Vetting Previously Marketed Pharmaceutical Drug Acquisitions

Pharmaceutical manufacturers considering the acquisition of pre-existing drugs face the challenge of conducting a meticulous and comprehensive analysis across a spectrum of financial, regulatory, and compliance facets. This pursuit is critical for gaining insights into potential threats and opportunities that may inform the product acquisition price, terms and/or the acquisition itself. This white paper will outline crucial data points that acquiring companies should procure from the selling entity. It will also provide insights into product analysis techniques and offer recommendations on data needs to properly understand potential liabilities associated with the products. These combined best practices can help drug manufacturers maximize the potential for a product acquisition’s success and longevity within the dynamic U.S. pharmaceutical landscape.

Data Points to Secure from the Selling Company

When vetting a previously marketed product for potential acquisition, drug manufacturers should be sure to secure the following data points from the selling entity regarding the product in question:

  • Financial Records
    • Product-level gross-to-net reports for 12+ months
    • Product-level accrual true ups for 12+ months
  • Commercial Contracts, Utilization and Pricing/Discounts Records
    • A full list of contracts for the product, including all prices and discounts offered
    • Historical utilization by contract
  • Government Contracts, Utilization, Pricing/Discounts Records and Calculated Values
    • Government program calculations/values and utilization from at least the last 12 months across any/all government programs. This may include the following:
      • Medicaid:
        • Baseline AMP value and Baseline Period (critically important as this establishes a foundation for current and future inflationary penalties)
        • AMP calculations (monthly and quarterly values)
        • Reported Best Price values (quarterly)
        • Quarterly Medicaid Rebate payments (for ROSIs and PQASs)
        • Utilization for 12+ months
      • Medicare Part D:
        • Benchmark values
        • All known Medicare utilization for 12+ months
        • Coverage Gap utilization and rebates paid for past 12+ months
      • PHS/340B:
        • 340B ceiling price values for past 12 months, as well as the most recent calculated quarter
        • Utilization for 12+ months
      • VA:
        • Historical NFAMP values
        • Historical FCP values
        • Current FCP
        • Utilization for 12+ months
      • Medicare B:
        • Historical ASP values
        • Benchmark values
        • Known Medicare utilization for 12+ months
      • Branded Prescription Drug Fee:
        • Historical payments
        • Expected upcoming payments
        • Given the lag could be up to 2 years from actual utilization to the invoice period, it is important to clearly identify responsibilities between seller and acquiring company

How to Analyze the Data for Threats & Opportunities

Once all relevant product data points have been secured, we recommend taking the following actions to assess your threats and opportunities:

  • Model the financial records to look for trends in the gross-to-net reports and accruals
  • Forecast commercial business impacts considering contract changes you expect to make and their impact on future gross-to-net values
    • Are other products likely to enter the market soon? Does that impact your outlook on profitability for the product(s)?
    • Are you likely to keep certain contracts in place?
    • If you eliminate or add certain contracts, how does that impact your government pricing values and any associated commercial or government liabilities?
    • Do you have relationships with some of the PBMs? Are any in jeopardy?
  • Review historical government business trends and forecast future sales and utilization considering current penalties/payments, as well as future liabilities/new regulatory impacts that have not yet been operationalized

Crafting precise gross-to-net forecasts and evaluating potential threats and opportunities within government and commercial operations requires a specialized skill set. Ensure that you involve your Commercial team, Government Pricing team, and/or vendor experts to meticulously analyze the product and the data before moving forward with a product acquisition.

Terms to Address With Your Legal Counsel

When drafting drug acquisition terms with the selling company, ensuring the contract includes protections against future risks / liabilities in the below areas may be important. Please note, the list of suggestions below is not exhaustive. There will certainly be additional considerations you may want to work through with your attorney during the M&A process.

  • Provisions to protect yourself from any potential false data, even when unintentional, provided during the due diligence phase. Legal counsel can be utilized to guide strategies that may include some combination of holdbacks and reps and warranty insurance.
  • Defined responsibilities for claims received following the acquisition and clearly defined and agreed upon cut-off dates (i.e. channel clearing date).
  • An understanding of any current or potential future litigation that a product, product family, or class of drug may be subject to.
  • Appropriate considerations for liabilities that are implicit in the current utilization of the products acquired, but do not always show up in accruals. This includes rule changes resulting from legislation passed but not yet implemented, fees that show up as a tax on overall portfolio sales but have not yet been billed for (such as brand taxes, etc.).
  • Clauses for ensuring parties understand responsibility of previously unknown or unbilled claims for utilization periods prior to any cut-off dates.
  • Responsible parties for calculations and submissions (administrative pieces); i.e. typically a manufacturer cannot transfer products to a new agreement for programs like Medicaid and Medicare Part D. Those must reside with the labeler code.
  • Calculations for how annual or unevenly weighted liabilities will be divided by the parties. For example, Medicare Part D claims are weighted towards quarters three and four (even though claims that proceeded to push patients to that coverage gap happen throughout the year). Understanding the nuances of how these different programs work can inform how those liabilities are accounted for in the agreement.

In Summary

Taking the necessary time and effort to secure all data points for a comprehensive analysis of a prospective product acquisition is crucial for ensuring its long-term success and profitability. It is essential to analyze historical trends and consider potential future changes while forecasting sales, liabilities, and gross-to-net values. Collaborate with key partners, such as Commercial, Government Pricing, and Legal teams, to conduct a holistic evaluation of threats and opportunities – reducing compliance and financial risks associated with the acquisition.

For support and guidance in assessing short-term and long-term threats and opportunities related to pharmaceutical drug acquisitions, reach out to the experts at Prescription Analytics today.

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