Common Pitfalls - Cross Functional Complexities

M&A or carve-out activity is often fraught with cross-functional complexity. While the acquiring regulatory team is re-registering the product and introducing new labeling into multiple manufacturing plants, they are also responsible for assuring compliance with a myriad of spin-out tasks. This could include transferring production and managing inventory across multiple international distributors.

The introduction of newly labeled drugs and the obsolescence of the old product require coordination across manufacturing and distribution sites for each country. The central issue is whether to make more of the new-label or old-label product for each country. For countries with a long re-registration process, this means that old product needs to be reserved, or the legacy company needs to make the drug for Newco during the transition period. Another possibility is to negotiate the transition periods with the international regulatory agencies to support the change.

Insights from the Experts

Mergers, acquisitions and carve-outs are complex projects that require insightful technical planning and execution to realize the deal revenue and strategic goals.

Ownership changes mandate modifications to the labeling and re-registration of the drug in every country of manufacture and distribution. A proactive, well-researched project plan that addresses the requirements of each country and coordinates cross-functional activities will save time, money, and assure revenues. Given the complexity of designing and implementing the plan, experts recommend that companies determine the costs and potential revenue delays before embarking upon a M&A or carve-out. Including technical executives as a part of due diligence can help factor these costs/revenue delays into the deal price or post-deal agreements.

Case Study: Canadian Carve-out from a Large Life Sciences Legacy Drug maker

A large life sciences company decided to carve out one of their pharmaceutical divisions. The buyer knew that re-registration would take significant time and man-hours, and they recognized that the Newco would be stretched to provide the same levels of legacy regulatory, quality, IT, and manufacturing support. To solve this issue, they engaged an independent transition services manager to develop a new operations plan.

The seller used their Canadian subsidiary as a base to handle the local registration. This would not be available to Newco. Regulatory and quality experts worked with Newco to identify a Canadian distributor and completed the steps to secure and transfer Newco's registration. Negotiations were initiated with Health Canada to avoid scrapping "old label" inventory. These steps took five months to complete, allowed Newco to exit their TSA and independently maintain their Canadian sales revenue.

Conclusions: Technical diligence is necessary to identify subsidiary connections. These must be cleverly unraveled and re-established to ensure successful carve-out.

Jim Bedford is Vice President and Practice Lead, Technology, M&A at Regulatory Compliance Associates. He can be reached at j.bedford@rcainc.com