Due diligence and valuation of foreign biopharma company

Background and Challenge

L.E.K.'s Client, a large pharmaceutical company, had recently entered into a licensing agreement for the Target company’s lead late stage program, a drug indicated for an targeted disease. Our Client was considering making a subsequent equity investment in the Target and needed to develop an objective view on the Target company’s complete pipeline within the tight deadlines of a transaction. As such, the Client asked us to conduct due diligence on the Target, value the Target company’s pipeline and overall business, as well as coordinate the transaction process through to execution.

Approach and Recommendations

We developed an objective view on the Target’s business, its commercial potential, associated financials and resulting valuation using different methodologies to inform the range on acceptable value for the deal and development of deal terms. we then led the transaction process for our Client. Specifically, we did the following:

• Assessed the commercial potential of the Target’s pipeline portfolio for leading and expansion indications for each drug
• Developed cost projections for clinical development, commercialization, and other expenses across multiple programs
• Developed a DCF valuation for Target using projected revenues, costs and appropriate risk adjustments for all target indications
• As a point of comparison for the DCF valuation, we conducted a trading multiple analysis and transaction multiple analysis using comparable development stage firms with drugs treating targeted diseases
• Led the transaction process, providing ongoing support and advice through to execution of the transaction

Results

We successfully assessed and valued the Target’s business thorough research and thoughtful analysis. Based on the robust fact-base and financial analysis developed by us, the Client was able to understand the major drivers of the Target company’s value as well as the potential risks and pitfalls, enabling our Client to make the best possible investment decision.  Our Client also benefited from our experience and expertise throughout the transaction process.