Comments (26)

Oct 7, 2016

"healthcare" is a giant industry ... saying you work in healthcare is kind of like saying you work in finance. It's sufficient for outsiders, but ambiguous for people familiar with the space ...

I like to break healthcare into the following high-level sectors:

Facilities and providers
Medical equipment and devices
Bio-tech and pharma

you specifically mentioned bio-tech/pharma, so I ran a quick cap iq screen of closed transactions in this space over the past two years ... I will PM you the results

Best Response
Oct 7, 2016

couldn't figure out how to PM an attachment so i created a topic with the excel file:

http://www.wallstreetoasis.com/forums/re-bb-invest...

Oct 7, 2016

they don't really use any unique valuations methods that other groups wouldn't use. They do however use more tools in the toolkit as the healthcare sector is so diverse.

Probability weighted DCFs etc... your kidding. Nobody ever uses something that complicated. Please let me know if you've ever seen one at work.

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Oct 7, 2016
couchy:

Probability weighted DCFs etc... your kidding. Nobody ever uses something that complicated. Please let me know if you've ever seen one at work.

Please don't talk about things you're not familiar with. Probability-weighted DCFs are definitely used in healthcare banking...specifically for biotech companies.

Oct 7, 2016

more than different valuation techniques, i think the primary difference is that healthcare will use different operating metrics when looking at companies in the industry. So, for example, for a private hospital operator, they would look at

ALOS (avg length of stay), in-patient & out-patient volume, procedure volume, etc...among many others.

But that is just one example. Someone in Healthcare Investment Banking, feel free to tell me I'm wrong :-)

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Oct 7, 2016

as mentioned above, healthcare is an extremely diverse sector - the best way to figure out how to look at these industries is to find equity research if you can. I work for a large public PBM so I see deals range from specialty pharma to DME and other PBMs... and we haven't taken a similar approach to any two deals. take two specialty pharmacies for example, the therapeutic classes of each are obviously not going to be the same, some have preferred agreements with manufacturers, some may be more oncology focused, thus lower margins and some might be focused on slow growth, niche classes. that said, you obviously can't compare apples to apples across this industry. bottom line, there just isn't a standard for the industry.

on the banking side, you really wouldn't be digging too deep into the dcf, but getting an understanding of what the KPIs and drivers of each industry are is important. again, check out equity research for that. i've seen some weird models in my time but nothing to the extent of a probability weighted dcf/npv. i'm not sure that has been done in years, although i know it used to be very popular in biotech.

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Oct 7, 2016

Thanks a lot guys this is helpful.

Oct 7, 2016

Also - does anybody know which 'branches' of healthcare make attractive LBO prospects?
Have read about a few LBOs of care/nursing homes (i.e. Terrafirma buying Four Seasons in the UK).
and would it be enough at interviews to just touch on the fact that nursing/care homes in this context make decent candidates for LBO because they've got pretty stable cash flows - and then go down the demographic route (ageing population underpinning Revenue growth and FCF generation for debt paydown)?

Thanks a lot.

Oct 7, 2016

As with any prospective LBO target, the company would have to have large, predictable cash flows that could support the debt load placed on it by the financial sponsor. Additionally, many players in the health care industry have relatively inelastic demand for their product. As long as those companies have a relatively predicable cost base, they might be attractive as well.

With all the boomers set to retire, long term care/nursing homes seem like they might fit that bill. I have a friend that works in the industry and they are defintely setting their sights on some pretty significant growth.

Oct 7, 2016

Thanks cdnbanker. could you very briefly explain to me how this works in practice ie weights applied through different stages of clin. trials and how terminal value is dealt with i.e. (growing perpetuity/ or whether an exit multiple is applied).

Oct 7, 2016

If you need equity research reports and industry primers on this industry, I have a few.

The difference between successful people and others is largely a habit - a controlled habit of doing every task better, faster and more efficiently.

Oct 7, 2016
mhurricane:

If you need equity research reports and industry primers on this industry, I have a few.

That would be extremely helpful mhurricane. Pls could you pm me with them.
Much appreciated, thanks.

Oct 7, 2016

Biotech is ridonculous if you want quick and large gains, but you need a strong scientific background to distill the proof of concept behind novel compounds. There seems to be alot of guys in healthcare devices and services with business background tho.

Baby you're the perfect shape, baby you're the perfect weight. Treat me like my birthday, I want it this way and I want it that way. It makes a man feel good baby.

Oct 7, 2016
R0bin:

Biotech is ridonculous if you want quick and large gains, but you need a strong scientific background to distill the proof of concept behind novel compounds. There seems to be alot of guys in healthcare devices and services with business background tho.

Yeah, FDA/regulatory approval can make a stock jump 20+%. I've seen some go up 100%. Earlier this year, VRUS (Pharmasset) was acquired for an 85% premium by Gilead Sciences.

The difference between successful people and others is largely a habit - a controlled habit of doing every task better, faster and more efficiently.

Oct 7, 2016

what couchy said it wrong - i used weighted valuation for pharma clients that have drugs in the pipeline pending fda approval. no other way to value them accurately enough if the drug hasn't been commercialized yet. It is the most widely used valuation method in biotech.

Oct 7, 2016

I'm sorry. I take back what I said. I interned 3 summers at one of the big healthcare buyside shops and never saw probability weighted dcfs.

With that said, when I went through training, they actually did teach me probabilit weighted valuation and real options valuation. I just never saw one outside of training

But overall in practice we used multiples and LBO / VC method valuation, which is pretty standard across most pe firms.

Oct 7, 2016
couchy:

I'm sorry. I take back what I said. I interned 3 summers at one of the big healthcare buyside shops and never saw probability weighted dcfs.

With that said, when I went through training, they actually did teach me probabilit weighted valuation and real options valuation. I just never saw one outside of training

But overall in practice we used multiples and LBO / VC method valuation, which is pretty standard across most pe firms.

Well, if by buyside, you are referring to PE, that would make sense. Biotech companies don't exactly make great LBO candidates.

JuniorBanker2012:

Thanks cdnbanker. could you very briefly explain to me how this works in practice ie weights applied through different stages of clin. trials and how terminal value is dealt with i.e. (growing perpetuity/ or whether an exit multiple is applied).

At a very high level, you are right. Probabilities are assigned to each phase of clinical trials, and a cumulative probability of success is calculated and applied to the future cash flows.

In terms of terminal value, it depends. You would consider the same factors you should always consider when building a DCF: What is the most likely exit scenario? If you think the target will be acquired, an exit multiple makes more sense. If you think it will continue to operate as a standalone company, you would use a perpetuity growth rate with a negative growth rate (due to patent expiry). In some cases, you would not consider terminal value at all (if your DCF time horizon is long and covers the entire patent-protected period), since the TV would be negligible anyways.

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Oct 7, 2016
Oct 7, 2016

Probably have your own opinion on where you think the Healthcare/Biotech/BP space is going in the future: Renewed focus on R&D? M&A with a continued focus on inversions?

Probably have an opinion on the costs/benefits of inorganic vs. organic growth so you sound intelligent and that you can display to your interviewer that you have a genuine intellectual interest in the field.

Maybe a stock pitch, you never know.

More importantly, have your behaviorals down pat. Why you want to work at that specific firm, why banking, why healthcare, etc. Make sure you don't bore them with your story and make yourself sound interesting and more hardworking than other candidates.

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Oct 7, 2016

Thanks man, great advice. Silver Bananaed.

Oct 7, 2016
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Oct 7, 2016