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Biotechnology Due Diligence Checklist

Biotech Due Diligence Template

Biotech company acquisitions create a host of unique issues and complications. Proper due diligence requires the ability to recognize issues as they arise. It also requires that one adequately address those issues so they don’t come back to haunt you after the acquisition.

What Tasks Does a Biotech Due Diligence Checklist Include?


The legal structure of a company is always of primary concern to a buyer. A seller should always know and be prepared to discuss the legal underpinnings of the company being sold.

Collect all information about the company’s structure, including:

  • An organizational chart
  • Governing and constitutional documents of the corporation
  • A list of jurisdictions in which the business is permitted to do business
  • Minutes of any board, shareholder, and managerial meetings
  • List all related party transactions
  • Include the firm’s policies with respect to related party transactions
  • Compile the CVs for all board members, managers, and vital employees
  • Compile all information about the capital structure of the company that is not included on the Statement of Shareholder Equity
  • Compile a list of all of the firm’s permits, licenses, and authorizations
  • Describe the firm’s compliance policies and provide any related documentation
  • Disclose if any officers or persons holding substantial numbers of shares qualify as Bad Actors
  • Disclose if the firm is currently restricted from doing business under any regulatory or legal provision
  • Collect any communications with a regulatory agency
  • Include a list of all previous product recalls and significant warranty claims


More than anything else, a well-supported valuation by a reputable business valuation firm will provide a foundation for your offer price and negotiating position. Try to obtain this reasonably early and make sure that the valuation firm isn’t erring on the fanciful side when it comes to arriving at their final number.

  • Obtain a current, “as-is” valuation of the firm


Compliance issues, most frequently with the pharmaceutical or biologic sales force, frequently arise. Acquirers should conduct a deep dive on the practices of the sales team, and all other employees and contractors, with an eye towards compliance with regulatory and legal requirements.

  • Look for inaccurate or misleading government or claim forms
  • Investigate the payment of any improper kickbacks, bribes, or benefits to healthcare providers
  • Investigate possible violations of the Foreign Corrupt Practices Act
  • Investigate all instances of impermissible, “off-label” promotion of pharmaceuticals and biologics
  • Examine whether the firm provides any incentives for any compliance-related violations
  • Review all policies and procedures involving employees and contractors of the firm with an eye towards its sales force
  • Review all compliance functions and personnel
  • Review any past instances of non-compliant conduct and the firm’s response thereto
  • Consider the Physicians Payments Sunshine Act and compliance of the firm therewith
  • Examine the firm’s treatment of “protected health information” and compliance with HIPAA
  • Review compliance with, and results of, FDA inspections


  • Confirm all marketing materials comply with FDA regulations
  • Confirm if any products are covered by restricted distribution programs or a Risk Evaluation and Mitigation Strategy
  • Confirm if the target analyzes marketing metrics?
  • Confirm that any direct-to-consumer marketing is associated with an FDA advisory review request

Manufacturing Protocols

  • Confirm all contracts with manufacturers accord with FDA Good Manufacturing Practices
  • Confirm Good Manufacturing Process manual accords with FDA requirements on the subject
  • Review the target’s Adverse Experience Reports
  • Confirm that adverse experience trends were analyzed and reported on

Investigational Research

  • Confirm adequate in vitro and in vivo research for pending or approved products has been conducted by target or by contracted labs

Confirm compliance with:

  • Good Laboratory Practices regulation
  • Care and Use of Laboratory Animals regulation
  • Good Clinical Practice regulation

With respect to all Investigational New Drug applications, confirm:

  • The identities of all sponsors
  • Institutional Review Board approval
  • Investigator statements and research agreements have been signed
  • Informed consent forms meet regulatory guidelines
  • All annual reports have been filed
  • Any amended protocols have been forwarded to the FDA
  • Any deficiency letters from the FDA have been satisfactorily resolved
  • If any are considered inactive
  • Any treatment INDs have adequate reports and records
  • Confirm if any clinical research has been terminated or withdrawn
  • Confirm if any Special Protocol Assessments have been submitted to the FDA
  • Confirm if any trials are being conducted in foreign countries
  • Confirm all clinical monitoring is being conducted in accordance with FDA regulations


Taxation problems arise frequently after acquisitions when the due diligence process has been defective. Additionally, virtually any buyer of a business is going to want detailed information about any outstanding tax information. This includes information about tax policies within the company (with respect to employees and transfer pricing) and to pending tax liabilities owed to the state.

  • Identify any deferred tax liabilities or assets and valuation allowances
  • Outline all transfer pricing policies
  • Outline all tax sharing or allocation agreements
  • Justify and provide a written explanation of the classification of employees and contractors
  • Include all tax audits conducted in recent history (up to five years prior)
  • Include any loss surrenders made in exchange for research and development credits
  • Describe property taxes paid by the firm in recent history (up to five years prior)
  • Describe any overseas activity
  • Describe any sale and leaseback transactions
  • Disclose any matters related to the firm under investigation by any tax authority
  • Disclose the tax base of any asset when it differs from its original cost
  • Explain the firm’s current approach to tax planning and strategy

Current Agreements

All current agreements need to be explained and described in full. This includes not just written agreements, but verbal and “handshake” agreements as well. The purpose of this exercise is to paint for the buyer a clear picture of the firm’s rights and obligations pursuant to all current agreements.

Identify all current contract obligations, including:

  • Written contracts
  • Verbal contracts
  • “Handshake agreements”
  • Joint venture or partnership agreements
  • Any contracts terminable upon a change of control of the firm
  • Indemnification agreements
  • All real estate contracts and contracts involving real property or for the insurance thereof
  • Employment, independent contractor, consulting, compensation, and severance agreements

Describe all current obligations, including:

  • Assignability
  • Financial terms
  • Length of commitment

Identify any contracts to be entered into in the near future, including:

  • Letters of intent
  • Ongoing negotiations
  • Identify any crucial relationships with vendors, distributors, etc.
  • Examine all agreements with manufacturers and suppliers

Identify any licensing and collaboration agreements that involve:

  • The allocation of rights
  • The imposition of diligence requirements on the target
  • Non-compete limitations
  • Change of control provisions
  • Identify any contract research organizations currently used by the target and examine their confidentiality and IP provisions and practices


With respect to the firm’s accounting practices, in addition to identifying all of a firm’s procedures and practices with respect to accounting, the firm should describe any way in which their practices diverge from IFRS or GAAP. Importantly, the firm should also identify any accounting adjustments that can legitimately and realistically be used to adjust EBITDA upwards. Since the buyer will be looking for any reason to adjust EBITDA downwards, it makes sense to do the opposite in order to arrive at a fair number.

  • Identify each way in which usual accounting practices differ from Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS)
  • Identify all legitimate opportunities to adjust EBITDA (Earnings Before Interest, Taxes Depreciation, Amortization) upwards (as a purchaser will find any opportunity to adjust it downwards)
  • Identify accounting procedures used within the firm: Key personnel, Software used, Bookkeeping practices


The purpose of financial due diligence is to create a complete and compelling financial story for the buyer. They should be able to understand, based on your due diligence alone, what the past, current, and future financial state of the firm was, is, and is likely to be.

  • Identify and highlight all recent capital expenditures and their likely impact on future cash flows
  • Identify capital expenditures likely to be required in the near future and their likely impact on future cash flows
  • Identify any seasonal or cyclical cash flow trends (in order to avoid under- or over-pricing the business, depending on the time of year)

Describe your sales patterns:

  • Identify your largest and most important clients and products/services
  • Identify any significant sales prospects
  • Identify any significant new products
  • Identify any significant discontinuances or potential losses of clients
  • Collect all complete and current financial statements
  • Specify and list any departures from GAAP and IFRS used during the preparation of the financial statements
  • Collect all budgets and financial projections
  • Include all Management Representation letters and any other communications regarding accounting controls

Leadership Structure

Buyers want to know that the firm will continue to operate without the current owner at the helm. A complete description of the leadership structure of the company will allow them to reach this conclusion.

Describe your current leadership structure, and:

  • Explain how and why the current owner is dispensable
  • Explain how and why all crucial employees will be retained
  • Explain how and why all crucial contracts will be retained

Future, Unstated Liabilities

Buyers do not want to be confronted with surprise liabilities after the purchase of a firm. Full disclosure of all likely future liabilities is necessary in order to engender the confidence of the buyer.

List any reasonably anticipated future liabilities not included in the financial statements:

  • Environmental liabilities (clean-up costs, etc.)
  • Legal liabilities (exposure to legal action or judgment)
  • Include any actions or judgments related to employees or independent contractors hired by the firm
  • Investigate the potential for product liability claims arising out of:
  • Misleading claims to the FDA
  • Reported adverse events
  • Labeling changes
  • Past claims
  • Inadequate insurance
  • Regulatory liabilities (exposure to fines, penalties, etc.)
  • Include a list of any regulations that apply to the company on a regular basis
  • Any FDA imposed regulatory liabilities, including:
  • Post-marketing commitments
  • Labeling requirements
  • Mitigation and Risk evaluation strategies
  • Recalls
  • Market withdrawals
  • Safety alerts
  • Unperformed or overdue maintenance or upkeep on capital

Intellectual Property (IP)

In some industries, intellectual property is the biggest contributor to a firm’s final valuation. Extensive due diligence with respect to IP is essential to ensuring a firm legal and contractual basis for ownership of that resource.

  • Compile a summary of all of the firm’s trademarks, patents, copyrights, and web domains and sites
  • Examine the basis and substance of all trade secrets currently held by the firm
  • Determine the ability of the firm to protect and keep secure and confidential its trade secrets
  • List all agreements and contracts under which the firm is granted the use of a third party’s intellectual property
  • Determine whether the firm is using IP for which the assignment of rights is incomplete or defective
  • Determine whether the firm is using IP developed in collaboration with, or acquired from, a third party. If so, examine the agreements that allow for use of that IP
  • List all agreements and contracts under which a third party is granted the use of the firm’s intellectual property
  • List all intellectual property used by the firm that is not solely owned by the firm
  • Create a summary of all intellectual property litigation involving the firm that is either concluded, ongoing, or reasonably foreseeable
  • List all instances in which a third party has infringed on the firm’s intellectual property (even if it did not result in litigation)
  • Describe the company’s process for developing and protecting its intellectual property
  • List all subsisting patents and their remaining terms
  • Compile a list of all pending patent applications and determine their likelihood of success
  • Determine likely ability of the firm to protect the IP of all pending patents’ should a patent be granted
  • Determine the eligibility of any patents for term extension
  • Determine the market exclusivity terms attaching to each of the firm’s products and whether those terms can be extended
  • For each biologic and pharmaceutical product, determine its stage in the FDA approval process and, for those products not yet approved, the likelihood of their eventual approval
  • Consider the likely timing and impact of the introduction of generic and biosimilar drugs on the firm’s market share and profitability

Information Technology (IT)

Information technology acts as the backbone of many modern companies. A thorough understanding of a firm’s IT capabilities is necessary in order to properly value the company.

Provide details of:

  • Any planned or current IT projects
  • The firm’s practices regarding IT acquisition and deployment
  • The firm’s practices with respect to customer IT support
  • The firm’s practices with respect to web and internet automation

Compile a list of all significant software relied upon by the firm, including:

  • The names of the programs
  • Any vendor support contracts to which the firm is entitled
  • Compile a list of all essential IT personnel

Compile a list of all essential IT hardware, including:

  • A diagram of all IT infrastructure
  • The location of the hardware
  • A description of the network architecture
  • Detail the annual cost associated with all IT personnel, infrastructure, and software
  • Describe all contracts relevant to the ownership and maintenance of IT
  • List all IT consultants retained in the past, currently, and reasonably expected to be retained in the foreseeable future

List all of the firm’s practices with regard to IT security, including:

  • A description of backups and recovery capability
  • Data privacy policies and practices
  • Data storage and encryption
  • Antivirus and anti-malware capabilities
  • Mobile device security
  • Verification and monitoring of existing IT security
  • List all information held by the firm which is subject to privacy law and regulation
  • Describe any previous incidents regarding data intrusions, thefts, unauthorized access, and unauthorized alteration

Human Resources

Human resources can hide a multitude of complex issues and problems. Appropriate due diligence is necessary to reveal problematic relationships or employees that might jeopardize the health of the business. Because buyers will want to know about these issues, the seller should be prepared to disclose and discuss them.

  • Include a summary of all employment benefits provided by the firm
  • Detail the firm’s compensation policy, including bonuses, options and pensions
  • List any disciplinary action taken against an employee or grievance filed by an employee

Compile a schedule of employees, including:

  • Headcount
  • Location
  • Whether any are covered by disability legislation
  • Whether any are currently on any form of leave or suspension
  • Include the firm’s employee manuals and policies
  • Explain the firm’s hiring policies and procedures
  • Include a description of any loans made to employees by the firm and their current status

Reasons for Selling

An owner selling a business for “no reason” does not happen. There is always a motivating concern or purpose behind the sale. The buyer will want to know what that is and if there have been any previous attempts at selling the business.

  • Describe and explain the current owner’s reasons for selling the firm
  • Describe and explain any recent, unsuccessful attempts to sell the firm and the reasons they were unsuccessful

Can I change requests in this checklist or add new?

Every M&A and due diligence process is different. Downloaders are urged to make these checklists their own by changing the providing information to better fit their needs.

Does this questionnaire provide all the necessary due diligence information?

This due diligence questionnaire was created by and for M&A professionals and includes a comprehensive starting point for any diligence process. Every deal is different, however, and may require additional requests or diligence areas.

Easily Collect Data Using this Due Diligence Template in DealRoom

This biotechnical due diligence template can be easily downloaded and utilized as just the Excel sheet. However, it is most effective when paired with DealRoom’s dynamic due diligence software. We offer a secure space to conveniently request, collect, and house data. Additionally, DealRoom offers analytics, security features, and customized help to streamline the process. We are confident that with DealRoom you can close deals up to 40% faster.

How to use the template with DealRoom:
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  • Import the downloaded template

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