Following our recent post highlighting potential compliance risks at emerging cellular and gene therapy companies, Stephen Abreu and Chris Fanelli provide some questions and topics to explore when considering an investment or acquisition in this space.

1. Many emerging cellular and gene therapy companies spin out from incubators or academic institutions and are not set up in the way in which the regulator might expect from an oversight perspective. Consider whether your target complies with the standard of a university laboratory rather than with the expectations of the regulator. For example, is there independent quality oversight? Or are the employees responsible for the day-to-day testing or manufacturing operations checking their own work?
2. Many emerging companies struggle with meeting regulators’ increasingly stringent expectations of the provision of data about the manufacturing process and testing methods as part of an investigational application. For example, in the U.S. a number of early stage companies have received clinical hold letters from the FDA due to deficiencies in chemistry, manufacturing, and controls. Does your target have experience in obtaining investigational applications from regulators? Does it have a sufficient understanding of the process and testing methods to enable it to obtain approval of an investigational application and move forward?
3. Look at where the target’s manufacturing activity is actually being conducted. Is it at an academic laboratory, or is it in a dedicated space—whether or not located in an academic institution—that meets Good Manufacturing Practice (GMP) standards?
4. Many companies in this space are focused on products in unaddressed disease areas. These products can move through development extremely quickly, and can benefit from accelerated approvals. This means that products can be developed over an extremely compressed timeline. However, production may not easily adapt to scaling up, which increases the level of testing, the amount of material needed and the attendant regulatory requirements. Consider whether your target could end up in a situation where it is unable to meet demand for its product. Ask about its plans for scaling up. Has it engaged a CMO and, if so, on what terms?
5. Look carefully at the nature of the correspondence that the target has so far received from the regulator. If meeting minutes show that the regulator has repeatedly raised concerns, but you find that they have not been addressed, consider this to be a red flag. Read the source documents and speak to whomever was responsible for dealing with the issues that the regulator raised from a quality and regulatory perspective. Does this person appears to have the necessary experience to resolve the regulator’s concern?
6. Look at the existing agreements that your target has in place for manufacturing. Does the target own the manufacturing process for its products and related IP? For an emerging cellular and gene therapy company, the manufacturing process is as valuable as the product. If the manufacturer owns the process, then you as the acquirer will not be able to use that process without permission from the third-party manufacturer. And if that manufacturer experiences regulatory issues, then you are likely to find that you are unable to go elsewhere.
7. Consider whether the target has the actual technical ability to transfer its manufacturing process to another manufacturer, if it scales up and the place where it is currently manufacturing is no longer able to meet the demand. Has your target planned for a scaled-up manufacturing facility? Crucially, does it have the capability to transfer its manufacturing technology there?