Collaborations between Life Sciences and Tech Companies: A Strategic Path to Digital Transformation

In today’s rapidly evolving life sciences and healthcare (LSHC) industry, LSHC companies face a critical challenge: digital transformation. Emerging technologies such as artificial intelligence (AI), big data, and digital platforms are revolutionizing how products are developed, marketed, and utilized. While acquiring a tech company may be a potential solution, strategic collaborations offer a more cost-effective and flexible alternative to drive this transformation forward.

The Benefits of Collaborations

1. Cost Efficiency: Compared to an acquisition, which is often associated with significant investment costs and long-term financial commitments, collaborations allow for shared cost structures. This is particularly relevant for LSHC companies that want to focus on their core competencies without making extensive investments in new technologies.
2. Access to Specialized Knowledge: Tech companies possess highly specialized expertise, whether in the development of AI algorithms, the analysis of large datasets, or the implementation of digital health solutions. Through collaborations, LSHC companies can leverage this know-how without having to extensively build their own personnel or resources.
3. Flexibility and Reduced Risk: Collaborations offer the opportunity to implement specific projects with clearly defined goals. If a project fails or does not deliver the expected success, the costs and risks are significantly lower compared to a failed acquisition.
4. Speed: Collaborating with tech companies enables LSHC companies to respond more quickly to market changes. For example, a Joint Development & Commercialisation Agreement can often be established within a few months, whereas an acquisition may take years to complete (in particular, when taking into account the PMI phase).

How Collaborations Can Be Legally Structured

The legal structuring of collaborations between LSHC and tech companies can vary significantly depending on the goals and scope of the partnership. Two of the most common forms are Joint Development & Commercialisation Agreements (JDCA) and Joint Ventures (JV). Both approaches have different focuses, legal structures, and areas of application:

Joint Development & Commercialisation Agreements

JDCAs are ideal for project-based collaborations where the development and commercialization of a specific product or technology are at the forefront. They provide the advantage of clear and flexible contractual arrangements without the need to create a new legal entity.

Typical Legal Structure and Focus:

• Role Distribution: The agreement defines which party is responsible for which tasks in development and commercialization. For example, the LSHC company may handle clinical trials, while the tech company develops the AI algorithms.
• Intellectual Property:
  • Background IP: Each party retains the rights to pre-existing intellectual property.
  • Foreground IP: Clear rules on the ownership of intellectual property created during the collaboration. This is often shared or exclusively licensed.
• Financial Arrangements: The allocation of costs and revenues is clearly defined. Milestone payments and revenue sharing are common.
• Flexibility: JDCAs are less complex than JVs and can be adjusted or terminated more quickly.

Typical Applications:

• Development of new therapies or diagnostic tools.
• Joint research and utilization of AI in clinical trials.
• Commercialization of specific digital health products.

Joint Ventures

Joint ventures are typically independent legal entities created by the collaboration partners to pursue long-term strategic goals. They are ideal for broader-focused partnerships or market expansion.

Typical Legal Structure and Focus:

• New Entity: A JV regularly requires the creation of a separate legal entity (e.g., LLC, GmbH), which has its own rights and obligations.
• Governance: Typically, the partners share control and responsibility for the JV, often through a joint board of directors.
• Intellectual Property: The JV typically owns the intellectual property developed during the partnership. Partners may receive licenses for their own purposes.
• Capital and Profit Sharing: Each partner contributes capital or other resources. Profits and losses are distributed according to ownership shares.

Typical Applications:

• Building a shared portfolio of healthcare products.
• Operating a digital health ecosystem.
• Long-term collaboration in the research and development of new technologies.

Comparison Between JDCA and JV

Success Factors for Legal Structuring

1. Clear Goals and Expectations: Partners should define in advance what they aim to achieve through the collaboration.
2. Transparency in Intellectual Property: Properly defining IP rights is essential to avoid disputes.
3. Flexibility and Conflict Resolution: Contracts should include mechanisms to adapt to market changes and resolve disputes.
4. Regulatory Compliance: Ensuring that all regulatory requirements, particularly in data protection (e.g., GDPR), are met.

Why Collaborations Can Be a Better Alternative to Acquisitions

Acquiring a tech company may make sense if a LSHC company seeks permanent control over the technology and the associated resources. However, this approach involves significant costs and risks, including:

• High Purchase Prices: Valuations for tech companies with promising innovations often reach high double-digit millions or even billions.
• Integration Risks: Post-acquisition, company cultures and processes must be harmonized, often leading to tensions.
• Slow ROI (Return on Investment): The financial and strategic benefits of an acquisition often take years to materialize.

Collaborations, on the other hand, offer a leaner, faster, and less risky way to access the benefits of digital transformation while leveraging the expertise of experienced technology partners.

Conclusion

Digital transformation is essential for LSHC companies to remain competitive. Collaborations with tech companies provide a compelling alternative to acquisitions, offering flexibility, cost efficiency, and access to specialized expertise.

By entering such partnerships, established LSHC companies can not only leverage innovative technologies but also strengthen their core competencies and open up new markets. Collaborations are thus a strategic pathway to successfully navigate the challenges of digital transformation.

How Taylor Wessing Can Support You

Our Life Sciences and Healthcare team work with some of the largest pharmaceutical, biotechnology, and medical device companies and healthcare providers in the world to a diverse collective of small-to-medium-sized start-up enterprises ready to upscale their business, and many companies in between. We devise transformative business transactions for our life sciences and healthcare clients through strategic partnering collaborations, raising or placing capital or completing game-changing M&A transactions, and act on contentious matters such as patent litigation, product liability, and disputes with regulators.