As M&A Activity and Divestitures Continue, Life Sciences Companies Shouldn’t Overlook Product Transfers | Deloitte US has been saved
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By Laks Pernenkil, Ph.D., principal and Matt Heim, senior manager, Life Sciences, Deloitte LLP
Imagine a $50 billion life sciences acquisition where company executives don’t properly plan for the transfer of some products. The potential result: Supply disruptions for patients and millions of dollars in unplanned inventory write-offs.
A product transfer is typically triggered when the ownership of a drug or therapy changes. This encompasses all of the processes the acquiring company will need to take over, including promotional activities and product distribution in one or multiple markets. The organizations involved in a product transfer have to determine which entity will be responsible for the commercialization and distribution of a product once the deal concludes. In some cases, a merger or acquisition can’t be finalized until certain assets are spun off or sold to a third party. A company, for example, might need to transfer ownership of a drug to avoid anti-trust issues. Moreover, failing to address regulatory requirements in each country where a product is sold could delay the ability to import or sell products. If inventory needs to be destroyed, revenue and costs could be negatively impacted.
Product transfers and technical transfers are similar and often confused (sometimes the terms are incorrectly used interchangeably). While a product transfer is often part of merger and acquisition (M&A) activity or divestitures, a technical transfer is the process of moving production to a new location. For example, a pharmaceutical company that wants to increase production might move its manufacturing site from a facility in New Jersey to one in North Carolina.
Pharma companies are simplifying portfolios
Ten years ago, most pharmaceutical companies saw value in having a complex and diversified portfolio that included small-molecule drugs, biologics, and even medical devices. We’ve been seeing that strategy change over the past couple of years, and many of our clients are simplifying and realigning their portfolios. This trend is helping drive a new wave of mergers, acquisitions, divestitures, and spin-offs. Over the past 20 years, 60 of the world’s largest life sciences companies have consolidated into just 10.1,2
But as pharmaceutical companies shed assets, few of them have a centralized group to oversee transfer activities, and they generally do not have standardized governance or operation processes in place. Consequently, the transfer outcomes tend to be inconsistent and unpredictable.
A product transfer might include thousands of SKUs (stock-keeping units) in dozens of markets around the globe, multiple manufacturing sites, a variety of distribution channels, and require time for regulatory approval. Regulations can vary across markets, which further adds to the complexity. Moreover, product transfers typically require label and packaging updates, which can require long lead times and careful inventory management to ensure supplies don’t run short.
Five strategies to improve product transfers
Regulatory approval in a product transfer can range from a few months to several years. Delays can disrupt business continuity and result in supply shortages, which can have financial implications and could damage brand and reputation in the market. Here are five strategies life sciences companies should consider to successfully manage product transfers:
Develop a cutover plan: A cutover plan is an important tool for synchronizing regulatory approval timelines with supply and manufacturing plans. A cutover plan details when—and which—activities need to be performed to successfully switch the ordering and distribution of products from donor sites to receiving sites.
Determine how to integrate operations: Along with taking over new products, the receiving company typically has to absorb the components that support the product and will need to determine how to integrate that team. Further complicating the integration is the cross-functional coordination needed to ensure enough inventory to maintain supply continuity. Sometimes product substitutes, which patients can use during the product transfer, might need to be identified if supplies run short.
Prioritize product transfer by market: The stakeholders will likely need to prioritize product transfers by market. Few companies have the deep regulatory knowledge needed to reach out to navigate the regulatory hurdles in each country. China, for example, might categorize a product differently than the US or a European country. That can affect how the product is sold.
Follow up after the transfer is complete: Some organizations think that the work is over once the product transfer is complete. But follow-up can help ensure the transfer is sustainable. Post-transfer audits, for example, might be needed if memorandums of understanding and Service Level Agreements are involved.
Be agile and responsive: Developing various product-transfer tools can require more resources across all functions and in multiple locations globally. The transfer teams are often asked to get on the ground, set up the right structure of overall program coordination and oversight, and agree on the scope within a short timeframe. Adaptable organizations that harness the power of enterprise agility might be best positioned to deliver product transfers successfully.
M&A activity, as well as divestitures and spin-offs, is rippling across the life sciences sector. While such deals can generate synergies in the market, companies that don’t properly prepare for product transfers might not realize all of the potential benefits from a transaction. The ability to deliver product transfers on time and within an allocated budget has become an essential—but often overlooked—component of M&A and divestitures.
1. Pharma industry M&A, https://revenuesandprofits.com/pharma-industry-merger-and-acquisition-analysis-1995-2015/
2. Large M&A in Life Sciences industry, https://en.wikipedia.org/wiki/List_of_largest_pharmaceutical_mergers_and_acquisitions