Portfolio transactions in the Danish life sciences industry
Kromann Reumert's life sciences transaction team has in recent years been involved in a number of transactions concerning Danish pharmaceutical companies' purchase or sale of a portfolio of pharmaceutical and cosmetic products. In this article, we brief you on the structure of a portfolio transaction, the challenges arising when selling or purchasing a portfolio, and offer our recommendations on how to navigate in this.
Introduction
Portfolio transactions concerning pharmaceutical and cosmetic products are often complex, international deals that involve not only the purchase and sale of assets and rights but also certain interim arrangements between the parties to facilitate the purchaser's takeover of the portfolio and the related supply chain. Portfolio transactions are complicated by the fact that the pharmaceutical industry is highly regulated and that the products and related assets in the portfolio are often sold in multiple jurisdictions in different regions across the world.
How is a portfolio transaction structured?
A portfolio transaction is usually structured as an asset deal, where the purchaser purchases certain assets and rights relating to the products in the portfolio, such as intellectual property rights (patents, trademarks, know-how, domain names, etc.), marketing authorisations and registrations etc., commercial agreements (manufacturing, supply, distribution, in- and out-licensing, promotion etc.), study authorisations and agreements, data, inventory, and sometimes also fixed assets, manufacturing facilities, and employees. The transactions can also include a sale of shares, where the seller as part of the deal is selling a subsidiary dedicated to the product portfolio, e.g. as a manufacturer of pharmaceutical products.
A portfolio transaction is a carve-out of part of the seller's existing business. In addition to the purchase of assets, the purchaser will therefore require certain transitional and separation services from the seller, including regulatory support, in order to take over the portfolio. As part of the separation, the parties will usually agree on a plan for the transfer of manufacturing capabilities, marketing authorisations and registrations in the various jurisdictions where the products are sold, as well as a plan for the transfer of the responsibility for pharmacovigilance.
Challenges in portfolio transactions
As part of the carve-out from the seller's existing business, the purchaser will be taking over the supply chain for the products. This can be a complicated exercise, as the supply chain for pharmaceutical products involves a number of steps, including sourcing of API (active pharmaceutical ingredient) and other raw materials, manufacturing of finished products, packaging, storage, distribution etc., which can be different for each product in the portfolio and for each jurisdiction where the products are sold.
Further, some of the steps in the supply chain such as manufacturing of finished products may be carried out by the seller itself, meaning that the parties will have to enter into an interim manufacturing and supply agreement providing for the seller's manufacturing and supply of finished products to the purchaser for an interim period until the purchaser is ready to take over manufacturing itself or through a CMO, which will require a transfer of technical know-how from the seller to the buyer or a CMO. The seller may also need to retain contractual relationships with CMOs, suppliers, distributors etc. where such agreements also cover other products than those within the transaction perimeter. This may necessitate a "split" assignment or novation of the relevant agreements to the purchaser.
Changes to the supply chain, e.g. the manufacturer of a product, will often require approval from relevant regulatory authorities, e.g. as a variation of the relevant marketing authorisations. Change of a manufacturing site will often also entail a transfer of manufacturing know-how from the seller to the purchaser or a designated CMO, which can be a time-consuming exercise. Accordingly, interim arrangements between the parties may need to be in place for up to several years.
Our recommendations
Given the regulatory complexities of portfolio transactions and the need for interim arrangements between the parties for up to several years, pharmaceutical companies looking to purchase or sell a portfolio of products should make sure to involve subject-matter experts from all relevant workstreams, including supply chain and regulatory, in the transaction process. Further, a prospective seller should, when selecting the purchaser, pay special attention to whether the purchaser has the capabilities, resources, licenses etc. required to take over the portfolio. It takes time and considerable resources to properly prepare a sale of a portfolio of pharmaceutical and cosmetic products, and the best advice therefore is to prepare the transaction in good time.
For the purchaser, it is essential to properly diligence and mitigate the risks associated with the supply chain and the sale and distribution of products. This is complicated and something that requires industry expertise to handle properly.
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