Life Sciences deal making is a crowded but attractive field. Research firm Bain and Company reports that there are some 3425 biotech businesses in the US at the start of 2023, up seven percent from 2022. The life sciences sector of marketed biopharma products and its ecosystem of companies that provide research, development, and commercialization, like life diagnostics, lab services, CDMO outsourced biopharma services, and pharma software/IT, are historically recession resistant and have exhibited strong growth. Not surprisingly, deal volume has been high: more than 600 unique buyout deals globally for life sciences assets completed since 2018, and an overall increase of 110 percent in deal volume in the past five years, compared to the previous five-year period.
While the sector may be attractive, life science deal making is a complex process, subject to scrutiny by serious experts. Whether you are a pharmaceutical company looking to acquire a promising drug candidate, or a startup seeking investment to develop your technology, there are a number of key factors that will determine the success or failure of your deal. In this article, we will explore some of the most important strategies for successful life science deal making, and provide practical tips and advice for those looking to navigate this challenging landscape.
Identify Your Goals and Objectives
Whether you are a biotech company seeking to acquire a new technology, a diagnostics firm seeking to enter a new market, or a startup seeking funding to grow operations, a key starting point is a clear and concise statement of your goals and objectives. In a page or less, clarify:
- Your company’s Value Proposition: How your products or services add meaningful value to your partners, your customers, and the life sciences market as a whole
- Your unique contribution: How your products or services are differentiated from other companies
- Your use of funds: How infusing capital through partnership or acquisition can lead to significant return within the near future.
A clear statement of your goals and objectives will help you to identify potential partners or investors who are aligned with your goals. Your goals and objectives statement also serves as a short-form precis for potential investors. When both parties agree on objectives, chances are good that all parties will be negotiating for terms that are in their mutual best interests.
Conduct Thorough Due Diligence
A key factor in life science deal making is conducting thorough due diligence. For the company preparing itself for sale, the process entails:
- Assembling hundreds of confidential documents - 5 or more years of company performance financials, debt, assets, and liabilities, partner and vendor agreements, Intellectual Property licenses, court filings and records, personnel profiles of senior executives and directors, employee data and policies
- Analytics of historical performance - third-party analytics by respected experts in finance, law, technology and other fields
- Performance and profit projections
- The end-product brief is a comprehensive appraisal of the assets and liabilities of an organization and an evaluation of the proposal’s value to a third-party.
The end-product of the due diligence process is a brief that serves as a comprehensive appraisal of the company’s assets and liabilities and an evaluation of the proposal’s value to a third-party.
For the potential buyer, due diligence provides a fact-based appraisal of the market value of the company and its potential for growth and return on investment. A thorough review of the due diligence brief and its supporting documents is the best avenue to identify value, as well as any potential red flags that would signal an end to negotiations.
In March 2023, Silicon Valley Bank (SVB) collapsed and its operations were taken over by the Federal Deposit Insurance Corporation (FDIC). Since SVB was the bank of choice for dozens of life science startups, as well as their potential investors, the life science deal making arena is now subject to greater scrutiny. The best response is to prepare a detailed due diligence brief that supports projections and valuations.
Negotiate from a Position of Strength
When you have a clear understanding of your own value proposition, as well as that of the other party, you can negotiate from a position of strength. By leveraging your strengths and minimizing your weaknesses, you can negotiate for better terms and ensure that the deal is aligned with your long-term goals and objectives.
Be Flexible and Creative
Life science deal making is often characterized by complexity and uncertainty, and it is important to be flexible and creative in your approach. Flexibility may involve exploring alternative deal structures, such as earnouts or milestone payments, or being open to a variety of different financing options. Deal making during the pandemic introduced another approach: an auction process in which a seller offered its brief to a larger pool of bidder, often with a shortened bid period, to drive more aggressive valuations and outcomes. Another development has been intense interest in specific therapies, particularly in cell and gene therapies, where investors were purchasing smaller, defined assets from within a biotech company’s offerings.
By being willing to consider different approaches and pivot as necessary, you can increase your chances of success and adapt to changing market conditions.
Build Strong Relationships
Building strong relationships with potential partners or investors is another important strategy for successful life science deal making. This can involve networking at industry conferences, engaging in outreach to key decision makers, or partnering with a reputable investment bank or advisory firm. By developing strong relationships with the right people, you can gain valuable insights into market trends, identify potential opportunities, and build trust and credibility with potential partners or investors. This can ultimately lead to better deal terms and a more successful outcome.
For potential investors, networking can entail developing relationships with individuals who have scientific expertise in life sciences. This ‘back pocket’ group of experts can help investors identify and evaluate evolving trends on the scientific and commercial potential of new products or services, thereby identifying “gems” worthy of an investment.
Maintain Confidentiality in All You Do
Confidentiality is critical throughout the Life Sciences deal making process:
- To protect confidential company financial records included in due diligence
- To abide by federal and state regulations protecting patient confidentiality that may be included in clinic trial records
- To abide by federal regulations that govern stock purchases
- To protect both seller and buyer from leaks to competitors
The need for confidentiality is complicated by the collaborative nature of life sciences product development and the due diligence brief process, which can include input from labs, manufacturers, analysts, lawyers, and other third parties, some of whom are in remote locations.
Another complication for the life sciences community is the growing sophistication of the cybercrime community - and life sciences are a prime target. Hackers know the stages of life sciences product development and can reverse-engineer the process to find vulnerabilities. A hack of even a single document can lead to the insertion of malware into the development team’s collaborative network.
The consequences of a hack can be ruinous: ransom demands, loss of intellectual property and competitive information, litigation, and fines - pharmaceuticals and all life sciences must adhere to Federal Drug Administration (FDA) and Health Insurance Portability and Accountability Act (HIPAA) regulatory guidelines that protect patient privacy. The FDA now holds manufacturers accountable for security-related problems.
ShareVault Provides Enterprise-grade Security
The best security solution for life science deal making is to use a virtual data room (VDR), a secure online platform in which participants can collaborate securely on a due diligence brief and seller’s offer.
The number one VDR for life sciences is ShareVault. ShareVault has been selected by the Biotechnology Innovation Organization (BIO) and 40 other life science industry trade associations for their Business Solutions Program.
ShareVault’s security features include:
- Authorized participants can access documents in the VDR from any browser or device, at any time, from anywhere
- Protected documents are AES-256 bit encrypted and can only be opened with an active ShareVault connection
- The Due Diligence program manager can specify each participant’s rights to view, print, save, or copy. Rights can be limited with an expiration date/time and documents can be remotely “shredded” even for files that have already been downloaded
- ShareVault’s ultra-secure VDR environment protects confidentiality even for participants in remote locations
- At the appropriate time, investors and regulators can be authorized to access the protected ShareVault VDR environment
ShareVault includes an organizing template called the Due Diligence Checklist and software tools that speed the due diligence and offer development, like drag-and-drop uploads, a powerful full-text search engine, inter-document hyperlinking, and Collabloop, specialized software for life sciences final review and redlining. For life sciences regulatory submissions, ShareVault includes an integrated eCTD Viewer.
Follow These Six Steps to Life Sciences Deal Making Success
These are exciting times for Life Sciences deal making. To ensure success and protect your company, parties, experts, and investors, follow these six steps:
- Identify Your Goals and Objectives
- Conduct Thorough Due Diligence
- Negotiate from a Position of Strength
- Be Flexible and Creative
- Build Strong Relationships
- Maintain Confidentiality in all You Do
ShareVault has been serving the life sciences and M&A deal making community for 15 years. Let ShareVault’s virtual deal room and our experienced team provide a secure and easy-to-use platform to prepare your life sciences deal! Contact us today for information on a custom solution to your security needs.