5 Reasons Life Science and Medical Device Companies Should Be Working with a Biotech Consulting Firm When Doing Due Diligence

By Robert Johnson, Managing Partner, Alacrita Consulting Inc, Cambridge, Massachusetts

The life sciences industry is particularly active with regard to mergers and acquisitions, and many companies lack the internal expertise and/or bandwidth to conduct effective due diligence. If your business (or one you’re working for) is about to undertake a due diligence, you might benefit from working with a biotech consulting firm – especially if their specialist consultants have particular expertise in the area. Here are five reasons why you should be working with a biotech consulting firm:

First and foremost, a high quality life sciences consulting firm will start by working with you to understand the reason for the due diligence, as well as the particular focus there needs to be. For example, a skilled advisor will quickly be able to identify the principal areas of risk in a program (e.g. clinical efficacy, safety profile, market opportunity, regulatory manufacturing, intellectual property etc.) and efficiently allocate resources to understanding and quantifying these risks, to the extent that your particular situation requires. This is the case whether you’re working for a pharmaceutical company, biotech company, medical device company, a financial investor etc.

From here, they’ll anticipate the depth of the assessment required and advise you about what’s possible within your timeframe and budget, providing you with a realistic scope, timeframe and cost of the due diligence process. An important consideration is whether you need all the due diligence work done in parallel or in series. Having the work done in parallel is better for competitive deal processes where the transaction is proceeding to a fixed (and normally tight) timeline. If there isn’t significant time pressure, it may be beneficial to commission the due diligence assessment in series (i.e. first look at the IP, then the clinical data, then the market opportunity etc.). This enables the process to be stopped early should a significant ‘deal-breaker’ be identified, which can save on additional professional fees.

Thirdly, the right biotech consultant team will have a spectrum of experts with specialist knowledge about product-specific issues that will be relevant to your situation. The right advisors will ideally have a long track record of developing similar products to the one under evaluation (be it a pharmaceutical product or medical device). There is a big difference between learning about the pharmaceutical product development process at business school, versus spending a couple of decades in a pharma company ‘on the coal face’.

Fourth, it can also be useful to have broad geographic diversity. The pharmaceutical and medical device markets in USA, Europe and Asia have different commercial dynamics and regulatory requirements. Bringing specific regional expertise to the due diligence process can help fine tune an evaluation and ensure the global potential of the opportunity is fully understood.

A biotech consulting firm will perform a number of activities on your behalf, freeing up resources (or saving you from having to make a permanent hire for a specific job). This can range from conducting an initial review to gaining an understanding of the expertise required. An effective advisor will select an appropriate team of expert evaluators, communicate progress with you throughout the process, identify, explain and characterize each identified risk, set into the context of ‘industry standard’ risk. The implications and severity of each risk should be carefully thought through, providing recommendations about how to mitigate each risk should the transaction proceed.

Lastly, it can be useful to couple a due diligence risk assessment with an independent valuation of the opportunity. A strong valuation model can only be developed once a product or company is fully assessed and understood, so the due diligence team is often well-positioned to take this on. Ideally, the valuation model needs to be built on assumptions that are carefully thought through and based on real-world evidence or data. Given the inherent uncertainty in the development of pharmaceutical or medical device products, it is helpful to use Monte Carlo simulations to use ranges for each assumption (for example, how long will the Phase III trial take?) rather than single numbers, which can give a false sense of accuracy.

The right biotech consulting firm will be an invaluable source of specific expertise for a business that lacks confidence, knowledge or internal bandwidth. In the ideal relationship, the external advisors ‘dovetail’ with the internal team, supplementing the internal effort and existing capabilities as required.

Rob Johnson is Managing Partner, Alacrita Consulting Inc., and a business development consultant and manages the firm’s US office. He has a strong interest in oncology, particularly immune-oncology, as well as AAV gene therapy. Previously, Rob was Head of Business Development at Onyvax, a biotechnology company specializing in the development of cancer immunotherapies