|
Hayley French at Novartis Pharma AG presents the potential pitfalls that line the route to selling out or buying into intellectual properties
In the life science industry, buyers and sellers can take several forms. A seller, for example, can be a company seeking a merger or acquisition, divesting a product line or division, licensing a technology, promoting an IPO, or an entrepreneur seeking venture investment. The importance of due diligence in any of these scenarios must not be underestimated, and yet the process is often an afterthought, a hastily organised exercise after the business transaction has been agreed.
However, properly conducted and timed due diligence provides a potential investor, purchaser or licencee with detailed information that may affect the target’s pricing or other key elements of the transaction. The consequences of mismanaging or ignoring the due diligence can be severe. For example, without a proper investigation into an entity’s assets, an investor may find that after the deal is concluded it does not have ownership of the intellectual property (IP), or that such assets have been transferred or encumbered by third party interests or litigation.
Preparation is key in a due diligence exercise to avoid unnecessary surprises during the process, distance between the parties and even possible termination of the deal. The due diligence exercise frequently throws up new questions and negotiating points because of bad preparation and the failure of the parties to keep focused on the essential elements of the transaction. Good management of the due diligence process makes for success both in the short and long term.
Thorough due diligence requires more than merely compiling a list of the company’s assets, and should include an assessment of the strength of a company in the marketplace and a continuing focus on the essential nature of the transaction.
Every transaction has unique issues, whether due to a particular technology, the geographic market, the level of the competition or the litigious nature of the industry. The due diligence team must assess how the unique aspects may ultimately affect the resultant corporate structure and its place in the market. A lack of understanding of the marketplace and the lack of strategy and understanding for dealing with third party rights often leads to a mismatch in valuation by the parties or a mismatch in expectation.
Every biotech company, especially early stage companies that hope to secure capital or partnerships with large pharmaceutical companies, should prepare early on for due diligence. A company that is aware of the areas upon which due diligence focuses and the types of problems that arise during due diligence will be better prepared to avoid or, if discovered in time, solve problems. |
