Challenge
A private investment firm was seeking an independent reality-check on a potential investment in a pharmaceutical company that had recently in-licensed a generic therapeutic asset. The firm asked Alacrita to evaluate the upside case for the pharmaceutical company based on the newly in-licensed asset, as well as a core business evaluation of the pharmaceutical company to understand the downside risk and possible significant opportunities apart from the newly in-licensed asset.
Solution
Alacrita performed a due diligence on the pharmaceutical company and the generic asset. The analysis on the pharmaceutical company included a review of the company’s current strategy, business, and pipeline. Analysis of the generic asset provided an overview of the class of drug, its main competitor in the space, current sales and future projections, and controversies over the safety and efficacy of the class of drug.
In addition, we provided an review of the regulatory challenges for development of the generic drug, new competitors, and current development plans for this asset. The report generated included a SWOT analysis of the pharmaceutical company, risks of the generic product, impact of controversies of main competitor on future generic product sales, and current state of the generics market. The financial model Alacrita built for the investment opportunity showed a very positive net present value in the best upside scenario. However, several likely scenarios would significantly reduce its value.
Our conclusions indicated that to the extent that the current stock price reflects a positive outcome for the generic asset, the pharmaceutical company is currently overpriced.