The life sciences industry is one of the economy’s most complex and heavily regulated sectors, but it’s also one of the most dynamic and exciting. From biotech startups spinning out of university labs to billion-dollar exits fueled by breakthrough therapies, the life sciences industry has a unique rhythm, risk profile, and regulatory framework.

This article explores key concepts, industry dynamics, and legal considerations for anyone working with or inside a life sciences company, particularly founders, investors, and attorneys.

Defining the ‘Life Sciences’ Industry

When you hear ‘life sciences’ industry, you might instantly think of ‘pharma,’ but the term goes far beyond that. As Jay Reilly of Saul Ewing LLP puts it, “If you ask ten people what you mean when you say the word ‘life sciences,’ you’re going to get ten different answers.”

The industry can be broken down into the following four core categories, each with its unique business models, approval paths, and funding challenges.

1. Vaccines: Medications designed to prevent disease.
2. Therapeutics: Medications given to treat or slow the progression of an illness.
3. Diagnostics: Tools and tests to identify various human diseases and disorders.
4. Devices: Mechanical or non-biological interventions like implants or monitors, used to treat an existing disease or disorder.

What Makes Life Sciences Companies Unique?

Unlike tech startups, life sciences companies often spend years, sometimes decades, before seeing a single dollar of revenue. “They tend to be pre-revenue for a long time. In fact, many therapeutics and vaccine companies will never have revenue until a sale or IPO,” notes Ed Amer of Goodwin.

The key traits that distinguish life sciences companies from those in other industries include:

• Extreme capital needs: Research, clinical trials, regulatory approvals, and manufacturing scale-up are all expensive and require significant capital.
•  A patchwork of funding sources: Most companies need to tap into several sources including non-dilutive (think grants from NIH, DoD, or NSF for example), friends & family, family offices & small venture capitalists, larger venture capitalists, and ‘strategics’ like partners in industry who may provide equity or research and development funding in exchange for rights.
•  IP is everything: Patents are the foundation of most, if not all, life sciences companies. Expert counsel will be needed from day one as companies begin to manage ‘freedom to operate’ (can you commercialize without infringing others?), ‘know-how’ (often protected through contracts like NDAs), trade secrets, and patent prosecution. Without patent protection or trade secrets, a company has little to sell or license at the end of the day.
• Binary risk: A company with one promising drug candidate may either hit gold or go bust depending on trial outcomes.
• Outsourced development: Many early-stage companies rely on CROs and CDMOs to conduct research, trials, and manufacturing.
• The regulatory gauntlet: The FDA’s standard drug development path, for instance, includes four stages, with only 1 in 10 drug candidates making it from the first stage (preclinical studies) to market.

As Reilly observes, “These companies need excellent science, excellent management, and a little luck.”

The Centrality of Academia in the Life Sciences Industry

Many inventions come out of universities and hospitals and are managed through a process that generally includes licensing technology from the institution, sponsored research agreements, and consulting arrangements with academic investigators. Kelly Morgan of Ring Therapeutics, underscores the importance of academics in this process by referring to them as “invention powerhouses.”

Many life sciences startups are born from the fruits of this research. Attorneys play a key role in bridging the two worlds of academia and business by assisting their clients in navigating critical documents like licensing agreements, intellectual property assignments, sponsored research agreements, material transfer agreements, consulting agreements, and clinical trial agreements.

Though academics have been the core driver in this industry, it is changing. Today, many venture capitalists are taking the lead by creating companies themselves, identifying promising assets, staffing them with their own teams, and outsourcing nearly everything. This shift has given rise to ‘venture studios’ or ‘platform builders’ in life sciences — firms that spin up multiple single-asset startups with shared back-end support.

A Variety of Business Models and Exit Strategies

In a capital-intensive, binary-risk environment, most startups aren’t built to go the distance alone. Instead, their strategy typically revolves around one of the following:

• Licensing: Ideal for companies with platform technologies.
• Acquisition: Especially common for single-asset startups.
• IPO: Less common, and mostly viable for companies with pipeline breadth.

“Knowing your endgame from the start is crucial,” according to Beth White of Orphan Therapeutics Accelerator. “You build your capabilities differently if you’re planning to exit after Phase 2 trials versus going all the way to commercialization.”

Amer adds that pharma acquirers usually don’t want the extra baggage. “They want the IP, not the lease or the employees. That’s why companies are built lean with the exit in mind.”

Final Thoughts

Startups and companies in the life sciences space operate at the intersection of science, law, and investment. They require collaboration from academic inventors, venture capitalists, strategic partners, legal counsel, and an array of specialized third-party vendors.

The challenges are immense: sky-high research and development costs, long development timelines, complex regulatory landscapes, and unpredictable clinical outcomes. But the rewards can be equally profound, whether measured in return on investment, scientific innovation, or lives saved.

For those navigating this space, the industry offers extraordinary opportunities. With the right expertise, strategic foresight, and legal structure, what starts as an idea in a lab can one day become a drug, device, or therapy that changes the world.

To learn more about this topic view Life Sciences & The Law / Life Sciences Industry Basics. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested to read other articles about start-ups & entrepreneurship.

This article was originally published on here.

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