Upcoming IB Healthcare Analyst Intern Interview @ Guggenheim
Good morning, everyone,
I have an upcoming interview at Guggenheim Securities in London for the position of IBD Analyst Healthcare Intern.
To better prepare, I was wondering if there are any aspects of the Healthcare IB division that are particularly distinct from other divisions. Specifically, how do these differences impact fundamental concepts like valuation or other aspects of M&A?
Thank you in advance for your response and support.
Way I think about Healthcare added below. Have added specific valuation metrics and some thoughts. Apologies, bit of a brain dump.
Healthcare Services (truthfully loads of different things like labs, diagnostics, clinics, hopsitals, social care, vets, dentists all rolled into here). EV / EBITDA mainly but bear in mind they care a lot more about IFRS16 given the real estate footprint often sizeable.
MedTech (see this as like the clinical technologies like surgical tools rather than software below). Nothing fancy on multiples usually. From an accounting perspective sometimes see some R&D capitalisation which needs reflecting in EBITDA multiples to make like for like.
HealthTech / Health Software. Typical software valuation and metrics like ARR / churn. Often EV / Rev here, sometimes also doing some funk stuff with capitalised R&D.
Pharma. Can be split out into like specialty pharma, generics, consumer health. Usually vanilla EV / EBITDA, capitalised R&D shenanigans more common in specialty but is present in the others too.
Biotech. Some quite unique methods here, SOTP with DCF for each clinical asset can be quite common. EV / Peak Sales multiples are often used given sometimes these companies barely have any revenues
Asset-Light Pharma Services. Things like outsourced clinical services in here, usually EV / EBITDA. Subverticals include CROs, CCOs, pharmacovigilance.
Asset-Heavy Pharma Services. More of the outsourced manufacturing services for pharma so think industrials. EV / EBITDA key, EV / EBITDA-CAPEX also relevant.
The above is not exhaustive but hopefully helpful to get you on the right valuation framework. There are so many nuances across these that it's quite hard to summarise but I think at the intern level just having an understanding of these differences is probably enough. FWIW, IMHO, the reason why Healthcare is such a good one to start in is you get a lot of basic valuation exposure (classic EV / EBITDA style, LBOs, DCFs) plus exposure to quite a few creative concepts and loads of different subverticals that touch on many other sectors. For example, HC Services can overlap with Real Estate, AH Pharma Services overlaps with industrials as above software also relevant plus the consumer health angle. It's a really broad space and a solid learning curve.
Great response. How would you go about building a DCF for a biotech company and a specialty pharma company? Could you please go deep into the probability weighted DCF methods applied in practice for biotech and why this would be less common for specialty pharma (apart from the fact there's a trend to simply buy the promising drugs from developers). Would really appreciate some insights on this!
For the biotech (let's say it has three products at various stages). You probably do a full incidence / prevalence build to get to price-volume for all three products to give company revenues. Assuming they are similar-ish products (same commercial ramp-up profile) you could just use the same CoGs assumptions for them all. Then build out a simple opex structure for the remaining fixed central costs for the business. You in theory could go super detailed and build out commercial reps numbers for each product and associated costs if they have different commercial ramp-up profiles, but honestly I find that part tough / really time consuming to quantify and usually not worth my time. Tax at a simple corporate rate and maybe build a NOL schedule, then just run some simple D&A / capex / NWC / assumptions. WACC would usually be super high for this and I would normally just run the DCF for the life of the products until patent loss with no TV.
For a spec pharma company it depends a bit on the portfolio and the nature of the business. Lets say it is a typical spec pharma company, two big commercial products with a bunch of tail commercial products and one pipeline product that is material to the scale of the business. Would probably run price-vol on the two commercial products individually and then price-vol on the tail products portfolio as a whole. For the combined commercial product portfolio take fixed GM% and run a simple build for opex. On top of this do a biotech-style revenue / CoGs / opex build on the pipeline product. The would do simple D&A / capex / NWC assumptions across both (sometimes to simplify you can just allocate the whole thing to the commercial part of the business. Probably simple tax assumptions here with no NOL schedule if the company has been performing fine commercially. Use like 10% WACC on the commercial part of the business, 5-7 year timeframe and a TV then add the biotech-style valuation of the pipeline product on top (long-term, high WACC, no TV).
Am obviously massively simplifying the above but I am thinking through these from a banker / private markets perspective. The public markets builds can get crazy complicated and I am not an expert there, but the above should work for a pitch / initial IC memo valuation. In both instances I haven't mentioned cap R&D but it is applicable to both. For the spec pharma company, if the pipeline product(s) are pretty small / immaterial I would honestly just roll them into a combined "pipeline / other revenue" line and run price-vol on it in the P&L rather than do a whole separate SOTP build for them.
Edit: Posted and realised that I hadn't addressed your probability weighted point which should be in the SOTP for the biotech and the pipeline component of the spec pharma company (there is a ~standard percentage you can use depending on asset phase although it needs a bit of supporting work to justify given sensitivity). It's not needed typically for the commercial part of the spec pharma company because it just a "normal" business that is already making money. Once a clinical asset is filed or begins to be marketed then the probability of success gets pretty close or equal to 100%. Finally, I didn't explicitly mention this but is implied in the incidence / prevalence build. This may not be on an individual country and indication basis depending on the materiality of the product financially and the nature of the indications / target markets relative to each other.
Thank your Sir for such an elaborate response. It will help me prepare for the interview. Thank you very much.
hi, how did it go
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