Peptides are short chain amino acids (40 or less amino acids) that are fast becoming one of the underpinnings of the “wellness movement.”  When we’re young and healthy, our bodies make plenty of them.  When we’re older or stressed or sick, the story goes, their production falls off and our physical (and mental quality) of life is undermined.  Because they’re essentially the same chemicals made by our bodies, it makes sense that we ought to be able to augment their decline by injection or ingesting them, right?  Kinda of like bioidentical hormones.  Not so fast Charlie!

The biggest stumbling block re peptides is this:  the Food and Drug Administration (FDA) regulates them as drugs.  More specifically, the FDA has been clear that they can be compounded at compound pharmacies but not made by pharmaceutical companies, because they aren’t “approved” by the FDA.  Moreover, since they are essentially what’s found in nature, they are not subject to the usual intellectual property (IP) protections that allows a company that creates them to “own” them and monetize them in the same way that pharmaceutical companies can.  And unless and until Pharma changes the molecular structure of a peptide, no IP can be obtained and it cannot be FDA approved.

All that said, the FDA is clearly concerned about the growth of peptide use.  Which explains why in February, 2024 (updated in May), the FDA expanded the 503A Category 2 list (bulk drugs items raising “significant safety risks”) to include peptides like BPC-157, Kisspeptin, MOTs-C, ipamorelin, thymosin A and B and many other that were the cornerstone of the peptide wellness movement.  In many instances, the FDA commented about the peptides on the expanded Category 2 list that there was insufficient data to show efficacy or harm, so they’re “suspect.”  Even more “interesting” is the current Category 1 list (“under evaluation) that includes items like aloe vera, CoQ10, curcumin, glutathione, L-Theanine, NAD, pregnenolone, quercetin, resveratrol, tea tree oil and many others that clinicians and patients count on as part of their regular wellness regimen. 

The “why” of all this is confounding to clinicians in the wellness space and the patients who want the right to be proactive about their wellness.  One narrative is how it’s a Big Brother driven issue, that Big Money (i.e., Pharma) is behind it all and just wants to prevent people from driving their wellness regimen and instead turn each of us into drone like consumers of pharmaceutical products that have unwanted side effects.  I don’t know!  But I do know this:  if you don’t know how law is made and if you don’t have a “seat at the table,” your unique point of view will be completely missing from all the laws and regulatory activity downstreamed to us consumers.  Pharma knows the system and has a hand in designing it.  Those businesses understand how policy is created and enforced.  And they pay a ton of money each year to (1) validate their products, and (2) lobby both legislators and regulators to promote their products and invalidate products they didn’t create and which don’t meet the standards (they help design and implement). 

So then…where is all the research on peptides?  Why don’t compound pharmacies or providers that rely on peptides for wellness solutions spend millions of dollars a year on double blind studies to validate peptides?  Maybe…because there is no IP protection for such products.  And if there’s no IP protection, how can any company justify the investment?  They’ll never be repaid.  And if they did make the investment, all their competitors would reap the benefit, since there is no IP protection for wellness solutions found in nature.  Until stakeholders in the wellness industry either (1) invest in changing the regulatory/legislative game and (2) play a very active role in that process, they will just bugle victim and fairness stories.  They’ll sound like a bunch of sore losers.  There is no winning the game without playing it.

So where does that leave peptide providers and consumers right now?  Are they illegal?  Nope.  Can you go to jail if you prescribe or use them?  Nope.  That said, given the fact that the latest FDA directives are aimed at compound pharmacies, the pharmacy space is where we see the most scrambling and confusion.  Because if the FDA takes issue with them, their licensure is on the line.  The net effect for the moment is (i) fear among prescribing professionals and (ii) contraction of peptide availability.  That contraction in the compound pharmacy space has spurred new companies that label peptides “for research use only” or “not for human consumption.”  The trouble is that these new “research companies” are not subject to any quality related regulations.  

Consumers ought to be wary of these new (non pharmacy) companies.  The Alliance for Pharmacy Compounding (APC), for instance, advises that such peptides not be labeled as described above.  They advise that any such substances “must be manufactured by an FDA-registered facility.” For similar reasons, clinicians need to be selective about the companies they’re using to fulfill prescriptions for peptides during this dynamic time. 

All of that said, some peptides, like semaglutide and tirzepatide, are free flowing, which is confusing to consumers and clinicians.  The short reason is there’s an exception for compounding that applies to FDA approved drugs that are “currently in shortage.”                                      

The current state of the law and peptide industry is in flux.  That will mean some providers will contract and others will fill the void created by leaving the market.  It’s a short-lived situation that is expected to develop further during the next year or so.  But if the past is any predictor of the future, the future belongs only to those clinicians and providers (and consumers) that organize and interact with the FDA and legislators to demonstrate both safety and efficacy.    

The concept of an MSAs (management services agreement) can be confusing for IV hydration business owners.  If you’re curious, you should have these questions:  What is an MSA?  Why do I need one?  What does a “good” one have in it?

An MSA is a contract.  That’s the simple part.  It’s a contract between two entities, a clinical entity (e.g., company, professional corporation, partnership or LLC) and a business entity.  One entity does clinical things (e.g., provides IV hydration services).  The second one does all the business things that any healthcare business needs—reception, accounting, HR, financial management, marketing, sales.

Healthcare businesses need (or want) MSAs for two reasons:  first, because the law of the state where they operate requires only a specific clinician to own a clinical entity.  For instance, the law in a state might say a physician (and no one else) must own any entity that provides medical services.  And it might define even IV hydration services as a medical service.  In that state then, only a physician could own a business that provides IV hydration services.  In that event, non-clinicians (or clinicians without the requisite license) would/could own the business entity (but not the clinical one).  the second reason for using an MSA is because that’s what the entrepreneur thinks a buyer will want.  The entrepreneur will build an MSA based model (called an MSO model) in states that don’t require an MSO model because the entrepreneur believes private equity only wants to buy MSO modeled healthcare businesses.  And (if you haven’t figured it out already) the laws that drive this issue are state laws (not federal ones), which means there are at least 50 different moving pieces.  State laws change regularly (more often than federal ones) so this is something that needs to be checked periodically.

One of the difficult things in an industry where regulations are emerging (e.g., the IV hydration space) is to consider this question:  although the laws in my state don’t require an MSO model, are the legal developments that apply to the IV hydration industry such that we ought to do an MSO model anyway?   This sort of analysis assumes there is change afoot and it may “hit” your state sometime, and it’s best to adapt before the laws in your state are impacted.   This is a complex business decision that requires a thorough discussion with experienced counsel.

What about the MSA itself?  What should be in it?  This depends on state law since states do address the content of such agreements.  New York law, for instance, requires the management fees to be consistent with fair market value.  California law forbids percentage based MSAs (as do other states).  Regardless of the specific state laws applicable, a thoughtful MSA needs to address—

1. The detailed business-related services the MSO will provide to the clinical entity;
2. The clinical services that the clinical entity will provide;
3. A clear commitment on the part of both parties to adherence to state and federal laws;
4. The fees payable to the MSO;
5. Financial controls in place, such as a sweep account and lien provisions (to protect the MSA fees payable to the MSO);
6. The rights of the MSO relative to the clinical entity as it relates to issues like the ability to require a change of clinical owner;
7. Restrictive covenants like confidentiality, non-solicitations and noncompetes;
8. Termination provisions, particularly those that are based on threats to the business of either party (e.g., bad actor clauses); and
9. To the extent possible under state law, the possibility of the MSO sharing liquidity event proceeds if the clinical entity is sold.

The veterinary industry has been experiencing a significant wave of mergers and acquisitions (M&A) in recent years. As corporate entities and private equity firms recognize the potential for growth and profitability in this sector, veterinary practices have become attractive targets for M&A activity. This article explores the trends, benefits, challenges, and overall impact of M&A in the veterinary industry.

Why Veterinary Practices Are Attractive Targets for M&A

1. Growing Demand for Veterinary Services – The escalating demand for pet healthcare services make veterinary practices lucrative investments. Advances in veterinary medicine and a growing emphasis on pet wellness have further fueled this demand.

2. Predictable Revenue Streams –
Veterinary practices often have stable and predictable revenue streams, making them appealing to investors. Regular check-ups, vaccinations, and treatments provide consistent business, reducing financial risks.

3. Fragmented Market –
The veterinary industry is highly fragmented, with many independently owned practices. This fragmentation presents opportunities for consolidation, allowing larger entities to achieve economies of scale and enhanced market presence.

The M&A Process in the Veterinary Industry

1. Identifying Potential Targets –
The first step in the M&A process is identifying veterinary practices that align with the acquirer’s strategic goals. This involves market research, financial analysis, and understanding the practice’s reputation and client base.

2. Valuation –
Valuing a veterinary practice can be complex. Common valuation methods include:

• Asset-Based Valuation: Adding up the value of all tangible and intangible assets.
• Income-Based Valuation: Projecting future earnings and discounting them to present value.
• Market-Based Valuation: Comparing the practice to similar ones that have recently been sold.

3. Due Diligence –
Due diligence is crucial for assessing the practice’s financial standing, compliance with regulations, and any potential liabilities. It involves reviewing financial statements, legal documents, and operational practices.

4. Negotiation and Deal Structuring –
Once due diligence is complete, negotiation begins. This stage involves determining the purchase price, payment terms, and any contingencies. Deal structuring may include upfront payments, earn-outs, or equity swaps.

5. Integration –
Post-acquisition integration involves merging the acquired practice with the acquirer’s operations. This can include aligning business processes, integrating software systems, and managing changes in leadership and staff roles.

Benefits of M&A in the Veterinary Industry

1. Enhanced Resources and Capabilities –
Mergers and acquisitions can provide access to better resources, including advanced technology, specialized equipment, and enhanced training programs for staff.

3. Expanded Service Offerings –
Acquiring or merging with another practice can allow veterinary practices to expand their range of services, such as specialty care or advanced diagnostics, thereby attracting a wider client base.

4. Improved Client Experience –
Larger, consolidated practices often have the resources to invest in client-centric initiatives such as extended hours, online booking, and enhanced communication, improving overall client satisfaction.

Challenges of M&A in the Veterinary Industry

1. Cultural Integration –
Merging different practice cultures can be challenging. Differences in management styles, staff expectations, and client service philosophies need to be carefully managed to ensure a smooth transition.

2. Staff Retention –
Maintaining staff morale and retaining key employees during and after the transition is critical. Clear communication, proper training, and involvement in the integration process can help mitigate staff turnover.

3. Client Retention –
Clients may be wary of changes resulting from an M&A. Maintaining transparency, continuity of care, and consistent service quality are essential to retaining clients’ trust and loyalty.

4. Regulatory Compliance –
Navigating the regulatory landscape is vital. Ensuring compliance with local, state, and federal regulations, as well as industry standards, requires meticulous attention to detail.

Conclusion

Mergers and acquisitions in the veterinary space present significant opportunities for growth. By understanding the trends, benefits, and challenges of M&A, stakeholders can navigate this dynamic landscape effectively. With strategic planning and careful management, M&A can lead to successful outcomes for veterinary practices, their staff, and their clients.

Please contact us at Florida Healthcare Law Firm to discuss in more detail the growth of your veterinary practice and how your business can benefit from acquiring or merging with another practice.