Reflecting On The Syneos Health Acquisition: The Due Diligence Imperative
By Darshan Kulkarni PharmD, MS, Esq., principal attorney, Kulkarni Law Firm
Earlier this month, Syneos Health made headlines when it announced it may soon be acquired by a private equity consortium for approximately $7.1 billion. Syneos Health is a fully integrated biopharmaceutical solutions organization that provides clinical, commercial, and consulting services to pharmaceutical and biotechnology companies worldwide. This transaction represents an exciting opportunity for both parties, but it also underscores the importance of thorough due diligence to ensure that the acquiring party maximizes value from the target entity, especially in the world of clinical trials.
How To Conduct Due Diligence In The Pharmaceutical Space
The due diligence process begins with creating a comprehensive list of required documents, which should include at least two years of quality review findings, either from internal quality teams or from external sources such as the FDA or other regulatory agencies. These documents provide crucial insights into the company's compliance history and the effectiveness of its quality program. Once these documents are collected, a detailed evaluation of the findings should be conducted to understand the nature and frequency of any issues identified.
The next step involves a gap analysis, which is a systematic comparison of current practices against regulatory requirements and industry best practices to identify areas of non-compliance or underperformance. This should be supplemented by a review of the company's policies and training programs to ensure they are robust, up-to-date, and effectively communicated to all relevant personnel. The audit process should also be examined to ensure it is thorough, impartial, and capable of identifying and addressing compliance issues.
Furthermore, it's crucial to review the company's root cause analysis and corrective and preventive action (CAPA) program to assess its ability to identify the underlying causes of non-compliance and implement effective corrective measures. Lastly, the company should have a system in place to address any gaps identified through the due diligence process, including a mechanism for monitoring and verifying the effectiveness of implemented corrective actions.
Areas of Interest In Due Diligence For Pharmaceutical Acquisition
Due diligence should ideally consider the following:
First and foremost, the acquirer needs to understand the status and prospects of the ongoing clinical trials. Are the trials running as planned or are there any issues? Are the trials likely to meet their endpoints? Are the trial designs robust and the patient populations well selected? Do any of the trials as run, running, or to be run represent risk to the acquiring company? The answers to these questions can greatly affect the valuation of the company and help identify potential risks that may affect the return on investment.
Next, the acquiring entity must thoroughly review the target’s regulatory compliance. The clinical trials industry is heavily regulated by the FDA and other international regulatory bodies. Non-compliance can lead to penalties, reputational damage, and delay or denial of product approvals. As part of due diligence, the acquirer should assess the company’s compliance with current good clinical practice (GCP) guidelines, FDA regulations, and all relevant local, national, and international regulations.
Another significant area of due diligence is the assessment of intellectual property rights. The acquirer must understand what intellectual property the target owns or has rights to and whether these rights are protected. This includes any patents, trademarks, copyrights, and trade secrets. In the realm of clinical trials, this may extend to proprietary trial methodologies, software, and databases.
Finally, the acquirer must examine the company's existing clinical trial infrastructure, including its data management systems, patient recruitment strategies, investigator networks, and relationships with CROs. A robust and efficient infrastructure is crucial for the timely and cost-effective execution of clinical trials.
FCPA Due Diligence
In the context of a private equity acquisition, especially in a global transaction, adherence to the Foreign Corrupt Practices Act (FCPA) and its equivalent in Organisation for Economic Co-operation and Development (OECD) nations is of paramount importance. FCPA due diligence is critical to not only ensure legal compliance but also mitigate reputational risk and potential financial penalties that could significantly impair the investment's value. This analysis should involve a comprehensive review of the target company's historical compliance with the FCPA, including any past or ongoing investigations or violations, as well as a detailed examination of its anti-bribery and anti-corruption policies, procedures, and controls. It's also crucial to scrutinize the company's business relationships, both domestic and international, to identify any red flags such as operations in high-risk jurisdictions, unusual payment patterns, or relationships with politically exposed persons. Ultimately, a robust FCPA due diligence process will help the acquiring entity to understand, manage, and mitigate potential risks, thereby ensuring a successful acquisition and safeguarding the investment's value.
Data Privacy and Security
In a global transaction involving a clinical research company, data privacy and security due diligence is crucial. Clinical research companies handle sensitive personal and health data, which are subject to stringent regulations such as the Health Insurance Portability and Accountability Act (HIPAA) in the U.S., the General Data Protection Regulation (GDPR) in Europe, and similar regulations worldwide. Failure to comply can result in severe penalties and reputational damage. As part of a private equity acquisition, the due diligence process should include a thorough examination of the target company's data privacy and security policies, procedures, and practices. This includes the security of data storage and transmission systems, procedures for data access and breach notification, training programs for employees, and compliance with relevant regulations in all jurisdictions where the company operates. It's also essential to review any past data breaches or violations and how the company responded. A robust data privacy and security due diligence process will help the acquiring entity identify potential risks and liabilities, ensure regulatory compliance, and protect the value of its investment.
Corporate Compliance Controls
In a global transaction involving a private equity acquisition, corporate due diligence serves as an essential tool to understand the legal, financial, and operational aspects of the target company. A crucial component of this process involves scrutinizing the target company's internal controls, including mechanisms such as employee payment clawbacks for non-compliance. Recent Department of Justice (DOJ) feedback suggests that it will view such clawbacks favorably and see these as a deterrent for misconduct and a means to recover losses.
The due diligence process should also involve a comprehensive review of the company's compliance plan. This plan should not only reflect current laws and regulations in all jurisdictions where the company operates but also demonstrate an active commitment to fostering a culture of compliance within the organization.
Finally, the due diligence process should consider the potential need for voluntary disclosures to the DOJ. In cases where potential violations are discovered, voluntary disclosure can often lead to reduced penalties and demonstrate the acquiring entity's commitment to compliance. By thoroughly understanding these factors through corporate due diligence, a private equity firm can mitigate risk, ensure regulatory compliance, and safeguard the value of its acquisition.
The due diligence process for a clinical trials company like Syneos Health involves a complex interplay of multiple factors. It requires an in-depth understanding of clinical trial processes, regulatory compliance, intellectual property rights, and the nuances of running clinical trials. It's not just about the numbers on the balance sheet — it's about understanding the science, the regulations, and the operational realities that underpin those numbers. By undertaking thorough due diligence, the acquiring entity can ensure that it maximizes value from the merger, securing a solid return on investment and driving future growth.
About The Author:
Darshan Kulkarni, PharmD, MS, Esq., is the principal attorney at the Kulkarni Law Firm, known for its dedication to legal excellence in the pharmaceutical industry. An entrepreneur and an innovator, Kulkarni serves as an adjunct professor at Drexel University School of Law. He serves on multiple boards including the board of the Emily Whitehead Foundation, contributing to transformative work in pediatric cancer research. Beyond his legal and academic commitments, Kulkarni hosts the DarshanTalks podcast, a platform where he engages thought leaders in candid discussions about the life sciences.