Twin Cities life sciences attorney: ‘We’re very bullish on S.D.’

Oct. 2, 2018

This paid piece is sponsored by South Dakota Biotech.

There’s never been a better time to be working in the life sciences field, according to a Twin Cities attorney speaking in Sioux Falls this week.

Attorney Jeff Steinle of Minneapolis-based Fredrikson & Byron PA, will discuss the state of life sciences at a breakfast from 7:30 to 9 a.m. to begin the Oct. 4  South Dakota Biotech Breakthrough Summit.

Steinle advises life science companies executing mergers and acquisitions, divestiture, financing, joint venture, licensing and commercial transactions. He also serves as general counsel to digital health companies as they navigate legal issues related to the growing use of artificial intelligence, smart algorithms and big data in medical technology.

Your firm is a new member of South Dakota Biotech. Why have you decided to become more engaged with the industry in our state?

We’re very bullish on South Dakota. As a firm, we’ve had a presence in South Dakota for a long time, both through the representation of a number of South Dakota-based clients, as well as representation of many of our national and Minnesota-based clients who have business interests in South Dakota. We offer a full-range of legal services to companies and can offer significant value in the legal services that we provide to established companies and entrepreneurs in South Dakota. We are especially attracted to the initiatives that are being spearheaded by South Dakota Biotech and believe that they match well with where we can provide exceptional value.

We’re known as the firm “where law and business meet,” and we believe that South Dakota Biotech will be a catalyst to help launch innovation from an existing statewide platform of hard work and business savvy. What we add to the picture is a highly sophisticated multidisciplinary legal practice that can help navigate through challenges and further accelerate that growth. Whether it’s our expertise across industries such as energy, medical technology or agriculture or our legal practice expertise such as financing, mergers and acquisitions, intellectual property, litigation or international law, we really see an opportunity to work with South Dakota-based companies to help them achieve national and international growth. We bring a level of legal expertise that companies otherwise would need to go to the coasts to get. We also see a very good Midwestern cultural fit with our approach to business, work and life.

What are some common legal needs you see from biotech companies in South Dakota? 

There are a number of legal needs that biotech companies in South Dakota will face that are the same as biotech companies everywhere. These include questions of developing the appropriate capital structure and obtaining financing to build a successful business. Virtually all biotech companies have limited resources, which means that it is critical to make smart decisions about where to spend those resources. This includes decisions regarding intellectual property protection, developing appropriately scaled company policies and compliance programs, and ensuring that contractual relationships are advantageous and allocate risk appropriately. Biotech companies also need to consider potential challenges and risks to a potential exit that could impact timing or value, whether ensuring that clear lines of ownership can be traced across all critical company assets — especially intellectual property — that a company has sufficient financing to navigate through a down business cycle or “busted deal,” and that critical contractual and personnel relationships can transfer to an acquirer — or perhaps be terminated — on a change of control.  Companies also need to ensure that their most critical assets – their people – are motivated and treated fairly in a productive work environment. Specific to South Dakota, the biggest challenge will to be to make sure that funders, key personnel and companies understand the advantages of staying in the state and then ensuring that South Dakota continues to be on the radar screen for venture funding and talent in the future. While venture funding by some measures is at an all-time high, the disproportionate amount of that funding is going to established tech centers such as Silicon Valley and Boston. South Dakota companies — like many Midwestern tech companies — need to be able to tout the unique advantages of the state while tapping into resources and expertise that may be located elsewhere.

As technology evolves, are there some legal considerations biotech companies should be thinking about that many aren’t?

All companies will have a skeleton or two in their closets or something a little unusual to deal with in an exit or financing. The critical things to be mindful of are that (1) buyers and funders have become used to expecting the unexpected and (2) most issues can be addressed either through fixing them directly, adding a structural protection in the deal — like a special escrow — or simply by adjusting value. So, every deal will have its share of surprises.

There are a handful of things, however, that biotech companies should be thinking about and many aren’t. Fundraising cycles almost always take longer than expected. This is particularly true in the seed stage and A-rounds of investing when companies have already tapped into “friends and family” money but are going through the first serious round of matchmaking and financing due diligence. Along those lines, big companies often move much more slowly than small and nimble companies, and that can be a source of frustration for small companies when developing a strategic relationship with a large company. Intellectual property rights are scrutinized closely and having a clear and articulable IP strategy backed by the appropriate documentation and filings is important. Companies should think broadly about what these rights entail; strategic partners will scrutinize filed patents and applications, employee assignment of inventions agreements, protection of trade secrets, data usage, rights under material transfer agreements and other contractual rights with third parties; they will also evaluate whether there is something unique in the intellectual property portfolio that they need, can’t develop themselves and can’t get elsewhere. If there’s a way around this picket fence of IP protection, a prospective funder will see it and a prospective buyer may go elsewhere.

With the increased focus on artificial intelligence and analytics, data-ownership is increasingly important, and data rights have great value. This is true both for companies that use analytics and data as part of their business models but also for more traditional biotech companies that have or develop data. Companies should stay organized. It’s not super-exciting to be focused on making sure that you have a clean cap table or are able to access all of your company’s contracts, but being able to pull together company documents and data will make your life that much easier when raising funds or seeking an exit. Finally, always keep an eye out for your biggest risks, whether that’s competitive risk, technology development risk or potential litigation. Companies should make sure that their governance structures are robust and that the opportunities and risks are considered by their boards of directors.

You will be speaking on the state of life sciences at the South Dakota Biotech Breakthrough Summit. From where you sit, what does this moment in time look like?

There’s never been a better time to be working and creating in life sciences. We’re at near historic highs for investment with a large amount of capital available for deployment and many amazing, value-creating opportunities in life sciences. We’re also at a tipping point where the business models for health care are catching up with the technology developments in artificial intelligence, machine learning and data analytics – so, over the next couple of years, we will see rapid adoption of digital health technology that will dramatically improve individual lives and reduce the economic burden of health care. From a big-company perspective, there have never been so many players in health care. The industry used to be much more siloed with the med device and pharma companies doing their own thing, the providers providing patient care in a bubble and the payers operating behind the scenes. Now, the lines between all of those groups are blurring and the big tech companies such as Amazon, Google and Apple look to make an impact in the industry. Finally, the people who are attracted to life sciences are among the best and the brightest but also have a mission-driven mentality to help improve people’s lives.

Fast pitch: Bioscience startups to share their progress

What are some takeaways attendees can anticipate from your presentation?

A lot of money is out there and being directed to life sciences, but it’s uneven. A disproportionate amount of it goes to unicorns — $1 billion-plus valuation companies — and much is diverted geographically to tech centers like Silicon Valley, Boston, SoCal, North Carolina’s Research Triangle and large hospital hubs such as the Texas Medical Center, Mayo and the Cleveland Clinic. Many companies are able to raise money in their angel round or rounds, and we also see venture funds seeking to deploy larger amounts of capital. For many companies, there seems to be a death valley of funding where it is difficult to raise $3 million to $10 million of financing, when that stage of a company’s existence is often the most critical to its longer term success. The funding groups are also more diffuse, so matching with an appropriate funder is important. Corporate funders are generally taking a more focused approach to their venture funds to very closely align with corporate strategies, meaning that they are investing at later-stage companies; as stated above, there are many companies that have not traditionally focused on life sciences stepping into the space. Traditional venture capital funds have made a comeback, and new ones are entering the market, but the smaller ones are typically focused within a niche, and the larger ones typically seek to deploy larger amounts of capital. Private equity, wealthy individuals and family offices are additional sources of capital. How this plays out practically is that a typical startup CEO has at least two jobs: running the company and full-time fundraiser.

The biggest trend in life sciences can be summarized in a single word: data. Whether it’s a connected device, streamlined pharmaceutical discovery using smart algorithms, a digital health platform — i.e., app — or tools to analyze individual patient data or streamline patient care, life sciences is now a world of artificial intelligence, big data analytics and potential fights over who owns the data and real threats of cybersecurity breaches. Diagnostics is catching up with therapeutics from a funding perspective. Cross-industry analytics, such as microbiome analysis that can be used both for soil samples and gut bacteria is gaining traction. From a disease-state perspective, oncology and cardiology continue to see a great deal of funding, but better data analytics have opened up funding for smaller disease states — and even orphan indications — as individualized medicine starts coming into view.

Companies need to be mindful of obstacles to funding or a potential exit from day one. The biggest reason that we see deals fail is often the most simple: because the business model doesn’t work, whether because of competition, failure to obtain reimbursement — in the case of health care — or failure to change sticky consumer behavior. Strategic partners will expect shoestring-style lean management and some of the mistakes inherent in it but will walk away from even the appearance of fraud or impropriety. Intellectual property continues to be important, including rights to data and trade secrets. Buyers and investors also invest in people and will want to know that a company’s team is motivated and committed. Finally, small companies need to broadly understand their place in the industry and also how they may fit with and supplement a larger player in the industry if they desire to seek an exit.

The task for South Dakota biotech companies will be to work harder to cultivate relationships with funders and potential strategic partners, avoid the pitfalls that many new companies stumble into and build the expertise and smarts to compete with the best and the brightest on a worldwide basis.

To learn more about this year’s Breakthrough Summit and to register, click here. 

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Twin Cities life sciences attorney: ‘We’re very bullish on S.D.’

There’s never been a better time to be working in the life sciences field, according to a Twin Cities attorney speaking in Sioux Falls this week.

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