Key Regulatory and Compliance Considerations for Early-Stage Life Sciences Companies and Their Investors

Early-stage life sciences companies and the investors that back them are laser-focused on evidenced-based development and approval hurdles. However, even at early stages, failure to adequately prioritize more nuanced regulatory and compliance issues can have a significant impact on exit value and create potential liability for investors and acquirers. Geoffrey Levin, Torrey Cope, Marie Manley, Donielle McCutcheon, Andrew Shoyer, Michele Tagliaferri, and Julea Lipiz highlight eight key areas for focus.

Life sciences companies face a complex array of regulatory and compliance hurdles on their way to market. These requirements are an increasing focus of scrutiny by later-stage investors and acquirers, not only because of the impact on market access, but also the potential for liability. Many of the relevant regulatory agencies are increasingly targeting PE funds and other acquirers if they fail to remedy regulatory and compliance issues identified in diligence. For example, the U.S. Department of Justice (DOJ) recently announced a Mergers & Acquisitions Safe Harbor Policy which allows companies to voluntarily and timely self-report misconduct discovered during due diligence, and makes failure to report and remediate issues identified subject to potentially more significant enforcement.

Accordingly, early-stage life sciences companies and their investors should anticipate and prepare for regulatory and compliance scrutiny of the following key areas in diligence for public and private capital raising, M&A, collaboration, and similar transformative transactions:

  1. Regulatory Pathways – Drugs, biologics, medical devices, laboratory-developed tests (LDTs), cell and gene therapies, consumer products, and other regulated products each have their own distinct and complex regulatory pathways. Significant effort is required to understand and properly execute the requirements applicable to the specific product in development, particularly when special programs such as accelerated approval are involved.
  2. Clinical Trials – Companies conducting clinical trials are not only required to comply with good clinical practice (GCP) requirements, but must also address other considerations, including obtaining appropriate licenses and ethical approvals and designing financial arrangements to comply with healthcare fraud and abuse laws. Process failures can lead to heightened data scrutiny or trigger regulatory action. Selection and ongoing oversight of contract research organizations (CROs) and sites is fundamental to ensuring compliance and data integrity.
  3. GMP and Contract Manufacturing – Life science products are generally subject to stringent good manufacturing practice (GMP) requirements, and failure to comply with these can be commercially disastrous, leading to the denial of marketing authorization and/or the inability to supply the market for a significant period of time while issues are remediated or alternate sources are identified and approved. Ensuring GMP compliance, including through adequate oversight of contract manufacturing organizations and suppliers, is the key to mitigating these risks.
  4. Coverage and Reimbursement – A robust payor coverage and reimbursement strategy is critical to securing market access and adequate reimbursement, issues that acquirers and investors will heavily scrutinize in diligence when valuing the company. Relatedly, in some European countries, a positive recommendation from the national health technology body is required before a product can be broadly prescribed to patients. It is therefore critical to have the appropriate strategy in place to advocate the “value-added” proposition of the new technology to payors.
  5. Compliance Programs – To mitigate risk, every life sciences company should have a healthcare compliance program in place at least 18-24 months before the anticipated commercial launch. This should address, among other things, the seven elements of an effective compliance program as set forth in the Department of Health and Human Services, Office of Inspector General (OIG) guidance, as well as key fraud and abuse risk areas.
  6. Transparency Reporting Preparedness – Life sciences companies need to prepare for the myriad state and federal reporting obligations that kick in at, and shortly after, the commercial launch, especially in light of the new potential for the U.S. Centers for Medicare & Medicaid Services (CMS) to increase auditing activities related to the Sunshine Act and impose monetary liabilities for non-compliance.
  7. ESG – The EU has recently enacted a number of laws focused on environmental, social, and governance (ESG) issues and sustainability. These regimes impose extensive reporting, supply chain due diligence, labeling, market access, and other requirements on companies with operations in the EU. Failure to comply with these obligations may trigger severe penalties, including significant monetary fines, product bans, and exclusion from public tenders.
  8. Supply Chain – The life sciences sector has been the focus of increased global scrutiny on product sourcing. In the U.S., the BIOSECURE Act has been introduced and will prohibit executive agencies from acquiring biotechnology services or equipment from a “company of concern.” The BIOSECURE Act lists multiple companies, including Chinese pharmaceutical manufacturers, which makes awareness of companies identified by the BIOSECURE Act and related legislation particularly important in the life sciences industry.


Geoffrey Levin and Torrey Cope are the co-chairs of Sidley’s multidisciplinary Life Sciences Transactions working group. More information about this practice is available here.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.