layers of information

This post was co-authored by Rick Sax, Senior Vice President, Advisory Services, Quintiles.

Biopharma companies today are facing increasing economic pressures driven by shrinking pipelines, declining peak sales, patient expirations, and rising expenses. This confluence of issues means every investment decision they make has to have a clear value proposition and understanding of risk. In response to these challenges, many companies are increasing their dependence on in-licensing and acquisitions to grow their portfolio and bridge pipeline gaps. Such acquisitions of assets (both early and late phase) can restore portfolio balance and profitability, if the company can shepherd these promising drugs to market.  But they can also be a tremendous waste of resources if the product doesn’t deliver.

This places a huge responsibility on the in-licensing due diligence process, not only for the evaluation of scientific and technical gaps and risks, but also to determine the proper value relative to the proposed development program(s), milestones and commercial expectations. Only through a rigorously executed process of thorough analysis and scenario development can companies can lower the risks of failure before making a commitment.

Look before you leap

Good due diligence should be part of every acquisition process, however, many biopharma companies fail to conduct a comprehensive unbiased review before making a decision; this can lead to unnecessary and expensive pitfalls. Common issues include relying on overly optimistic valuations of the asset, inaccurate data for study costs and timelines, non-optimized drug development paths, or building a business case using a market strategy that was derived without all the relevant information. These oversights especially occur when the biopharma company relies solely on the data provided to them by the seller rather than doing their own data-informed due diligence activities. They may save a little time and money up front, but the potential downstream losses are likely to be far more consequential.

Complex acquisition investments can significantly impact the fortunes of the acquiring firm. To avoid potential pitfalls, the best way for a company to get realistic predictions of an asset’s potential is by using an in-house team or neutral third party to review the technical, commercial and clinical viability of the asset, analyze the strategic options, develop objective valuation projections, and pressure-test all assumptions.

To do this, companies need to assemble a team with expertise in the following areas:

  • Drug development and therapeutics. These experts must have the ability to evaluate the scientific rigor of the existing data and the feasibility of the development plan. They should have experience within pharmaceutical/ biotechnology companies, CROs, and/or Health Technology Authorities to ensure they have a complete understanding of the project and landscape.  

  • Commercial marketing and valuation. These experts need to have knowledge of the competitive market environment and a clear understanding of the needs of stakeholders. This knowledge will help them accurately define the value and positioning of the product, and identify potential market access issues, such as evidence requirements to achieve access and challenges positioning the asset on the treatment algorithm.   

  • Proprietary data, biostatistics and informatics. These experts require experience with and access to the necessary data, technology, and analytics tools so that they can thoroughly evaluate all primary and secondary data related to the asset. These data sets may include electronic health records (EHR), registries, patient communities, industry studies related to the disease and current treatments, and other secondary sources.    

  • Regulatory, payer and health economics and outcomes research (HEOR). These experts must have a deep understanding of the regulatory environment so that they can evaluate whether the evidence supports value arguments and is likely to meet approval criteria. This part of the due diligence process will require a team capable of conducting statistical analysis of clinical trial data, cost modelling, and development of core value dossiers.

Completing due diligence with the rigor and thoroughness required does takes upfront investment in the right expertise and information; often this is through external experts capable of executing a quick but comprehensive review. Given the magnitude of the decision a company needs to make, the key is to insure that the proper scientific and commercial contributions to the investment discussion are applied, especially given the current market valuations and risk for many of the novel in-licensed assets. Making this investment not only increases the likelihood that the correct decision will be made relative to the company’s corporate strategy, but also sets the path for success down-the-line if the asset is indeed acquired.

Topics in this blog post: Global Services - GS, Biopharma, Evidence, Innovation, R&D