I work on the inside M&A team for a large Pharma company. My job generally involves acquisitions, in licensing, out licensing and distribution deals. I am on the forum under another name, this is to maintain my anonymity.
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Thanks!
Some solid questions.
Non BB IB with limited true M&A experience. Left as an Analyst and landed as a Senior Associate at the new role.
Office time is realistically 9-5 if we aren't in the final stages of closing a deal. I'll pick one day a week to be in the office till 10pm or so. Pharma tends to be located in compounds so little to be gained staying at the office that late on most days but I'll usually do 1-4 hours of work when I get home. When we're in the process of closing it can easily go until 2am-4am, but thats only once every few months.
I sleep better here than I ever did in banking. In an industry with 10 year development timelines a day isn't that big of a deal. Most people are also older with children.
This actually leads to a much less refined model, because we'll define all the important characteristics many of the secondary ones become inconsequential. If a drug is a successes and pulling in $400M a year, a $.5M miscalculation on G&A costs doesn't matter that much. The chance of FDA approval or additional requests does, however. We also attempt to mitigate much of this uncertainty in the deal structure rather than through advanced models because many of the factors are simply unknowable, throwing 5 or 50 hours yields little marginal improvement.
This makes sense when you think about it, since IB skews to assets that are already on market or entire companies with predictable cash flows versus us dealing with a mix of on market and development projects. I probably only do 1-2 hours of modeling a day.
So the negotiation side is much more intense and the complete view of the field is higher quality, but the financial side itself is lower quality because it's low value add for us.
On top of those items that are typically on the periphery of typical IB there is an incredibly amount of industry specific knowledge. I now know a lot about drug development, regulatory frameworks, supply, medicine, tax law ect that was not a core part of the previous IB experience. The only downside is that you have to get used to always being the least informed person in the room, because the subject matter expert is always going to know more than you. I'll never know more tax than my tax guy, more law than my lawyers, six sigma better than my manufacturing guys ect.
1) New job a result of reaching out to company directly or to a head hunter? 2) Obligatory question on comp: Higher/lower than previous and structure (salary/bonus, cash/equity)?
I was poached by the team leader
Higher than previous but not by much, but much higher potential upside. Due to being relatively inexperienced in the industry I was given 2 years probation essentially. Pharma has such a small pipeline of people this is relatively common.
I've been given the green light that I will be promoted end of this year. I don't have the offer in hand yet, but I have received external offers so I know what to expect.
Current salary is six figure base, bonus up to 30% depending on performance and an equity grant.
Next level I'd expect $150k-$180k base + same cash bonus + 30-50k equity bonus
I assume you did IB for 2 years - how many years have you worked in your internal M&A job so far? The comp seems higher than I expected. Are you in NY metro / Bay Area?
Would you say that corporate M&A can be a way into banking if youve got nor previous banking experience? Basically, can one get internships in corporate M&A and then form a strong enough network with the banks you work with on transactions to break into banking?
I assume to mean 'breaking into banking' by 'getting a banking job right after undergrad' given the internship question? If so, People can get into banking many ways. You don't NEED to have 3 BB IB internships to get a full-time offer. Does it help? Obviously. But look on linkedin - you'll see a good amount of people with Big 4, valuation, corp dev / strategy internships that went into banking.
tl;dr Yes. An internship doesn't define what you'll land as a job. It'd be ignorant of me to say that it can tip the scale drastically.
Yes. You will work with a lot of bankers, ranging from fairness opinions to formal process buying/selling.
The skill sets are largely the same, so it's not too hard to make the jump.
In my case it made sense to do banking first, because the modeling skills were required for this job. The full spectrum of requirements was far greater than banking.
Be advised that every pharma company is slightly different. Some are far more narrow in scope and have far lower comp.
Reading through your responses I'm guessing you were at a MM IB Healthcare group doing mostly financing rather than M&A? Was this something you had to address in your interviews or did the fact that your experience was mostly non-M&A not really a factor in landing your current role? Reason I ask is I will be starting in MM IB next summer and find your current role very interesting.
Close, I don't want to get too specific.
It was absolutely something I had to address in my interviews. In fact in every single one I was asked it again. The company also partially addressed it through the 2 year do or die probation of my first role. I was told that if my work was insufficient I would be let go, but that also constant feedback would be provided to make sure this wasn't unexpected.
In the interview I was also throw in front of very senior executives without warning and asked complex questions, which in hindsight was to test skills relevant to the increase M&A level of the role.
thanks for taking the time to do an ama!
Comp is higher than I expected but that is nice to hear, grats to you.
I find your comment on modeling interesting. I've seen three times at my company where our buy side models were re-visited and scrutinized after closing the deal because we've run into impairment issues on IPR&D. What's your company's practice on this / do you see true transparency of the target compound during diligence an issue?
Thanks!
Thanks.
I think Pharma M&A is generally an older persons industry which leads to a flatter comp curve than banking, especially when everyone at a minimum is a doctor or lawyer and all the schooling that entails relative to banking. So younger people tend to effectively get a comp bump for this (but less of an increase with age) unless they came out of one of the low paying shops with a huge number of M&A/BD people like Pfizer or Amgen.
This is understood to be an issue. We'll have R&D people sit in once we decide to pursue an opportunity to provide cost estimates. If it's a big enough factor I'll sensitize it to see if the risk is worth it and try to build out what the reasonable upper bounds are for R&D cost. There is no way around the risky nature of R&D though.
If I feel it's just not transparent enough and it's not an outright acquisition I'll attempt to get a cap put into the contract on R&D spend to remove a chunk of the risk for us all together. There are also a handful of other contractual or deal structure methods I'll attempt to mitigate this risk.
Our R&D people are pretty accurate, usually able to estimate within ~10% of the final. I haven't seen any major deviations on any historical deals we've done.
Are you into pharma/biotech development or spec pharma/approved/generics? If you're in development-stage, how has not having a med school degree affected your work? How have you been dealing with it? Unless you do have a science background of some sort. How do you think about pharma sector M&A with Trumps cash repatriation rhetoric and conversely Hilary's loss?
Spec Pharma/Approved/Generics with the caveat that in some fields the M&A activity is naturally much earlier stage. The earliest I'll probably deal with is a Phase IIa.
Great questions about the med degree. It does make the science much more difficult to understand, but to be honest that isn't an essential part of the job. One can invest in pipelines without understanding too deeply about petroleum, same can be said for medicine. What's important is having enough of a statistics background to understand the trial results. In fact the M&A people I've met who were doctors often can get overly excited about some drugs because of the interesting science behind it and make bad deals. I've had to unwind a handful of legacy deals made on that basis.
To be honest I haven't formed an opinion. Obviously pharmas would love to bring back some of their cash. The prohibition on inversions was a big deal. Hillary's loss is a benefit to the sector because people viewed her as potentially instituting price controls or new regulations although I think that was just talk.
Thanks. I cover a similar area + dx and have begun to move into other areas of healthcare in my current position. I was genuinely curious how someone else without a med degree was making do without a science backing. Also was interested what corp dev guys were thinking based on the environment. Wish you the best and thanks for doing the AMA!
How will the likely repeal of Obamacare and possible future passing of ballot measures capping the price of pharmaceuticals (like California's Prop 61) affect your line of work?
Cali already got good pricing, so it would only have hurt them in some cases.
Price pressure is a big issue for the industry though. Dealing with managed care/PBMs is already one of the biggest pains and risks. Youd be amazing at the number of times they won't pay a little more for a drug that doesn't have irreversible side effects.
Finding ways to increased realized price is pretty much what has dominated industry growth and recent years and now led partially to its fall.
Thanks for the AMA! I have a few questions for you...
When you pursue in-licensing deals for commercial ready assets, what are the most important considerations in due diligence?
Same question as above - applied to a drug in phase 2 or 3
Can you talk about why a larger pharma company would sell the rights of an asset to a smaller pharma company? And what the key motivations are for both sides?
I appreciate the industry specific questions.
"Commercial Ready" can have a wide definition, so I'll assume you mean approved assets. In this case I'm looking at the competitive landscape. So:
From here I'll use this to build the model.
Also added to this model is the potential costs to complete the Phase III trial. Because these can be so large it's usually one of the assets I'll sensatise against sales.
Phase II has a similar modeling process, but far more of a focus on R&D risk. I'll also attempt to make long term estimations of what market pricing will look like at that point in the future.
It may not be core. Sales reps are pretty expensive and only get a few minutes with each doctor, so the more items you add to the bag the less attention some of them will get. This might mean they don't focus on some of the harder sells and they languish.
A company with a sole focus on that asset may be able to increase sales. Or another company with a sales force already in that area may be able to reach more doctors. If the math works out to better cash flows, or similar cash flows and a simplified business it makes sense to do so.
There are a couple reasons I don't want to go into details about, but in certain fields, like derm, smaller pharma cos face much less of a scrutiny on their marketing practices. So a $5M asset to a big guy can be a $20M asset to them because their doctor friends will write it.
A lot of large pharmas may have a huge number of approved assets that are just too small to care about to bother to manufacture anymore or promote anymore and it makes sense to divest them. Worth nothing but a headache to a big pharma because of all the required regulatory work for them to keep everything up to par, but a small guy will make a $1M a year business out of it.
Thanks for the detailed response, it is much appreciated. A few other questions if you don't mind..
Continuing from #1 - If you are a smaller pharma company pursuing an in-licensing strategy, are these worthwhile considerations? Or is this macro perspective too vague and it doesn't add much value?
I guess I'm just trying to understand what level of analysis provides the most value.
Again, really appreciate the insight. I look forward to your response.
It's also been more prevalent these days for larger pharma companies to want to off-load some of the R&D expense but retain upside in the case that they have a winner. This is usually done with upfront, development milestone payments, royalties, or a buy-back option on certain development-stage assets. Also, if a company wants to have a strategic shift to focus on a certain therapeutic area (e.g. Incyte focusing on oncology), they may not want to scrap assets that have demonstrated value in other areas like inflammation or fibrotic diseases.
Good addition, thanks.
We routinely do all of these things.
This is an area that I'm particularly interested in so thank you for doing this.
Pretty much every non acquisition. Even acquisitions are 50/50.
Would you believe me if I said neither are used for deals? Usually target companies will have very optimistic view of their future that doesn't align with our base case valuation. Since they place a much higher probability on hitting stretch milestones than we do, they are worth more to them than us. So it's purely negotiated to improve our risk profile or deal economics based on my judgement. Also the added benefit that future cash generated is used to pay milestones rather than cash coming from reserves is a big motivator.
We evaluate each risk on an independent basis with the experts within the company. The deal model is done separately from the risks. It then informs the deal structure if the risks are manageable. If they are not then we will not go through with the deal.
For instance if there is a high probability of R&D failure, I'll try to negotiate a minimal or no upfront and milestones occurring only after approval and first sale. In turn these milestones will be a large piece of the deal economics.
I'm not sure as we work with our in house teams. We have experts in every area. I use IMS mostly along with a few sources to get patent opinions.
Although common in the industry ours is not. At this point I've done a deal in pretty much ever TA.
If I didn't get into enough detail feel free to ask follow ups.
Interesting stuff. Thank you for the response.
In general, it looks like your team's approach is more ad hoc/tailored to the individual transaction and is based on professional judgment and/or experience with internal experts. It also looks like you have a lot of decision making power/discretion in your group. How long did it take you to get to that point, or did you have that level of responsibility from the start?
Thanks again.
pthrowaway, any suggestions of books, or other material, to read/study for someone who wants to learn more about some of the stuff you talk about above?
Unfortunately, no.
This was one of the hardest part of the jobs. I learnt finance just digging and digging through information until I really had it down. Nothing like that exists in Pharma. I've actually debated writing a textbook, but just can't find the time.
One of the best sources of information is actually the FDA. They do a good job explaining the processes along with the history and reasoning behind them.
The M&A/Deal side can really only be learnt first hand. If one thinks about ibanking though, its an apprenticeship model and this is no different. Most people I meet are ex bankers or ex consultants who worked in Healthcare. The very small pipeline of industry M&A people combined with this limited ability to quickly add new people leads to a lack of supply which is what makes valuable. I believe I should always have a job in the industry.
I was wondering if you could comment on how RBC's Healthcare group is perceived? Do you think it would be a competitive application if someone had RBC on there resume for the role you are currently in?
I have never worked with someone from RBC, in fact one of the few groups I haven't. I'm not sure if that alone says something.
With how few people there are in the industry though, anyone with the necessary experience is competitive.
Do you plan on getting an MBA at some point? Do you think they are necessary in finance today?
No.
I just don't see it as a good use of my time to forgo 400k in comp, 2 years of deal flow experience and 200k (of after tax money mind you). I'd only do so if the industry became unstable and I wanted to switch. I also already have a masters.
I may get a CFA if time permits, mostly for my own benefit.
If one works in general finance it makes a lot more sense as the networking is invaluable and those people will be your future clients. With Pharma the best networking is done at the deal table.
Thanks for the AMA. Very interested in speaking with other people in this area because, as you say, pharma is a very small world. A few questions:
1) What advice would you give yourself two years ago? I started not too long ago in an almost identical role. 2) How long do you plan to stay in this role? You mentioned a few offers you had on the table -- are these from other pharma/biotech companies? Back in finance? What career paths open up to you as a result of this role? 3) How much of your time do you spend on deal process (negotiations, logistics, coordinating DD efforts) vs. idea generation (conducting research, modeling, speaking with internal experts)? Is this an ideal mix of your time? How would this mix change as you continue in this role?
Mind if I ask what you do?
Hard to say. I think treat this job like an apprenticeship rather than an expecting to come in and have an in depth knowledge the way I did in finance. At the same time emphasizing how important it is to appear professional while not knowing. It's particularly important for senior leaders to trust your advice and it's very easy to ruin this early on. I got lucky.
I plan to stay indefinitely unless circumstances change or HR becomes unreasonable in comp increases. I've gotten offers that far exceed my current comp, but I really love my job. My offers have all been from other Pharma companies. A return to ibanking or consulting are certainly possible after this role as long as continuing to who in BD for pharma companies.
95% the first, 5% the latter. We are very understaffed for the amount of deals we do, so it leaves limited time to sit around and think of strategy unless a TA head actively engages me to assist. I imagine in my current role it will continue to stay this way indefinitely. At another company I'd expect it to probably be around 30%/70%.
Thanks for the response. Interesting to see how other pharma companies do it.
I also want to maintain anonymity but my role is very similar to yours but with much less time spent in logistics, similar to that 30%/70% split you mentioned.
PM me if you want to speak. Small world and wouldn't hurt to connect.
Update: as one of the exit ops available I switched into a new pharma role doing the same thing at a higher level at another earlier stage company.
Still happy to answer any questions sent my way.
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