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One Day GCP Specialist Meeting on Due Diligence on 23 May 2003 at Institute of Biology, London.
This was the first specialist meeting on Due Diligence organised by the GCP Committee of BARQA, and was attended by 34 delegates, primarily managers within pharmaceutical clinical QA.
The first speaker of the day was Alasdair MacDonald, VP Legal & Quality Services, Europe for Quintiles. Alasdair's presentation set the scene for the following speakers with his overview of the purpose, risks and benefits of the due diligence process. Alasdair spoke about the due diligence process in other industries and explained that most case law in England related to the shipping industry. Some very interesting points were raised during Alasdair's talk, such as the 'seller dictates' the scope of the due diligence process and the problems of confidentiality for both the seller and purchaser (the purchaser would ideally like full disclosure, but the seller might be restricted owing to confidentiality agreements with client companies). Some examples were provided from other industries of what happens when due diligence goes wrong! An interesting point arose regarding the liability of external advisers who are conducting the due diligence on behalf of a client. If the due diligence process goes wrong and the client purchases a worthless company or product, then the lawyers and advisers such as auditors, could be held liable for the failure of the deal. However, accountants are the exception in that they have limited liability to the value of the transaction! Alasdair's advice was to limit your risk as an adviser by setting out very carefully the scope of the work being done in a letter of engagement. The advice was to limit the scope of the work to factual information where possible, and to not get involved in the decision-making process.
The next speaker was Trevor Mill from the Worldwide Regulatory Affairs group at Pfizer, who spoke about the Regulatory Aspects of Due Diligence. Trevor explained that the due diligence process starts when the opportunity is first identified and only finishes when the contract is signed. One of the critical success factors in the process is the content of the confidentiality agreement. As discussed in Alasdair's presentation, the licensor wants as much information about the product as possible to be able to assess its value and make a decision, whereas the licensee needs to protect information on the product. Planning and preparation is also key to successful due diligence. A very short time-frame is allowed for the review of documentation on site, so it is important to ensure that all of the documents needed have been requested and are provided on the day. It was also recommended that face-to-face meetings are held with other members of the due diligence team before visiting the licensor so that you are familiar with the people in your team! Trevor's view was that you need to be a ?good detective?, be able to work under pressure and 'think on your feet' in a due diligence team. A question was raised from the floor about the role of independent auditors on the team. Trevor felt that there were advantages and disadvantages in using people outside the company. An advantage was that a third party may be able to get more disclosure as they would be seen as independent of the licensee. However, the third party would have less understanding of the company purchasing the product.
Patricia Houghton, also from Pfizer, but in the CQA department, followed on with a comprehensive presentation on what QA actually do in the due diligence process. Patricia re-iterated the need for face-to-face meetings and also to decide on who will do what to avoid duplication of effort. The approach taken by the QA department was very similar to a routine audit except that only "big ticket" items were looked for. Studies would be selected for audit as part of the due diligence process. Previous audit reports would be reviewed to check whether major observations had been followed up and resolved. The audits would normally be scheduled by the licensor, and they would accompany the auditors to the sites. Audit reports would be very brief and focus only on areas that would be critical to the decision-making process. Individual site reports would be compiled into a single report for management. All reports would be factual, no opinions would be expressed.
Several interesting questions were raised following Patricia's talk around the issue of disclosure of audit reports. A delegate wanted to know whether a CRO, who had managed and monitored the study on behalf of the licensor, would be informed of the disclosure of audit reports, which contained findings relating to their performance, and whether there could be ramifications on future contracts with the licensee' Patricia explained that audit reports are usually requested, but not always provided by the licensor. Reports cannot be copied or removed from the licensor's site. Another question concerned the documentation if the licensing deal does not go ahead. The response was that documents are either be recalled by the licensor, or they would be destroyed by the licensee. A question was asked about the types of audit findings that might cause concern in a due diligence setting. Patricia replied that they would be similar to any other audit situation such as no quality management procedures, problems with regulatory and ethics approvals etc.
The next speaker, Beverley Mehentee of Wider Perspectives, focused on the due diligence process in the acquisition of a company. This was a very interesting presentation as it demonstrated the broader role of quality assurance professionals in the due diligence process. Beverley was brought in by a Venture Capital company to become part of a due diligence team composed primarily of lawyers and accountants who had no knowledge of the pharmaceutical industry. Only two days were allowed to evaluate the available due diligence documentation for the purchase of a Phase I Unit and, as we heard with other cases earlier, there were several other companies interested in investing in the company under investigation, resulting in immense pressure to make prompt decision on the available information. In the previous presentation information was factual, and opinions were only provided verbally. The due diligence team concerned with Beverley's project relied upon both a factual and professional opinion perspectives to make a decision. A major challenge was writing the due diligence report, particularly in presenting the risks in a manner that could be understood by the lawyers and accountants! The report focussed on areas that might be 'show stoppers' and what the implications of these findings would be. As highlighted in Alasdair's talk, liability could be a major issue for an auditor in these circumstances. Beverley explained that agreeing the wording of her contract took longer than the due diligence exercise! Beverley summed up her talk by saying that QA added real value to the due diligence process and formed an integral part of the team. Without QA's input the lawyers and accountants could have fallen into some very big black holes!
The final presentation of the day was from Mary O'Flaherty, Associate Director, Global GCP Compliance at Biogen Ltd. Mary, like Patricia, discussed the types of due diligence projects she had been involved with and what the auditors' role was. Mary had been involved with a strategic partnering project and also two licensing deals. In each case a comprehensive audit programme was developed and external auditors were brought in as part of the due diligence team to expedite the audits. The approach was to validate completed studies, assess the interim compliance of ongoing trials, to review operational systems and to review the management capabilities of the development process. In each case between 6 weeks and 3 months was available to complete the due diligence process. Reports were written according to normal auditing procedures and findings categorised into critical and major. One of the success factors Mary identified was having a good collaboration plan with the licensor's QA department.
The presentations were followed with an open forum lead by Colin Wilsher and Patricia Fitzgerald. Several interesting issues arose including:- What is the risk of the auditor being sued if the due diligence process goes wrong? Could BARQA provide a role in advising on the due diligence process as there is no 'standard' approach? Should other aspects of QA be involved (GMP, GLP, GXP)? Is consent required to access subjects? medical records by a third party not previously mentioned in the original consent documents? Some delegates thought that there would not be a need to view patients records, others thought that this was essential I order to verify data & procedures. One perspective was that further consent would not be required if the audit was conducted alongside the licensor's auditors as they would be covered by the original consent.
The first due diligence meeting highlighted the need for further discussion on this topic. It was generally considered that QA provide significant value to the due diligence team, but that many organisations still do not involve QA in the process. Further 'education' of the skills and knowledge that QA functions can provide is definitely required!