This document discusses strategic investments that life science and technology companies can make. It defines strategic investors as large, publicly-traded or privately-held companies that are either in the same industry or for which the technology is important. Strategic investors' motivations differ from traditional investors and include gaining access to new technologies, fostering commercial relationships, and positioning for potential acquisitions. The terms of strategic investments also differ, with investors often more flexible on valuation and control rights in exchange for rights of first negotiation or refusal on potential acquisitions.

1. Strategic Investments for
Life Science and Technology Companies
Ryan Sansom
The Capital Network – Strategic Investments
December 10, 2014

2. Who are we NOT talking about?
• Angels
• Venture Capitalists
• Private Equity Funds
• Other Financial Investors

3. So, who ARE we talking about?
• Generally, large publicly-traded or privately-held companies that
are either:
› In your company’s industry; or
› for which your company and/or its technology is of otherwise
strategic importance.
• Also referred to as “Corporate Venture Capital”.

4. Examples
• In the software and hardware space:
› Google, Intel, Motorola
• In the healthcare information technology (HCIT) space:
› CVS Caremark, many undisclosed
• In biotechnology and small molecule space:
› J&J, GSK, Sanofi Aventis, Biogen Idec, Merck, BI

5. Trends in Strategic Investing
• Traditional software and hardware companies have long taken
positions in strategically important companies as a precursor to
acquisitions.
• In recent history, life science companies have become more
active in strategic investing.
› Driven by need for new drugs to market, patents expiring
› Cultural shifts in corporate R&D

6. The Fluidity of Discussions with Strategics
• Unlike financial investors, strategic investments often arise out
of broader business development discussions that touch on
multiple potential structures:
› Collaborations and Joint Ventures;
› Commercial Agreements and Joint Marketing;
› Staged Acquisitions;
› Full Acquisition.

7. What motivates the investor?
• For traditional non-strategic investors, the core goal is to
generate financial returns.
• For strategic investors, motivations are far more varied:
› Inside track to acquisition;
› As a component of a licensing transaction;
› Foster a commercial relationship; and
› Access to information.
• The internal champions are often pleasing many masters.
› FOMO can be king!

8. Generalizations can be dangerous!
• Terms are rarely publicly disclosed.
• Not all strategics have the same goals and some strategics
invest more like traditional financial investors.
• Motivation matters!

9. So how do the terms differ?
• Economic Rights
• Information Rights
• Governance Rights
• Right of First Negotiation/Notice/Offer/Refusal

10. Economic Rights
• Often very competitive on pre-money valuation.
• More willing to accept pari passu securities.
• Less focused on second level economic rights like accruing
dividends, redemption.
• More likely to co-invest and “ride along” with a syndicate.

11. Governance Rights
• Outside of commercial context, generally more “hands off”
• Board or Observer rights
› Policies against taking board seats
› Consider whether fiduciary duties are sufficient
› Multi-level confidentiality restrictions
› Recusal/exclusion provisions are crucial

12. Information Rights
• Financial Statements.
• Product Development Plans.
• Internal Reporting Requirements.

13. That all sounds great, what’s the catch?
• Right of First Notice….
› Or offer…
› Or negotiation….
› Or first refusal….
• Remember: FOMO can be King!

14. Right of Notice or First Negotiation for Acquisition
• Timing is everything!
› Before or after Confidentiality Agreement
› What must notice include?
› Who triggers?
› Length of time periods (particularly standstill) is critical.

15. Right of Notice or First Negotiation for Acquisition
- Additional Point - Exclusivity
• When and whether to grant exclusivity is key.
› Differs by motivation of strategic and genesis of discussions.
› Differs by space.

16. Right of First Refusal for Acquisition
• Greatest impact on sale process.
• Must potential buyer’s identity be shared?
• How much specificity regarding terms must be shared?
• When in the sale process?

17. Q &A

18. Thank you
Ryan Sansom, Partner
Goodwin Procter LLP
Direct: (617) 570-1373
rsansom@goodwinprocter.com