Top 5 Hazards In Pharma Post-Merger Integration
By Ed Morris, Senior Executive Advisor at Global PMI Partners

Post-Merger Integration is challenging in any industry. However, the Life Sciences sector (pharma, biotech and medical device) has several unique factors that can significantly jeopardize a merger or acquisition.

All of the standard integration issues apply e.g. Finance, HR, etc. However, the following five key areas are potential hazards that need to be addressed as high priority items.

FDA regulations require the logging, investigation and correction of any quality related incidents. Often referred to as “Deviations”, these events are highly scrutinized by regulatory inspectors. Each event record is assigned a unique identification number and is typically entered into an electronic Quality Management System (QMS). Each event must be assigned for investigation, Root Cause Analysis and subsequent Corrective Actions & Preventative Actions (CAPAs) all according to Standard Operating Procedures (SOPs). Deviations or Events cannot be closed until all CAPAs are closed. Quality event records that go beyond their assigned closure date are red flags during regulatory inspections, which can result in material financial impact, including but not limited to, protracted business interruption. Official FDA Warning Letters are public records and can have a material impact on public relations.

FDA and global regulations require all Market Authorization Holders to maintain “complete and accurate records” of all data related to the development, production and distribution of all products and to produce those records in a timely fashion. Failure to produce said records during an inspection often results in a formal Observation in the form of a Form 483¹.

Critical data can be found in a myriad of systems in various departments including; clinical trials, regulatory filings, production batch records, sales and finance. Failure to plan for the identification, transfer, receipt and storage of legacy data can drive up the cost of transition. Sadly, most deal teams aren’t aware of the considerable regulatory and operational criticality of legacy data. Far more than just users’ day-to-day files (documents, spreadsheets, presentations, etc.).

Pharmaceutical carve-outs normally involve agreeing three basic agreements the SPA (sale and purchase agreement), the MSA (master services agreement, covering ongoing supply from the facility) and the TSA (transition services agreement). Naturally, when it comes to Transition Services Agreements (TSAs), it is in both parties’ interest to ensure uninterrupted operations between signing and closing, as well as post-closing with a smooth transition of operations from the seller to the buyer. A TSA is normally agreed in outline form at the signing of definitive agreements, but the practical details and issues only become apparent once the buyer and sellers’ operational teams become engaged. However, postponing detailed discussions about the TSA increases financial and operational risks and Murphy’s Law is always lurking. The key to expediting the TSA is knowing what the high-risk items are going in and to have this important activity executed by a team of experts, experienced in these operations who can work with both the seller’s and buyer’s operational teams.

Getting a pharma or device product to market requires an intensive process of submissions to the FDA and similar global regulatory authorities. There are several critical filings that must continue and be transferred during a carve-out or acquisition:

Investigational New Drug application (IND)

This is the first major filing for biologics and pharmaceutical products. An Investigator IND is submitted by a physician who both initiates and conducts an investigation, and under whose immediate direction the investigational drug is administered or dispensed. A physician might submit a research IND to propose studying an unapproved drug, or an approved product for a new indication or in a new patient population. Approval of IND authorizes the first clinical studies to be conducted in humans.

Clinical Study Protocols and Results

A large volume of scientific data must be submitted to regulators during the clinical (and pre-clinical) study process to demonstrate the product is safe and effective. Delayed or inaccurate data costs thousands of dollars per day in the drug development process.

New Drug Application (NDA)

When the sponsor of a new drug believes that enough evidence on the drug’s safety and effectiveness has been obtained to meet FDA’s requirements for marketing approval, the sponsor submits to FDA a new drug application (NDA). The application must contain data from specific technical viewpoints for review, including chemistry, pharmacology, medical, biopharmaceutics, and statistics. If the NDA is approved, the product may be marketed in the United States.

Abbreviated New Drug Application (ANDA)

Contains data that, when submitted to FDA’s Center for Drug Evaluation and Research (CDER), Office of Generic Drugs, provides for the review and ultimate approval of a generic drug product. Generic drug applications are called “abbreviated” because they are generally not required to include preclinical (animal) and clinical (human) data to establish safety and effectiveness. Instead, a generic applicant must scientifically demonstrate that its product is bioequivalent (i.e., performs in the same manner as the innovator drug).

Biologic License Application (BLA)

Biological products are approved for marketing under the provisions of the Public Health Service (PHS) Act. The Act requires a firm who manufactures a biologic for sale in interstate commerce to hold a license for the product. A biologics license application is a submission that contains specific information on the manufacturing processes, chemistry, pharmacology, clinical pharmacology and the medical affects of the biologic product.

510k

A 510(k) is a premarketing submission made to FDA to demonstrate that the device to be marketed is as safe and effective, that is, substantially equivalent (SE), to a legally marketed device that is not subject to premarket approval (PMA).

Premarket Approval (PMA)

The most stringent type of device marketing application required by FDA. A PMA is an application submitted to FDA to request clearance to market, or to continue marketing of a Class III medical device.

Adverse Events (AEs)

Sponsors must submit all reports of adverse reactions (or suspected adverse reactions) to their products in a timely fashion. These submissions are managed according to a strict schedule (30 days for non-serious events, 15 days for Serious / Unexpected). AEs must be supported during clinical studies and for the life of the product. Failure to submit AEs in a timely fashion can have material regulatory impacts.

Suppliers of raw materials for bio-pharma and medical device products undergo and stringent audit and qualification process. Once approved, ensuring an uninterrupted supply of Active Pharmaceutical Ingredients (APIs), Excipients and device components (that meet specifications) are critical to production. Therefore, it is imperative to review all current Supply Agreements during the due diligence period to understand; minimum commitments, exclusivity, volume pricing and inventory levels. Replacing a qualified vendor can be long and expensive process particularly during the integration process.

[1] An FDA Form 483 is issued to firm management at the conclusion of an inspection when an investigator(s) has observed any conditions that in their judgment may constitute violations of the Food Drug and Cosmetic (FD&C)