How to Conduct Thorough Compliance Due Diligence
in Pharmaceutical Mergers and Acquisitions.
An overview from our in-house team combining expertise in quality & compliance, regulatory and drug safety.
Heads from our pharmacovigilance, quality & compliance and regulatory affairs teams can provide continuity throughout the entire merger and acquisition process, ensuring a holistic view is taken and risks are mitigated.
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The pharmaceutical industry has been defined and reshaped by significant Merger and Acquisition activity over the last decade. The financial deals that underpin the M&A activity in the pharmaceutical industry are often the main headline on the business pages. However, the financial aspects are only the tip of the iceberg in these deals and a huge amount of cross-functional activity is required to even get a deal to the table.
In our highly regulated industry, ensuring that a merger or acquisition target is worth the figure on paper is not only based on a review of the company assets and projected revenue but also on their reputation with patients, healthcare providers and regulatory authorities. A major compliance issue such as an FDA Warning letter or suspension of a license can have a massive impact on the value of a company and negatively impact the actual returns on a potential investment following deal closure.
Multiple sources required for pharma due diligence.
The support of a network of experts who can support the buyer through the M&A process can be a valuable contribution to the ‘Red Flag’ risk assessment associated with the business deal, mitigating any risk to the return on investment. Although it may be tempting to single source expertise across all functions including finance, tax, legal, commercial and compliance, it is more prudent in the life sciences business sector to also retain professional experts with lived industry experience who can really see the potential regulatory and quality compliance risks that others with less industry experience may miss.
Once the target has been selected and the boards of management agree to enter potential negotiations, the program of due diligence and ‘Red Flag’ audits initiated by the investor is fundamental to the full assessment of any risks to compliance that may threaten the projected return on investment. Therefore, there is significant value in bringing your quality and compliance, product safety and regulatory experts to the table in addition to the commercial expertise.
“…an FDA Warning letter or suspension of a license can have a massive impact on the value of a company and negatively impact the actual returns on a potential investment following deal closure.”
Building a holistic picture.
Quality and compliance experts review any regulated facilities in scope to ensure that the facility, including its assets and infrastructure, is compliant with all applicable regulatory requirements and has been maintained to ensure it remains within compliance over the medium and long term without the requirement for significant investment after deal closure. The inspection history of the facility will be reviewed along with quality KPIs that indicate the compliance reputation of the facility and the probability of issues arising with regulatory authorities in the future. Internal processes such as the Pharmaceutical Quality System will also be reviewed to ensure that it meets regulatory expectations, is managed appropriately, and does not hide issues that may be costly to remedy in the future.
The quality and compliance review can also assess the existing supply chain for commercial products and provide a roadmap for a potential buyer illustrating the gaps they need to fill in their own supply chain plans to assure ongoing availability of the product on the market. This is an area that is often overlooked and can cause product shortages post-acquisition that should be mitigated in advance. This risk increases with virtual company models with a high level of outsourcing, thus requiring lengthy contract negotiations to ensure a smooth transition. For buyers looking to acquire a company or portfolio target for entry into a new market or expansion of their pipeline, the quality and regulatory affairs expert can provide insight into the local regulatory requirements in existing or potential markets which helps to build a picture of how the potential business will look post-acquisition.
Considering the regulatory issues.
Regulatory Affairs experts can provide many additional valuable insights related to the products held by the target. This includes an assessment of the compliance of product dossiers to determine if remediation or variation will be required for products on the market. For products in development, the regulatory activities include the review of all dossier sections (chemistry & manufacturing controls, non-clinical and clinical) by subject matter experts to ensure compliance with the regulatory development requirements and scientific advice to identify any risk to approval of the product.
For authorized and older products, a regulatory review of the dossier content is important to the decision to proceed with the acquisition as technological advancements such as improvement of analytical techniques may increase the risk of the identification of impurities or other items of concern that might limit the marketability of the product post-acquisition. Assessment of the compliance of the portfolio lifecycle along with the status of post-marketing commitments is also a valuable source of information for understanding prior commitments to each of the markets to which the asset(s) is supplied and how onerous these commitments are in terms of the impact on return on investment.
When products are in the development phase, the acquiring company must evaluate and strike a balance between their interests and the associated development costs. It is crucial to confirm that they have the requisite capabilities for managing the product registration process, supervising the submission of marketing authorization, and promoting advanced technologies, particularly in the context of manufacturing cell and gene therapy products. Should there be additional clinical requirements to address, it is vital to secure the assistance of a clinical research organization to conclude the studies. This measure is also critical for assessing and quantifying the associated risks involved in successfully conducting the studies to their completion.
Ensuring PV and clinical safety are reviewed.
Review of the pharmacovigilance and clinical safety programs by industry experts can augment the information provided in the quality, compliance and regulatory due diligence streams. Where the target asset is still in clinical development a review of the Clinical safety data will not only ensure that there are no compliance gaps in relation to GCP procedures but also aid the assessment of the probability of clinical development success. This review will enable the assessment of any potential changes that may be required to the formulation and indication prior to commercialization and the likelihood of potential license restrictions associated with patient safety and risk management.
For target companies with a healthy pipeline going through clinical development, review of the status of clinical products can provide information related to the probability of clinical success and the likelihood of the product getting to market and being profitable.
For commercial products, the risk benefit profile of the target asset and it is required risk mitigation infrastructure can significantly influence the profitability of the product in the short, medium, and longer term. REMs and additional Risk Minimization Measures can be costly and involve restricted distribution which can both reduce the target population and add complexity to the supply chain. The management of adverse events and difficulties with the product in the market can have an influence on the perceived value of the product and its predicted longevity and ability to outpace competitors.
“The management of adverse events and difficulties with the product in the market can have an influence on the perceived value of the product and its predicted longevity and ability to outpace competitors.”
Protect your long-term ROI.
The quality and compliance, pharmacovigilance and regulatory reviews may be performed using a variety of methods including on-site audit of facilities, review of documents in Virtual Data Rooms (VDR) and interviews with management at the target company. Regardless of method, the goal is to obtain as much information as possible to assess the reputation of the target with the regulators and to estimate the effort involved in keeping the target compliant with regulations over the medium and long term. This information has a major impact on the success of the target and, therefore, on the return on investment in the longer term, including the likelihood of approval for additional products or expansion of facilities and increased output.
Pharmaceutical due diligence experts combine their technical and business expertise to provide insight into how technical challenges may influence the business deal in terms of integrity and reputation of the target and their products, the requirement for medium- and long-term investment and the standard processes that need to be factored into project costs. The results of these reviews are captured in a ‘Red Flag’ report in which quality, regulatory and pharmacovigilance observations are described in the business context including risks and impacts and are ultimately used to support decision making in relation to the deal.
Once the deal is done, the same experts that have supported the due diligence can be engaged to support with the development and implementation of a cross-functional strategic implementation plan that may include diverse activities such as license variations, marketing authorization transfer, PV system transfer, gap analysis and PQS review and revision. Often the closure of a deal is only the start of the story and the beginning of a long road of organizational change and operational delivery. Having trusted partners support with the navigation of this lengthy process is invaluable for ensuring success.