By Anthony Grenier
The past few years have seen a record number of mergers and acquisitions (M&As) in the pharmaceutical industry. When a pharmaceutical company acquires or merges with another pharmaceutical company, there is already in-house expertise on all aspects of the business, and the due diligence is performed by dispatching the document reviews among the different company’s departments, i.e., finance, legal, marketing, regulatory, operations, and logistics.
This article looks at key considerations for performing a technical due diligence when acquiring commercialized pharmaceutical products. Acquiring new products must be done with the end result in mind, i.e., whether the products have to change sites and whether new CMOs must be found to host them. Because acquiring companies, assets, and products will not require the same level of scrutiny and the same type of due diligence, this article will focus on acquisition and subsequent outsourcing of pharmaceutical product(s), with either domestic or international rights. The terminology used in this article primarily relates to the North American market, but the approach is valid for any market.
This first of two articles will focus on the regulatory and quality aspects to look at to ensure you acquire something that can be outsourced properly to a third-party manufacturer. The second will cover the manufacturing and equipment as well as some aspects of logistics.
This may be useful to people preparing a data room or investors who have to perform technical due diligence for product divestment, as well as for acquirers who need to have a good basis to outsource the newly acquired products.
Data room structure
There are, of course, multiple ways due diligence data rooms are structured. It is important, though, not only to perform a proper review of what’s available -- at the risk of getting lost in tons of data -- but also to be aware of essential information that should be included to ensure the due diligence is performed as it should be.
Technical due diligence typically refers to sections of the data room prepared by the seller and containing information about the product, equipment, manufacturing, quality, and regulatory aspects of the deal.
A well-prepared data room should give you a clear understanding of what you should expect to inherit in terms of the product and how much effort you will need to put into it to make it profitable and to yield the expected revenues. The more thorough the due diligence, the better package you’ll inherit to outsource your product to the right CMO, and the higher the chances of success for the technology transfer.
Regulatory considerations typically inform the acquirer about the approval status of the product(s) in one or more markets. Most importantly, access to the CMC (chemistry, manufacturing, and controls) and/or common technical document (CTD) sections of the product’s regulatory filings will enable the potential acquirer to have an idea of:
- The type(s) of dossiers: These could include NDAs (new drug applications), ANDAs (abbreviated NDAs), OTCs, or medical drug products, just to name the most common in the U.S., or sometimes a mix of several when there is a basket of products to be divested.
- Markets: Dealing with the U.S. or Canadian markets is one thing, but dealing with regulatory dossiers of product(s) filed in multiple jurisdictions could be even more challenging. Specifically, certain markets may appear exotic not only due to their location, but also because they are less familiar than the traditional markets such as North America, Europe, and Japan. Managing dossiers in these unfamiliar markets will require having the necessary internal resources or seeking consultants to perform the change of the sponsor’s name after acquisition as well as to routinely maintain the dossier, licenses, or market authorizations. The selection of CMOs for outsourcing the new acquisition will be driven by the markets to be served. It is especially important to consider Brazil’s ANVISA and relevant restrictions when the CMO is also manufacturing animal health drugs.
- The age of the dossier and its data: The older the dossier, the more difficult it will be to retrieve information that complies with today’s standards. Implementing changes in old dossiers may create new complications or unforeseen problems. Technology transfer subject master experts (SMEs) will tell you legacy products are the trickiest to transfer to CMOs.
- The number of changes, supplemental filings, or notifications and responses from authorities to these changes: Some commitments may still have to be performed by a certain date. This is important to capture, not only for the risk it will generate for the market authorization or approval, but also for the efforts and potential investments required to keep the filing active. For example, making changes to dossiers of products developed 30 years ago to reflect major changes, such as a site change or primary contact material change, could bring challenges. Regulatory authorities may require additional studies to be performed to fill the regulatory gaps and ultimately allow you to keep the product on the market.
- Most importantly, what understanding of the product is necessary to enable the acquirer to perform the tech transfer of the product(s)? Visiting the current manufacturing site during the second round of bidding is strongly suggested. The transition agreement should also include some hours the seller will provide to help the acquirer in the selection and transfer of technology to the site where the product(s) will be outsourced.
Typically, copies of master batch records and specifications for raw materials, active ingredients, and drug products are requested, and most of the time they are readily available in the data rooms.
One of the most concise and helpful documents is the annual review (AR). It will include statistics about the numbers of lots made and the numbers of lots rejected or reprocessed, just to name a few. The number of changes, as well as the details of the notifications, will be listed, too.
Evidence of several rejected batches is not only unusual, it could result in financial losses and could also be indicative that the manufacturing process is problematic and that reformulation or process changes might be needed. In worst cases, it might be indicative that a site change and tech transfer will be required. This occurs in cases where the contract manufacturer didn’t successfully manage to resolve manufacturing issues. The due diligence should also highlight any commercial disputes or terms of the supply agreement or quality agreements that may not have been respected by the contract manufacturer or manufacturing partner.
The age of the documents will also be indicative of when the last revisions were made. Even old products that have undergone no process or formula changes will have changes from time to time due, for example, to changes of source of materials or components or updates in the documentation.
Too many versions of records are not good, and too few are equally problematic. The number of pages in the documents is sometimes indicative of the age of the products and lack of maintenance of the documentation.
I once encountered a one-page validation protocol. The report had not been issued; only raw data reports were compiled in a binder. This practice is obviously a red flag to the acquirer and will necessitate resources to bring records up to the standards required by regulatory agencies.
Beyond the documents used for routine manufacturing of the product(s), some documents worth attention during due diligence are listed below:
- The latest process validation report is a must-have. Sometimes, older versions will help in understanding the history of multiple equipment or process changes in the second round of due diligence.
- Method transfer or validation report, to confirm whether methods need to be updated and if they are consistent with today’s standards;
- The change control list, with a summary of the changes, is also worth consulting in detail and will provide indications of the general state of the product and overall quality standards and “care” the sponsor had for the product(s);
- Stability studies reports and history of shelf life increase/decrease, if any. This is crucial to know whether the product(s) to be acquired will have a decent shelf life and if lack of stability is experienced due to a previous change;
- The licenses and verification of the validity of the documents have to be checked, too;
- Finally, establishment inspection report (EIR) and observations, FDA Form 483s, and responses to the FDA or site inspection reports by other health authorities are absolutely needed to prevent surprises down the road.
In conclusion, the goal for acquirers of pharmaceutical products during technical due diligence should be to require as many documents as needed (either in the first or second round of bidding) to get a full and clear understanding of how the product(s) was maintained on the market over the years and what to expect in the process of outsourcing the newly acquired product(s).
About The Author:
Anthony Grenier is an independent technology transfer and outsourcing consultant. A chemical engineer by training, he has completed over 50 technology transfers for both large, public multinational corporations and small specialty or virtual pharma companies, spanning all major segments of the life science industry. He can be reached at firstname.lastname@example.org, www.anthonygrenier.com or https://ca.linkedin.com/in/grenieranthony.