Mergers, Acquisitions and Compliance, Oh My!

By: Sabrina Skari, CIS Business Development Manager
sabrinaskari@cis-partners.com

You can look anywhere in the media to find news reports about the numerous buyouts occurring in the pharmaceutical industry. There is the mega-merger between Pfizer, Inc. and Wyeth Pharmaceuticals (Pfizer purchased Wyeth for $68.103 billion, this is the 3rd largest deal in pharmaceutical industry history [1]), the acquisition of Schering-Plough by Merck, Ltd and the fact that Roche purchased Genentech… just to name a few. The leadership teams of these buying entities have a specific goal in mind: to create broad, diversified product portfolios that appeal to as many markets as possible. However, where red tape and bureaucracy are involved, matters are bound to get complicated. So while everyone in pharma questions what these mergers mean for the industry in the long-term, it is also important to ask what these mergers mean for compliance risk!

There is a phrase that defines the need to examine these types of issues: “compliance due diligence.” This refers to the process by which an organization aims to ensure it is aware of any compliance related issues it may inherit in the acquisition of a product or of another company [2]. A company should perform an appropriate level of due diligence, and identified issues that could result in compliance or financial risks can be integrated into the agreement between the companies, including the accountabilities and costs associated with addressing identified issues.

A few key areas to pay attention to include:

• Government program compliance, and integrity of statutory pricing calculations
• Accuracy in Class of Trade Assignment
• BaseAMP impact (where an acquiring company inherits the Base AMP of a product, and any future CPIU Penalties
• Systems used for Medicaid Claims processing, and ability to integrate in historical claims
• Commercial Compliance, such as Grant Activity and Sampling, and assumptions on Bona Fide Fees for Service

As noted, the impact of these areas is highly dependent upon whether the entire company is being acquired or whether it is onlyNDCs that have been purchased. Generally speaking, when acquiring a company, the buyer inherits all historical compliance risks, whereas in acquiring a product, issues like integration of sales data and Base AMP impact can be the main concern.

In some cases, just showing that you are working on the creation of a unified compliance strategy may minimize the risk of fines. This is helpful because the process may be a time-consuming one. There are various areas that need to be examined when two companies become one. If each entity has a sales force, there is a need for one comprehensive field guide and sales and marketing policy. Any changes to this type of documentation would also require updated training for all sales personnel, which in some cases could mean tens of thousands of people. The customer master codes would need to be reviewed to check for consistent integration and assignment between the two respective organizations. Finally, every single policy and procedure would need to be reviewed and consolidated.

With all of this said, this type of integration among companies is a “worst case scenario” for the amount of work that may need to be done. According to Jim Edwards on the BNET blog, it is possible that these mergers could result in companies that “look a bit like Johnson and Johnson: a collection of relatively small units working autonomously [3].” This doesn’t necessarily mean that there is a right or wrong way to operate. It just implies that an increased level of autonomy among divisions provides a basis for fewer required changes.

Until these mergers are finalized no one can know what the end result will be. Only one thing is for sure- compliance risks affect everyone, big and small. Regardless of how well established a company may or may not be, everyone needs to be cognizant of their respective compliance risks and do everything in their power to mitigate these threats.

SOURCES:
[1] Pharmaceutical Executive, March 2009
[2] http://hcca-info.org/content/navigationmenu/aboutHCCA/PressReleases/duedil.pdf
[3] http://industry.bnet.com/pharma/1000996/post-merger-pfizer-wyeth-might-be-structured-like-jj/?tag=content;col1