The right way to evaluate assets for acquisition
By: Mark Mozeson | July 21, 2016
Hint: Reviewing the development plan is only the first step.
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:
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.