In today’s competitive marketplace the in-licensing of pharmaceutical candidates and medical devices has become commonplace, thus the increasing emphasis and requirement for due diligence. Due diligence is the detailed investigation of the affairs of a business, with the aim to identify problems within the business, particularly any issues which may give rise to unexpected liabilities in the future. Due diligence involves a number of different areas of investigation. As it may relate specifically to healthcare products and companies, due diligence of product proof-of-concept testing and regulated testing should be investigated by a qualified team of scientists.
There are three main situations in which a bioscience company, for example, is likely to be subjected to due diligence:
Before entering into a major commercial agreement such as a license, joint venture or other collaboration with a bioscience company, for example, a collaboration partner will want to carry out a certain amount of due diligence. This is particularly likely to be the case where a major pharmaceutical company is forming a relationship for the first time with a relatively small start-up biotech company. While the due diligence is unlikely to be as extensive as for an acquisition, the larger company will be seeking comfort that its investment will be secure and the biotech company has the intellectual property rights, personnel, expertise and resources to perform its obligations. In addition, where a biotech company is licensing a third party to use a product candidate or platform technology, it may be required to give warranties as to validity, non-infringement of third-party rights and so on.
A buyer may not bring a claim for breach of warranty if the seller discloses information which qualifies the warranties. This means that the seller must carry out a due diligence exercise of its own, to ensure that it discloses all matters which might otherwise result in a warranty claim at a later date. Of course, identification of major problems in the course of due diligence may cause the purchaser to rethink its valuation of the business, seek an indemnity from the sellers or even in severe cases to withdraw from the transaction. However, it is always preferable for both parties to be aware of all the potential pitfalls at the outset, rather than bear the risk of unexpected and unquantified liabilities in the future.
Walker Downey & Associates, Inc. specializes in product safety and development activities, thus our team of selected scientists can provide the due diligence that an in-licensed product “is what it is said to be”. Please contact us for your specific due diligence needs.Case Studies