A Guide to Due Diligence in Life Science Transactions

2 Introduction
2.1 What is due diligence?
2.2 How to use this Guide

3 Due Diligence And Life Science Businesses
3.1 The role of due diligence in life science transactions
3.2 Goals for due diligence
3.3 The due diligence process
3.4 External parties that can be tapped for expertise as needed
3.5 Due diligence in everyday life
3.6 Examples of due diligence in the life sciences
3.6.1 Eli Lilly and Centocor —A Success Story
3.6.2 Bristol-Myers Squibb and ImClone —Not Such a Success Story
3.7 Important,common traps to avoid
3.7.1 Not enough expertise on the team
3.7.2 Lack of coordination
3.7.3 Inadequate confidentiality coverage
3.7.4 Too specific/too general a request for information

4 Investigation Areas
4.1 Corporate Information
4.1.1 Corporate Information Summary
4.1.2 Corporate Information Questions
4.1.2.1 Transaction rationale
4.1.2.2 Company structure and founders
4.1.2.3 Management/shareholder relations
4.1.2.4 Business vision
4.1.2.5 Investor composition and relations
4.1.2.6 Equity structure
4.1.2.7 Subsidiaries and affiliates
4.1.2.8 Stock restrictions
4.2 Financials
4.2.1 Financials Summary
4.2.2 Financials Questions
4.2.2.1 Financial statements
4.2.2.2 Accounting issues
4.2.2.3 Profitability and expenses
4.2.2.4 Burn rate and funding
4.2.2.5 Extraordinary financial events
4.2.2.6 Liabilities and debt
4.2.2.7 Taxes
4.3 Products and Market
4.3.1 Products and Market Summary
4.3.2 Products and Market Questions
4.3.2.1 Current products
4.3.2.2 Customer satisfaction
4.3.2.3 Data on marketed products
4.3.2.4 Competition
4.3.2.5 Marketing strategy
4.3.2.6 Sales techniques and channels
4.4 Research and Development
4.4.1 Research and Development Summary
4.4.2 Research and Development Questions
4.4.2.1 Group structure and talent
4.4.2.2 R&D strategy
4.4.2.3 Product development
4.4.2.4 R&D technologies
4.4.2.5 Bioinformatics
4.4.2.6 IP and publications
4.5 Intellectual Property
4.5.1 Intellectual Property Summary
4.5.2 Intellectual Property Questions
4.5.2.1 Patents and ownership
4.5.2.2 Freedom to operate and infringement
4.5.2.3 Patent coverage
4.5.2.4 Trade secrets
4.5.2.5 Copyrights
4.5.2.6 IP processes
4.5.2.7 Third party agreements
4.6 Operations
4.6.1 Operations Summary
4.6.2 Operations Questions
4.6.2.1 Suppliers
4.6.2.2 Manufacturing
4.6.2.3 Distribution
4.6.2.4 Information technology
4.6.2.5 Asset valuations
4.7 Legal and Corporate Issues
4.7.1 Legal and Corporate Issues Summary
4.7.2 Legal and Corporate Issues Questions
4.7.2.1 Corporate minutes
4.7.2.2 Stock purchase records
4.7.2.3 Contracts
4.7.2.4 Ownership of assets
4.7.2.5 Litigation
4.7.2.6 Permits
4.7.2.7 Conflicting terms
4.7.2.8 Antitrust
4.8 Human Resources
4.8.1 Human Resources Summary
4.8.2 Human Resources Questions
4.8.2.1 Organizational structure
4.8.2.2 Executive background
4.8.2.3 Executive teamwork
4.8.2.4 Executive compensation
4.8.2.5 Employees

5 Conclusion

6 Appendices
6.1 Example confidential disclosure agreement
6.2 Example request for information (RFI)
6.3 Example memorializing memo
6.4 Example due diligence report executive summary