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Private equity pharmaceutical due diligence

Client Problem: 

A private equity client asked Dean & Company to perform due diligence on a development-stage biotech investment target. The management of the target company had presented a business case based around a key orphan drug pipeline product with expected peak sales of ~8x the target’s current revenues.

Project Objectives: 

Our key objective was to evaluate the assumptions behind the target company’s business case.

Approach: 

  • Calculate the likely revenue potential by analyzing addressable market, competitive landscape, price benchmarks, and reimbursement policies
  • Estimate the probability of success by reviewing clinical trial results, identifying the regulatory hurdles, and reviewing the manufacturing process
  • Re-evaluate the NPV of the target company based on our revised assumptions

Results: 

  • Our due diligence revealed that management used overly optimistic addressable market and price assumptions, while discounting some serious competitive risks
  • Based on our revised assumptions, we concluded that the NPV of the target company was ~50% of management estimates under a best-case scenario
  • Furthermore, we identified key partner renegotiation levers to unlock value and to maximize the probability of success if the target were acquired

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