Cases - Business

What drives a company's value? How does it translate into the price you should put on your business? Should you put a price on it at all?

Cash is King

Different

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

businesses have different things to offer a buyer. A buyer may be interested in specific industries, certain lifestyle requirements (e.g., no weekend hours), or like or dislike fra

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

nchises. But all buyers have one thing in common: they want to know how much money they will make if they buy your business. Different buyers may have different return criteria or

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

lifestyle needs, but, at the end of the day, the cash your business generates, or might generate, is going to be at the top of their list of concerns.

Valuations

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

There are many approaches to business valuation. The traditional approaches involve a (financial) mathematical approach to assessing the value of the cash flow your business gener

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

ates. Factors like historical trends, future expectations, risk and opportunity costs are taken into account to apply "discount" or "capitalization" factors to assess the value tod

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

ay of your company’s future cash flow. Other approaches are less sophisticated, though often quite reliable, and apply a "multiple" to your cash flow. These multiples are often sim

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

ple rules of thumbs that have evolved over time as the result of deal making experience in various industries. A simple percentage of annual sales (or multiple of sales in very rar

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

e cases) is also a common rule of thumb.

Some Common Rules of Thumb Liquor stores: 3 to 5 months sales plus inventory

Franchise Food: 45% to 50

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

% of sales plus inventory

Distribution: 35% to 45% of revenue; this may or may not account for inventory

Manufacturing: 3 to 6 X EBITDA (Earnings Before Interes

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

Taxes Depreciation and Amortization).

Pricing Strategies

You have two basic options when pricing your business: advertise an asking price or don’t put a price o

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

n it at all.

Published Price

For smaller businesses it is almost always appropriate to advertise an asking price. The buyers of small businesses are typically not sophis

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

ticated enough to cope with developing a proposal without the starting point of an asking price. But what should that price be? You can engage a business valuation expert or use on

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

e of the many excellent valuation services available on line. It is important to get an outside opinion to check your emotions and expectations. The most common error in the sellin

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

g process is to overprice a business.

Un-Priced Strategy

For larger businesses, particularly those that are likely to have a competitor acquire them, an un-priced strate

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

gy may be appropriate. This is because your business will have very different value to an individual who buys it versus a competitor who buys it. The competitor may be able to cons

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

olidate locations and personnel, increasing the cash flow significantly over what an individual buyer would experience. More cash flow means more value. An un-priced strategy lets

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

both types of buyers evaluate a price that works for them, and it may be a higher number than you expected! "Larger" can be as small as $500,000 - $1,000,000 in value. It depends o

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

n the business and industry and who are the likely buyers for your business.

Understanding the value of your business is the critical link in any sales process. An independent und

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

erstanding of the value of your business will increase your ability to evaluate offers that are made. This makes you an informed decision maker and a better, more successful seller

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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