Life sciences dealmakers need to anticipate sector-specific factors in European M&A

Steering a path through the regulatory and intellectual property (IP) landscape in European mergers and acquisitions (M&A) can be an intricate and demanding exercise but is an essential aspect of successful dealmaking – not least, for any medtech, in vitro diagnostics and pharmaceutical companies. The process requires a thorough understanding of the regulatory and IP landscape and a proactive approach to risk management in order to anticipate how to shape the overall deal process and its timing.

Initial M&A talks

At the outset, confidentiality is key. IP is a cornerstone of M&A transactions, especially in life sciences. Strong confidentiality agreements (CDAs) and non-disclosure agreements (NDAs) are vital to protect patentability, trade secrets and competitive advantage. Disclosing inventions prematurely can jeopardise patentability and trade secret protection. Best practices include robust confidentiality contracts, regular audits and a strict "need to know" policy when sharing information.

NDAs or CDAs are crucial for three reasons: firstly, to uphold patentability or novelty; secondly, to ensure trade secrets protection; and thirdly, to retain a competitive edge. Disclosing inventions could place them in the public domain, thereby forfeiting patentability. Not all jurisdictions offer a grace period, so filing a patent application before disclosure is ideal. In the European Union, trade secrets must be safeguarded by reasonable confidentiality measures to retain their status. Without an NDA, disclosed information or know-how could be exploited for competitive gain.

Regulatory safeguards

On the regulatory side, sharing sensitive quality data or compliance information without proper safeguards can lead to significant disadvantages, including reputational damage and regulatory breaches. Confidential findings shared among parties can negatively impact the deal if disseminated to third parties. Maintaining confidentiality through CDAs and NDAs is essential to protect the transaction's integrity.

The regulatory landscape for medtech and pharmaceuticals in Europe is governed by stringent regulations such as the EU Medical Device Regulation and In Vitro Diagnostics Regulation. The medtech rules have been recently amended with new compliance deadlines in 2025 and are pending further potential amendments as a result of a European Parliament resolution. They mandate strict adherence to confidentiality of information and data obtained in carrying out regulatory tasks.

For pharmaceutical companies, the EU legislation on medicinal products and guidelines from the European Medicines Agency emphasise the importance of maintaining confidentiality during drug development and approval processes. Addressing these regulatory considerations in NDAs or CDAs helps mitigate risks and ensures smooth transactions.

Term sheets and offer letters

The term sheet sets out the basic terms and conditions of the deal, including regulatory and IP considerations. Understanding the relevance of IP and regulatory approvals at this stage is crucial.

For instance, the status of regulatory approvals, ongoing studies and compliance with good manufacturing practices and good distribution practices should be clearly outlined. This helps both parties grasp the regulatory landscape and make informed decisions.

The term sheet should outline IP's transaction relevance, implications and mechanisms. For example, in an asset deal covering only the sale of a product for a particular medical indication, IP may need to be split up to a certain degree, as both the seller and buyer will need to make use of it in the future. Especially in life sciences and healthcare, foundational patents may cover various indications or applications, requiring license grants, transfers and license-backs.

The term sheet also offers an opportunity to consider regulatory items such as the status of regulatory approvals and certifications, ongoing studies, and any regulatory investigations, inspections, or audits.

Legal due diligence: best practices

A holistic approach to IP and regulatory due diligence is essential. This involves not only reviewing registrations, authorisations, permits and licenses but also ensuring alignment with IP strategy and commercial agreements. Common regulatory issues discovered during due diligence include unresolved corrective and preventive actions, missing documentation and non-compliance with transparency ("sunshine") reporting.

On the IP front, issues such as lack of documentation, unresolved joint-ownership situations, gaps in the chain of rights and title, unclear or insufficient licensing terms, and insufficient know-how protection processes are often encountered.

Regulatory and IP specialists add specific value by doing a crossover with the IP and regulatory strategy, and matters such as commercial agreements, transfers of value and distribution flows. They ensure that IP and regulatory obligations are embedded and supply chains are structured in alignment with both commercial laws, IP rights and sector regulations.

For regulated products like pharmaceuticals and medical devices, all operations should align with regulatory and quality requirements, from research to distribution, export, marketing and advertising. Sector specialists can provide useful insights into a target company's compliance culture and uncover potential red flags that might not be immediately apparent.

Risks in acquisition agreements

The acquisition agreement should address regulatory and IP risks through specific representations, warranties and indemnities.

Conditions precedent (CPs) – such as obtaining necessary regulatory approvals and certifications, ensuring compliance with ongoing obligations and addressing regulatory deficiencies – are critical to mitigate post-closing risks. For IP, CPs may include rectifying missing links in the chain of rights, obtaining consent from licensors and settling ongoing IP disputes.

One of the key CPs is obtaining necessary regulatory approvals and certifications. For instance, if a medtech business must obtain CE-marking for a new product, it is crucial to secure that before the deal can close or have a clear understanding of the projected timelines and steps being undertaken to reach that goal. Ensuring compliance with ongoing regulatory obligations, such as pharmacovigilance for pharmaceutical companies, is another critical example of CP. Addressing regulatory deficiencies identified earlier on is also crucial, such as implementing corrective actions for gaps in a quality management system.

Post-closing strategies

From a regulatory standpoint, post-closing actions may include updating regulatory filings to reflect a change in ownership, ensuring continued compliance through regular audits and training programmes, and managing ongoing regulatory obligations such as post-market surveillance and reporting requirements.

On the IP side, post-closing actions may involve recording changes of ownership, taking control of pending applications, and complying with notification requirements resulting from license, cooperation or other IP-related agreements.

Osborne Clarke comment

Navigating regulatory and IP challenges in European M&A transactions requires a thorough understanding of the regulatory landscape and a proactive approach to risk management. Engaging regulatory specialists and IP counsel early in the process is essential to identify and address potential issues. By implementing robust confidentiality agreements, conducting comprehensive due diligence and addressing regulatory and IP risks in the acquisition agreement, companies can ensure smoother and more secure transactions.

IP and regulatory matters significantly impact the structure, process and overall success of a transaction. It is crucial not to rely solely on general M&A reflexes but to engage specialists who understand how these issues can be addressed within the M&A process and documentation. Anticipating typical issues and ensuring that specialists are involved early on can help mitigate risks and set a clear roadmap for the transaction.

Our recent Life Sciences Academy webinar on navigating regulatory and IP challenges in European M&A explored these and other challenges, and upcoming sessions this year will look at the United Patent Court and artificial intelligence.

Osborne Clarke's team of Corporate lawyers, Regulatory specialists and IP counsel are well-equipped to assist in identifying and addressing potential challenges, ensuring that your M&A transactions are executed smoothly and securely. We are committed to providing expert guidance and support to help our clients successfully navigate these complexities.