Pharmaceutical mergers & acquisitions: how to raise risk awareness before a deal
Following two years of volatility, 2018 saw a boost in pharmaceutical mergers and acquisitions, in particular due to the acquisition of Dublin-based Shire by the Japanese pharmaceutical company Takeda, at a value of $81.7 billion (1). With a combined value of $48.6 billion, US deals accounted for the second largest share of deal value in 2018 while non-US transactions made up the majority, principally due to the Takeda/Shire deal. In total, there were 248 pharmaceutical and life science deals in 2018, and M&A activity is expected to continue to grow in 2019, driven mainly by acquisitions, partnerships or joint ventures, and divestitures (2). Though this is positive for the progress of the industry, enabling companies to make strategic changes and develop innovative products, consolidations and divestitures can be risky and challenging. In this article, Jennifer Lopez, Director, Solutions Delivery at leading life sciences consultancy, Maetrics, explains how to strengthen awareness of risk before signing on the dotted line.
Pharmaceutical companies are under heightened pressure during M&A activity. Due diligence therefore tends to focus on financial and legal aspects, as there is a perception that this will uncover the greatest risks. As businesses look to iron out terms of the deal, quality and compliance are often pushed to the bottom of business priorities, meaning that areas of regulatory non-compliance or inadequate quality are overlooked. However, the importance of verifying and maintaining compliance to applicable regulations cannot be stressed enough, as weaknesses in this area can have resounding consequences for the business in the long-term. When businesses change hands, this can impact company culture, philosophy and decision-making so it is important to align expectations and standards in relation to quality management.
A failure on the part of the buyer to confirm quality and compliance standards could have a long-term impact on the profitability of their acquisition. Companies often assume that they can tackle quality or compliance issues once the transaction has been finalised, but this is highly risky as the cost of addressing these issues may be colossa ...