This post is the fifth in our five-part series, Navigating Life Sciences Transactions, where our team of attorneys provides essential strategies and insights for successful life sciences transactions.
Throughout this series, we’ve explored the key elements of successful life sciences transactions—from structuring collaborations and securing funding to protecting intellectual property and navigating regulatory complexities.
Yet, even when companies understand these fundamentals, transactions don’t always go as planned. In our work with biotech, medtech, digital health, and research-driven companies, we’ve seen common missteps that can slow deals down, create compliance risks, or weaken long-term business outcomes.
As we conclude this series, we’re highlighting five frequent mistakes life sciences companies make in transactions—and how to proactively address them.
1. Corporate Formalities and Good Business Practices Are Scrutinized in Due Diligence
Investors and acquirers expect clear ownership structures and well-documented business operations. Due diligence focuses on whether a company has properly maintained corporate records, formalized business relationships, and implemented financial controls. Gaps in these areas create uncertainty and risk, which can slow or derail a transaction.
Why This Matters
- Unclear equity ownership raises concerns. If stock issuances, cap tables, or governance documents are incomplete or inconsistent, buyers may hesitate or demand indemnities.
- Weak financial and operational controls create deal risk. Missing financial records, unsigned contracts, or regulatory non-compliance can lead to lower valuations or renegotiated terms.
How to Avoid It
- Maintain up-to-date corporate records. This includes bylaws, board minutes, stockholder agreements, and cap tables.
- Formalize business relationships. Contracts with vendors, partners, and customers should be clear, enforceable, and accessible.
- Ensure strong financial controls. Buyers expect transparent accounting practices, structured revenue recognition, and clear financial statements.
- Prepare early. Organizing corporate, financial, and regulatory documents before diligence begins reduces friction in negotiations.
2. IP Ownership Issues Can Surface at the Worst Possible Time
Intellectual property (IP) is often a life sciences company’s most valuable asset, yet unclear IP ownership is one of the most common diligence red flags. Investors and acquirers expect well-documented ownership of patents, trade secrets, software, and proprietary technology. Unresolved IP claims can delay or even derail a deal.
Why This Matters
- Buyers expect definitive ownership of key assets. If patent filings, assignments, or licensing agreements are incomplete or ambiguous, buyers may question whether the company actually controls its core technology.
- Unresolved IP issues create deal risk. Third parties, such as former employees or contractors, may challenge ownership, leading to legal disputes.
How to Avoid It
- Use clear, present-tense IP assignment language. Agreements should state that any IP developed “is and shall be owned” by the company, rather than “will be assigned” later.
- Conduct an internal IP audit. Identify and correct gaps in assignment agreements, patent filings, and licensing arrangements.
- Ensure research partnerships define ownership. Academic collaborations and joint development agreements should prevent unexpected claims from co-inventors.
- Review open-source software risks. Some licenses restrict commercialization, so companies must vet third-party software used in their products.
3. Overlooking Conflicts of Interest Can Lead to Reputational and Legal Risks
Conflicts of interest in life sciences transactions are not just a regulatory issue—they can undermine research integrity, clinical outcomes, and business relationships. Investors and buyers expect companies to have clear conflict-of-interest policies to protect reputational value, ensure compliance, and avoid legal exposure.
Why This Matters
- Buyers expect a clean compliance record. Undisclosed conflicts discovered during diligence can result in deal renegotiations or post-closing restrictions.
- Regulators closely monitor industry relationships. The FDA, NIH, and DOJ enforce strict conflict-of-interest rules in research and clinical trials, and failure to disclose conflicts can trigger enforcement actions.
How to Avoid It
- Implement a formal conflicts-of-interest policy. Require employees, consultants, and research partners to disclose potential conflicts.
- Create an independent review process. Establish a compliance or ethics committee to evaluate and manage conflicts.
- Align research agreements with best practices. Contracts with universities, CROs, and industry partners should include conflict mitigation provisions.
4. Marketing and Product Claims Can Lead to Regulatory and Legal Challenges
Life sciences companies often make bold marketing claims to attract customers and investors, but overpromising on efficacy, safety, or regulatory status can lead to enforcement actions, litigation, and reputational harm.
How to Avoid It
- Engage regulatory counsel early. Ensure that all marketing materials, investor presentations, and public claims comply with FDA, FTC, and EMA standards.
- Incorporate compliance obligations into contracts. Agreements with distributors, marketing agencies, and strategic partners should include indemnification provisions for regulatory violations.
- Align product messaging with clinical data and payer requirements. Claims must be supported by evidence and reimbursement guidelines.
5. Overlooking Emerging Tech Risks Can Lead to Unforeseen Liabilities
Emerging technologies in biotech, medtech, digital health, and AI-driven solutions offer tremendous opportunities—but also unique regulatory, liability, and adoption challenges. Investors and buyers assess not only a company’s current compliance standing but also how well it has anticipated future risks tied to unproven, rapidly evolving technologies.
How to Avoid It
- Conduct a forward-looking risk assessment. Evaluate clinical, regulatory, legal, and enforcement risks before commercializing or entering strategic transactions.
- Monitor enforcement actions and regulatory trends. Stay ahead of compliance frameworks for emerging technologies to anticipate potential hurdles.
- Incorporate risk allocation provisions in agreements. Contracts should account for shifting regulations, AI bias concerns, and evolving compliance requirements.
Final Takeaways: Structuring Deals with Foresight
The strongest companies and savviest investors don’t just react to risks—they plan for them. They formalize governance early, protect their intellectual property, manage conflicts, ensure marketing compliance, and structure agreements that account for regulatory and market shifts.
As the life sciences industry evolves, structuring transactions with foresight, risk awareness, and regulatory alignment is what separates successful deals from costly roadblocks.
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