Project

Pharmaceutical Contract Manufacturing Investment Identification and Valuation

Client

Leading Private Equity Firm, Health Care Division

Description

As part of their long-range growth plan, our client’s objective was to consolidate, either through partnerships or acquisitions, a number of small and mid-size contract manufacturers into a larger organization capable of generating meaningful economies of scale. Investment criteria required that targets have some degree of established manufacturing capacity and the ability to produce pharmaceutical ingredients that could meet the standards of advanced regulatory agencies.

VOI conducted a thorough search to identify firms throughout the world that met the client’s investment criteria. Relying on both interviews and secondary research, we evaluated these companies on a number of criteria including manufacturing capabilities and capacities, customer bases, capital structures and financial conditions. We then developed fair market valuations on the most promising of these firms and worked with our client to conduct due diligence on the ultimate investment targets.

Results

Our client used the results of our analysis to make three investments, including one acquisition (which was merged with a company in the client’s existing investment portfolio) and two equity purchases.

Project

Due-Diligence: Orphan Drug Pricing Sustainability

Client

Private Equity Firm, Life Science Division
Description:    VOI Consulting was contacted by a private equity firm that was in the process of evaluating a major investment in a specialty pharmaceutical company. This pharmaceutical company had recently received FDA approval for an orphan drug aimed at a serious rare disease with a combined developed market population base of fewer than 50,000 patients. In order for the company to recoup its R&D investment and reach profitability, this drug carried a price of well over $100,000 for an annual course of treatment. The private equity firm needed to determine whether this price would be acceptable to private insurance companies in the U.S. and government reimbursement authorities in other major markets.

As part of this due diligence process, VOI identified analogous high-price orphan drugs and analyzed their formulary penetration rates, patient copay requirements and reimbursement status around the world. In addition, we interviewed high-level executives in major insurance companies and key government agencies in the relevant countries regarding their stances on orphan drugs in general and this new drug in particular.

We found that the severity of the disease, the lack of alternative treatments and the relatively small population affected would lead to coverage among the majority of major payers. Notably, however, we identified “soft denial” tactics such as delays in reimbursement review and increased coinsurance rates. After incorporating these tactics into forecasts, we found that sales growth would be both lower and slower than had been projected by the private equity firm or the potential investment target.

Results