How to mitigate risk during mergers & acquisitions

Jennifer Lopez, director, solutions delivery at Maetrics discusses why heightened due diligence is needed for pharmaceutical manufacturers during mergers and acquisitions.

Mergers and acquisitions (M&A) within the global pharmaceutical industry are prolific; in fact, pharmaceutical companies probably face more M&A activity than any other industry. Typically the main driver for changes in the pharmaceutical industry is the ever-increasing prices of drug-development as a lot of companies fail to keep up with the demanding costs of R&D to find new and innovative compounds for the market. However, as the pharmaceutical industry expands, European and US-based manufacturers are creating increasingly globalised supply chains which increases the potential risk for manufacturers to mismanage their compliance procedures.

High quality compliance in pharmaceutical manufacturing

In 2017, the US Food and Drug Administration (FDA) reported a significant increase in the number of warning letters issued to pharmaceutical companies, compared to 2013 levels; highlighting an increase in violation of Current Good Manufacturing Practices (cGMPs).

In pharmaceutical plants worldwide many areas of non-compliance have been highlighted including, but not limited to, systematic data manipulation, failure to exercise sufficient controls over computerised systems to prevent unauthorised access to data as well as failure to dispose of quality-related documents appropriately and violations associated with contamination, hygiene and quality management systems.

Many companies are outsourcing parts of the manufacturing process in order to boost their capacity, improve overall speed-to-market and to attempt to capitalise on the availability of new suppliers in Asia. However, manufacturers have found that it is getting even more difficult to keep sufficient visibility and control over this activity, ultimately meaning that quality issues arise.

Compliance due diligence

A proactive approach is needed to tighten up compliance procedures, ensuring a higher level of inspection readiness and also delivering commercial benefits such as a greater understanding of demand and capacity as well as an improved ability to assess and react to disruptions. Mergers and acquisitions are known to complicate supply chains and increase risk in the global pharmaceutical sector as areas of non-compliance are often not identified nor appropriately managed. It’s also been reported that at least 75% of companies that acquired a new business over the last year failed to execute proper due diligence.

The importance of having a compliance team involved from the get-go is paramount in order to be fully equipped to assess the potential risks that may come from the take-over. Ultimately it will be the responsibility of the purchasing company to ensure complete due diligence has taken place. In fact it is pre-acquisition due diligence which is crucial to acquirers when deciding whether to accept a deal.

Manufacturers should not underestimate how M&A can cloud visibility into the supply chain, which ultimately brings more risk for the companies involved. In many cases the deep analysis of manufacturing operations, often made by the acquiring companies, limits the ability of personnel to perform supply gap analyses, supplier assessments, and to manage any quality issues that may arise, all of which will have an effect on ensuring compliance.

Mitigating risk

Whether or not a pharmaceutical manufacturer is planning an M&A with another company, it is clear that there is an urgent need for pharmaceutical companies to bring their quality, safety and risk management controls into line with regulatory requirements. It is important that manufacturers tighten up compliance procedures, which will not only ensure a higher level of inspection readiness, but will also deliver widespread commercial benefits such as a greater understanding of demand and capacity and an improved ability to assess and react to disruptions.

The key to success for manufacturers is to ensure well-planned, well-documented and successfully executed supplier and quality agreements are in place, critical components to control the quality of the final manufactured product.