Life science mergers and acquisitions is a complex and challenging process that requires careful consideration of a wide range of factors. Key considerations include regulatory and legal compliance, due diligence, integration planning, strategic alignment, communication and change management, and financial considerations. By carefully evaluating these factors and developing a comprehensive M&A strategy, companies can increase their chances of success in this competitive and rapidly evolving industry.
In this article, we explore some of these key considerations in life science M&A, and provide practical tips for those looking to navigate this complex landscape.
Status of the Market
The Life Sciences and Pharmaceuticals market includes a number of distinct sectors:
- Pharmaceuticals
- Biological products (those made from living organisms)
- Diagnostic systems
- Gene-sequencing systems
- Medical devices
- Nutraceuticals
The gross value of the life sciences and pharmaceuticals industries is huge. The global pharmaceutical market is valued at more than $1.3 trillion, and the worldwide market for life sciences is valued at roughly $50 billion. The U.S. dominates the market, accounting for almost half of global pharmaceutical and life science sales.
However, after several years of high life science and pharmaceutical M&A activity, 2022 took a turn for the worse. Both deal value and volume fell to multi-year lows. The culprits are largely macroeconomic - financial headwinds brought on by pandemic-related supply chain issues, inflation-related higher costs of money, and dislocations in pricing of assets, in both absolute and relative terms.
According to PWC (PricewaterhouseCoopers), 2023 has a much rosier outlook. PWC projects life science and pharmaceutical M&A to return to earlier activity levels, with a total deal value in the $225 billion to $275 billion range across all subsectors. Their analysis points to three factors for the rise in activity: ample corporate cash, necessary investments that address medium-term pipeline gaps, and a resetting of biotech valuations.
Regulatory, Legal, and Security Considerations
An overriding consideration in Life Science M&A is regulatory and legal compliance. The Life Science industry is heavily regulated, with strict guidelines governing everything from clinical trials to product labeling. Any M&A transaction involving life science companies must be carefully evaluated for compliance with these regulations as non-compliance can lead to significant fines, reputational damage, and even legal liability. In addition, it is important to consider potential antitrust issues, intellectual property disputes, and contractual obligations that may impact the transaction.
Security is also a large and growing concern. The collaborative nature of life science and pharmaceutical product development increases security risks. Team members in R&D labs, clinical research organizations (CROs), testing companies, and a range of third-party experts collaborate, often from remote locations. The process generates large data files and extensive documentation over a long period of time. These teams then present their findings to manufacturers, investors, and regulatory organizations.
This collaborative process creates security vulnerabilities for both archived and work-in-progress documents. Hackers know the product development process and use AI-enhanced software to seek vulnerable access points. Without enterprise-grade security, the risks of a cyberattacks are high. And since the FDA now holds manufacturers accountable for security-related problems, the regulatory costs can be high as well.
Pharma and life science companies can protect their confidential files by using a virtual data room (VDR), an ultra-secure online platform for storing and sharing documents and data files. With a VDR from a leading provider like ShareVault, all documents are automatically encrypted. Any authorized team member, from any location or authorized device, can access archived and in-development documents, at any time of the day. The VDR administrator has permissioning protocols that set time and content limits on access and can deauthorize access at any time. When the time is right, a company can extend VDR access to regulators and to potential investment or merger partners.
Due Diligence
Another key consideration in life science M&A is due diligence. The due diligence process is a rigorous and thorough review of the financial, operational, and scientific aspects of the target company, as well as an assessment of potential risks and opportunities. Due diligence is particularly important in life science and pharmaceutical M&A, as the industry is characterized by high levels of scientific complexity, uncertainty, and variability. Companies must carefully evaluate the quality and validity of scientific data, clinical trial results, and regulatory filings to ensure that the target company is a good fit for their business strategy.
ShareVault, which has more than 15 years of experience in life science and pharmaceutical M&A, has developed tools and features that streamline the due diligence process. The most important tool is the Due Diligence Checklist, a template that automatically populates the data room with folders for every category of due diligence. Other useful ShareVault features include:
- Fast setup using bulk uploading and integration with file-sharing apps like DropBox, Box, Google Drive, Microsoft SharePoint & OneDrive, and DocuSign
- Hierarchical tags, which are tags that allow documents to reside in multiple folders without replicating the document
- Advanced search, with keywords sorted by relevance, with synopses showing how the searched keyword(s) are used in context
- User activity monitoring and reporting, which provides real-time monitoring of every user and the ability to provide a detailed audit report - necessary for potential partners and regulatory agencies
Integration Planning
Successful integration planning is critical in any M&A transaction, but particularly in the life science and pharmaceutical industries where regulatory and scientific considerations can be particularly complex. Integration planning should begin early in the due diligence process, with clear communication between the acquiring and target companies regarding goals, timelines, and resource requirements. The integration plan should address a wide range of issues, including cultural differences, organizational structure, technology platforms, and data systems.
Strategic Alignment
Strategic alignment is another key consideration in life science and pharmaceutical M&A. The acquiring company should have a clear understanding of how the target company fits into its overall business strategy, and should be able to articulate a compelling rationale for the acquisition. This may involve identifying specific product or technology synergies, accessing new markets, or expanding the company's scientific capabilities. The acquiring company should also consider the potential impact of the acquisition on its existing product portfolio, research and development pipeline, and overall financial position.
Communication and Change Management
Effective communication and change management are critical to the success of any M&A transaction. This is particularly true in the life sciences and pharma, where employee retention, morale, and scientific innovation can be impacted by the transaction. The acquiring company should develop a clear communication plan that addresses both internal and external stakeholders, including employees, investors, customers, and the media. The plan should include regular updates on the progress of the transaction, as well as information on any potential impact on existing operations. In addition, the acquiring company should develop a robust change management plan that addresses potential cultural differences, integration challenges, and employee retention.
Financial Considerations
Finally, financial considerations are an important consideration in life science and pharma M&A. The acquiring company should carefully evaluate the financial aspects of the transaction, including valuation, financing options, and potential return on investment. In addition, the company should consider potential tax implications, earnout arrangements, and accounting treatment of the transaction. Financial due diligence is particularly important in the life science industry, as the high costs of research and development and regulatory compliance can impact the financial viability of the target company.
ShareVault: A Secure Platform for an M&A Deal
With ShareVault, every aspect of the life science or pharma M&A deal making process is secure, including due diligence, regulatory review, and outreach to potential partners. ShareVault’s built-in features and software tools are field-tested to provide faster and more efficient document development. And as an online cloud-based platform, users can access ShareVault anytime, from anywhere, any hour of the day, from any device, without any involvement from your IT team.
For your next Life Science or Pharmaceutical M&A deal, make the smart move to ShareVault.