acquisitions can be especially complex, as they may involve issues such as regulatory approval, clinical trials, and intellectual property. On the plus side, mergers and acquisitions can help companies gain access to new technologies, products, or markets, and can also help them to achieve economies of scale.
Joint Ventures: A joint venture is a partnership between two or more companies to create a new entity that will operate independently of the parent companies. Joint ventures are often used to enter new markets or to develop new products that require specialized expertise or resources.
Royalty-based Deals: In this type of deal, a company agrees to pay a royalty fee to another company in exchange for the right to use its IP or to sell its products. The royalty fee is usually a percentage of the sales revenue generated from the products or IP.
Co-promotion Agreements: These agreements involve two or more companies jointly marketing and selling a product, typically with each company contributing their own marketing expertise and resources.
Equity Investments: Equity investments involve the purchase of shares in a company, providing the investor with an ownership stake. In the life sciences industry, equity investments may be made by venture capitalists, private equity firms, or strategic investors. Invested funds may be used to support the development of new products or technologies.
Hybrid Deal Structures: Life science business development teams are increasingly blending elements from traditional M&A transactions with partnerships and co-commercialization elements, along with spinoffs, options, and other mechanisms with the goal to reduce the capital risk of research and development. These hybrid deal structures are particularly relevant for cutting edge development projects such as gene and cell therapies, immunotherapies, and antibody drug conjugates.
Overall, the specific structure of a deal in the life sciences industry will depend on factors such as the type of product or technology involved, the financial resources of the companies, and the goals of the companies involved.
While the Structure May Vary, the Deal Starts with Due Diligence
Due diligence is critical for life science deal making because it allows partners and investors to understand the risks and opportunities associated with a potential investment and make informed decisions about whether to proceed with a transaction. Without a thorough due diligence process, these parties would be exposed to significant risks and uncertainties that could negatively impact their investment returns.
Life Sciences deal-making is complicated by the fact that companies often collaborate on more than one phase of a product development program. Due diligence needs to examine these collaborations to clarify what, if any, financial obligations are inherited by the acquiring firm:
- Confirm if intangible assets - patents, copyright, franchises, goodwill, trademarks, trade names, software and its code - are actually owned by the target company
- Determine if there are upstream obligations to previous owners that will be inherited by the acquiring company
- Identify any obligations from previous collaborative agreements, particularly for specialized expertise like gene editing or shared IP agreements.
Due Diligence Requires Time, Resources, and Secure Collaboration
On average, the due diligence process for a life science investment, partner agreement, or merger requires 18 months of work by a dedicated team. Amassing all the necessary documents and providing expert analysis is a highly collaborative endeavor with parties in-house as well as experts in remote locations. It is essential that the due diligence team has the resources to complete this complex project.
While those working in life sciences are trained to be security conscious, due diligence ups the ante considerably. The documents used not only contain trade secrets and company financial performance records but can also include clinical lab files with patient information.
A ShareVault VDR meets Life Science Security Due Diligence Needs
Fortunately, savvy technologists at ShareVault have developed the ideal environment and tools for life science due diligence. ShareVault is an online platform with a cloud-based Virtual Data Room (VDR). A ShareVault VDR provides a central hub where the due diligence team, clinical labs, manufacturers, analysts, attorneys, and consultants can access and review materials safely and securely, from any authorized device, anywhere, anytime, including those in remote locations.
The Ultimate Secure Deal Room
- Only a user with proper password authentication has access. For further security, the due diligence VDR administrator can require two-step verification
- Files uploaded to the ShareVault VDR are automatically encrypted to provide maximum protection
- Page-level Tracking provides a detailed report of user interaction, a tool for monitoring productivity and a necessary report for regulatory agencies.
ShareVault Knows Life Sciences
ShareVault has more than 15 years of experience as the VDR of choice for life sciences, including more than $50 billion in financial transactions. Since due diligence is the backbone of these deals, ShareVault developed the Due Diligence Checklist, a downloadable template preformatted with folders already organized into the most likely naming conventions.
ShareVault’s Collabloop Double-checks the Due Diligence Brief
ShareVault includes Collabloop, a task management software specifically designed for preparing the final brief of a life science due diligence project. Collabloop tracks the iterations of a brief, a process sometimes referred to as “redlining”.
Collabloop starts with a project worksheet shared with the collaboration team. The team leader sets the project timeline, assigns collaborators, and records the updated status of a document. As the due diligence brief progresses, Collabloop automatically archives each revision in a ShareVault-secure central document repository, complete with dates and the names of collaborators – essential data for pharma reporting requirements.
ShareVault knows that with a deal on the line, time is everything. That’s why ShareVault provides round-the-clock support from our IT team, who can answer questions and resolve issues quickly and efficiently.
Have Questions? Let’s Talk!
ShareVault’s built-in tools and features speed up the life science due diligence process without compromising on security. Since each company has unique needs, ShareVault feature sets and pricing are customized to fit your needs. To receive a customized ShareVault proposal, contact us today!