NAM businesses present distinct regulatory, commercial and diligence considerations. We examine ten transaction issues that investors should assess when acquiring or investing in NAM platforms.

In this second part of a series on investing in New Approach Methodologies (NAMs), we address how the development of NAMs gives rise to several issues that should be considered in life sciences M&A transactions. Below, we provide ten examples along the transaction lifecycle.

1. Scoping the target business

In a conventional life sciences transaction, the target asset is usually identifiable within the established legal and regulatory categories: a registered product, a pipeline product, a patent portfolio, or data. NAM transactions are different. Most NAM platforms do not derive their value from any single marketing authorisation, and the deal perimeter is harder to draw.

Some platforms generate experimental evidence using human-based systems. Other platforms focus on analysing, interpreting or integrating that evidence.

NAM companies tend to differentiate by specialising, whether in automated screening, particular biological models, or scalable production. A buyer may therefore be acquiring one strand of a broader evidence-generation workflow rather than a self-contained technology.

2. Due diligence country-by-country

As explained in Part 1 of this series, the regulatory position remains highly fragmented, which creates a significant burden for multi-jurisdictional transactions. Acceptance of a NAM must be assessed by reference to each relevant jurisdiction, endpoint and regulatory purpose.

3. Determining dependencies

Acquiring a NAM business may not, by itself, secure the assets and operational arrangements needed to preserve the value of the platform after completion. Many platforms are built around a combination of proprietary technology, third-party inputs, research relationships, specialist know-how and established procedures.

Diligence should therefore consider whether any material elements of the platform are located outside the target or are subject to restrictions that could be triggered by the transaction. Particular issues may include change-of-control provisions, limits on the use or transfer of licensed technology, dependence on key personnel, continuity of academic or commercial collaborations, and access to critical materials, software or suppliers.

These issues are relevant both to due diligence and to transaction structuring. Where the platform depends on arrangements that may not continue post-completion, the parties need to address that risk through pre-completion consents, retention arrangements, specific warranties or other contractual protections.

4. Stake size considerations

Full acquisition is not always the right answer. A pharmaceutical company that acquires a neutral platform may gain proprietary access but lose the breadth of collaboration that made it valuable. A staged acquisition, call options, or a partnership may preserve that breadth while securing priority access, for example, for a pharmaceutical company acquiring a multi-client organ-on-chip platform. For a Contract Research Organisation or tools company, by contrast, full ownership may be the only way to integrate a NAM capability into its existing service offering.

The acquisition structure depends on multiple aspects. If the value depends on exclusivity or deep workflow integration, full acquisition is likely preferable. Where it depends on neutrality and industry-wide adoption, separate operation, minority ownership or priority-access arrangements may preserve more value than consolidation. Staged acquisitions, options and milestone-based consideration can also reduce uncertainty over future regulatory and commercial adoption.

5. Conditions precedent and transaction milestones

Where the existence of regulatory clarity, or a regulatory decision, is fundamental to the investment case, the parties can use it as a condition precedent or an earn-out milestone linked to acceptance of a specified methodology for a defined endpoint. In such situations, the regulator, methodology, endpoint and permitted use should be clearly identified. For example, an earn-out milestone should be triggered by EMA acceptance of a specific in vitro assay for hepatotoxicity screening.

6. Indemnities and allocation of regulatory risk

A specific indemnity may be appropriate where the target has an identified regulatory issue relating to its use of a NAM, such as a previous regulatory challenge to the methodology. Relevant considerations include whether a regulatory has previously rejected NAM data, required bridging animal studies or accepted a methodology only for specific endpoints. The appropriate contractual treatment, whether a warranty, indemnity, price adjustment, escrow or otherwise, will depend on the circumstances.

7. Representations and warranties

Standard regulatory representations will often not adequately address NAM-specific risk. A Share Purchase Agreement or investment agreement could include specific representations on the current regulatory status of the methodology, communications with regulators, past and pending submissions, any requests for additional animal testing, and statements made to investors about regulatory acceptance.

The drafting should distinguish carefully between the current regulatory position and expectations concerning future regulatory acceptance.

8. Ownership and Intellectual property

NAM businesses may derive significant value from assets that are not captured by traditional patent analysis. These can include proprietary datasets, validation data, human-derived samples and associated data, computational models, protocols and know-how.

Due diligence must establish ownership and permitted use of these assets, including any restrictions from third-party licences, research collaborations, or the terms on which human-derived data or samples were obtained.

9. Merger control and FDI

NAMs are an area where targets are often small in terms of assets and turnover; however, the underlying technology might be potentially transformative, which is of interest to numerous investors. As such, many transactions may technically fall below merger control thresholds, but may nonetheless be subject to scrutiny of the merger and/or FDI regulators. For example, the elimination of a neutral testing platform could be questioned. The risk of approval issues only arising at a late stage of the negotiations can be high. Similarly, for such transactions, the risk of third-party complaints to authorities can be higher than usual.

10. Patient consents and use of data

NAM platforms built on patient-derived material carry a distinct set of legal dependencies rooted in the donor consent chain. Consent given for treatment or research does not automatically cover commercial use, onward licensing or sublicensing, and its scope may vary by jurisdiction.

The question for an acquirer is whether the permissions that supported the target’s historical activities also cover what the buyer intends to do. International expansion, new commercial applications, use by affiliates and combination with other datasets may all fall outside the original consent or contractual framework.

Platforms that rely on computational models face an analogous issue where the third-party training data on which the model was built were not licensed for the target's current or planned commercial uses.

Similar questions arise with biobanks, hospitals and public research institutions. Legal provenance, data rights and payment arrangements can all constrain the target’s ability to maintain and expand its sources of biological material.

Conclusion

The regulatory status of a NAM is not defined by a single permit or marketing authorisation, and the distinction between scientific validation and regulatory acceptance matters. A methodology may be scientifically credible without being accepted by a regulator for a particular endpoint or regulatory submission.

The EU's 2026 roadmap, the FDA's roadmap and guidance, Japan's developing approach, and corresponding developments in the UK and at OECD level all demonstrate the extent to which regulatory systems are adapting to non-animal evidence.

The transition will take place over a number of years, and the regulatory requirements will continue to differ across jurisdictions in the interim. For drafting transaction documents, the practical consequences concern translating the regulatory diligence carried out by regulatory advisors or in-house teams into defining the deal perimeter, allocation of risk and transaction milestones.