In today’s highly competitive healthcare environment, investors may find themselves in an auction process where they must conduct due diligence pre-exclusivity. With limited time and mounting pressure, it can be difficult to know what issues to prioritize. Here are some practical tips for focusing your due diligence efforts strategically in a pre-exclusivity setting:

  • Quality of Earnings: Against the backdrop of high valuations, quality of earnings should be a key diligence focus, particularly in the context of high-complexity transactions  such as corporate carve-outs, partnerships with corporates and public-private pairings. For example, it is critical to examine the pro forma EBITDA to see if it excludes costs or includes questionable adjustments or add-backs.
  • Timeline: How competitive is the auction process and when are bids due? Does the buyer plan to conduct a full due diligence review pre-exclusivity, or instead look for big ticket liabilities that have a potential to impact valuation or derail the transaction?
  • Legal Showstoppers: Keep an eye out for legal showstoppers—issues that go to the core of the business, are not isolated incidents and are not fixable through purchase price adjustments, indemnification, escrow or enhanced compliance measures. For example, referral relationships that are based on illegal arrangements, systemic upcoding, quality of care issues, tenuous relationships with hospital partners, untenable and promised salary increases, a culture of non-compliance, or a retiring physician workforce without adequate succession planning.

As you plan your due diligence, keep in mind these additional factors that can inform how you structure your efforts:


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Kate McDonald
Partner
Office: Washington, DC
Years at Firm: 6

What is your favorite part about practicing health care law at McDermott? 

The health care regulatory work we do is cutting edge. From the largest health care companies to the smallest start-ups, our clients tend to be highly sophisticated and they come to us with high stakes questions that have no easy answers. We help clients navigate a complex web of health care regulations to implement innovative business models or bend the cost curve. The work I do is intellectually challenging and I love partnering with my crazy smart colleagues to solve problems. This is what keeps me coming back to work day after day.

What is the biggest opportunity and greatest challenge facing clients in your area of focus today? 

There is so much innovation occurring in the health care market today, and in particular in the managed care industry. Health insurers are partnering with an increasingly diverse set of business partners in an effort to provide higher quality care more efficiently, while actually keeping people healthier and improving their experience in the health care system – both of which inure to the benefit of both health insurers and consumers. While health care payors are at a critical intersection and have a unique opportunity to influence changes in the system, figuring out the best way to do that is also the greatest challenge for these companies. Health care is really complex – there is no magic bullet or easy solution, but I am optimistic that some of the innovations that shake out of this transformative time will have lasting and beneficial impacts.


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Matt Friendly
Associate
Office: Miami
Years at Firm: 5

What is your favorite part about practicing health care law?

I appreciate that health care is constantly evolving and changing. While the vastness of the field can be intimidating for some, it provides career-making opportunities to gain experience in a sub-specialty and build a reputation within

We greatly appreciate our readers continuing to turn to us for insight on the most critical legal, regulatory and transactional developments, and innovative collaborations transforming health care. Over the past year, McDermott’s Health practice made headlines for our work on several of the most high-profile collaborative transformations that took place in 2018: We were one

With equal parts hope and optimism, we look ahead to an eventful New Year. This is particularly true for the physician practice management (PPM) industry: we reflect on the progress of the past while looking forward to the opportunities today’s growing and increasingly complex landscape provides. We believe the trends we’ve seen shape the industry

Technology companies are pouring unprecedented capital, time and energy into the health care and life sciences industry, and are reshaping the deal landscape in the process. The top 10 US tech companies have made $4.7 billion in acquisitions in the health care space since 2012, according to CB Insights. Key market factors driving health care joint ventures and mergers and acquisitions include the merger of molecular science and computer technology, a growing focus on patient-centric care, increased mobility of consumer health products and services, and deep capital markets. In this fast-paced, proactive deals environment, traditional health players have exciting—and disruptive—new opportunities to enter into unexpected partnerships and pursue transformative innovation.

With Great Disruption Comes Great Opportunity

A helpful analogy for understanding the role of tech companies in this rapidly evolving sector is Uber’s disruption of the ride-hailing industry. When Uber came on the scene, on-demand ride-hailing was only available through taxicabs, and frequently only available in major cities. Now on-demand ride hailing is available through numerous companies and in areas that previously did not have such services available. Ride-hailing companies have also expanded their services offering to include food delivery.

Tech companies entering the health industry today are doing the same thing: reimagining and redefining the fundamentals of consumer access to health care. These companies often have deep insight into distribution and consumer purchasing behavior, and are willing to invest more capital and take on more risk than traditional health industry players in order to explore and develop creative health care offerings. Furthermore, the solutions they are developing don’t just offer incremental improvements—creating a more expensive service or drug option doesn’t cut it. Instead, they want to create dramatic solutions that make health care better overall. Tech companies in the health care space are pursuing innovation that carries value in context of the entire health ecosystem.
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It’s the industry disruptors, the unusual partnerships, and the cross-border and cross-sector relationships that are driving Collaborative Transformation in the health care and life sciences organizations. But a Collaborative Transformation takes more than signing paperwork and shaking hands. A successful Collaborative Transformation takes cultural integration between non-traditional partners, incorporating new technologies into health care regulatory compliance structures, and so much more. At McDermott, we’ve recently had the opportunity to help our clients pursue their own Collaborative Transformations, and are proud to showcase their achievements.

Innate Pharma Expands its Collaboration with AstraZeneca

McDermott Will & Emery advised Innate Pharma, a French oncology-focused biotech company, in signing a multi-term agreement with AstraZeneca and MedImmune – AstraZeneca’s global biologics research and development arm. This agreement broadens the existing collaboration, aimed at accelerating the development of an oncology portfolio of each of the parties and to provide patients with more rapid access to new therapeutic options. This extended collaboration will permit Innate Pharma to develop and commercially strengthen its investment ability to develop its immuno-oncology portfolio (IO) and its R&D platform. For its part, AstraZeneca will enrich its IO portfolio with new clinical and preclinical programs. For more information on this collaboration, click here.

CVS + Aetna

McDermott is one of the firms that has advised CVS Health in connection with its $69 billion purchase of Aetna. The transaction, one of this year’s largest M&A deals, is expected to transform the US health care sector. For more information on this collaboration, click here.


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For biotechs, success involves a several year hike through mazes of complex, cross-border, business, scientific, financial and regulatory issues. During this year’s BIO2018 conference in Boston, McDermott gathered a panel of industry leaders and McDermott practitioners and led a case study assessment of cross-border biotech M&A, linking life sciences hubs in Europe, Asia and North

As the health care and life sciences fields experience ever-increasing levels of disruption, diverse entities across the industry are teaming up to embrace and foster innovation. These new pairings are shaping the future of health care, as organizations come together to tackle the industry’s most pressing issues with redoubled agility and pooled resources.

In an