A California court has held that California Senate Bill 826, which required that “publicly held” corporations that listed a California address for their principal executive offices on the cover page of their Form 10-K reports must have specified numbers of female directors by certain dates, violates the California constitution and has enjoined the use of California taxpayer funds to carry out the 2018 law. This ruling follows the decision of another California court in April 2022 holding that California Assembly Bill 979 violated the California constitution and the issuance of a similar injunction preventing California from using taxpayer funds to implement that law. Assembly Bill 979 was enacted in 2020 to add a requirement that publicly held corporations that were already subject to Senate Bill 826 also have specified numbers of directors from “underrepresented minorities,” as defined in the law, by certain dates. If the state does not appeal these decisions and California appellate courts do not overturn these decisions, it appears that both of these legislative initiatives to promote more diverse representation on public company boards will have come to an end.

Read the client alert.

In Europe, life sciences deals increased over the last few years with a strong acceleration in 2021. As a result, the market wonders whether this is just a pick or rather a steady trend which will impact our market in the future as well. Analyzing the reasons of such growth and comparing it with more mature markets such as the U.S. comfort us in thinking that it is just the beginning for continental Europe.

The U.S. life sciences market has been very strong over the past decades and is seen as very mature. The level of venture investments, which are now very much standardized, licensing, M&A and IPOs is very high, both in volume and in number.

For the last ten years or so, the life sciences UK market attracted U.S. investors and an increasing number of growth funds. After a first step of development through venture investments, such companies are now ready for licensing, M&A and IPOs. This is also the trend that we anticipate for the European market even if each country or region still has its own specificities (in particular UK, Germany, France and the Nordic Countries).

Read the client alert.

The life sciences space is ever-growing and dynamic as the industry witnesses more companies and, therefore, more collaboration, licensing and M&A agreements, come into the spotlight. While these deals are exciting opportunities for life sciences companies at all stages, they can also be daunting when it comes to their legal structure.

In order to best leverage assets, align incentives, allocate risk and draft agreements to position your partnership for success, Goodwin recommends considering the following business, legal and litigation perspectives as you navigate these type of agreements.

Read the full insight.

On August 6, 2021, the U.S. Securities and Exchange Commission approved Nasdaq’s Board Diversity Rules (the “Rules”). The Rules require Nasdaq-listed companies to have or explain why they do not have at least two diverse directors. Companies are also required to annually disclose statistical information on board diversity using a standardized board diversity matrix. To assist companies in identifying diverse directors, the SEC also approved rules that provide Nasdaq-listed companies with free access to a variety of board recruiting services. The Rules apply to nearly all Nasdaq-listed companies, including Smaller Reporting Companies and, with some accommodations for home country requirements, Foreign Private Issuers. The requirement to have or explain the lack of diverse directors becomes effective in two steps that will affect proxy statements for annual meetings of calendar year-end companies in 2023 and 2025 (2023 and 2026 for companies listed on The Nasdaq Capital Market). The requirement to disclose board diversity factors using the Nasdaq matrix will apply to proxy statements for annual meetings of calendar year-end companies starting in 2022.

Read the full insight here.

Goodwin previewed the now approved Nasdaq Board Diversity Rules in its December 2020 “Nasdaq Takes a Stand: Board Diversity is Good Corporate Governance, Not a Trend” blog post.

Rule 10b5-1 trading plans have faced increased scrutiny since the onset of the COVID-19 pandemic and the corresponding public focus on stock sales by executives of public life sciences companies. On June 7, 2021, SEC Chairman Gary Gensler continued that scrutiny when he delivered prepared remarks to the Wall Street Journal’s CFO Network Summit concerning Rule 10b5-1 trading plans and his view that “these plans have led to real cracks in our insider trading regime.” Mr. Gensler outlined four potential reforms that the SEC staff is considering to address those “cracks”.

Read the full insight here.

Whether you are a director, or a member of an in-house legal, human resources, or internal audit team, there are sensitive scenarios that occur daily in life sciences companies that trigger the need for an internal investigation.

Goodwin has crafted an “In-House Counsel’s Guide” that sets forth a framework of best practices and key considerations for effective internal investigations, including special subject matter and industry-specific considerations; preserving the attorney-client privilege and attorney work product protection; the need for disclosure to and coordination with auditors, regulators, and others; and conducting investigations remotely.

Read the In-House Counsel’s Guide — Conducting Internal Investigations

The use of special purpose acquisition companies, or SPACs, as an alternative to the traditional IPO process has gained significant traction over the past few years and in 2020 in particular. While these transactions have historically focused more on the tech space, with top-tier biotech investors such as Perceptive Advisors, RA Capital, RTW Investments, Foresite Capital and 5AM Ventures serving as SPAC sponsors, SPACs have gained more popularity in the biotech industry.

A SPAC is a blank check company that goes through the standard IPO process to raise capital with the purpose of using the proceeds to acquire one or more business targets or their assets. The IPO proceeds are placed in a trust account to be used at a later date to fund the De-SPAC transaction (the process through which a private target combines with the SPAC and begins trading as a public company).

The use of De-SPAC transactions to bring a private company public is gaining in popularity due to the benefits that such transactions offer. These benefits can include:

• More Streamlined: a De-SPAC transaction typically involves both a merger with the SPAC and a concurrent private investment in public equity, or PIPE, which raises additional capital from outside investors and potentially existing investors of the target company and SPAC. Both the SPAC merger and the PIPE are signed and announced simultaneously, which allows for a more streamlined process than the typical two-step crossover financing followed by an IPO.

• Mitigate Risk: because valuation is agreed towards the beginning of the De-SPAC process, a De-SPAC transaction helps to mitigate the potential market volatility risk that is inherent with traditional IPOs.

Given the success of recent De-SPAC transactions in the biotech space, with eight (8) De-SPAC transactions with biotech companies closed in 2020, coupled with the peaked interest of biotech investors, the use of De-SPAC transactions by private biotech companies to go public will likely continue to grow in 2021.

In recent posts, we reviewed “down-rounds” and hedging COVID-19 pandemic risks in M&A. This post complements them and focuses on early-stage life sciences companies and their potential investors.

While the customary development timelines for life sciences companies may seem less prone to risks associated with COVID-19, the pandemic still resulted in delays and required adjustment to development plans and budgets, and, consequently, made evaluation of investments challenging.

There are several potential structures that companies can use to get investors “off the fence” and commit funds without lowering their valuation.  Companies can offer warrant coverage, to allow investors to purchase shares at the lower price contingent upon additional financing (or failure to obtain it).^[1] Alternatively, investors may prefer to spread or stagger their investments, such that capital commitments would be tied to achievement of milestones, which is already common in many life sciences financings, but can be further spread or staggered to address COVID-19 specific concerns. These solutions provide companies with sufficient funds for short-term development runway, and prospective future funds, while allowing investors to validate their evaluations and mitigate risk of overpaying.  A similar solution is financing through convertible notes or simple agreements for future equity (SAFEs), with a conversion price or exchange price that is based on future financings and/or contingent upon achievement of milestones. The above alternatives are easier to implement than potential, yet unorthodox means, such as post-Closing price adjustment (which raises anti-dilution concerns).

In addition to mitigation through transaction structures, investors can also seek enhanced discretion with respect to a company’s development plan and budget, access rights and other covenants and rights, or a combination thereof, such that investors could get comfortable without undermining the company’s ability to progress.

Striking the right balance is not always an easy task, in particular during a time of unprecedented uncertainty, but, as long as investors and companies are aligned on the core strategy and goals, there are multiple ways to find it, including those reviewed in this post.

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[1] Lower price can be accomplished by either offering the right to purchase additional shares of the same class at a lower price for shares in the then-current round or by offering the same price or a discount on the price per share for shares in a future financing with a higher price per share.

During the COVID-19 pandemic, M&A counsel and their respective life science clients have attempted to navigate the new normal of an unprecedented situation.[1] In addition to impacts on due diligence, material adverse effects clauses, termination provisions, contingent payment mechanics and representations, warranties and covenants, potential acquirers have also had to hedge specialized risk associated with target companies engaged in the Paycheck Protection Program (“PPP”).

Financially healthy life science companies have often been cautious of being associated with PPP loans during the COVID-19 pandemic, especially with the increased scrutiny surrounding the “necessity” analysis by the U.S. Small Business Administration (“SBA”) and, in the case of public companies, the disclosure requirements to shareholders. Consequently, target companies with outstanding PPP loans have been required to address potential risks. Prominent means to hedge such risks include the use of escrow funds and covenants obligating target companies to seek forgiveness of some or all of a PPP loan. In fast-paced transactions, targets may not be able to apply and receive forgiveness prior to the transaction’s closing and thus, forgiveness as a closing condition is improbable. In such situations parties may opt to set-up an escrow account in an amount equal to the PPP loan forgiveness amount and, if negotiated, the out-of-pocket costs borne by the sellers related to the forgiveness application. Relatedly, among other things, sellers may also be required to indemnify acquirer(s) indemnitees from any losses arising from a target company’s obligation to repay any portion of the PPP loan that is outstanding as of the transaction’s closing, to the extent it is not forgiven. The combination of a separate and dedicated escrow account, along with a covenant to eliminate PPP loans and indemnification for related losses, can provide acquirers of life sciences companies (which are typically bigger and often do not meet the requirements for PPP loans) with some level of comfort with respect to the potential effects of PPP loans on their other operations.
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[1] For an overview of the impact of COVID-19 on M&A see client alert

On December 1, 2020, Nasdaq filed a proposal with the SEC to adopt new listing rules relating to board diversity and heighted disclosure.  Nasdaq’s position is clear – “diversity in the boardroom is good corporate governance.”  Citing the recent social justice movement and a wide range of studies linking board diversity to improved corporate governance and financial performance, Nasdaq’s proposal highlights the role of national exchanges in providing a regulatory push for companies to embrace meaningful board diversification.

The proposal, if adopted, would require Nasdaq-listed companies, subject to certain exceptions, to have at least one director who self-identifies as female and at least one director who self-identifies as an underrepresented minority or LGBTQ+. Listed companies would also be required to disclose statistical information on board diversity and, if applicable, their rationale for not meeting the diversity objectives.  Smaller reporting companies and foreign private issuers could satisfy the requirement with two female directors.

Progress on board diversity has been slow, especially with respect to underrepresented racial and ethnic groups. Under the phase-in provisions of the proposal, companies would have to comply with the statistical disclosure requirement within one year of SEC approval and have at least one diverse director within two years, or explain their rationale for not meeting the objective. Full compliance would be required within four or five years depending on the company’s listing tier.

While the phase-in provisions of the rule won’t radically transform the public company board landscape any time soon, the disclosure requirements are potentially significant. If investors have clear and consistent information on board diversity, they can exert pressure on companies to accelerate their diversification efforts. Kudos to Nasdaq and its President and CEO Adena Friedman for pushing its over 3,250 listed companies to embrace board diversity as a rule rather than an exception.