M&A in Healthcare

I realize frequently in my posts I am always mentioning M&A deals and that every week there seems to be a new deal/purchase. And in the recent years, M&A has really become a potent force in the pharma industry, with huge deals littered throughout the year. With 2018 dominated by the $79.7 billion takeover of Shire by Takeda pharmaceuticals, with other deals consisting of Sanofi’s $10.9billion acquisition of Bioverativ and GSK’s $5.1billion acquisition of Tesaro. And with 2019 beginning with a bang with BMS $74bn acquisition of Celgene and AbbVie’s proposed $63bn acquisition of AbbVie, these deals do not plan on slowing down. In this post I thought it would be interesting to go through the process of M&A in the pharma industry and its increasing importance.

M&A in general is an effective, efficient way for companies to transform their business whether it be through purchasing or divesting products, service lines and technology. With globalization becoming ever more prevalent, companies feel the pressure to continue to seek these transactions to maintain profitability despite the economic climate.

In Healthcare M&A, a transaction is in reference to the sale or a purchase of any of the four following subcategories:
      1)  Pharmaceuticals- companies which are focused on the discovery, development, evaluation, registration and monitoring of small molecular medicinal drugs.

      2)Biotechnology- companies that are focused on early stage R&D of technological application of biological systems to make/modify products of specific use. Like pharmaceuticals these products are also covered by patent protection, however when the patent expires, they can be reproduced by so called biosimilars.

     3) Medical Devices- this covers a wide range of instruments, machines and implants for human use for specific purpose. These products fall into various risk categories, based on the vulnerability of the human body (eg implants vs external use, duration of contact with the body, degree of invasiveness)

4   4)And finally Healthcare services- this covers companies involved in the provision of healthcare ( physical or virtual)

A healthcare M&A similar to other industries can be structured as an asset transfer or share transfer or even combination of the two. The large activity surrounding pharma M&A can be attributed due to the nature of the industry, where pharma and biotech companies are constantly re-evaluating their portfolio’s. This is especially prominent when companies’ big products are set to hit patent expiration or when their own personal R&D development has run dry, so there is an urgent need for new products to fill their pipeline.

Key features of Healthcare M&A deals

Value drivers and deferred payments

 For buyers the key due diligence processes in healthcare are IP, regulatory and compliance. This is important because the buyer is looking to acquire knowhow, IP and regulatory approvals. And since regulatory and knowhow are key drivers in this industry, buyers are often interested in keeping key employees and manufacturing personnel. Especially if the company is an early stage company where regulatory approvals are still pending.

Sellers have a different framework of mind when it comes to these deals, with the healthcare industry using different valuation methods to other industries with forecasts commonly used to arrive at the purchase price. Parties bridge the ‘valuation gap’ by milestone and earning payments, this could be reference to outcome of clinical trials, moments of submitting requests to various regulators and the actual grant of marketing authorization of the product are usually key triggers for these deferred payments.   


It is extremely important to consider timing; buyers need to look at what stage the product is at development. A key point to consider before making a deal is whether the product of the target company is pre or post-launch. This is basically to see if the product is already making money. If the transaction is occurring during the pre-launch phase, this means there will be significant funding needed for further development of the product with no guarantee of success in clinical trials or regulatory approval, thus leaving fate of income in the future very ambiguous.

Post-launch means the product is already making money, but that there is a limited time left until the patent expires. This means that the product is soon to lose market exclusivity and the arrival of generic competition will reduce the profits heavily.

It is extremely important particularly in pre-launch to perform due diligence of the clinical trials, therefore it is important for the buyer to have access to the details and preliminary results of ongoing studies in the form of laboratory data. It is important to understand where the data related to clinical trials is located and whether the sponsor will be a transferring entity. Thus, a consequential issue that arises is transitional services, where there is a long gap between signing and closing.  

Post Market Considerations

A key consideration once the product is on the market, is insuring the right processes are in place for the buyer to takeover pharmacovigilance and understand whether any marketing authorizations comes with it. If market authorizing needs to be transferred this will be done as part of the closing deal as a separate asset. In the transitional period an interim ‘marketing authorization agreement service’ will need to be put in place. Other factors that need to be considered during due diligence are re-labelling requirements, identifying API supplier as well as existing distribution channels.
On a more local level, wholesale distribution licenses will also need to be considered, even if the company has already outsourced part of its businesses such as warehousing and logistics. This is because application for new licenses can significantly increase the transition period.

Long transition periods are very common to pharma deals due to the highly regulated nature of the industry and particularly if the transaction affects product related licenses such as market authorization licenses, distribution-related licenses or clinical trial licenses. There are two kinds of transitional service agreements that are very specific to the healthcare industry: 1) transactional distribution services agreement 2) Marketing authorization services agreement


As we have since in previous news posts, there is a high intervention rate in the healthcare sector with the close scrutiny of pipeline products. This is most relevant with the BMS acquisition of Celgene, where the FDA require for Celgene blockbuster Otezla to be divested if the deal were to be approved.
The highly regulated nature of the industry makes pharma healthcare different from other industries and makes the process undoubtedly much more complicated. And with recent events (AbbVie and Allergan deal) showing that regulation authorities becoming even stricter with their requirements will we see a drop in the huge deals in the industry that have become a staple force.

1 comment:

  1. Thankyou for reading! I am going to try and make this a weekly series, where on the weekend rather than covering news, I cover aspects of the industry.
    And I would be more than happy to cover people's suggestions

    Follow unacompharma.com twitter account for new blog updates!:



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