The presentation below examines some of the following topics: Why should biotech companies look to sell rather than go public? How (and why) to build your deal team Legal matters, insurance planning and tax planning Indemnification privisions and the advantages of doing it early on Financial statement considerations Corporate books and other items you will need How to position your biotech company for a sale

1. How To Sell Your Biotech
Company
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2. Joel is a Member in Mintz Levin’s Corporate & Securities Section. Joel
concentrates on corporate, commercial, and securities matters, as well as
strategic transactions and corporate structuring and restructuring. With extensive
experience counseling high-technology businesses, particularly biotech, and the
individuals creating them, Joel often guides acquisitions, collaborations, and
licensing transactions in the life sciences industry. Joel is a frequent lecturer on
topics such as financings, acquiring and selling firms, and private placements. He
hosted a panel at the BIO International Convention last year on activist investors.
Joel Papernik, Member, Mintz Levin
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3. • Many biotech companies, both publicly and privately held, have experienced greater
challenges since the economic decline in the biotech equity markets which commenced
in or about September 2015.
• Several companies lack sufficient cash reserves and face challenges raising additional
equity.
• Public companies often have a reverse merger alternative.
• In other situations, a public biotech company has experienced clinical failure and has
neither the resolve nor the inclination to attempt to move forward with a second drug
candidate.
• In some of these situations, the company has considerable cash reserves.
• As a result, a private company with a promising drug candidate could get the benefit of
cash reserves as well as becoming a public company by virtue of the merger.
• There are numerous other appropriate alternatives.
Introduction
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4. • The current environment has also made it very difficult for smaller biotech
companies to fund research and development making a sale a lot more
desirable.
• Since large pharma companies have decreased their own research and
development spending, biotech companies find it more profitable to license
products-in-development or to sell their entire business to the pharma
companies.
Why Should Biotech Companies Look to Sell Rather Than Go Public?
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5. • Each member will deliver a specific skill set and style to the transaction
• Cooperation and synergy among the Deal Team (sometimes perfect strangers)
is critical to success
– Accountant
– Private Wealth
– Consultants
– Attorneys: Corporate, M&A, Tax, and T&E
– Board of Directors
– Management
• Involve them early in the decision process, not just sale process
We Recommend A Deal Team
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6. • Initial documents should be prepared so they withstand the test of time
because they may not be revisited. By-laws, for example, may continue
unchanged for years.
• Basic documents such as the Certificate or Articles of Incorporation, initial
minutes, initial by-laws, initial confidentiality agreements, equity plans and
indemnification agreements may not ever be changed and will all be closely
scrutinized by a buyer. They should be done correctly and anticipate the
Company’s future.
Legal Matters
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7. • In a recent transaction, the selling company had great difficulty obtaining the
breadth and depth of indemnification that it wished to provide its directors and
officers for prior acts and omissions with respect to third party claims that might
arise subsequent to the sale.
• While the buyer was willing to carry forward existing charter, by-law,
contractual indemnification provisions, and insurance, the buyer did not have
patience or willingness to countenance a wholesale revision of the relevant
documents.
• Had the documents been prepared with the future sale in mind, the seller and
its personnel would have been in much better shape.
Indemnification Provision
(An Example of the Advantages of Doing It Early On)
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8. • Clinical trials insurance is essential
• In this connection and, again, solely by way of example, having the proper
insurance policies in place from the beginning will stand the company in good
stead later on. Director and Officer liability insurance should be obtained even
for private companies
• Many of the possible claims that might be asserted against the seller or its
constituents could, in fact, be well covered by insurance obtained at the outset
of the commencement of the business.
Insurance Planning
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9. • Tax planning starts when the company is formed. For example, the use of a
“pass-through” (e.g. a limited liability company or S corporation) usually means
that a buyer will get a “step-up” in tax basis when it buys the company that
would reduce its tax “leakage,” which may result in a higher purchase price.
Limited liability companies are increasingly popular. But the initial venture
capital investors generally favor corporations.
• The very beginning of a business can be an excellent time for estate planning
too. By allowing the founders’ children, for example, or trusts for their benefit to
have ownership interests when the company has little value but will later be
worth a lot more, significant tax savings can be achieved.
Tax Planning
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10. • Both the principals and the company should consider tax planning when
beginning the sales process. Matters to consider include:
1. determination whether the company’s structure is appropriate for the
sale (e.g. if there are peripheral assets, consider how to strip them out
tax efficiently);
2. identification of material tax concerns (e.g. if company is an S
corporation, the risk that S corporation election might be disallowed);
and
3. estate planning for the principals.
• Many other tax planning strategies are also being used. These include the use
of a Roth IRA to minimize tax on appreciation.
Tax Planning
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11. • Virtually every buyer will prefer the Seller to have had certified financial
statements. The buyers would like these statements to be for the past three
years. Those issuers that have been funded by venture capital firms will, in
most instances, have such certified financial statements, but for those private
companies without venture backed funding, many of them will have avoided
the expense of getting the certified statements. Of course public companies
will already have such statements.
• In some instances, a buyer will insist that at least the most recent year is
certified, even if it means delaying the signing or the closing of the transaction.
Some buyers, however, will be able to satisfy themselves with an examination
of the books and records and ascertaining that certified statements can readily
be obtained together for at least the most recent year.
Financial Statement Considerations
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12. • Certificate of Articles of Incorporation
• Minutes to all Board and Committee meetings
• Latest Financial Projections for the Current Year
• Organizational Chart
• Business Overview (marketing plans, number of employees, office locations
etc.)
Corporate Books and Other Items You Will Need
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13. • Articulate in strategic and financial terms, the company’s relative position in the
market compared to the competition, its pipeline, including clinical trial plans,
and the managers’ credibility.
• The key element in maximizing shareholder value is to structure your company
as an attractive acquisition target to prospective buyers. Bob Easton will tell us
companies are bought, not sold.
• This can be achieved by having a sustainable competitive advantage in the
market and organizing the affairs of the company to reduce transitional risk
(employment contracts, updating the website, and making sure all equipment,
facilities and technology are adequate for the company.) Its documentation,
including patent and clinical trial files should be up to date and complete.
Positioning A Company For Sale
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14. • On the other hand, if your company has produced its own technology, it is
important to patent and copyright this type of intellectual property in order to
protect its value.
• Review and audit all financial statements. Be prepared to explain the trends
reflected.
• Organize/complete any records: credible information is vital to driving value
and preserving your negotiating position.
Positioning A Company For Sale
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15. • Conduct an operational review and focus on:
1. The state of equipment.
2. Information systems.
3. Management structure – ensure a competent management team willing
to continue with the company after the sale.
4. Corporate housekeeping – focus on contingent liabilities, ensure
corporate records are well-organized, insurance policies are in place, and
IP properly documented.
5. Intellectual property
Positioning A Company For Sale
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