The pharmaceutical industry has a number of particularities that set it apart from other sectors. Pharmaceutical companies operate in a market that is highly regulated by the authorities. They require administrative authorisation to launch any medicine. Distribution, promotion, dispensing and administration are also subject to exhaustive state control.
All these differential facts condition any M&A operation involving companies dedicated to the development, manufacture or marketing of medicines. In fact, due to the strategic status of the pharmaceutical industry, the EU has specific control mechanisms for the sector.
Due diligence and representations and warranties
Both in the due diligence phase and in the representations and warranties, all information and documentation must be requested, analysed and taken into account in order to identify the greatest risks potentially faced by the company:
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What is the status of the company’s assets?
The main asset of pharmaceutical companies is intangible: the patent of the product, the know-how associated with the manufacturing process, the data resulting from the clinical trial, etc. Therefore, the acquirer has to check whether the intangible asset belongs to the target company, whether it is the sole owner, whether it is an asset licensed by a third party, whether it is duly registered with the Spanish Patent and Trademark Office or the European Union Intellectual Property Office… When the rights are formalised in contracts (licensing contracts, co-development contracts, etc.) it will be necessary to analyse whether the licence or co-ownership is subject to a change of control clause or expiry of its term.
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Have there been any recalls?
Any withdrawal from the market entails significant administrative and financial costs, as well as a huge reputational cost.
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Have there been any judicial or extradjudicial actions for tort or strict product liability?
This is a particularly big risk in markets such as the US, where there is a risk of collective actions.
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Does the target company have robust compliance procedures?
As we said, the pharmaceutical industry is one of the most regulated. Administrative authorisation is essential to market a drug in each of the autonomous communities, set the price, promote it… Therefore, in the due diligence phase, it is advisable to analyse the consistency of compliance processes and procedures. It is also important to check whether the company adheres to any industry self-regulation code, such as the Farmaindustria Code of Good Practices or the EFPIA Transparency Code.
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Have there been any judicial or extrajudicial actions for nullity of infrigement of industrial property rights?
It is necessary to analyse whether there is any risk, existing or potential, that the target company will be sued for patent infringement.
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Are there any incompatibilities between the target and the acquiring company?
In these cases the acquiring company is usually also a pharmaceutical company. It is therefore necessary to analyse whether the target company’s business might conflict with its existing exclusivity, sole-source or non-compete obligations.
Specific steps to complete a merger or acquisition in the pharmaceutical industry
In order to close the M&A transaction, it is necessary to formalise the deed of transfer of the marketing authorisations of the acquired medicines. In the case of Spain, the transfer must be authorised by the Spanish Medicines and Health Products Agency (AEMPS).
It is also often advisable to sign a transitional support services agreement until the acquirer has integrated the new quality, medical and pharmacovigilance departments into its structure. This ensures the smooth fulfilment of contracts for the manufacture or marketing of medicines without interruption.
At Confianz, we have the experience and expertise to guide your company through every stage of an M&A transaction in the pharmaceutical industry. To ensure the success and regulatory compliance of your transaction, do not hesitate to contact us.