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.   When BYG, INC., was operating under the R. Shermer & Company name, we were 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
   

 Our  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. 

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"