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If you are considering selling your business this article will help you evaluate your company as a strategic acquirer might. From that perspective it pays to focus on ten critical areas of value creation. The better your performance in these areas, the greater the

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

selling price of your business. Below is our list of STRATEGIC VALUE DRIVERS:

1. CUSTOMER DIVERSITY – If too much business is concentrated in too few of your customers, it is a negative in the acquisition market. If none of your customers accounts for more than

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

Examples of combination products may in

5% of total sales, that is a real plus. If you find yourself with a customer concentration issue, start focusing on a program to diversify.

2. MANAGEMENT DEPTH –An acquirer will look at the quality of the management staff and employees as a major determinant in ac

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

quisition price. You should make the move of assigning your successor a year in advance of your scheduled departure date. If you have a strong management team in place, you should try to implement employment contracts, non-competes, and some form of phantom stock

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

or equity participation plan to keep these stars involved through the transition.

3. CONTRACTUALLY RECURRING REVENUE – All revenue dollars are not created equal. Revenue dollars from a contract for annual maintenance, annual licensing fees, a recurring retainer fe

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

Combination pro

e, technology license, etc. are much more powerful value drivers than projected sales revenue, time and materials revenue, or other non-recurring revenue streams.

4. PROPRIETARY PRODUCTS/TECHNOLOGY – This is the area where the valuation rules do not necessarily app

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

ly. If strategic acquirers believe that a new technology can be acquired and integrated with their superior distribution channel, they may value your company on a post acquisition performance basis. The marketplace rewards effective innovation and yawns at “me too

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

commodity type products or services. Continue to look for ways to innovate in all facets of your business. If you create a technology advantage in your company, think what that could mean to a much larger company.

5. PENETRATION OF BARRIERS TO ENTRY –In its simp

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

lest form, a large restaurant chain buys a small family owned restaurant to acquire a grand fathered liquor license. Owning hard to get permits, zoning, licenses, or regulatory approvals can be worth a great deal to the right buyer. The government market is extreme

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

ly difficult to penetrate. If your product or service applies and you can break through the barriers, you become a more attractive acquisition candidate.

6. EFFECTIVE USE OF PROFESSIONALS – Reviewed or audited financials by a reputable CPA firm cast a positive hal

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

o on your business while at the same time reduce the buyer’s perception of risk. A good outside attorney reduces the risk even more. A strong professional team is a great asset in growing your business and in helping you obtain maximum value when you exit.

7. PRO

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

Following aspects would a

CUCT/SALES PIPELINE – Smaller companies often are more agile and have better R&D efficiency than their high overhead big brothers. In technology, time to market is critical and big companies evaluate the build versus buy question. Small companies that develop new

dd to the challenges in developing combination products:

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

technology are faced with the decision of developing distribution internally or selling to a larger company with developed channels. A win/win scenario is to sell out at a price, in cash and stock at closing, that rewards the smaller company for what they have toda

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

y, plus an earn out component tied to product revenues with the new company.

8. PRODUCT DIVERSITY – A smaller company that has a quality portfolio of products but may lack distribution can become a valuable asset in the hands of the strategic buyer. A narrow produ

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

t set, however, increases risk and drives down value.

9. INDUSTRY EXPERTISE AND EXPOSURE – Encourage your staff to publish articles and to speak at industry events. Encourage local and industry reporters to use you as the voice of authority for industry issues. Y

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

our company is viewed in a more positive light, gets more business referrals, and an industry buyer will remember you favorably as an acquisition candidate.

10. WRITTEN GROWTH PLAN –Capture the opportunities available to your company in a two to five page written g

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

Professional from academic institutions, pharmaceutical industries, health care indust

rowth plan. What additional markets could we pursue? What additional products could we deliver to our same customers? What segments of our current market offer the most growth potential? Where are the best margins in our customer base and product set? Can we ex

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

pand in those areas? Can we repurpose our products for different markets? Can we license our intellectual property? What about strategic alliances or cross marketing agreements? Documenting these opportunities can add to the purchase price.

When it comes to unl

.

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

ocking the market value of your privately held company, it is not limited to the bottom line. Profitability is hugely important, but the factors above can result in significant premiums over traditional valuation approaches. When you sell Microsoft stock, there is

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

Companies that provide selfless information through particip

no room for interpretation about the market price. The market for privately held businesses is imprecise and illiquid. There is plenty of room for interpretation and the result for the best interpretation by the marketplace is a big pay off when you decide to sell

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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