GlobaPharm

Client goal

Our client is GlobaPharm, a major pharmaceutical company (pharmaco) with $10 billion a year in revenue. Its corporate headquarters and primary research and development (R&D) centers are in Germany, with regional sales offices worldwide.

Description of situation

GlobaPharm has a long, successful tradition in researching, developing, and selling “small molecule” drugs. This class of drugs represents the vast majority of drugs today, including aspirin and most blood-pressure or cholesterol medications. GlobaPharm is interested in entering a new, rapidly growing segment of drugs called “biologicals.” These are often proteins or other large, complex molecules that can treat conditions not addressable by traditional drugs.

R&D for biologicals is vastly different from small-molecule R&D. To gain these capabilities, pharmacos have three options: they can build them from scratch, partner with existing start-ups, or acquire the start-ups. Since its competitors are already several years ahead of GlobaPharm, GlobaPharm wants to jumpstart its biologicals program by acquiring BioFuture, a leading biologicals start-up based in the San Francisco area. BioFuture was founded 12 years ago by several prominent scientists and now employs 200 people. It is publicly traded and at its current share price the company is worth about $1 billion in total.

McKinsey study

GlobaPharm has engaged McKinsey to evaluate the BioFuture acquisition and to advise on its strategic fit with GlobaPharm's biologicals strategy. Our overall question today, therefore, is “Should GlobaPharm acquire BioFuture?”

Helpful hints

• Write down important information.
• Feel free to ask the interviewer for an explanation of any point that is not clear to you.
• Remember that calculators are not allowed - you may write out your calculations on paper during the interviews.

What factors should the team consider when evaluating whether GlobaPharm should acquire BioFuture?

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• Take time to organize your thoughts before answering. This tells the interviewer that you think about the problem in a logical way.
• Develop overall approach before diving into details.

The team wants to explore BioFuture’s current drug pipeline. The team decides to focus first on evaluating the value of BioFuture’s current drug portfolio. What issues should the team consider when evaluating the value of BioFuture’s existing drug pipeline?

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• Be sure to mention a range of potential issues to explore instead of immediately diving very deep into one issue. Then ask your interviewer if he or she wants to go deeper on any of them specifically

Below is a description of expected probability of success, by stage, in the Pharma R&D pipeline.

Note: “Filing” is the process of submitting all of the clinical and safety evidence from Phase I, II, and III trials, and asking for regulatory approval to actually sell the drug.

GlobaPharm believes that the likelihood of success of BioFuture’s primary drug candidate can be improved by investing an additional $150 million in a larger Phase II trial. The hope is that this investment would raise the success rate in Phase II, meaning that more candidate drugs successfully make it to Phase III and beyond. By how much would the Phase II success rate need to increase in order for this investment to break even?

The interviewer would tell you to assume that if the drug is successfully marketed and sold, it would be worth $1.2 billion (that is, the present value of all future profits from selling the drug is $1.2 billion).

Helpful hints

• Ask for clarification of information if necessary.
• Take notes of the numbers.
• Take time to plan out how to approach the calculation.
• Describe your approach and talk the interviewer through your calculation.

Next, the team explores the potential setup with BioFuture after the acquisition. Although BioFuture's existing drug pipeline is relatively limited, GlobaPharm is highly interested in its ability to serve as a biological research “engine” that, when combined with GlobaPharm's existing R&D assets, will produce many candidate drugs over the next 10 years.

What are your hypotheses on the major risks of integrating the R&D functions of BioFuture and GlobaPharm?