Keys To Regulatory Diligence In Life Sciences Transactions

Conducting effective due diligence for a life sciences transaction requires a comprehensive and deep understanding of the regulatory framework for pharmaceutical products and the particular product class or product in question. Generally speaking, testing, developing, manufacturing and marketing of a pharmaceutical product, including drugs and biological products, is subject to stringent laws and regulations, including the Federal Food, Drug, and Cosmetic Act and the Public Health Service Act.

A company that develops a new drug or biological product must conduct extensive laboratory testing, nonclinical studies and clinical trials, and obtain approval from the U.S. Food and Drug Administration, before marketing the product in the U.S.

Even after a product is approved, the FDA continues to impose various post-approval requirements. Having a solid understanding of the general regulatory framework and conducting proper diligence into the specific regulatory areas and issues under the framework is foundational to a life sciences transaction.

Below we highlight the key regulatory issues associated with the target company and its activities, commercial products and pipeline products.

Target Company and Its Activities

One of the starting diligence tasks is to review the regulatory and compliance status of the counterparty, or the target company, and assess how it conducts the research, development, commercial and sales activities.

This may include reviewing the activities conducted by the company and third parties that the company has engaged with. Diligence should inquire into the target company’s good standing and compliance history with the FDA, including whether the company has received any enforcement or advisory actions from the FDA, e.g., warning letters or untitled letters, among other things.

In the emerging biotechnology sector, a biopharmaceutical company can outsource major portions of its research, development and commercial activities to third parties, e.g., laboratories, patient recruitment agencies, contract research organization, contract manufacturers or marketing firms, while remaining responsible for the underlying activities.

These third parties play a critical role and undertake important drug research, development, clinical and commercial activities. Diligence should review the regulatory and compliance statuses of these players, probe how the contracted activities have been performed, and determine whether the counterparty has maintained appropriate oversight over those outsourced activities and how to mitigate potential compliance risks.

For example, the FDA may inspect the company and these third parties, and diligence should check the inspection findings and ensure any noncompliance issues are properly resolved.

Commercial Products

Commercial products have received FDA approval and have been on the market for a period of time. They are often the main asset that propels the transaction. Generally, diligence on commercial drug products should focus on the review of the initial approval, compliance with post-approval requirements, advertising and promotion, manufacturing, distribution, marketing and sales practices, and related issues.

Initial Approval and Compliance With Post-Approval Requirements

First, diligence on a commercial product should review the new drug application or biologic license application approval, and identify and evaluate any postmarketing requirements or commitments, risk evaluation and mitigation strategies, and other conditions associated with the approval, as well as circumstances that might lead to withdrawal of the approval, e.g., new efficacy and safety evidence.[1]

For instance, for a product approved via the accelerated approval pathway, the applicant must conduct a Phase 4 post-approval study to verify the predicted clinical benefits.[2]

Further, changes to an approved product — e.g., new formulation or indication, manufacturing changes — require the application holder to submit a supplement or otherwise report to the FDA.[3]

The application holder must also submit an annual report including various post-approval information, such as significant new information that might affect safety, effectiveness and labeling of the product.[4]

It is paramount to check compliance with such post-approval requirements and evaluate any notable challenges and hurdles that may affect the approval status and marketing of the product.

Postmarketing Safety Issues

In particular, postmarketing safety is often a pivotal issue associated with commercial products. Under the FDA’s regulations, an application holder must review adverse drug experience from all sources, submit to the FDA 15-day alert reports of serious and unexpected adverse experiences and periodic adverse experiences reports, and establish adequate policies and procedures regarding such practices.[5]

The agency can also request safety-related labeling changes and product withdrawals as the circumstance warrants.[6] Diligence should examine the adverse reactions of the product in the labeling, inquire into the adverse events that occurred in the clinical trials and postmarketing setting, and assess any significant safety concerns associated with the product and how robust the company reviews and reports postmarketing adverse experiences.

Product Communications

Further, advertisement and promotion is a diligence minefield for commercial products. The FDA maintains active enforcement, e.g., warning letters or untitled letters, against violative drug advertisements and promotional activities. Diligence should review advertisements and promotional content created by the company and third parties on the company’s behalf, e.g., the product website, advertisements and endorsements by social media influencers, and related company policies in compliance with the FDA’s advertising and promotion principles.[7]

It is also important that the company has submitted copies of the promotional content to the agency and adequately addressed any comments and feedback from the agency.[8]

Furthermore, because manufacturers are prohibited from promoting an approved product for unapproved uses, diligence should also focus on communications of unapproved uses, including responding to off-label use requests, distribution of scientific literatures and other medical affairs activities.

Manufacture, Supply and Distribution of the Product

Moreover, diligence should evaluate how the commercial product is being manufactured, supplied and distributed.

Diligence should check, among other things, (1) appropriate federal and state licenses of contract manufacturers, distributors and suppliers as well as their compliance statuses; (2) FDA and state authority inspection records, including whether such inspections have resulted in warning letters, untitled letters, or inspectional observations in connection with the manufacture and distribution of the product; and (3) continuity of the manufacture and distribution of the product, including any potential issues that may adversely affect the supply and manufacture of the products leading to shortage or manufacturing disruptions.

Under the FDA’s regulations, an application holder must report certain quality defects regarding the distributed products through field alerts or biological product deviations reports, and notify the FDA of permanent discontinuance or an interruption in manufacturing of a product.[9] In these situations, diligence should review whether appropriate reports have been filed with the FDA.

Marketing and Sales Practices

In addition, diligence should assess the marketing and sales practices of commercial products, including interactions with healthcare professionals. In particular, life sciences companies are subject to an array of healthcare fraud and abuse laws such as the Anti-Kickback Statute, False Claims Act, Physician Payments Sunshine Act and state laws, among others.

Diligence should review and scrutinize the fraud and abuse risks under these laws, including any settlements — e.g., corporate integrity agreements — with the government, and flag key regulatory and compliance issues.

Please read the rest of Anna’s article here: https://www.law360.com/articles/2322830/keys-to-regulatory-diligence-in-life-sciences-transactions