M&A regulatory due diligence

Sep 4, 2014 | News

Proper due diligence is important in any corporate merger and acquisition because investing in or acquiring another company is always risky business, but for medical device companies subject to FDA scrutiny, due diligence is absolutely critical.


Too many acquiring companies skip this important review and only look at IP and financial records. Due diligence, by definition, is the act of uncovering and confirming all the material facts affecting the sale of a company or securities to help determine its valuation. For medical device manufacturers, that means not only conducting a thorough risk/benefit evaluation and financial review but also determining if there are any concerns about the company’s regulatory standing with the FDA that could lower the manufacturer’s valuation and damage or derail the company.

A number of regulatory issues can have an adverse effect on valuation, including:

  • Lack of recent FDA inspections
  • Open FDA inspection observations or warning letters
  • Pending submissions
  • Major design changes
  • Incomplete or limited product approvals
  • Uncontrolled or mismanaged production activities
  • Adverse events or field corrections not managed through the FDA

Compliance actions resulting from any of the above issues may not occur until months or even years after an acquisition is completed – that’s why it’s so important for companies and investors looking to acquire a medical device manufacturer to develop a carefully-considered due diligence strategy that should include:

  • Due diligence goals: what are the potential business and regulatory risks involved in the purchase of this company and its current and future products and how great are they?
  • Reviewer selection: Choose auditors with experience and expertise in medical device manufacturing (and especially for the specific therapeutic or diagnostic applications the company addresses).
  • Resource allocation and timeline: Ensure that adequate resources are available to successfully complete an in-depth regulatory audit and that the team has access to all necessary documents, people, and facilities. Also facilitate an agreement between the two parties regarding the proper amount of time needed to complete due diligence.
  • Prioritization: Often there’s simply not enough time to fully audit and analyze a company for sale. With that in mind, it’s important to prioritize regulatory due diligence activities to ensure that the most critical factors are reviewed and analyzed first.
  • Confidentiality: Often due diligence is conducted before many of the employees of the company in question have knowledge of the merger or acquisition. It’s critical that due diligence activities are conducted discretely and in complete confidentiality to avoid unnecessary or adverse issues or situations.
  • Due diligence process results: all appropriate due diligence personnel — regulatory, business, and legal – should agree on the type and depth of the report generated by the due diligence process so that all the necessary information is included for each area. This report will also be an important tool to assist in business integration activities after the acquisition.

If you or your company is looking to invest in, acquire, or merge with a medical device manufacturer, you should consider M&A due diligence assistance from an experienced FDA regulatory consultant such as MEDIcept.  If you’d like more information visit our website or call us at 508-231-8842.