Monitor – Pharmaceutical Data Services
In conjunction with the settlement of a federal order, the client company agreed to divest one of its two major business lines. The company, a pharmaceutical data services provider, had acquired its primary competitor approximately four years earlier and, due to concerns regarding possible anti-competitive impacts not identified at the time of acquisition, was required to sell this business line. The business line’s primary product was used by health care professionals to provide patients with advice on drugs, both prescription and over the counter. Additionally, both products provided information to state agencies and insurers on pricing and drug type (brand, possible sources, generic, etc.), having an impact on consumer reimbursement. A buyer was identified and an Asset Purchase Agreement was executed between the Parties, consisting of eight inter-related “private agreements” dealing with the various functional areas involved. Additionally required support services needed during the transition were identified. R. Shermer & Company was appointed by federal regulators first as the Interim Monitor and later as Monitor with oversight responsibility for this transaction. The goal of the divestiture was to re-establish competition in the pharmaceutical database market while ensuring consumer welfare was not harmed.
The divestiture was complicated due the fact that it was a post-consummated merger divestiture. The acquisition had been accomplished four years prior to divestiture, and the acquired assets had been significantly integrated into the business, creating a situation where the divestiture sought to “unscramble the egg.” The asset package and associated employees to be divested did not represent a separated business unit similar to a manufacturing plant or other self-contained organization. Product line rationalization and staff redundancy that had been accomplished during the merger process had to be undone.
The regulatory agency required a relatively quick transition period, during which the seller provided support to the divested business in order to ensure it remained viable for the short term. In addition, for a period of several years after the financial close, the company divesting the business was required to continue to source, analyze and update the drug information in both databases utilizing specialized pharmacists and editors.
The challenges faced involved the following issues:
- People Issues - Selection process of designated employees to enable both companies to remain viable and competitive, perceived gaps in capabilities between the organizations, employee non-solicitation by buyer and seller, employee communication, and the physical separation of the two staffs
- Technology Issues – Varying levels of Information Technology experience and expertise between the two companies and a complex Information Technology transition; required development of comparable, independent products where the product lines had become rationalized
- Management Issues – Agreements between the parties were frequently open to interpretation. Communications between the two companies were made all the more difficult by the fact that they were now competitors, which became a major barrier for some individuals to overcome
- Shared Editorial - The databases were disparate in structure and the medical information entered was subject to different editorial policies. Additionally, there were differences in content due to database design
- Complex product - The product consisted of 25 modules, one of which managed over 2 million records. Monitoring the editorial requirements was a significant task
- Competition - An assessment of the impact on competition could not take place in the near term due to strict customer non-solicitation requirements on the divesting company
R. Shermer & Company’s role began as Interim Monitor. During this “Pre-Close” phase, the team reviewed the various agreements being drafted, performed a detailed analysis of the information systems involved (including required product development), reviewed the company’s staff allocation, analyzed employee benefits, developed a preliminary process to monitor the editorial function, and created a detailed work plan for the next phase. After appointment as Monitor, transition activities began. During this phase, the team focused on compliance and on transition-planning activities. Numerous issues involving employee non-solicitation, the information systems transition, facilities and infrastructure relocation, content parity, the deposit of escrow materials, and customer non-solicitation were identified and resolved. The third phase “Shared Support” focused on compliance reporting, issue resolution, addressing employee concerns, the monitoring of shared service support, and customer interaction. The final phase “Second Transition” monitored the separation of the shared service functions as the buyer and seller severed ties with one another.
BENEFITS & LESSONS LEARNED
The Monitor was an independent party selected by the seller and appointed by the regulatory agency. With functional experience in information technology, operations, marketing, finance and a strong background in most facets of the pharmaceutical value chain, the Monitor was well positioned to support both the seller and the buyer during this period. When asked about the principal benefits of having a Monitor in place, representatives of the companies involved had the following comments:
- "The relationship has been very beneficial…in the sense you have been willing to listen, and not just assume that what you’ve been told in the past is fact"
- "Hugely beneficial…kept us focused on the right issues"
- "Feedback given to the FTC about actions of both the buyer and the seller, as well as the processes you have to monitor us, have proven very useful, it helped keep us in check "
- “By checking on us, our obligations have been reinforced time and time again"