Key Aspects of Life Sciences Transactions in Spain

Life sciences transactions are complex processes that require specialised advice and careful consideration of multiple aspects, such as regulatory compliance, labour, privacy, tax and intellectual property.

Proper due diligence is crucial in life sciences M&A, as the industry is characterised by high levels of scientific and regulatory complexity. Spanish M&A deals are no exception. 

In recent years, the importance of due diligence in M&A has been underestimated. However, time is showing the serious risks that both the purchaser and the seller can incur if proper due diligence is not done, as the Theranos/Holmes case has demonstrated.

The once flamboyant founder of clinical testing company Theranos was found guilty of four counts of fraud, with the jury concluding that she intentionally misled investors. Investors were no doubt enthralled by the possibility of a technology that promised to deliver a diagnosis from a single drop of blood on a simple device. What more could investors ask for when presented with a Silicon Valley start-up with an excellent image and a promising idea? The answer: exhaustive technological and legal due diligence (see https://www.garrigues.com/es_ES/garrigues-digital/lecciones-caso-elizabeth-holmes-due-diligence-legales-tecnologicas-importan).

Some of the key legal aspects of the due diligence process include:

Technology, big data and analytics capabilities as well as data protection analysis are also becoming critical factors in almost all transactions. 

In particular, it is essential to check the authorisations and registration records of the target with the European Medicines Agency (EMA) and/or national regulators (AEMPS in Spain). These authorisations are required in order to pursue certain activities, such as the production, distribution and sale of medicines and health devices. Maintenance of authorisations over time generally evidences that the activity is being pursued in line with the main obligations stipulated by the regulators.

Furthermore, public administrations in Spain must apply strict public procurement rules when sourcing medicines and health devices for the provision of healthcare services, including services provided indirectly by concession holders. In these cases, purchasers should carefully review the terms of the tender and the contractual documents, in order to assess the main obligations to be fulfilled under such contracts and whether any clauses would be triggered by the transaction.

Particular attention must also be paid to regulatory filings to ensure that the transaction will succeed in the long-term. For example, whether the transaction at hand is an asset deal or a share deal may have major implications in terms of the number of regulatory filings to be made and, naturally, the liability regime assumed by the purchaser.

Spanish patent law provides legal protection for biotechnological inventions, but there are significant ethical and public policy restrictions. Under Spanish patent law, the “Bolar exemption” specifically applies to pharmaceutical products and allows the necessary studies, tests and trials for obtaining authorisation for generic drugs to be carried out within certain time periods without infringing on patents.

The entry into force of the EU Unitary Patent System on 1 June 2023 has also introduced new challenges that must be taken into account when conducting due diligence for a life sciences transaction. Although Spain is not part of the Unitary Patent System, this does not prevent Spanish legal entities from:

Moreover, it is also important to note the strict regulations in place regarding privacy and the marketing of pharmaceutical products, and the sanctions that can be imposed for non-compliance with these rules.

Tax aspects should not be ignored when assessing risks and identifying opportunities in these kinds of transactions, given the major incentives to encourage investment in R&D and innovation available under tax legislation, which are applied by most companies in the sector but are closely scrutinised by the tax authorities and the courts. Reviewing compliance with eligibility requirements in relation to the activity and to expenses and investments that may be deemed to refer to that activity is key, not only in order to ascertain whether companies meet the legal requirements, but also to identify opportunities where tax incentives are not being used.

Investors and purchasers will usually seek protection in relation to the risks and findings of the due diligence process, either by way of representations and warranties or by other means. The drafting of representations and warranties in life sciences transactions must be particularly careful, in order to cover not only standard contingencies but also all the specific risks referred to above.

Life sciences deal making is complex, and there are numerous deal structures in play. Collaboration and co-commercialisation arrangements are frequently mixed with more traditional elements of M&A transactions. Investment and share purchase agreements will usually be negotiated with other industry-specific agreements, such as manufacturing or licensing agreements.

Legal advisers need to be prepared to address all these questions and adapt to the specific circumstances of each case. It is crucial for parties to seek advice from a team capable of working across multiple disciplines to deliver comprehensive client solutions. At Garrigues, we offer a 360-degree perspective covering every angle of business law in the life sciences industry.