Mergers and Acquisitions

TMCM&A

 Introduction

Mergers and Acquisitions have been a key feature of the life sciences industry for the last thirty years. As well as the pharma mega-mergers such as GSK and Pfizer-Warner Lambert, divestment and acquisition of small and medium sized companies is a regular occurrence for many life sciences companies. In the nineties and early part of the 21st century M&A Activity was driven by economies of scale. Over the last 10 years M&A has tended to be driven more by pricing pressure and expiring patents. Over that time, we have seen life sciences companies use M&A to:

  • Build market share;
  • Bolster R&D pipeline;
  • Diversify to a more balanced business model;
  • Increase global footprint and grow in emerging markets;
  • Reduce overheads/costs
  • Divest facilities and outsource R&D
  • Change the “go-to-market” approach. (e.g. one company acquired another as a means for using equipment sales as a driver to get long-term pharma sales contracts).

In the future we will see more of the above and also acquisitions due to emerging technologies and initiatives such as personalized medicine which will be used to drive value creation within the merged entities.

Despite the regular occurrence of these activities it is often a scramble to plan and execute appropriate projects to deal with these situations. Companies often look for help in three areas:

  1. Strategic: Working with strategic advisors to help define the overall direction and benefits of an acquisition/divestment;
  2. Financial: Working with accountancy firms to address taxation, legal entity consolidation etc.; and
  3. System Integration: working with an incumbent AMS or technical services partner to define and execute the detailed systems integration steps required.

The deal process typically follows the following timeline (the exact timeline will depend on whether it is an Asset Deal or a Share Deal):

Throughout the process one organisation needs to bring all this together into an executable programme and this is often left to the accountancy firms or an internal team. However, there is another way.

Tenthpin Management Consultants can bring years of practical experience in delivering M&A projects for life sciences companies to enable them to rapidly integrate acquisitions or separate divestments. Our Service offering utilises that experience to assist clients in delivering successful M&A projects by pulling together all the individual streams into a cohesive programme of work that focuses on realising the value of the deal whilst ensuring operational stability. Our offering bridges the gap between the strategic consultants/accountants and the systems integrators giving clients a more holistic approach to delivering their M&A programs.

Critical Issues for M&A in the Life Sciences Industry

At Tenthpin we see three areas that are critical to the success of M&A in Life Sciences:

  • Managing Data Transfer: Often the key system issue to be dealt with is maintaining the history of data when transferring it from a legacy entity to the buyer’s entities, especially when it comes to batch traceability, contracts, patents and many more data objects which might not be even captured in IT systems. Data needs to be looked at from a short term and a long-term perspective. In the short term data may be provided using a Transitional Support Agreement (TSA) and in the longer term either under a Service Level Agreement (where the divesting company still provdes data) or by transferring historical data to the acquiring company.
  • Supply Chain Integration: Initially the focus on the supply chain will be to keep the product flowing to customers, however, the end-goal is to develop a fully optimized supply chain across all production sites. Initially products may be supplied through the divesting company and what were intercompany flows become 3rd party procurement or sales transactions. Over time some of these may be migrated into fully integrated SCM flows and in some cases these may remain as 3rd party supplied products. Whatever the case, and it will be different from company to company, sorting the supply chain will take time and a lot of effort to release the beneficial costs of the acquisition.
  • Transfer of Marketing Authorisations: Transferring of Marketing Authorisations needs to be managed to ensure that all the products being transferred are done in such a way that products can be supplied to all the countries in which they are being sold. This varies greatly from country to country and great care needs to be taken to ensure that the correct product with the correct livery is supplied at the correct time to each market. Careful control of stock levels needs to be maintained at the primary packaging level to avoid potential non-compliance of stock using the old MA number. It is critical that careful consideration is given to avoid any stock-outs or excess of old non-compliant stocks.

We will address each of these critical issues in turn.

Managing Data Transfer

Extracting data from the legacy company databases and presenting it in a form usable to the acquirer is often a challenge.

A common approach to facilitating data transfer is for the divesting company to provide a copy of all the systems used with all the retained companies and products stripped out. This approach is often referred to as Clone-and-Go. Clone and go at first appears a straightforward solution, and for many legacy systems this is the case. However, the more closely integrated a solution is, the harder it is to clone it and ensure that all historical information is maintained as required. It’s important to consider the types of systems involved to establish what is the correct solution required for each one.

Transaction Processing Systems

Transaction Processing Systems are undoubtedly the most difficult systems to replicate due to their integrated nature. The first step is to replicate the infrastructure that the existing solution runs on. This needs to include the full development to production path, as the acquiring company needs to be able to maintain the solution during the period of the TSA and address any production issues.

Once the infrastructure is in place the environments need to be populated with appropriate data. For companies that use SAP or other ERP solutions this is usually done by exporting whole databases from legacy and then importing into the new TSA environments and is a non-trivial task. The data in the new environments needs to be verified and various transactional tests need to be made in the test environments (a full regression test is desirable).

Once testing has been completed and the data verified, the next step is to strip out all of the data associated with companies or organisations being retained by the divesting company (non-relevant data). This will vary in complexity depending on how the data was stored in the legacy solution. If the legacy data is easily split by using some form of organisation code, then standard tools from the ERP provider can often be used to delete the non-relevant data. These may need to be run a number of times and checks performed to make sure that no non-relevant data remains in the cloned systems. Sometimes splitting the data can be extremely challenging as it is only a subset of products within a particular company. In that scenario splitting can have extremely complex rules and require multiple rounds of testing. Once these solutions have been tested and proven to only contain divested data they can be opened up to the acquiring company.

Some Transaction processing systems can be transferred in their entirety if they are wholly part of the divested company (e.g. Manufacturing Execution, Plant Maintenance). In this scenario (more likely in a share deal),the divesting company will host those solutions under a TSA until they can be transferred to an appropriate data centre in the acquiring company.

Life-science specific systems

In addition to the above there are certain other technologies in life-sciences that are widely used and that need to be carefully considered in life sciences companies e.g.:

  • Document management systems for legacy documentation: This is especially important in Europe currently with the implementation of the new Medical Devices Regulations (MDR) and In-vitro Diagnostic Medical Device Regulation (IVDR), where technical documentation of products is key
  • Pharmacovigilance software
  • Transfer of Technology & Active Ingredient re-formulation

In each deal, these could be handled in many different ways and will depend largely on the source and target for each of these. As an example, it is clearly feasible for an acquiring company to take an entire solution from the company being bought and migrate their existing data into that, rather than the other way.

Manufacturing Execution Systems

Often MES systems are specific to the plants being acquired and highly integrated with them, and so the usual approach is to take over these in their entirety as part of the acquisition. Sometimes there are specific changes that need to be made to these to make them work in the new environment (e.g. notifications/workflows), but wholesale change can usually be avoided in the short term with careful planning. Clearly the existing solutions may not be consistent with the strategic solutions within the acquiring company but migration from old to strategic can be considered a longer-term objective.

Other Technologies

In addition to ERP and Life Science specific solutions there are a number of other technologies that will need to be taken into account:

  • Office Productivity Solutions
  • Management/Enterprise Information Systems
  • Decision Support Systems
  • Middleware

What to do with these systems will largely depend on the state of these tools within the acquiring company. These will all need dealt with on a case by case basis and appropriate plans put in place.

Supply Chain Integration

Driving integration of the supply chain will be a challenge following the initial acquisition. After an initial focus on operational stability (keeping the lights on), the acquiring company needs to move rapidly to start integrating the newly acquired business into their supply chain processes. The following aspects for Supply Chain Management are part of this undertaking:

  • Integration of sales forecasting, replenishment planning and supply planning in overall S&OP framework – this includes organizational design and might as well also require adjustments in product segmentation
  • Review of the SCM planning tool and system landscape, short term integration of new products as well as additional demand and supply points, reviewing mid-term landscape strategy considering potential additional systems and capabilities which are part of the acquisition. This may be achieved by integration of existing solutions from the divested plants or, as is most likely, a co-ordinated move to existing SCM technologies. This may also require migration of production planning and materials management technologies to the new company standards and take some time.
  • Review of supply network (internal and external manufacturing capacities) and streamline in case of synergies
  • Seamless integration of SCM flows is largely depending on consistent data structures – managing transfer of data will include Supply Chain Organization, in many cases the seamless continuation of daily operations and ensuring product supply is led by SCM organization

How this is achieved will depend largely on processes and technologies being used in the acquirer. The acquiring company will most likely have to establish a programme of work with short and mid-term activities in order to to roll-in the acquired demand related markets and supply plants in a co-ordinated manner upgrading the underlying technologies as required.

Transferring ownership of Marketing Authorisations

When a Marketing Authorisation (MA) transfers between two companies, the process by which the MA is transferred is referred to as a Change of Ownership Application (COA). These processes vary greatly from country to country. Therefore, a COA is not a single procedure, but one that needs to be conducted for every country a product is sold to. Some aspects may be transferrable across larger entities such as the EU, but certain aspects still need to be managed or migrated in the individual countries involved.

Transferring ownership involves significant due diligence, involving aspects such as the artwork and safety data. Many of these activities are compliance related and affect what can and cannot be done before and after the approval of new MAs. Companies need to be careful not to get caught out as that could lead to potential sales of unlicensed medicines and all the legal repercussions associated with such.

The process is performed within a legislative framework which defines the requirements necessary for application to the concerned (competent) regulatory authority, details on the assessment procedure (based on quality, efficacy and safety criteria) and the grounds for approval or rejection of the application, and the circumstances where a marketing authorization already granted may be withdrawn, suspended or revoked.

In most cases task packages for Marketing Authorization are managed by a specific team of experts.  These tasks that are not always linked to the task packages for IT related topics. Marketing Authorisation Teams need to have a close coordination with the IT project(s) or need to be part of an overall program management. If licenses cannot be delivered as planned, this could have a significant impact on the Go Live dates of the required TSA requirements.

These regulatory requirements need to be balanced carefully with the supply chain. It is essential that the process doesn’t lead to over or understocking of products in a particular market.

Summary

Mergers and acquisitions in Life Sciences companies come with lots of complications that aren’t found in normal M&A activity. Tenthpin Management Consultants service offering brings the experience and additional intelligence your life sciences organisation needs to manage a divestment or acquisition.  Contact our industry experts at Tenthpin Management Consultants if you would like to learn more.

Our Service offering helps life sciences companies to pull together the components of M&A programs and focuses on releasing the value of those programs. Contact us today to see how our service offering can help bring clarity to the execution of your merger or divestment.

Stay up to date with the latest #LifeSciences #Pharma #MedDevices #AnimalHealth news by following us on Twitter @TenthpinMC Instagram #LifeAtTenthpin Facebook Tenthpin Management Consultants  and our Tenthpin Management Consultants LinkedIn corporate page.