Pharmaceuticals & Biotechnology Industry Focus

Project evaluation and portfolio management

As R&D costs rise and productivity falls, even long established pharmaceutical companies are struggling with an increasingly challenging business environment. World-class clinical capabilities are no longer sufficient to ensure that shareholders' expectations are met and companies are increasingly viewing portfolio management as a key driver of shareholder value.

PricewaterhouseCoopers' portfolio management process is tailored to the style and needs of the individual organisation. Key business risks, such as clinical failure, product profile and competition, are taken into account to produce a robust estimate of the main values and risk factors, emphasising consistency and transparency at all times.

Licensing strategy

PwC has developed a consistent approach to evaluating licensing opportunities. The key to finding the best deal is to understand the values and risks inherent in any proposal. This process starts with evaluating the project as a whole and treating it as if it is already part of the licencee's portfolio. Analysing the proposed terms of the agreement means providing risk profiles for both parties. This not only provides a solid platform for negotiation, but may also create alternative and more beneficial agreements for both parties.

Brand strategy

In recent years, the most successful pharmaceutical companies have been distinguished as much by their marketing clout as their scientific innovation. The growing importance of creating strong brands, supported by focused marketing plans, have prompted many pharmaceutical companies to adopt business plans that allocate more resources to brand building.

This competitive new business environment means increased risk - the launch of a lifestyle drug supported by direct-to-consumer advertising can cost hundreds of millions of dollars, with most of the cash spent before patients have even paid for their prescription. PwC's brand strategy integrates key financial drivers with proven models of physician and patient behaviour to maximise returns from each marketing option.

Transaction strategy

Transaction strategy requires an understanding of two criteria of value: What is the asset worth in the market place? How much would the asset be worth to the buyer? PricewaterhouseCoopers' valuation approach analyses both the potential income and market to answer these questions and determine if the transaction is likely to create value.

The income approach analyses the asset's key risk factors, with adjustments for the synergies and strategic issues, to estimate the free cash flow of the combined entity. The market approach analyses companies and deals with properties comparable to the intended asset. Both approaches help clients proceed with transactions certain that they will build additional value.

Strategic investments in manufacturing

Manufacturing is a key issue for the pharmaceutical industry. A delay in the launch of a major new drug can cost millions and decisions about manufacturing capacity must often be made well before the product is registered. Companies have to consider a range of scenarios including capacity constraints, the return on investment for different manufacturing options, and the ideal parameters when negotiating with third parties.

These challenges are magnified in the biotechnology field, where regulatory and technical hurdles can mean lead times of several years to implement new capacity. PwC's approach integrates manufacturing capacity decisions with the risks inherent in the development of a new product. This process creates a more complete picture of the values and risks associated with product development.

Intangible asset valuation

PricewaterhouseCoopers' advisers have experience of dealing with changing regulatory environments and industry bodies. The recent introduction of new accounting standards require rigorous identification and valuation of intangible assets and R&D pipelines, in particular if they are acquired as part of a new business transaction.

Being aware of how goodwill and other intangible assets are amortised is vital for companies reporting in accordance with US GAAP and new IFRS.