Key documentation for funding life sciences companies

It is very common in investments for life sciences companies for a heads of terms (or term sheet, as it is commonly known) to be put in place between the investors and the founders which sets out the key terms of the investment and reflect a non-binding indicative offer from the investors. Putting in place a detailed term sheet which addresses many of the major issues associated with investing in life sciences companies early on in the investment process can often help to not only establish whether the parties believe that they can work together but can also speed up the process generally and, in particular, the drafting and negotiation of the relevant legal documentation.

HandshakeAs part of negotiating a term sheet, an investor may also require that it has exclusivity for a limited period of time to both carry out and complete its due diligence and to then complete the investment. The entry into confidentiality agreements at the term sheet stage is also commonplace in life sciences investments, considering the potential value of any intellectual property (IP) of the investee company. Due diligence of a life sciences company will often include making detailed financial, commercial and legal investigations, in particularly around the IP, business plan and financial budget.

The two principal binding documents from a legal perspective to any investment are the investment agreement (also called the subscription and shareholders’ agreement), which sets out the contractual terms of the investment and the articles of association, which sets out the management and administrative structure of a company and, in particular, the rights of the classes of shares of the company. The articles of association will need to be filed at Companies House and thus will become public record. The investors will usually seek that these initial drafts are prepared by them and their legal counsel.

The summary below approaches investments in life sciences companies from a "stage neutral" perspective as opposed to trying to draw a distinction between seed investments and later stage investments in life sciences companies.

See What are the typical sources of funding for an early stage life sciences company?

See What are the types of funding available for an early stage life sciences company?

If you have any questions on this article or would like to propose a subject to be addressed by Synapse please contact us.

Fountain pen

Howard Palmer

Howard is a partner in the corporate technology group.

Angus Miln

Angus is a partner in the corporate technology group.