Six Legal Considerations for Life Science and Healthcare Startups
The life sciences and biotech industries are rightly subject to a more stringent regulatory regime than virtually any other sector in our economy. While regulation plays an important role in industries such as energy, food production, agriculture, automotive and many others, businesses that develop pharmaceuticals, healthcare procedures and medical equipment come under a unique level of scrutiny because, without it, the potential for harm would be unsustainable.
Multinationals in these fields have extensive experience in compliance, with entire departments dedicated to the observance of national and international obligations. For early stage European biotech companies at the startup or scaleup stages of growth, the legal framework can be a minefield. Businesses of every size are subject to the same regime, so if you are a relatively recent entrant to the industry, it’s essential to recognise and address your legal obligations. These won’t necessarily involve regulatory matters in the early days, but setting up a legally sound operation will give you the solid structures you need to manage those pressures later.
The mission that inspired your startup will naturally prioritise a commitment to life-changing innovation, but alongside the practical challenges of securing venture capital and recruiting the best talent available, you can’t afford to neglect the legal demands involved. Here are just six of the most pressing issues to consider.
Co-Founders and Investors
However solid your vision, establishing a successful life sciences or biotech startup is not the work of one person. You may have co-founders who broadly share your vision but may differ on some of the detail. You’ll certainly need venture capital investors, who need assurances that their investment will be wisely spent and as near as possible to a cast-iron guarantee of a return. It may not be best to enter into a formal agreement at this stage because that may limit your room to manoeuvre and might send a message to your partners that you seek to exert inordinate control. Informal arrangements and memos of intention and understanding could be more effective in establishing a looser but co-operative relationship.
The initial structure you choose isn’t set in stone, but it can be time-consuming and costly to make any substantial changes so it’s worth thinking about it carefully at the start. Tax status and benefits, salaries, expenditure, dividends and eligibility for grants are all matters to factor in, both for now and in the future.
Intellectual Property Rights
IP rights will form the core of your company’s value. Patented drugs, procedures and medical devices will constitute your long-term revenue stream and are particularly valuable when you can license them out while retaining ownership. For this reason, you need to apply for registration of your patents as soon as possible to ensure maximum protection against third-party infringements. Remember that there is always a possibility of competitors working on very similar projects to your own and the cost to you will be significant if they achieve their objectives ahead of you. Don’t wait until you have a finished product that’s ready for the market: protect your core innovations as you develop them.
Sector-Specific Legal Services
It’s impossible to address every legal consideration without some professional advice. Dealing with the three issues we’ve already discussed will be made much easier with a lawyer casting an eye over your strategy. However, legal services is an extremely wide term and many solicitors specialise in particular areas of contract, company and IP law. You should engage a law firm that has expertise specific to the life sciences and biotech sectors, not simply to help with startup arrangements but to advise on the complex regulatory issues that will arise very soon.
Their experience will help you to avoid the pitfalls that face beginners and they can even help identify particular risks. You’ll also have access to their valuable networks of associated professionals such as business advisers, regulatory consultants, angel investors and venture capital firms. In terms of funding rounds, it is far easier to pitch your proposals to investors who are already familiar with the territory and the right legal firm can open many doors for you. In addition, lawyers who are used to working in this field understand the financial pressures on a life sciences startup and may offer deferred payment plans to ease the burden on your seed funding.
You need a growth strategy for your business, much of which you’ll have covered in your business plan. It will also benefit you to develop a long-term legal strategy so you’re prepared to meet your regulatory obligations and all the attendant requirements of the industry. This is an area where the guidance of your law firm will prove invaluable. However well-acquainted you may be with current regulations, clinical trial procedures, market trends, industry developments, data security, patient privacy and conducting partnerships with healthcare institutions, there’s no substitute for the wisdom and foresight of an expert. A sound, comprehensive strategy will enable you to anticipate most eventualities and devise solutions before problems materialise.
Even if you start your business on your own or with a small group of co-founders, you will soon need to assemble a talented team to bring your ideas to fruition. While there’s no need for draconian and heavily restrictive employment agreements, you should issue employment contracts that protect your interests. Your employees will need access to often sensitive information and data so you need to be sure none of them is able to share that knowledge with competitors should they leave your employ.
Your lawyer will help you construct the appropriate non-disclosure and invention assignment terms to protect your ownership as thoroughly as your IP rights. Be open with your employees about the need for these provisions and assure them that nothing you propose is intended to restrict them beyond what is necessary for the good of your company.
Want to find out more about how to develop your life sciences business to provide a strong foundation for future growth, revenue generation and investment? Book a consultation today, and we’ll work with you to find a suitable solution.
If you found this insight regarding biotech startups and life sciences start up interesting, we recommend reading 7 Ways to Maximise Your Biotech Startup Recruitment Strategy