Getting integration right in biotech acquisitions

Big pharma companies need the innovation and entrepreneurial energy that biotech acquisitions can bring. But getting the payoff from a biotech acquisition requires a delicate balance during integration. The acquirer needs to exert the right amount of control to manage risks and move the newly acquired clinical pipeline towards full commercial potential, but without stifling the entrepreneurial spirit that leads to innovation. We share our insights on how to get this balance right.

Large life sciences companies have been ramping up acquisitions of smaller biotech players, seeking new sources of profitable growth as blockbuster drugs go off-patent. In 2021, big pharma spent $52 billion across 25 deals to acquire biotech players.^[i] Established companies prize these start-ups not only for their pipeline of clinical-stage assets but also for their entrepreneurial capabilities and culture.

Integrating biotech players, however, has often proved challenging for large pharma companies. Some acquirers have allowed the asset to maintain too much independence, which has created unmitigated risks. Others have unintentionally stifled innovation and entrepreneurship – the very things that they were looking for when they agreed to buy the target.

Our experience suggests that acquirers need to align the entire organization (management of both companies and the commercial, quality, R&D, and support functions) on how to strike the right balance between integration and independence. By preparing a customized roadmap to guide the process, acquirers can sustain the value of the target’s scientific entrepreneurship, while achieving synergies and avoiding unnecessary risks.

An integration strategy must weigh preserving scientific entrepreneurship against scale efficiency and control (Exhibit 1). On the one hand, a high degree of integration could stifle the target’s entrepreneurial spirit if it becomes burdened with the larger company’s administrative processes. On the other hand, integration facilitates the control and visibility required to minimize hidden risks, while providing economies of scale and enabling greater collaboration for the development of new therapies. The degree of integration may vary by function – R&D, for example, may want to maintain the culture of scientific entrepreneurship whereas the rest of the organization will likely want to avoid the inefficiency of duplicative processes.

The degree of required integration will determine the business structure post-integration and will have a direct impact on the value of the acquired portfolio. Often viewed simplistically as mutually exclusive, two potential organizational models show the range of options, each with advantages and trade-offs (Exhibit 2). 

Planning for anticipated loss of talent is especially important. The acquirer should implement strategies to sustain engagement of key talent for the near- or long-term and align their performance metrics with the operating model. Integration planning must mitigate the potential for lost expertise, external relationships and leadership without further aggravating the potential for loss.

Because of this nuanced approach, it is critical to align R&D and the rest of the business using consistent messaging. In the absence of a clearly defined approach at the outset of integration efforts, there will be a movement towards full integration through incremental decision making from functional teams that needs to be managed to carefully align integration efforts to the desired acquisition objectives.

An acquirer needs visibility into the acquired clinical trial pipeline to prepare investor materials and regulatory disclosures, as well as for a variety of operational reasons. However, the flow of clinical trial data required for visibility relies on a network of interlinked systems with specific complexities.^[ii] Early in the integration process, an acquirer should prepare a deliberate plan to appropriately share information and develop a system roadmap. All affected teams should agree on the plan and roadmap.

Contract manufacturing organizations, contract research organizations and research alliance partners are critical to maintaining operational continuity of clinic trials. Unfortunately, the target’s legacy contracts often do not align to the acquirer’s standard terms of service, forcing exceptions to ways of working or additional fees. In addition, the parties must understand data-sharing restrictions across patient informed consent forms and all partner agreements. Determining impacts of inherited contracts and the mitigation efforts required should top planning priorities.

Regulatory authorities scrutinize the degree to which a given process is following the associated standard operating procedure (SOP) during an inspection (especially post-transaction). To avoid regulatory findings, the target and acquirer should address inconsistencies between their SOPs, including exceptions and change management. They should not understate the effort, which must be rigorously planned and tracked.

Decisions the target makes around strategic direction and clinical trial commitments are long lasting and difficult to unwind. As a result, they can hamstring budgets and research direction indefinitely. The acquirer should move quickly to align the target’s governance with its own and carefully manage timelines and communications with clinical operations. All decision rights, including new study approval, quality regime, and budgeting should be reconfirmed and clarified once the acquirer takes control.

Create a methodology to drive the transition of clinical trials and design an overall integration that balances scale and control with scientific entrepreneurialism.

Lead efforts to map and document deviations to R&D standard operating procedures (SOPs) to minimize regulatory compliance risks.

Conduct detailed walk-throughs of the entire clinical supply chain from raw material to site distribution to align objectives across finance, IT, trade compliance, and supply chain.

Support the integration management office, including prioritization of integration relative to key regulatory submissions.

This article was originally written by Jeffrey Stoll, Principal, Advisory, KPMG in the US, and Chris Wienand, Director, Advisory, KPMG in the US. The original article is available here.