Due diligence is a key part of any acquisition and the areas of focus will often be similar, regardless of the business involved. For example, the buyer will almost always want to understand the key customers and suppliers, any potential claims, property, tax and the situation with the employees.
The particularly crucial areas in a life sciences acquisition will be reflected by the most important warranties. Here, along with the areas set out above, the buyer will be looking closely at the company’s intellectual property, regulatory approvals and products, among others.
Key areas for due diligence include:
1. Intellectual Property
Any patents and other intellectual property (IP) rights held by the company will be critical. This will not be limited to registered rights; know how, trade secrets and unregistered trademarks will also be of interest. Derogations from the normal terms, for example extensions granted to a patent for a pharmaceutical product under a supplementary protection certificate, or the availability of this option, should be highlighted to the buyer. As with all requests, a seller will want to be careful however about how much they share here before the transaction is complete to prevent unscrupulous buyers using the information for their own benefit.
A buyer will want to review any IP licences to ensure they would have the right to continue using the IP and any key rights have not been given away. They will ask for details of any claims of infringement as well as any information on possible infringement by third parties. They will also want to ensure any IP created by a third party (such as a consultant) has been properly assigned and belongs to the company.
2. Products
A buyer is likely to focus on the key products, based on the amount of revenue produced by each product and the areas of focus will overlap significantly with the intellectual property due diligence.
They will want to understand its sales, any possible risks and its potential for the future. The buyer will likely look at what competing products are in the market, or soon to be coming to market, where a medicinal product might be in its life cycle and any other rights to exclusivity or intellectual property that are relevant in relation to that product.
A buyer will be very interested in any potential claims and will review the adverse event reports and changes to the packaging and product among other things in order to assess this risk.
3. Marketing authorisations and regulatory compliance
For pharmaceutical companies, the marketing authorisations it holds are clearly one of the main assets of the business. A buyer will want to review these in detail along with any recalls that have been made. The buyer will also be keen to understand what level of market exclusivity any pharmaceutical products enjoy.
Regulatory due diligence is likely to focus on the pharmacovigilance systems in place along with reports made under these systems. They will want to confirm that the packaging and SmPC requirements for medicinal products have been met and that the packaging used matches the marketing authorisation.
If Phase IV clinical trials have been requested by a regulator it is essential to review the obligations for these trials to understand the burden and implications going forward.
The buyer will want to review the promotion of any pharmaceutical products. They will want to ensure that the company has complied with the prohibition on marketing to the public in the UK along with the restrictions on promoting products to health care professionals and the PMCPA code of conduct in general, as well as reviewing the disclosure of payments made to healthcare professionals.
Compliance for companies requiring GxP approvals from the MHRA will be a key focus. Review of historic audits and the current authorisation will be requested by the buyer.
Compliance with laws generally will be a key focus as with many transactions. Data protection compliance will be of specific importance when dealing with patient and clinical trial data especially.
4. Supply chain
The supply chain will be of particular interest, whether for manufacturing or the provision of ingredients or laboratory supplies, as a change of supplier is likely to require many hurdles to be cleared, likely testing and sign off of different products and audits the buyer will want to ensure the risk of needing to do this is minimal.
The buyer will want to see the agreements in place with key suppliers along with any audit reports. They will want to check their regulatory approvals where required and, if necessary, the quality agreement between the parties covering the regulatory responsibilities.
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