Artikkel
Why a strong transitional service agreement is vital for product life cycle management
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Katharina Roennpagel, Ph.D.
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Eva Keck
Why a transitional service agreement is a key element of a well-executed divestment or carve-out transaction
The complex and highly regulated nature of pharmaceutical life cycle management, including mergers and acquisitions (M&As), requires buyers and sellers to navigate intricate and varied legal obligations, commercial and financial risks, and operational continuity. As sellers seek to offload a portfolio or portion of the business and as buyers look to make strategic acquisitions, the success or failure of those deals can hinge on the clear design, planning and efficient management of the transition. TSAs also help maintain revenue streams and operating margins for the selling company by enabling the effective outsourcing of key functions such as regulatory, supply chain, and pharmacovigilance.
A key element of a well-executed divestment or carve-out transaction is the transitional service agreement (TSA) signed by the seller and buyer. TSAs define the services that the seller will supply to the buyer after the deal closes. They are a substantial part of the agreement on timelines and responsibilities between the two parties to ensure a seamless transition of the assets and continuity of operations to minimize disruptions when assets are transferred. Given the importance of these agreements, it’s vital that both parties spend time clarifying the details and defining the timelines before any transfer takes place to ensure continuity of supply of products to patients.
A key element of a well-executed divestment or carve-out transaction is the transitional service agreement (TSA) signed by the seller and buyer. TSAs define the services that the seller will supply to the buyer after the deal closes. They are a substantial part of the agreement on timelines and responsibilities between the two parties to ensure a seamless transition of the assets and continuity of operations to minimize disruptions when assets are transferred. Given the importance of these agreements, it’s vital that both parties spend time clarifying the details and defining the timelines before any transfer takes place to ensure continuity of supply of products to patients.
Understanding the “when and what” of TSAs
The scope and duration of a TSA will depend on who the buyer is and the level of post-acquisition support they will require. An equity-backed new company (NewCo) would be best served by starting these negotiations early since they typically will have very little experience with the internal operations involved, including regulatory, pharmacovigilance, supply chain, and the general administrative activities necessary to manage the transfer.
Clarity as to what will be included in the TSA should be conducted either before or at least in parallel with confirmation of the M&A agreement so both parties understand the short-, mid- and longer-term expectations.
Under a TSA, the seller can temporarily provide critical services to the buyer, either directly or with the support of an outsourcing partner. In some cases, this might mean maintaining pharmacovigilance operations while the buyer builds its own capabilities. In others, it could involve continued support for labeling, distribution or affiliate coordination until permanent structures are in place.
Financial agreements should be carefully negotiated to determine whether support from the seller will be part of the M&A deal or will be offered at an additional cost. How long this support continues will depend on what is negotiated between the two parties. As an example, an equity backed NewCo that needs to implement or outsource the organizational structure should consider a longer TSA timeline to support critical services and enable a more seamless transition. On the other hand, if the M&A is between two pharmaceutical companies where the buyer strives to incorporate the products into existing operations, the TSA timeline could be significantly shorter.
Typically, what we have found is that the transfer of assets in several different regions to a new marketing authorization holder tends to occur in waves over one to two years.
Clarity as to what will be included in the TSA should be conducted either before or at least in parallel with confirmation of the M&A agreement so both parties understand the short-, mid- and longer-term expectations.
Under a TSA, the seller can temporarily provide critical services to the buyer, either directly or with the support of an outsourcing partner. In some cases, this might mean maintaining pharmacovigilance operations while the buyer builds its own capabilities. In others, it could involve continued support for labeling, distribution or affiliate coordination until permanent structures are in place.
Financial agreements should be carefully negotiated to determine whether support from the seller will be part of the M&A deal or will be offered at an additional cost. How long this support continues will depend on what is negotiated between the two parties. As an example, an equity backed NewCo that needs to implement or outsource the organizational structure should consider a longer TSA timeline to support critical services and enable a more seamless transition. On the other hand, if the M&A is between two pharmaceutical companies where the buyer strives to incorporate the products into existing operations, the TSA timeline could be significantly shorter.
Typically, what we have found is that the transfer of assets in several different regions to a new marketing authorization holder tends to occur in waves over one to two years.
How to successfully navigate a TSA
The TSA should clearly delineate roles and responsibilities to ensure proper transfer of product know-how, regulatory status documentation, and the transfer strategy to successfully ensure continuity of supply within the market.
Transfer of data from the pharmacovigilance database is a key issue since the product or portfolio buyer is obliged to take over all PV information. While this is well understood by function heads, it is a detail that those involved in the TSA negotiations are likely less to be aware of and should therefore be carefully documented in a TSA to safeguard business continuity.
The impact of packaging materials and artwork should also be discussed within the TSA. What are the grace periods for the old packaging being on the market and how will that impact existing stock? This grace period for how long a product can be on the market under the old MAH packaging or even in parallel – some in the old and some in the new packaging – varies globally and will depend on the country. For example, our experience has found that Sweden allows a six-month grace period compared with Austria, which allows 12 months, while South Africa also limits the grace period to six months. Understanding and meeting the requirements is critical for supply chain continuity.
Transfer of data from the pharmacovigilance database is a key issue since the product or portfolio buyer is obliged to take over all PV information. While this is well understood by function heads, it is a detail that those involved in the TSA negotiations are likely less to be aware of and should therefore be carefully documented in a TSA to safeguard business continuity.
The impact of packaging materials and artwork should also be discussed within the TSA. What are the grace periods for the old packaging being on the market and how will that impact existing stock? This grace period for how long a product can be on the market under the old MAH packaging or even in parallel – some in the old and some in the new packaging – varies globally and will depend on the country. For example, our experience has found that Sweden allows a six-month grace period compared with Austria, which allows 12 months, while South Africa also limits the grace period to six months. Understanding and meeting the requirements is critical for supply chain continuity.
Both parties should also agree on key performance indicators (KPIs) during the transfer, ensuring these are as detailed as possible to manage expectations and timelines. KPIs should include who will be responsible, for how long, to what extent and quality, and what the schedule of transfer will be.
The level of support required can vary from seeking third-party advice on the TSA and divestment parameters to outsourcing such activities as regulatory, supply chain, PV, and certain commercial operations. NewCos often seek more extensive support to manage regulated activities. This can include:
The level of support required can vary from seeking third-party advice on the TSA and divestment parameters to outsourcing such activities as regulatory, supply chain, PV, and certain commercial operations. NewCos often seek more extensive support to manage regulated activities. This can include:
- Defining the interfaces for the buyer and seller, such as handling grace periods for the supply chain and artwork
- Management and maintenance of a global PV system and local PV infrastructure
- Development of a commercial operating model, supply chain map, a Quality Management System (QMS) and obtaining the necessary licenses to support batch release to the market and Wholesale Licenses to support distribution and supply to patients.
- Global processes for MA transfer and maintenance
Sometimes established buyers and sellers will choose to engage outsourcing partners since the integration is a peak activity, which would add workload to internal teams, particularly where an acquisition involves products in multiple markets. Having temporary external support that will decrease after the integration ensures activities at the headquarters and at the local affiliates are properly managed during the transition period without overburdening full-time employees.
Conclusion: Why a strong TSA is crucial
The more detailed the TSA, the easier it is for sellers and buyers to respond to challenges along the way and successfully manage the continuity of supply to patients.
For the buyer, the TSA represents an important guide for ensuring business continuity during the transfer period, so a clear and detailed document should be a priority. For the seller, it provides greater control during the transition, and clear direction to any outsourced service provider taking on key functions. Seeking expert advice and taking the time to get it right is in the interests of both the buyer and seller, as well as the patients for whom these products are intended.
For the buyer, the TSA represents an important guide for ensuring business continuity during the transfer period, so a clear and detailed document should be a priority. For the seller, it provides greater control during the transition, and clear direction to any outsourced service provider taking on key functions. Seeking expert advice and taking the time to get it right is in the interests of both the buyer and seller, as well as the patients for whom these products are intended.
About the authors:
Katharina Roennpagel, Ph.D., is Service Solution Lead for Business and Portfolio Merger and Acquisition, and oversees regional regulatory affairs teams in Europe. She supports clients in identifying and managing the critical path and ensuring business continuity during divestments, acquisitions, and other M&A-related tasks. With more than 25 years of experience in regulatory affairs, Katharina has been responsible for a broad range of regulatory activities, product types, and regional requirements in different regions.
Eva Keck is Vice President, Commercial Operations. She has more than 20 years of experience in the pharmaceutical and biotechnology industry. Eva has worked at all levels – from operational product management, launching multiple products in the EU for pharmaceutical companies during her time at large pharma and biotech organizations. Today, she supports clients globally who are looking to enter key target markets to successfully launch and commercialize products.
Eva Keck is Vice President, Commercial Operations. She has more than 20 years of experience in the pharmaceutical and biotechnology industry. Eva has worked at all levels – from operational product management, launching multiple products in the EU for pharmaceutical companies during her time at large pharma and biotech organizations. Today, she supports clients globally who are looking to enter key target markets to successfully launch and commercialize products.
Disclaimer:
The information provided in this article does not constitute legal advice. Cencora, Inc., strongly encourages readers to review available information related to the topics discussed and to rely on their own experience and expertise in making decisions related thereto.
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