The Complete Pharma Due Diligence Checklist for Licensing & M&A
A practical, comprehensive guide covering every critical dimension of pharmaceutical due diligence—from scientific validation to legal compliance. Built for BD professionals who need to get it right.
The Cost of Incomplete Due Diligence
In 2025, pharma M&A exceeded $240 billion and licensing deals topped $250 billion across 516 transactions. Behind every successful deal is a rigorous due diligence process that separated promising opportunities from value traps. And behind many failed deals—collapsed acquisitions, terminated licenses, write-downs—lies incomplete or superficial due diligence. This checklist distills decades of deal experience into a practical framework that BD professionals can use from the first data room access to final deal close.
Why Due Diligence Matters
Due diligence is the foundation upon which every pharmaceutical deal is built. It serves three critical functions: risk identification (what could go wrong), value validation (is this asset worth what we think it is), and deal structuring (how should payment terms reflect the risk profile). Poor due diligence leads to overpayment, unforeseen liabilities, and strategic misalignment.
The complexity of pharma due diligence is unique among industries. Unlike a technology acquisition where the product is already in-market, pharmaceutical assets often exist as clinical-stage candidates with years of development remaining, regulatory uncertainty, and competitive dynamics that can shift overnight. Evaluating these assets requires deep expertise across science, law, regulation, and commerce simultaneously.
The Seven Pillars of Pharma Due Diligence
Due Diligence as Deal Leverage
Scientific & Clinical Due Diligence
Scientific due diligence is the cornerstone of any pharma deal evaluation. It assesses whether the drug's mechanism of action is sound, whether preclinical and clinical data support continued development, and whether the therapeutic hypothesis is likely to translate into a viable product.
Mechanism of Action & Target Validation
Evaluate the scientific rationale: Is the target validated by human genetics, clinical observations, or competitive proof-of-concept?
Assess target novelty vs. established biology: First-in-class targets carry higher scientific risk but potentially greater commercial reward
Review published literature and competitor clinical results for the same or related targets
Evaluate selectivity profile: Does the drug hit the intended target cleanly, or are off-target effects a concern?
Assess the biomarker strategy: Are there validated biomarkers that can demonstrate target engagement and predict clinical response?
Review key opinion leader (KOL) perspectives on the mechanism and therapeutic approach
Preclinical Data Assessment
Review in vitro and in vivo efficacy data: Are results reproducible across multiple models?
Assess toxicology studies: GLP-compliant tox package, dose-limiting toxicities, safety margins
Evaluate PK/PD profile: Absorption, distribution, metabolism, excretion—does the drug have favorable pharmacokinetics?
Review any animal model data for efficacy/safety signals that may predict human outcomes
Assess the translational strategy: How well do the preclinical models predict human disease biology?
Clinical Data Quality
Request and review Clinical Study Reports (CSRs), not just top-line results or press releases
Assess patient selection criteria: Were inclusion/exclusion criteria appropriate and generalizable?
Evaluate endpoint selection: Are primary endpoints clinically meaningful and regulatorily accepted?
Review statistical analysis plan: Was the study adequately powered? Were multiplicity adjustments appropriate?
Examine safety database: Serious adverse events, treatment discontinuations, dose modifications
Assess data consistency across subgroups: Do treatment effects hold across key patient segments?
Review patient-reported outcomes (PROs) if applicable: Do patients feel meaningful improvement?
Evaluate comparator selection in controlled trials: Is the comparator clinically relevant or a straw man?
Red Flag: Cherry-Picked Data
Intellectual Property Due Diligence
IP due diligence determines whether the asset has defensible market exclusivity—without which even a clinically superior drug may not justify its development and acquisition costs. This is often where deals are made or broken.
Patent Landscape Analysis
Map the complete patent family: Composition of matter, method of use, formulation, manufacturing process, and combination therapy patents
Assess patent term and remaining exclusivity: Calculate patent expiration dates in key markets (US, EU, Japan, China) including any extensions (PTE/SPC)
Evaluate patent scope: Are claims broad enough to prevent competitive workarounds, or narrowly drafted?
Review prosecution history for any limitations, disclaimers, or narrowing amendments made during patent office review
Identify pending patent applications and assess their likelihood of grant based on prosecution trajectory
Check for inter partes review (IPR), post-grant review (PGR), or opposition proceedings that could invalidate key patents
Freedom-to-Operate (FTO)
Commission an independent FTO analysis covering the product as manufactured, formulated, and administered
Identify any third-party patents that could block commercialization and assess infringement risk
Evaluate existing licenses from third parties: Are they exclusive? What are the royalty terms? Are there sublicensing rights?
Review any ongoing or threatened patent litigation that could affect the asset
Assess the competitive patent landscape: Are competitors filing patents that could restrict label expansion?
Patent Life Management
Assess eligibility for patent term extension (PTE) or supplementary protection certificates (SPCs) in key markets
Evaluate lifecycle management strategies: Are there additional indications, formulations, or combinations that could extend effective exclusivity?
Review data exclusivity periods: NCE exclusivity (5 years US / 8+2 years EU), orphan drug exclusivity (7 years US / 10 years EU), pediatric exclusivity
Assess biosimilar/generic vulnerability: When could generic or biosimilar competition realistically emerge?
IP Due Diligence in Cross-Border Deals
Regulatory Due Diligence
Regulatory due diligence assesses the current filing status, regulatory strategy, and likelihood of approval across target markets. Regulatory missteps can add years to development timelines and billions in costs.
Filing Status & Regulatory Interactions
Review all IND/CTA filings and any clinical holds, partial holds, or safety-related correspondence with regulators
Obtain records of all FDA/EMA/PMDA meetings: Pre-IND, End-of-Phase 2, Pre-NDA/BLA meetings and their minutes
Assess the agreed-upon pivotal study design: Has the FDA concurred on endpoints, patient population, and trial design via SPA or equivalent?
Review any FDA Complete Response Letters (CRLs) or Refuse to File (RTF) communications and resolution strategy
Evaluate the regulatory pathway: 505(b)(1) vs. 505(b)(2), BLA, accelerated approval, standard review
Special Designations & Expedited Pathways
Document all special designations: Breakthrough Therapy, Fast Track, Priority Review, Orphan Drug, RMAT, SAKIGAKE (Japan)
Verify designation status: Are designations still active? Have any been rescinded?
Assess the impact of designations on development timeline and review speed
Evaluate eligibility for additional designations that could accelerate development or provide market exclusivity
For cross-border deals: Map regulatory status in all relevant markets (US FDA, EU EMA, Japan PMDA, China NMPA, UK MHRA)
CMC Regulatory Readiness
Assess whether the Chemistry, Manufacturing, and Controls (CMC) package is ready to support a regulatory filing
Review analytical method validation status and stability data
Evaluate whether the manufacturing process has been locked at commercial scale or if further optimization is needed
Identify any CMC-related deficiencies that regulators have flagged in prior interactions
Commercial Due Diligence
Commercial due diligence validates the revenue potential of the asset by assessing market size, competitive positioning, pricing dynamics, and the target patient population. This is where scientific promise meets market reality.
Market Size & Patient Population
Quantify the total addressable market (TAM) using epidemiological data: Incidence, prevalence, diagnosis rates, treatment rates
Estimate the serviceable addressable market (SAM): What portion of patients would realistically be eligible for and receive the product?
Assess market growth dynamics: Is the patient population growing, stable, or declining?
Evaluate unmet medical need: How well are current treatments serving patients? What proportion are inadequately treated?
Review payer landscape: What proportion of patients are covered by commercial insurance vs. government programs?
Competitive Landscape
Map all approved competitors: Market share, pricing, strengths and limitations of each
Identify all clinical-stage competitors: Phase, expected approval timelines, differentiation claims
Assess potential generic/biosimilar competition and timing for existing treatments
Evaluate the product's differentiation: Is it best-in-class, first-in-class, or a me-too in a crowded field?
Conduct a SWOT analysis relative to the top 3 current and emerging competitors
Assess switching barriers: How difficult is it for physicians and patients to switch from existing treatments?
Pricing & Reimbursement
Develop a pricing strategy and benchmark against comparable products in the same therapeutic area
Assess payer willingness-to-pay: Conduct advisory boards or review analogous product payer experiences
Evaluate health economic value proposition: What cost-effectiveness data supports premium pricing?
Assess reimbursement risk by market: US commercial, US Medicare Part B/D, EU reference pricing, Japan NHI
Consider IRA (Inflation Reduction Act) implications: Is the product subject to Medicare price negotiation?
The Peak Sales Trap
Financial Due Diligence
Financial due diligence goes beyond validating balance sheet numbers. For pharma deals, it means stress-testing the assumptions that drive the net present value (NPV) of the asset—development costs, probability of success, time to market, and revenue projections.
Build an independent risk-adjusted NPV (rNPV) model using your own probability of success estimates for each development phase
Estimate remaining development costs: Clinical trial costs, CMC scale-up, regulatory filing fees, pre-launch activities
Project cost-of-goods sold (COGS): Raw materials, manufacturing, quality testing, packaging, distribution
Build a detailed P&L model: Revenue build, gross margin, SG&A requirements (including sales force sizing), R&D for lifecycle management
Assess the target company's burn rate and runway: How long can they fund operations without the deal?
Review historical spending patterns: Are they consistent with stated development timelines?
Model multiple scenarios: Bull case, base case, bear case, and deal failure scenarios with associated probabilities
Calculate key deal metrics: IRR, NPV, payback period, and risk-adjusted return on investment
For M&A: Conduct a full financial audit including tax liabilities, deferred revenue, operating leases, and off-balance-sheet obligations
Assess milestone payment triggers: Are they clearly defined, objectively measurable, and aligned with value-creating events?
Probability of Success Benchmarks
Manufacturing & CMC Due Diligence
Manufacturing due diligence has become increasingly critical in the post-BIOSECURE Act environment. Supply chain resilience, CDMO relationships, and manufacturing scalability can make or break a product's commercial viability.
Manufacturing Process
Assess process development maturity: Is the manufacturing process locked, or does it require further optimization?
Review batch records and manufacturing history: Consistency, yields, impurity profiles, process parameters
Evaluate scalability: Has the process been demonstrated at clinical scale? What are the challenges of scaling to commercial volumes?
Assess analytical methods: Are they validated, stability-indicating, and capable of supporting regulatory filings?
Review stability data: Does the product have adequate shelf life to support commercial distribution?
CDMO & Supply Chain
Identify all CDMOs and their roles: Drug substance, drug product, fill-finish, packaging, testing
Review CDMO contracts: Term, exclusivity provisions, capacity commitments, quality agreements, termination clauses
Assess CDMO geographic risk: Exposure to single countries, BIOSECURE Act implications for China-based CDMOs
Evaluate backup manufacturing options: Is there a second-source CDMO identified and qualified?
Review supply chain for critical raw materials and starting materials: Single-source risks, lead times, quality consistency
Assess cold chain requirements and distribution logistics for temperature-sensitive products
Quality & Compliance
Review the quality management system: SOPs, deviation handling, CAPA processes, change control
Obtain recent FDA/EMA inspection history for all manufacturing sites: Any warning letters, 483 observations, or consent decrees?
Assess GMP compliance status of all manufacturing partners
Review any product quality complaints or recalls in the product's history
BIOSECURE Act Supply Chain Alert
Legal Due Diligence
Legal due diligence identifies contractual, litigation, compliance, and corporate governance risks that could affect the asset's value or the deal's execution. This is particularly complex in cross-border transactions.
Existing Agreements & Encumbrances
Review all existing license agreements: Exclusivity provisions, territory restrictions, sublicensing rights, termination triggers
Identify all third-party royalty obligations and how they stack (e.g., multiple royalty streams that erode net revenue)
Assess any co-development or co-promotion agreements that may restrict deal flexibility
Review academic institution license agreements: Are there retained rights, march-in rights, or publication obligations?
Identify any right of first refusal (ROFR) or right of first negotiation (ROFN) held by third parties
Review material transfer agreements (MTAs) and research collaboration agreements for any IP ownership ambiguities
Litigation & Compliance
Search for all pending, threatened, or recently settled litigation involving the asset or the company
Review any government investigations or enforcement actions: DOJ, SEC, OIG, state AG inquiries
Assess compliance program maturity: Anti-kickback, False Claims Act, FCPA/anti-bribery (critical for cross-border deals)
Review clinical trial conduct: Any GCP violations, FDA inspections, or data integrity concerns?
For M&A: Conduct a full employment law review—executive contracts, non-competes, retention agreements, severance obligations
Corporate & Governance
Review corporate structure: Subsidiaries, joint ventures, special purpose vehicles
Assess board composition and governance practices (M&A only)
Review cap table and any investor rights agreements that could affect deal approval or structure
Verify proper corporate authorizations for the contemplated transaction
Cross-Border Deal Considerations
Cross-border pharmaceutical deals—particularly those involving Chinese, Japanese, or European assets—introduce additional layers of due diligence complexity that domestic transactions do not face.
China Cross-Border DD
- Verify NMPA regulatory filings and their alignment with FDA/EMA strategies
- Assess data generated under Chinese GCP standards: Will it be accepted by FDA/EMA?
- Review China data export regulations and their impact on clinical data transfer
- Evaluate the BIOSECURE Act implications for any China-based manufacturing
- Assess the "China discount" in valuation: Chinese assets typically receive 60-70% lower upfronts vs. Western peers
- Verify IP ownership and ensure all inventor assignments are properly documented under Chinese law
Japan Cross-Border DD
- Understand PMDA regulatory requirements and potential need for Japan-specific bridging studies
- Assess NHI drug pricing system implications for product profitability
- Evaluate SAKIGAKE designation status and its impact on development timelines
- Navigate cultural and communication differences in deal negotiations and data sharing
- Review Japan-specific patent landscape and patent linkage system
European Cross-Border DD
- Map EMA centralized vs. decentralized approval pathway implications
- Assess HTA (Health Technology Assessment) readiness across key EU markets
- Review EU reference pricing dynamics and their impact on launch sequencing
- Evaluate post-Brexit UK regulatory divergence (MHRA) and its deal implications
- Assess EU clinical trial regulations and data protection (GDPR) compliance