This post is the first in our five-part series, Navigating Life Sciences Transactions, where our team of attorneys provides essential strategies and insights for successful life sciences transactions.
AI, Medical Devices, Digital Health, and the Future of Healthcare Transactions
Innovation in life sciences isn’t just about scientific breakthroughs—it’s about making the right business decisions. Whether a company is developing AI-driven diagnostics, biotech therapies, connected medical devices, or digital health solutions, success hinges on how well deals are structured.
A strategic collaboration, licensing agreement, or commercialization deal can fuel growth, but a poorly structured agreement can just as easily create IP disputes, regulatory roadblocks, governance conflicts, and financial risks. In a rapidly evolving industry, structuring deals correctly isn’t just an advantage—it’s a necessity.
What Life Sciences Companies Need to Get Right
1. AI and Digital Health Transactions Require Regulatory Clarity
Many companies focus on product-market fit and IP strategy while assuming regulatory approvals and payer adoption will fall into place later. That’s a risk.
- If an AI-powered medical device, clinical decision support tool, or digital therapeutic lacks clear FDA classification, investors and potential partners will hesitate.
- The FDA is closely monitoring machine learning-enabled devices, real-world data in clinical algorithms, and AI-powered diagnostics. A deal should clearly allocate responsibility for compliance, regulatory filings, and post-market obligations—vague terms can create major liabilities.
- Federal and state laws governing AI, data privacy, and digital health are evolving quickly and vary by jurisdiction. Companies must navigate differing requirements related to licensure, telehealth, AI regulation, and data use restrictions that could impact compliance.
- Payer adoption is not a given, especially for digital therapeutics where the landscape is evolving. Prior to expending substantial resources on a digital health solution, parties to a potential deal should seek to understand and balance the payer and regulatory landscape – you need a path to market clearance AND payment.
2. Licensing and Commercialization Agreements Must Define IP Ownership
Traditional biotech and medical device deals focus on patents, but software-powered medical devices and AI-driven therapeutics introduce a new layer of complexity: Who owns the algorithm and its improvements?
- If an AI-based diagnostic tool is continuously refined using clinical data, does the original company retain rights to updates, or does the healthcare provider supplying the data have a claim?
- If a biotech or medtech company licenses AI-driven technology for drug discovery or diagnostics, can it later integrate that technology into other therapeutic areas?
- Cloud-based diagnostics, software-as-a-medical-device (SaMD), and AI-powered platforms require structured agreements that account for continuous updates, regulatory modifications, cybersecurity requirements, and performance monitoring obligations.
- Open source software is a tempting “free” solution to speed development, but can have serious ownership consequences – it is important to understand any software licensing ownership restrictions/requirements before using open source and if another party has used open source to develop a solution.
Key Licensing and IP Protections:
- Define ownership of derivative works—if either party makes modifications, updates, or derivative versions of the technology, who owns them?
- Understand the scope of parties involved and make sure IP ownership or licensing rights pass to the intended parties.
- Specify data ownership, access, usage, and monetization rights—can AI-generated insights be used for other purposes, such as future drug development or external licensing?
- Clearly define termination and IP reversion rights—if the deal ends, who retains rights to improvements, regulatory filings, and commercial rights?
3. Strategic Collaborations and Commercialization Models Need Strong Governance
Rigid joint ventures are giving way to milestone-based collaborations, revenue-sharing models, and equity-linked co-development deals that provide more flexibility. While these structures offer greater adaptability, they also introduce governance and decision-making challenges that can derail even the most promising partnerships.
- Pharma and biotech companies are increasingly working with AI-driven drug discovery platforms to de-risk R&D investments while ensuring shared ownership of outcomes.
- Medical device manufacturers and digital health startups are structuring deals that allow for co-development while maintaining control over their technology and commercialization rights.
While flexibility is key, these deals must also clearly define governance structures, decision-making processes, and dispute resolution mechanisms. Otherwise, disagreements over clinical trial strategies, regulatory filings, pricing, market access, and commercialization rights can bring progress to a halt.
How to Prevent Governance and Dispute Pitfalls in Strategic Collaborations
Joint Governance Considerations
- Define decision-making authority—who has the final say on critical business and regulatory decisions? Avoid vague terms like “mutual agreement” that can stall progress.
- Create a joint steering committee—many collaborations lack a rigid corporate structure, making it crucial to establish a governance committee with representatives from each party. The committee should:
- Set milestones for regulatory approvals, clinical trials, and commercialization.
- Define which decisions require unanimous vs. majority consent.
- Include an escalation process for resolving disagreements.
- While the joint steering committee can be effective and efficient, the most important deal points, such as IP ownership, data distribution, etc., are best handled upfront instead of pushed off to the joint steering committee.
- Plan for changes in control or exit scenarios—if one company wants to terminate the agreement, change ownership, or get acquired, does the other party get:
- A right of first refusal (ROFR) to acquire IP or commercialization rights?
- A pre-agreed royalty structure if one party exits but continues using jointly developed technology?
- Liability for patient harm or incorrect outputs must be clearly allocated. Agreements should define which party is responsible for regulatory compliance, and defense against potential claims, as well as liability for actual harm resulting from inaccurate diagnoses, treatment recommendations, or device failures.
Dispute Resolution Strategies
- Structured escalation process—contracts should specify a clear dispute resolution path before litigation:
- Internal executive-level negotiation.
- Joint steering committee review.
- Mediation or arbitration as a last step before litigation.
- Pre-defined mediation and arbitration requirements—many agreements require disputes to go through binding arbitration rather than traditional litigation. While arbitration is not always less expensive, it offers several strategic advantages:
- A sophisticated and informed adjudicator—unlike a general court judge, arbitration allows parties to select a decision-maker with expertise in life sciences, regulatory issues, or intellectual property.
- Confidentiality protections—contracts can stipulate that all aspects of the dispute remain confidential, preventing sensitive IP and business details from becoming public record.
- Minimized business disruption—a public lawsuit can harm investor confidence, slow commercialization efforts, and impact competitive positioning. Arbitration helps mitigate these risks.
- Interim protections for IP and market rights—if a dispute arises over IP ownership, data use, or exclusivity breaches, contracts should allow for:
- Injunctive relief to prevent ongoing harm.
- Carefully and tightly scoped temporary suspension of commercialization rights while disputes are resolved.
- Post-termination obligations—if the partnership ends, what happens to:
- Ongoing regulatory responsibilities (e.g., FDA filings, clinical trial data)?
- Revenue-sharing or royalties from already commercialized products?
- Confidentiality and non-compete obligations?
- Biological samples and clinical data?
The Takeaway
The life sciences companies that thrive are those that align regulatory strategy with deal structure—balancing innovation with compliance, and ownership with scalability. But structuring the deal isn’t enough—it must also include clear governance rules, well-defined decision-making processes, and a structured approach to dispute resolution.