Merger and acquisition (M&A) activity in the medical device space has slowed in recent years, but is poised to take off in 2013. The medical device industry faces a complex and ever-changing regulatory environment, and it is critical to understand and assess these regulatory risks when evaluating potential medical device deals. An acquirer can identify and mitigate that risk only through high quality industry-focused due diligence.
This is the first installment of a series looking at due diligence issues in device transactions. This post focuses on a key issue for due diligence: examining the quality, reliability, and regulatory compliance of preclinical and clinical trials conducted or designed by the target.
Device transactions often involve the purchase of products that are still in development. In these deals, the acquiring company takes over the preclinical or clinical trials designed by the target company. The corporate due diligence team, working closely with knowledgeable regulatory counsel, should examine three areas of the target’s preclinical and clinical trials to understand any potential risks.
First, the acquirer should closely examine the clinical trial’s design, starting with a review of the consultants involved in the trial’s design and execution. The acquirer should review the consultant’s experience and reputation in the industry, particularly in international transactions where the acquiring company may be using consultants with limited exposure to U.S. regulatory requirements.
Second, the acquirer should look for procedural deficiencies in the preliminary studies and independently verify the statistical significance of the preliminary studies.
Third, the acquirer should review the target’s records to determine whether the target has complied with the numerous regulatory requirements that apply to clinical development. Were preclinical studies conducted in compliance with the FDA’s good laboratory practices (GLPs)? GLPs differ between FDA, EPA and the OECD. Did the target correctly identify whether the study should be characterized as a significant risk (SR) or non-significant risk (NSR) study? If the study is an SR study, did the target obtain an investigational device exemption (IDE) from FDA? Was approval by an appropriate institutional review board (IRB) obtained? Were adverse events observed in the trial appropriately reported to the IRB and FDA? Were financial certifications of investigators obtained and submitted to FDA? Were IDE annual reports submitted to FDA, and did FDA identify any shortcomings? Were the trials subject to a bioresearch monitoring (BIMO) inspection?
These and many other questions should be reviewed in due diligence by counsel or consultants familiar with such regulatory issues.