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Using third party experts for confidential technical due diligence

Published: August 2022

Dave Shepherd
Dave Shepherd, Design Consultant

In the development and pursuit of new technologies the medical and pharma industry makes good use of partnerships and acquisitions. With such a competitive and technology driven industry, due diligence reviews prior to completing such contracts require more than the standard finance, legal and corporate structure checks.

Medical technology due diligence reviews require focused assessment in key areas including technological capability, clinical efficacy, intellectual property and regulatory alignment; but these activities often struggle to delve far beyond the cloak of confidentiality rightly held up by the holders of trade secrets and intellectual property. During negotiations parties with knowledge or know-how are understandably reluctant to share the secrets behind what they are bringing to the table before the deal is completed.

At Shore we help companies seeking to better understand the detailed technical offering of a potential partnership or acquisition. We perform a confidential technical review on their behalf, while maintaining the confidence of the disclosing party.

Here, I’ll take you (the purchasing party) through the process using a recent review as reference – of course, applying the strictest of confidence, giving no names or secrets away.

Set up a Non-Disclosue Agreement (NDA)

Firstly, objectives, scope of review and methodology are established; making it clear how the confidential information will be disclosed to Shore, what Shore will do with it and what deliverables will be available to the purchasing party upon completion of the review. Essential to this effort, an NDA is established between all parties to cover general confidentiality and the specific scope of the due diligence review.

With an NDA in place, clients know that we’ll conduct an in-depth investigation, and the disclosing party know that we’ll maintain confidentiality at all times; after all this involves access to documents that they wouldn’t want to share with the purchasing party directly. It’s important to reinforce that we, as the reviewer, are the impartial party and are acting in the best interests of both sides.

diagram showing the NDA structure between the purchasing party, Shore and dislcosing parties

Information flow: maintaining confidentiality between the purchasing and disclosing party

Gather the right information

A technical review requires a deep dive into the product or technology in question.

Technical review elements

Immersing ourselves in the design history file (DHF) documentation, we work alongside the team behind the target technology or product. We enter a cycle of review, Q&A and discussion to delve into the true status of the core technology and development rigor that lies underneath the big claims.

Design requirementsAre they structured correctly, including the key requirements that could otherwise hamper the success of the project?
Experimental development strategyIs the data being presented based in a meaningful and sound series of experiments and studies?
Technical robustnessHas the engineering been well executed and inclusive of best practice? Consider material selection, assembly methodology, component design, tolerance analysis etc.
Scale up plan for transfer to productionIs the technology and plan fit for scale up?
Health status of the DHFAre all DHF documents in place, correctly constructed and cross referenced?
Device risk management fileIs a sound risk management plan and hazard identification process in place?
Human Factors strategyHave the users been considered?  What plans and human factors studies have been completed?
Intellectual propertyDoes the IP seem robust? This is a vital part of the review. Technical analysis is core, coupled with patent landscape review carried out by an IP attorney.

While not part of the core evaluation of the technology in question, also considered can be the expertise and competence of the disclosing party, how well their team perform and what resources and development assets they have to support the pipeline of products that may follow.

How easy it is to work with the potential partner can be critical and help gauge the future working relationship for the client.

Remain agile and transparent

Throughout the review period, it’s crucial to keep an open mind and remain agile in the data collection, analysis and discussion process. All data collected must be kept in a secure but shared area to maintain transparency in the review.

A forthcoming reviewee makes the process much easier, after all it’s in their interests to have the review go smoothly. It works well and is beneficial to all involved to receive extensive written explanations to any points that we had raised for a thorough and detailed review.

Consider the growth stage of the disclosing party

The status and size of the disclosing party are important factors. Several areas for further analysis were highlighted in a recent due diligence project, for example planning for future roadmap variants, risk analysis management and human factors strategies. These are not examined in isolation, we considered that the subject was a small to medium enterprise that had essentially focused much of its resource on working prototypes of the product. They were given the opportunity at this stage of the review to explain how they plan to resolve these issues. Working closely with the disclosing party at all stages means they can benefit from this analysis just as much as the purchasing party.

Ensure the target is happy to proceed

Before the final report is submitted to the client the disclosing party reviews it fully and a conclusion meeting is held to ensure that the target is happy for the findings to be passed on. When we work closely with the disclosing party there are usually no surprises at this point, and the report content can be signed off to share with the purchasing party. We were pleased that our recent subject was more than happy to proceed.

Why use third party expertise?

As an impartial reviewer, we bridge the gap between you and your target. We uphold the strictest of confidentiality and provide a second opinion. We can reinforce any immediate observations or identify discrepancies and opportunities that may have been missed. Bringing together our multi-disciplinary experts with over 15 years in the industry, you can trust that we won’t leave any stone unturned.

The purchasing party benefits from having deep dive analysis of otherwise confidential technical detail of the product and the development pathway that led to it.

The disclosing party benefits from having a free and independent review of their technology, methodology and processes; surfacing issues that can then be resolved early, smoothing the passage to the contract they desire.

So, what are the next steps?

Although the competitive landscape puts pressure on buyers and investors to move quickly, a strategic, technical due diligence process will increase clarity saving time and money in the long term. The technical review referenced took approximately 4 weeks to conduct.

If we can help you better understand the detailed technical offering of a potential partnership or acquisition, then please do contact me.

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