Background

A pharmaceutical company, in the midst of a Phase III clinical trial, was considering a variety of strategic and financing alternatives as it prepared to bring its product to market. The company was developing an anti-inflammation product with a variety of potential applications. The lead product targeted a key signaling pathway in immune cells and had been tested in patients with Chronic Obstructive Pulmonary Disease (COPD) as well as Bladder Pain Syndrome.

Given these facts and circumstances, management had several questions. Should the company pursue a Phase IIIb trial to expand its potential patient population? How should the company pursue commercialization in markets outside the US? What financing options would best suit the various strategic alternatives available to the Company?

To answer these questions, the company retained Teknos to assist with the decision-making process. Teknos’ deep knowledgebase of the life sciences industry was pivotal in completing the analysis. In addition, the engagement involved developing a detailed financial model and a presentation summarizing our findings. The analysis put an emphasis on building a flexible and intuitive model that was still complex enough to reflect the accretive and dilutive impact of various financing strategies.

Analysis and Recommendations

In order to develop a robust understanding of our client and the strategic alternatives available to them, Teknos held multiple discussions with management and reviewed several pieces of internal data. We estimated the potential market size by looking at the affected population, diagnosis rate, treatment rate, and the company’s likely market share. Based on the feedback from management, we further segmented the market into mild, moderate, and severe cases, whose patient populations were expected to behave differently.

With this knowledge of the market, we dug deep into the company’s financial assumptions. We considered the proposed pricing structure in addition to likely discounting and reimbursement practices. We examined the company’s expected budget for sales representatives, medical science liaisons, and linked these assumptions to the expected market size. Finally, we incorporated many of the strategic alternatives and other developments the company was concerned about, including conducting additional clinical trials, partnering with a larger company to reach international markets, and the entry of potential competitors into market.

Once we had a robust and flexible estimate of the company’s cash flows over the lifetime of its lead product, we used a number of methodologies to value the company, including calculating the risk-adjusted net present value (rNPV), applying multiples from comparable publicly traded companies, and identifying the acquisitions of similar companies. Further, we utilized sensitivity analyses and ran Monte Carlo simulations to identify and quantify the key drivers of value.

Results

Teknos presented the company’s management with its findings and provided the supporting financial model. We highlighted the most impactful assumptions and decisions for determining the company’s value and made recommendations concerning the contemplated strategic alternatives. Finally, we discussed how the model could be updated and adapted based on future developments to continue to inform the company’s decision making.


Teknos Associates provides valuation and advisory services for emerging growth companies and their venture capital backers. Clients rely on our financial expertise, knowledge of technology markets, and high standards to deliver relevant and timely valuation reports, opinions, and analyses.