Life Sciences

Article Allison Korn

Life sciences companies are built on breakthrough ideas, but they are scaled through capital.

From early-stage grants to venture capital and strategic pharmaceutical partnerships, each phase of funding creates new opportunities and new financial complexities. While much of the industry’s focus is on science, innovation, and regulatory milestones, another critical factor often receives less attention: financial infrastructure.

The Idea Phase: Grants and Non-Dilutive Funding

For many life sciences companies, the journey begins with grants and non-dilutive funding sources such as NIH grants, SBIR programs, and foundation funding. At this stage, organizations are focused on validating scientific concepts and establishing early credibility.

While these funding sources do not dilute ownership, they introduce their own operational demands. Funding is often milestone-based, requiring companies to demonstrate progress before additional capital is released. In many cases, once funding crosses certain thresholds, formal audit requirements come into play.

What this means in practice is that even at the earliest stage, companies need more than basic bookkeeping. They need the ability to:

  • Track expenditures by funding source
  • Maintain audit-ready financial records
  • Demonstrate compliance with grant requirements

This is where structured financial systems begin to matter. Platforms like Sage Intacct support multi-dimensional tracking, allowing organizations to monitor grants, projects, and departments in parallel without creating unnecessary complexity in the chart of accounts.

Companies that establish this level of visibility early are far better positioned to build credibility with future investors.

The Prototype Phase: Pre-Seed and Early Funding

As organizations move beyond the idea stage, they begin raising capital from angel investors, friends and family, and early-stage funds to develop prototypes and proof-of-concept products.

This is a pivotal transition. The organization is no longer just a research initiative, but it is also becoming an operating business.

At this stage, investors are still comfortable with high risk, but expectations begin to shift. Stakeholders want to understand:

  • How quickly the company is burning cash
  • Whether progress aligns with funding milestones
  • What near-term financial trajectory looks like

Many companies attempt to manage this transition using spreadsheets or entry-level accounting systems. However, this often leads to inconsistent reporting, manual processes, and limited visibility into real-time performance.

This is typically where organizations begin to outgrow tools like QuickBooks—not necessarily due to transaction volume, but because of increasing complexity.

Cloud-based financial management platforms such as Sage Intacct enable real-time reporting, standardized financial processes, and scalable data structures, allowing leadership teams to manage growth with confidence rather than react to it.

The Growth Phase: Venture Capital and Institutional Investment

When companies reach the venture capital stage—Series A, B, and beyond—the stakes change significantly.

Investors are no longer funding potential; they are funding growth.

At this level, expectations expand to include:

  • Clean, investor-ready financial statements
  • Advanced reporting and KPIs (burn rate, runway, unit economics)
  • Forecasting capabilities to support decision-making
  • Increasing governance, including board reporting

Financial operations move from the back office to the center of the conversation. The ability to produce timely, accurate, and transparent reporting becomes a key factor in securing and maintaining investor confidence.

In many cases, organizations also introduce additional complexity such as multi-entity structures, expanded teams, and global considerations.

Sage Intacct is purpose-built to address these challenges, with capabilities such as:

  • Multi-entity consolidation and reporting
  • Role-based dashboards for executives and investors
  • Automated financial close processes
  • Real-time visibility into financial performance

At this stage, the finance function is no longer just accounting, it is a strategic asset that directly supports valuation and growth.

Strategic Partnerships and Big Pharma Collaboration

As life sciences companies mature, many begin exploring strategic partnerships with larger pharmaceutical organizations. These relationships can take many forms, including licensing agreements, joint development arrangements, or full acquisitions.

While these partnerships can be transformative, they introduce a new level of financial and operational complexity.

Companies must navigate:

  • Revenue recognition tied to structured deal terms
  • Co-development agreements and shared investment models
  • Regulatory and compliance considerations
  • Complex tax and audit implications

In addition, timing becomes a strategic factor, as large pharmaceutical companies often accelerate deal activity toward year-end based on budget availability and strategic priorities.

At this stage, financial systems must be capable of more than reporting historical activity. They must also support complex agreements and evolving business models.

Solutions like Sage Intacct provide advanced capabilities such as:

  • Contract-based revenue recognition
  • Support for multi-book accounting (e.g., GAAP vs. tax)
  • Scalable reporting across entities, agreements, and geographies

These capabilities allow organizations to not only comply with requirements but also to confidently structure and manage strategic deals.

Beyond Funding: Financial Maturity as a Competitive Advantage

Each funding stage brings more than capital, it also brings new expectations, new risks, and new opportunities.

The organizations that successfully scale are those that recognize an important truth:

Funding readiness and financial readiness are not the same thing.

Companies that invest early in scalable financial infrastructure are better equipped to:

  • Move quickly when funding opportunities arise
  • Provide transparency to investors and stakeholders
  • Navigate regulatory and audit requirements
  • Support complex partnerships and deal structures

In contrast, companies that delay these investments often find themselves reacting to pressure rather than leading through it.

Ready for Your Next Funding Stage?

Whether you’re navigating grant compliance, preparing for your first institutional investment, or structuring a strategic partnership, your financial infrastructure should evolve in lockstep with your growth strategy.

At Dean Dorton, we help life sciences companies assess where they are today, and what they’ll need tomorrow and across their funding lifecycle. From financial system strategy and Sage Intacct implementation to audit readiness and advisory support, our team works alongside you to build the foundation necessary for sustained growth.

If you’re planning for a funding event, or simply want to ensure your financial operations are ready when the opportunity arises—let’s start the conversation.

Article Danielle Camara

Chief Financial Officers want predictability when it comes to tax. Their goal is simple: pay the correct amount, optimize efficiency, and avoid unnecessary risk. What they do not want are surprises—especially those that come in the form of audits, penalties, or unexpected liabilities. 

Achieving compliance, however, is becoming more difficult. Sales and use tax rules continue to evolve, and while many state laws look similar on the surface, subtle differences in how products and services are treated can create significant risk. This is especially true for life science companies with complex and innovative offerings.

Why Compliance Is So Challenging 

Life science companies operate at the intersection of rapid innovation and outdated tax frameworks. As new therapies, devices, and service models emerge, state tax laws often lag behind, creating ambiguity in classification and treatment. Layer in relationships with contract research organizations (CROs), contract manufacturers, and third-party distributors, and compliance becomes even more complex.

The result is a fragmented and often inconsistent compliance landscape that requires careful, ongoing analysis. 

The Real Cost of Non-Compliance 

Failing to properly manage sales and use tax obligations can have significant financial and operational consequences, including: 

  • Paying sales tax out-of-pocket instead of collecting it from customers
  • Exposure to audits, interest, and penalties 
  • Overpaying use tax on items that may qualify for exemptions 
  • Reputational damage associated with non-compliance 

These outcomes are often the result of a reactive approach rather than a structured, proactive strategy.

Common Themes Across State Regulations 

While each state has its own nuances, several consistent themes emerge that life science companies must consider. 

Nexus: The Starting Point 

Before determining whether to charge sales tax, companies must first evaluate whether they have established nexus in a state. Nexus creates a filing obligation and can arise from: 

  • Physical presence  
  • Economic activity, such as revenue or transaction thresholds
  • Business relationships, including those with CROs and contract manufacturers 

These third-party relationships can unintentionally create nexus, making this analysis more complex than it initially appears. 

Prescription vs. Over-the-Counter Products 

In many states, prescription drugs and certain medical devices are exempt from sales tax, while over-the-counter (OTC) products may be taxable. However, exceptions are common and vary by jurisdiction. 

Assuming consistent treatment across states can lead to misclassification—especially for products that blur the line between pharmaceutical, device, service offerings.

R&D and Manufacturing Exemptions 

Many states offer exemptions for research and development and manufacturing purchases. However, qualification requirements differ and often depend on proper documentation and exemption certificate management. 

Failure to properly apply these exemptions can result in unnecessary tax expense or audit exposure. 

Innovation Outpacing Regulation 

One of the biggest challenges is the pace of innovation. Products that combine software, hardware, and therapeutic elements often do not fit neatly into existing tax categories.

This makes it critical for companies to evaluate new offerings proactively rather than rely on assumptions.

A Practical Approach to Compliance 

Given the complexity, companies should adopt a structured approach to compliance. 

1. Conduct and Maintain a Nexus Study 

Start by identifying where your company has filing obligations. A comprehensive nexus study, performed by a qualified CPA firm, can provide clarity and should be updated regularly as your business evolves. 

If gaps are identified, many states offer voluntary disclosure programs that allow companies to come into compliance while minimizing penalties. 

2. Implement the Right Technology—And Optimize It 

Sales and use tax software is essential for managing multi-state compliance. However, implementation alone is not enough. 

Companies should ensure: 

  • Accurate taxability mapping for products and services
  • Proper integration with ERP systems 
  • Ongoing maintenance as products and regulations change 

If your current solution is underperforming, the issue may not be the software itself, but rather outdated configurations and/or inefficient processes. 

3. Establish Strong Processes and Controls 

Technology must be supported by well-defined internal processes, including: 

  • Defined ownership of tax responsibilities 
  • Documented workflows across tax, finance, and operations teams 
  • Regular reconciliations and variance analysis 
  • Review of tax calculations before filing 

Many of these steps can be automated, reducing manual effort and minimizing risk.

How Dean Dorton Can Help 

Dean Dorton brings together deep expertise in both the life sciences industry and sales and use tax automation consulting. This integrated approach allows us to help companies design, implement, and manage effective tax processes tailored to their specific operations. 

Whether you are building a compliance framework or refining an existing one, our team can help ensure your approach is current, efficient, and aligned with evolving regulations—so there are no surprises. 

Have questions or want to evaluate your current approach? Get in touch with our team to start the conversation.

Article Kristin Butler

Congress has officially extended funding for the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs — a welcome development for early‑stage life science companies relying on non‑dilutive capital to advance research and development.

For many companies, these programs are more than just grants. They’re a critical bridge between scientific discovery and commercial viability. For companies navigating long R&D timelines and complex regulatory pathways, continuity in these programs is essential. With this renewed authorization funding continues without interruption, preserving stability for companies planning upcoming research milestones. Also, In-process applications remain on track, minimizing the risk of delays tied to program funding.

What Life Science Companies Should Be Thinking About Now

This extension creates an opportunity for life science companies to revisit their funding strategies:

  • Evaluate eligibility for upcoming SBIR/STTR solicitations.
  • Review cost accounting systems to ensure compliance with federal award requirements.
  • Assess tax implications, including how grant funding interacts with R&D credits and capitalization rules.
  • Prepare documentation early, as competition for awards remains strong across NIH, NSF, DoD, and other agencies.

Our audit and tax teams continue to see increased scrutiny around indirect cost rates, time tracking, and documentation. Whether you’re considering your first SBIR/STTR submission or managing multiple active awards, Dean Dorton is here to help.

Article Dean Dorton

The life sciences industry depends on long-term capital, high-risk innovation, and patient investment. The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, significantly enhances Section 1202 of the Internal Revenue Code — the provision governing Qualified Small Business Stock (QSBS). These changes make investing in and building life sciences companies more attractive by expanding tax benefits for founders and early investors.

For biotechnology, pharmaceutical, and medical technology companies that require substantial upfront investment and extended development timelines, the revised Section 1202 rules create meaningful new opportunities for capital formation and exit planning.

Section 1202 Pre-OBBBA

Congress created Section 1202 in 1993 to encourage investment in small, growth-oriented businesses. Under Section 1202, noncorporate taxpayers – including individuals, trusts, and estates – may exclude from income capital gains from the sale of QSBS if they satisfy certain conditions.

To qualify for the benefits of Section 1202, the stock must be issued by a domestic C corporation and acquired by the taxpayer at its original issue (either directly or through an underwriter). Before the OBBBA, Section 1202 required that the C corporation issuing the stock have aggregate gross assets of no more than $50 million both before and immediately after the stock issuance. At least 80% of the corporation’s assets must be used in the active conduct of a qualified trade or business.

Certain service-oriented types of businesses are excluded from qualification. Importantly, companies focused on research, product development, and manufacturing — the core activities of most life sciences startups — generally fall within qualifying trades or businesses.

Pre-OBBBA, shareholders were required to hold QSBS for more than five years to exclude any gain from income upon its sale. If this holding period was satisfied, the following percentages of gain could be excluded from the shareholder’s income upon sale of the QSBS:

Date of Stock IssuanceMaximum Exclusion Percentage
8/11/1993 – 2/17/200950%
2/18/2009 – 9/27/201075%
9/28/2010 – 7/4/2025100%

The maximum gain eligible for exclusion was the greater of $10 million or ten times the taxpayer’s basis in the stock.

Enhanced Tax Benefits under the OBBBA

Many of the Section 1202 rules remain unchanged following the OBBBA’s enactment. However, the OBBBA expands the tax benefits available under Section 1202 in three primary ways.

Tiered Holding Period

Under the OBBBA, taxpayers are no longer required to hold QSBS for more than five years to benefit from gain exclusion. Instead, taxpayers that hold QSBS for at least three years are eligible to exclude 50% of the gain from the sale of the stock from income. If a taxpayer holds QSBS for at least four years, 75% of the gain may be excluded. For QSBS held for five or more years, 100% of the gain may be excluded. This new, tiered holding period applies to QSBS acquired after July 4, 2025.

Life science companies often progress through defined development stages – early research, clinical trials, regulatory approval, and commercialization.  This new tiered holding period gives investors greater flexibility to align exit timing with these milestones.

Increased Cap on Maximum Gain Exclusion

The OBBBA raises the cap on the maximum amount of gain a taxpayer may exclude from income upon the sale of QSBS from $10 million to $15 million. Thus, for stock acquired after July 4, 2025, a taxpayer may exclude the greater of $15 million or ten times the taxpayer’s basis of the stock sold. Beginning in 2027, the $15 million amount is adjusted annually for inflation.

A higher exclusion cap allows founders and early investors to retain more of their gains after tax.  For venture-back startups with rapid valuation growth, the expanded exclusion can materially affect after-tax economics, making early equity ownership more attractive and strengthening incentives for long-term commitment.

Higher Asset Threshold to Qualify as a Small Business

Prior to the OBBBA, the C corporation issuing the stock was required to have aggregate gross assets of no more than $50 million both before and immediately after the stock issuance. The OBBBA increases the aggregate gross asset limit to $75 million, indexed for inflation beginning in 2027. The higher limit applies to stock issued after July 4, 2025.

Life sciences companies are capital-intensive. Research infrastructure, laboratory equipment, intellectual property development, and clinical trials can quickly increase asset levels. The higher threshold better reflects the realities of scaling a science-driven business.

Conclusion

The OBBBA’s changes to Section 1202 strengthen an already powerful incentive for investing in innovative small businesses. For life sciences startups — where capital intensity, long development horizons, and high growth potential intersect — these enhancements are especially meaningful.

The new tiered holding period provides earlier access to tax benefits. The increased exclusion cap boosts after-tax returns. And the higher asset threshold expands eligibility for growing companies. Together, these changes support capital formation and reinforce the economic foundation needed to advance scientific innovation.

Life sciences companies face unique tax and financing considerations. Understanding how Section 1202 planning fits into your overall growth strategy can materially impact founder and investor outcomes.  If you’re interested in learning more about how the expanded opportunities under the OBBBA could benefit you, contact Dean Dorton.

Article Danielle Camara

The Financial Accounting Standards Board’s ASU 2025-10 introduces authoritative guidance for accounting for government grants received by business entities—a first for U.S. GAAP. Historically, companies relied on analogies to IAS 20 or not-for-profit models, creating diversity in practice. This update aligns U.S. GAAP with international standards, enhancing transparency and comparability.

Under ASU 2025-10, a grant is recognized only when it is probable that the entity will (1) comply with the grant’s conditions and (2) receive the funds. For income-related grants, amounts may be presented as other income or as a reduction of the related expense.

Effective Date:

  • Public business entities: Annual periods beginning after December 15, 2028 (including interim periods).
  • All other entities: One year later, after December 15, 2029.
  • Early adoption permitted

For additional details on ASU 2025-10 or questions about your grants, please reach out to the Dean Dorton Life Science Team.

Article Nikki Gilland

The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, introduced numerous tax changes for individuals and businesses. This update explores recent IRS guidance related to research and experimental (R&E) expenditures.

For businesses in research-intensive industries, one of the most favorable OBBBA changes is the partial restoration of immediate expensing for R&E costs. Since 2022, the Tax Cuts and Jobs Act of 2017 (TCJA) required R&E expenses to be capitalized and amortized—over five years for domestic research and 15 years for foreign research.

The OBBBA restores the ability to immediately deduct domestic R&E expenditures for tax years beginning after December 31, 2024, under new Internal Revenue Code (IRC) Section 174A. Taxpayers may either:

  • Immediately deduct domestic R&E expenses; or
  • Elect to capitalize and amortize them over at least 60 months.

Foreign R&E expenses must still be capitalized and amortized over 15 years.

Transition Rules

The law includes transition rules for domestic R&E expenditures incurred in 2022–2024:

  • All affected taxpayers may elect to deduct unamortized amounts over a one- or two-year period beginning in 2025.
  • Small business taxpayers (those with three-year average annual gross receipts of $31 million or less) may amend 2022–2024 returns to elect to deduct instead of amortize R&E expenses.

However, questions remained about how to implement these changes for extended 2024 returns that haven’t been filed yet.

IRS Guidance: Revenue Procedure 2025-28

On August 28, 2025, the IRS issued Revenue Procedure 2025-28, clarifying many aspects of the OBBBA’s R&E provisions. It provides details on the timing and methods for making the changes outlined in the OBBBA. Below are key highlights from the guidance.

Small Business Taxpayer Election

The small business taxpayer election allows a qualifying taxpayer to shift the effective date from tax years beginning after December 31, 2024, retroactively to tax years beginning after December 31, 2021.

Revenue Procedure 2025-28 allows eligible small business taxpayers to:

  • Deduct 2024 R&E expenditures on their originally filed 2024 returns, provided they also amend their 2022 and 2023 returns.
  • File a superseded 2024 return by the extended due date, if they timely filed their original 2024 return.

This clarification eases the administrative burden on small businesses by eliminating the need to file an amended 2024 return. Additionally, the Procedure allows taxpayers who already filed their 2024 return to file a superseding return within six months of the original due date—even if the return was not extended—to make a Section 174A election.

Elections for All Taxpayers

All taxpayers, including those not qualifying as small businesses, may elect to deduct unamortized 2022–2024 domestic R&E expenses in 2025 or ratably over 2025 and 2026.

This election must be made in the first tax year beginning after 2024 and may be made by attaching a statement in lieu of filing Form 3115 (Application for Change in Accounting Method).

Taxpayers electing to amortize domestic R&E expenses after 2024 may:

  • Attach a statement to their timely filed return for the first election year; or
  • Use the Section 174A accounting method change for tax years beginning in 2025.

The Takeaway

Revenue Procedure 2025-28 is welcome guidance that will reduce the compliance burden for many small businesses. Its provisions, however, are complex. If your business has incurred R&E expenditures, contact your Dean Dorton advisor to determine the best approach for you.