Valuation Analysis in Pharmaceutical

Licensing and M&A Transactions

A Tutorial

By Tim Opler, Benj Garrett and Susan Langer

January 2014
 AGENDA
Agenda

• Discuss role of valuation and project assessment

• Introduce valuation tools

• Show how to use the tools in business development

• Go over a variety of cases

2 I
 Table of Contents

1. Value Creation and Business Development

2. Valuation of Pharmaceutical Projects
3. Revenue Forecasting
4. Cost Estimation
5. Risk Estimation
6. The Discount Rate
7. Valuation Considerations in Licensing
8. Valuation Considerations in M&A

3 I
VALUE CREATION AND BUSINESS DEVELOPMENT
 VALUE IS CREATED BY INVESTMENT FOR FUTURE PROFIT
Typical Value Creating Profile

Revenues and Costs Over Time ($ millions)

350
300
250
200
150
100
50
0
-50 1 2 3 4 5 6 7 8 9 10 11 12 13
-100
Acquisition Cost R&D Launch Cost
Selling Cost Other Cost Revenue

5 I
 PROCESS
Value Creation Process

Realizing
Delivering the value
on the
Negotiating potential of
deals for the projects
Assessing the projects
the in the face
projects of
competition
Finding
projects
that fit

Assessment and negotiation calls for strong valuation and analysis

work. This is our focus today.
6 I
 HOW FINANCIAL ANALYSIS FITS INTO STRATEGY
Where Financial Analysis Fits into Business Development Strategy

Evaluation Criteria

Ability to Execute / Fit with Future Perception of Wall

Financial Analysis
Risks Strategy Street / Shareholders?
• What is the time • How achievable are • How does each • Is Wall Street likely to
horizon to peak the returns and how product fit with our invest in a company
revenues for each significant are the long-term vision? pursuing these
product? risks? • Are there other products?
• What will sales and • Do we have the products in the • How has Wall Street
marketing costs be? competencies to pipeline to realize our responded to other
• What are the total succeed? goals? companies that have
cash requirements? • Can we control the • What is the adopted this
• What is the value of key success factors? opportunity cost of strategy?
each product pursuing these
opportunity? initiatives?

7 I
 Example: Licensing Process at Bristol-Myers Squibb

Technical
Due
Diligence
Detailed
Technical
Evaluation
Identify Initial Commercial Final
the Technical Due Approval
Opportunity Evaluation Diligence
Detailed
Commercial
Evaluation
Contract
Negotiations

Source: Talk by BMS: “The Role of Licensing / Business Development in the Pharma Industry”, 2004.

8 I
 BRISTOL-MYERS SQUIBB VALUATION PROCESS
Bristol-Myers Squibb Deal Valuation Process

Product Profile / Pricing / Competition

Sales Forecast

P&L Assumption (COGS, S&M, R&D)

Deal Terms

Manufacturing / Tax Considerations

PTRS

Risk Adjusted NPVs & IRRs

9 I
 PROJECT RANKING
Bristol-Myers Squibb Ranking of Potential Licensing Deals
Illustrative Table by Kazuo Edaza of BMS
Assets Assets
Opportunity ID PTRS ENPV EIRR Opportunity ID PTRS ENPV EIRR
1 92% 370 535% 25 6% 3 29%
2 78% 120 345% 26 48% 411 29%
3 20% 250 318% 27 25% 129 27%
4 80% 182 301% 28 10% 71 27%
5 74% 80 230% 29 82% 837 26%
6 58% 80 230% 30 63% 288 26%
7 30% 250 210% 31 40% 12 26%
8 85% 80 90% 32 14% 116 24%
9 27% 90 83% 33 21% 137 24%
10 53% 18 83% 34 21% 132 24%
11 81% 23 76% 35 43% 183 24%
12 26% 214 59% 36 14% 80 23%
13 59% 582 58% 37 35% 151 22%
14 72% 87 54% 38 45% 12 20%
15 62% 1,400 48% 39 35% 8 19%
16 36% 77 42% 40 46% 230 19%
17 40% 27 41% 41 19% 28 19%
18 24% 371 40% 42 60% 3 19%
19 26% 102 40% 43 42% 123 19%
20 89% 1,538 35% 44 8% 15 18%
21 55% 633 34% 45 31% 52 18%
22 7% 100 33% 46 7% 22 17%
23 24% 152 31% 47 18% 7 15%
24 64% 272 30% 48 38% 6 13%

PTRS = probability of technical and regulatory success

eNPV = expected NPV
eIRR = risk-adjusted internal rate of return
10 I Source: Talk by Kazuo Ezawa, Bristol-Myers Squibb, “Pharmaceutical Portfolio Management”, DAAG, February 2004.
 TODAY’S DISCUSSION
Our Approach
 The approach that we will discuss today is very similar to that
used by Bristol-Myers Squibb.

 In fact, almost every large pharmaceutical company uses the

same approach to deal valuation.

 Consulting firms like BCG, Campbell Alliance, LEK, Mattson Jack

and McKinsey have standardized the industry in this way.

 A key area of emphasis from us is to keep an eye on risk-adjusted

returns in transactions.

 There are numerous fine points and ways in which firms differ in
approach.

 We will discuss many of these but the key focus will be on the
“hands on” – how to approach to valuation.

11 I
 VALUE IS CREATED BY INVESTMENT FOR FUTURE PROFIT
General View: Go Big and Go for IRR / ROI to Create Value

Examples in Specialty Pharma

ROI
Allergan – Botox
(IRR) Biovail – Wellbutrin XL
Small Project Big Project Cephalon - Provigil
ENDO – lidoderm patch
Big Payoff Big Payoff Forest – Lexapro
Gilead - Truvada
King – Altace
(The zone of shareholder bliss) Reliant - Lovaza
Salix – Rifaximin
Viropharma - Vancomycin

Small Project Big Project

Low Payoff Low Payoff

Scale of
Project

The key to creating lasting value is to bet big and win.

12 I
 TODAY’S DISCUSSION
Some Key Differences Across Pharmaceutical Firms - Method

Big Pharma Sometimes employ real options tools in project assessment.

A, B, C The idea is to look at a drug development project as a
sequence of choices or options. The most important insight
is the “option to abandon” a project is valuable. A further
insight involves the value of the option to expand
indications.

Biotech A Focuses largely on “pie splitting” – the sharing of the rNPV of

a project. Other inputs like IRR are not looked at all. Have
historically used higher discount rates for risky projects but
without risk-adjustment.

13 I
 TODAY’S DISCUSSION
Differences Across Firms - Process
Big Pharma An organization called that carries out financial analysis of licensing and
D M&A projects. They have prepared an internal manual on how to value
every aspect of a project which standardizes their approach. Tends to do
careful valuation work with reasonable discount rates. Always have at
least three scenarios. Organization tends to be intelligent but financially
conservative in looking at opportunities. Will occasionally look at real
options and offer option deals to biotechs.

Has created a management science group that engages in sophisticated

Big Pharma predictive modeling of pharma product performance. Their view is that
E good forecasts are the most important and most difficult aspect of
pharma licensing. This group has been driving real options work but
hard for organization to grasp.

The focus is much more on simplicity, insight and medical soundness

Big Pharma than say Big Pharma E. Every projects gets summarized on two pages
F (and not more ever) for either the head of commercial or the head of
R&D. Once there is a preliminary approval an AIF (autorissation
investiment financiere) is prepared (30 to 50 pages). This document
does not skimp on commercial analysis but uses basic rNPV models.
14 I
VALUATION OF PHARMACEUTICAL PROJECTS
 NET PRESENT VALUE
Q: Suppose we can invest $50 today & receive $60
later today. What is our increase in value?

A: Profit = - $50 + $60

= $10 $10
Added Value

$50 Initial Investment

16 I
 NET PRESENT VALUE
Q: Now suppose we can invest $50 today and receive
$60 in one year. What is our increase in value given
a 10% expected return?

This is the definition of NPV

60
Profit = -50 +  $4.55
1.10

$4.55 Added Value

The idea of an expected rate of return or
$50 Initial Investment
discount rate reflect the time value of
money, otherwise known as the underlying
cost of capital in society.

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 NET PRESENT VALUE
NPV = PV - required investment

Ct
NPV C  For two

0 (1 r)t
periods

With multiple periods

C1 C2 Ct
NPV  C0    ... 
(1  r ) (1  r )
1 2
(1  r ) t

N Where N=Number of years

Ct
NPV  
t = year
or C = cash flow

t 1 (1  r )
t r = discount rate
Sigma = Summation Symbol

18 I
 Net Present Value Rule

If the net present value of a project is positive

then it creates value and should be carried out.

If resources are finite and there are more

positive NPV projects than time, money or
other constraints would allow then the group
of projects that maximize NPV should be
implemented.

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 Risk Adjusted NPV

Pharmaceutical cash flows are risky and the

risk can be characterized based upon stage of
development.

Risk-Adjusted NPV or rNPV is a risk weighted

NPV and should be used in assessing risky
project.

20 I
 Elements of Risk Adjusted NPV Model

INPUTS TO RNPV MODEL

Other Cash Net Cash
Revenues - Costs - Outflows
= Flow

Total Market COGS Capital

Prescriptions + Expenditures
Written Research and +
X Development Change in
Penetration of Expense Working Capital
Product + -
= Selling Costs Cash Taxes
Units Sold +
X G&A / Other
Price Costs
=
+
Revenue
Acquisition Costs

Risk Adjustment at Each Stage rNPV

21 I
 The rNPV Formula

RNPV FORMULA
N Where N=Number of years
R1Ct
rNPV  
t = year
t=1 (now)
C = cash flow

t 1 (1  r )
t R1 = Probability of cash flow now
r = discount rate
Sigma = Summation Symbol

22 I
 IRR ANALYSIS
rIRR

The risk-adjusted IRR is the discount rate that would give an rNPV equal to zero.

In other words, it is the expected rate of return on a project.

We refer to the rIRR as the risk-adjusted IRR.

23 I
 An Example Trade-Off

APPLICATION OF IRR TO LOOK AT TRADE-OFFS

Both of the choices shown at left involve
Issue Partner bringing cash today by causing current
Equity vs. Drug equityholders to give up future cash flow
(either by sharing the cash flow through
issuance of more equity) or instead by giving
away product cash flows to a partner.

There is an embedded opportunity cost

which is computed in the rate of return
given up in future cash flows for cash today.
This is the internal rate of return or IRR.
When derived from a probabilized model we
refer to this as a rIRR (risk-adjusted IRR).


Cash Received by Licensor t  
Cash Flow Given Up to Licensee t
t 1 (1  r )t

The internal rate of return is the discount rate that is

impounded in the equation comparing cash received
to cash flow given up.
24 I
 ENT
TREATM
TING
ACCOUN
Accounting Considerations – EPS Impact
 How will the expense be amortized?
– Straight-line amortization
• Negative EPS impact in later years due to smaller profit share
payments
• Acquisition price set standard treatment
– Amortize based on profit share payments
• EPS accretive each year
• What happens if we don’t achieve projections? Write-down
– Amortize in full each until asset is gone, then recognize full benefit
• Most conservative approach
• Not EPS accretive in the beginning years
 Many pharma companies are highly focused on EPS management
• Will prefer to use investment dollars over R&D dollars whenever
possible
• Will prefer to push out spending into the future
25 I
 EPS
Example of EPS Impact in a Transaction to Restructure an Alliance

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$0.02 $0.03 $0.05 $0.06 $0.07 $0.08 $0.04 $0.04 $0.01 $0.01 $0.01

Assumptions
Discount Rate: 10%
Amortization: Based on projected profit share payments
Tax rate: ~35%

26 I
 ENT
TREATM
TING
ACCOUN
Building an rNPV Analysis of a Project

Tax and
Revenue Cost Cash Flow Discount Rate rNPV
Working Risk
Forecasting Assumptions Estimates Selection Computation
Capital

27 I
REVENUE FORECASTING
 THREE WIDELY USED METHODS FOR REVENUE FORECASTS
Approaches to Developing Market Sizes

Estimating Product Revenue Trajectory

Analyst
Bottom Up Looking at
Reports and
Market Similar
Research
Analysis Products
Reports

We believe the best approach is to have a good bottom up model and

check the thinking by looking at external reports and similar product
revenues.

29 I
 VENDORS ARE OFTEN USED FOR MARKET ANALYSIS
Commonly Used Research Vendors

Market / Valuation
Full Service Analysis / Consulting / Support
Analysis

30 I
 Going from Market Size to Revenue Estimates (Bottom Up)

BUILDING A BOTTOM’S UP REVENUE FORECAST

Total Population, Population in Target Markets Use 10 year planning
horizon: 2012-2022.
Potential Assume 2012 launch
Market Size
Incidence/Prevalence

% Diagnosed
Addressable It is very
Market Size common to
% Treated for Disease build several
scenarios
(good, poor,
expected)
% Prescription of Drug

Price per Day of Drug
Actual Ave Days Used
Penetration, Pricing
Studies, Competitive
Analysis, Compliance
Analysis, Reimbursement
Analysis and Utilization
Patterns

Revenue Estimates over the

Planning Horizon
31 I
 EXAMPLE: NOVEL HYPERTENSION DRUG
Global Burden of Hypertension, Millions of Persons with Hypertension U.S. Patients are Not Controlled with ACE’s, ARBs and Beta Blockers

2000 2025 Trends in awareness, treatment, and control of high

800 blood pressure in adults ages 18–74
700 National Health and Nutrition Examination Survey
600 Percent
500 1976–80 1988–91 1991–94 1999–2000
400
Awareness 51 73 68 70
300
200
Treatment 31 55 54 59
100
0 Control 10 29 27 34
Developed China India Other
Market Economies
Economies Source: JNC 7
Source: Kearney et.al., Lancet, 2005, 365: 217-223

Many Patients Poorly Controlled with Existing Treatments Thin Pipeline of New Treatments

ALLHAT Study: Distribution of Patients by SBP Before The only major recent innovation in
and After Treatment with HCTs, CCBs and ACEi’s anti-hypertensive therapy on the
40 horizon is the direct renin inhibitor
Baseline 36 Months class (e.g., aliskiren/Tekturn) from
30 Novartis.
Direct Renin
Inhibitors
20 ACEs, ARBs

10

Diuretics, Beta Renin inhibitors are not more

0 effective than ACEs and ARBs and
blockers,
<100 100- 110- 120- 130- 140- 150- 160- 170- 180+ Calcium Channel
109 119 129 139 149 159 169 179
may be unsafe.*
Blockers
SBP (mm hg)

Source: Cushman, et al. J Clin Hypertens 2002, 4:393. *Source: Sealey and Laragh,
American Journal of
32 I Hypertension, May 2007
 DIFFERENTIATION OPPORTUNITY
Taking Share by Differentiation Rationale for a Synergistic Effect with Current Treatments

There are four important ways in which the novel  The Novel drug is a vasodilator that operates
drug can take share in the hypertension independently of the RAAS cascade and is likely
market: to be synergistic with RAAS inhibitors.
1. Better efficacy and/or safety than current  It is likely that a many uncontrolled
treatments hypertensive persons would be controlled with
2. Synergistic with existing treatments (e.g., the novel drug given its mechanism.
consider a triple ARB, HCT, novel combo)  Likely to be synergistic in salt-sensitive
3. Better outcomes in certain patient subgroups hypertension
4. Better marketing in the face of generics • The drug appears more effective than
Opportunity for Segmentation / Differentiation by Patient Subgroups other meds in animals that are salt
sensitive.
• Salt sensitive patients are some of the
Better outcomes
in nonresponders poorest responders to existing
to existing anti-
Better outcomes
hypertensives medications.
Better outcomes
in patients on
Cox-2’s and
NSAIDs
in salt sensitive
hypertensives
 Likely to be synergistic in obese patients
• The drug appears to be effective in the
presence of obesity.
Better outcomes
in patients at risk
Novel Anti- Better outcomes
in patients with
• Obese patients are some of the poorest
of nephropathy
hypertensive inflammation responders to existing medications.

Better outcomes
Better outcomes
by genetic
in obese patients
biomarker
Better outcomes
in cardiac
patients

33 I
 LARGE REVENUE FOR NOVEL HYPERTENSION DRUG
Revenue Forecast for Novel Hypertension Drug
Key Assumptions
Daily Cost of Therapy $4
ROW as % of US Market 80.0%

2010 2012 2014 2015 2016 2018 2019 2023 2028 2031

Hypertension - US
Begin Year Patient No. 80,000,000 84,872,000 90,040,705 92,741,926 95,524,184 101,341,607 104,381,855 117,482,697 136,194,645 148,823,566
Growth in Patients 3% 3% 3% 3% 3% 3% 3% 3% 3%

Diagnosis Rate 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0%
Treatment Rate 70.0% 70.0% 70.0% 70.0% 70.0% 70.0% 70.0% 70.0% 70.0% 70.0%
# of Patients Treated 28,000,000 29,705,200 31,514,247 32,459,674 33,433,464 35,469,562 36,533,649 41,118,944 47,668,126 52,088,248
Compliance Rate 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0%

Penetration Rate 0.0% 0.0% 0.0% 0.0% 0.0% 6.0% 8.0% 12.0% 12.0% 12.0%

Patients on drug 0 0 0 0 0 2,128,174 2,922,692 4,934,273 5,720,175 6,250,590

Average Days of Therapy 250 250 250 250 250 250 250 250 250 250
Cost Per Day 0 0$ 4.00 $ 4.20 $ 4.41 $ 4.86 $ 5.11 $ 6.21 $ 7.92 $ 8.73
Cost per Day * Days of Therapy 0 0 1,000 1,050 1,103 1,216 1,276 1,551 1,980 2,183
Total Revenues $0.0 $0.0 $0.0 $0.0 $0.0 $ 2,586.81 $ 3,730.18 $ 7,654.68 $ 11,325.56 $ 13,644.25
Probabil. Adj Revenues 5.0% 0.0 0.0 0.0 0.0 0.0 129.3 186.5 382.7 566.3 682.2

Hypertension - ROW
Begin Year Patient No. 64,000,000 67,897,600 72,032,564 74,193,541 76,419,347 81,073,285 83,505,484 93,986,158 108,955,716 119,058,853
Growth in Patients 3% 3% 3% 3% 3% 3% 3% 3% 3%

Diagnosis Rate 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0%
Treatment Rate 70.0% 70.0% 70.0% 70.0% 70.0% 70.0% 70.0% 70.0% 70.0% 70.0%
# of Patients Treated 22,400,000 23,764,160 25,211,397 25,967,739 26,746,771 28,375,650 29,226,919 32,895,155 38,134,501 41,670,598
Compliance Rate 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0%

Penetration Rate 0.0% 0.0% 0.0% 0.0% 0.0% 6.0% 8.0% 12.0% 12.0% 12.0%

Patients on drug 0 0 0 0 0 1,702,539 2,338,154 3,947,419 4,576,140 5,000,472

Average Days of Therapy 250 250 250 250 250 250 250 250 250 250
Cost Per Day 0 0$ 4.00 $ 4.20 $ 4.41 $ 4.86 $ 5.11 $ 6.21 $ 7.92 $ 8.73
Cost per Day * Days of Therapy 0 0 1,000 1,050 1,103 1,216 1,276 1,551 1,980 2,183
Total Revenues $0.0 $0.0 $ - $ - $ - $ 2,069.45 $ 2,984.14 $ 6,123.74 $ 9,060.44 $ 10,915.40
Probabil. Adj Revenues 5.0% 0.0 0.0 $ - $ - $ - $ 103.47 $ 149.21 $ 306.19 $ 453.02 $ 545.77

Total Worldwide Revenue $ - $ - $ - $ - $ - $ 4,656 $ 6,714 $ 13,778 $ 20,386 $ 24,560

34 I

Defining the Market
Estimate Incidence and
Prevalence
• Prevalence:
• Total number of potential
customers at any one point in
time
• Best for products purchased
by same customer on a
recurring basis (chronic Rx)
• Incidence:
• Number of new potential
customers each year
• Best for products treating
onetime acute event (heart
attack)
35 I
ENT
TREATM
TING
ACCOUN
Identify Segments Change Over Time
• All potential customers are not • Customer base and
alike segmentation are influenced
• Segmentation helps refine by factors that change over
penetration and share time
forecasts • Growth driver analysis provides
• It also allows you to refine insight into changing and/or
estimates and focus efforts by emerging markets
identifying “early adopters”
• Example in RA
• Severely affected patients
(25% of the market)
• Moderately affected
• Mildly affected
 IMPORTANCE OF MARKET PENETRATION SCENARIOS
Building Penetration Scenarios
Penetration is usually the main driver of revenue forecasts. There are a few
different means to estimate the peak penetration that a new product can be
expected to achieve:
1. Historical penetration of comparable products
2. Objective comparisons versus currently available treatments (efficacy, safety,
convenience)
3. Physician interviews to gauge acceptance and potential use versus competing
treatments (preference share analysis)
4. Analysis of likely reimbursement and factors related to achieving reimbursement
from key payor groups
5. Mapping of commercial effort into physician prescribing behavior (companies
often use IMS analysis)
6. Almost all “bottoms up” approaches to penetration analysis tend to overestimate
penetration in practice. Preference analysis tends to do a poor job of predicting
actual prescribing behavior in the face of detailing and sampling
7. Comparison versus pipeline products and relative timing to market

Can then build low, expected and high penetration scenarios

36 I (important to understand limitation of forecasts in practice)
 IT IS POSSIBLE TO TAKE AN EVIDENCE-BASED APPROACH
Research Methods for Market and Penetration Analysis
Primary Market Research Historical Analysis of Impact of
(Structured Interviews) Order of Entry
Expected Product Market Share By Order of Entry
Physicians by
Total
P&T
Segment
Products
1st 2nd 3rd 4th 5th 6th
Committees
on Market

1 100
Payor
Research
2 58 42
3 43 31 26
4 35 26 21 18
Estimates of usage and
dependence on pricing 5 30 22 18 16
6 26 19 16 14 13 12
By Disease State
By Physician
(e.g., first line,
Segment Research Sources:
second line)
G. Kalyanaram,”The order of entry effect in prescription (Rx) and over-the-
counter (OTC) pharmaceutical drugs,” International Journal of
Pharmaceutical and Healthcare Marketing, 2008, pp. 35-46.

Build demand curve, make pricing Hans Bauer and Marc Fischer, “Product life cycle patterns for
pharmaceuticals and their impact on R&D profitability of late mover
estimates products,” International Business Review, 2000, 703-725.

37 I
 Penetration Analysis Should Understand Prescriber Concentration, Sales

COMMERCIAL ANALYSIS AND PENETRATION

Force Design, Prescribing Behavior and Reimbursement Positioning

Leads to suggested sales force sizing

Ne
Es me
Li
Co s
ve

M
w
Pl

tim rci
m

G
et

Av
an

Pr

Ja

lip
a t al

fo
od

an
nu
Ty

iz
ed

rm

id

d
uc
and territory coverage with a managed

v
pe
Target Payers*

in

ia
ia

e
t
WellPoint/Anthem National 24,900,000 T3 T2 T2 T3 T3
Aetna/US Healthcare National 12,020,000 T3 T2 T2 T3 T3
care strategy in light of a launch United Healthcare
Prime Therapeutics
National
Internal PBM
10,960,000
9,000,000
T3
T3
T2
F
T2
NF
T2
NF
T2
NF

budget. This facilitates building a Cigna

Kaiser
National
Regional
8,990,000
7,290,000
T3
NF
T2
NF
T3
NF
T3
NF
T2
F
RxSol / PacifiCare Internal PBM 3,340,000 T3 T2 T2 T2 T2
penetration forecast that is market Coventry
HealthNet
Regional
Regional
2,730,000
2,520,000
T3
T3
T3
T2
T3
T3
T2
T3
T2
T2

based. Typically such forecasts are Humana

Caremark
National
PBM
2,290,000
69,000,000
T3
T3
T2
T2
T3
NF
T3
NF
T3
NF
ExpressScripts PBM 49,000,000 T3 T2 T3 T3 T3
much lower than those derived from Medco
PharmaCare
PBM
PBM
49,000,000
6,000,000
T3
T3
T2
T2
T3
NF
T3
NF
T3
NF

physician preference share analysis. MemberHealth Rx

Anthem
PBM
PBM
5,000,000
3,300,000
T3
T3
T3
T2
T2
T3
T2
T3
T2
T3
NMHCRx PBM 8,900,000 T3 T2 T2 T2 T2
Coventry PBM 1,200,000 T3 T3 T3 T2 T2
PBM 275,440,000

38 I
 Historical Ramp Speed Analysis
Bauer and Fischer (2000) show that Early Movers Ramp Slowly

Source: H.H. Bauer, M. Fischer, International Business Review 9, 2000, pp 703–725

39 I
COST ESTIMATION
 ENT
TREATM
TING
ACCOUN
Estimating Costs
Research Costs / Clinical Development Costs
• Identify remaining steps to IND (Toxicology, PK, etc.)
• Estimate cost of remaining steps
• Evaluate anticipated time and numbers of patients per phase
• Examine patient enrollment issues, treatment length and cost, ease of
establishing endpoints, long-term safety, regulatory complexity, etc.

COGS
• Look at COGS estimates on comparable products
• Use expected dosing and treatment length to generate unit sales. Estimate COGS
at that sales volume
• Important to be aware of fixed / variable elements of COGS
• Review status and current data on scale-up issues

Sales and Marketing Costs

• Examine concentration of customer base: hospital or office based physicians, etc.
• Use IMS sales force sizing / penetration studies.
• Evaluate potential market issues: requirements for physician training and
education, patient education, direction to consumer marketing, etc.

41 I
 Estimating Costs
Pre-Clinical Costs Clinical Development Costs

From lead to IND: $5 to Number of Patients in Trials

$15mm

From target to lead: $5mm to Complexity and Length of

$50mm Protocol

Pre-Clinical Cost Drivers Time in Trial

Difficult of chemically reaching target

Existence of pool of potential targets

Demand for Patients / U.S. vs.
Existence of predictive animal models ROW

Cost and complexity of pharmacology work

Need for extensive animal toxicity work Drug supply costs

Need for formulation / scale-up work

A good rough benchmark is to assume $25,000

per patient and count the number of patients.

42 I
 ENT
TREATM
TING
ACCOUN
COGS Factors

Estimating COGS can

… and production
Input Costs be based on a number
costs
of factors
• Raw materials • Batch size • Similarity to other
• Inventories • Production process drug profiles
• Small molecular (complexity, steps) • Complexity
versus biologic • Storage and • Economies of scale
inventories
• Delivery to
customers

43 I
 ENT
TREATM
TING
ACCOUN
Sales Force Costs: Example of Costing Grid

Number of Fully Loaded Total Annual

Level Personnel Cost Costs
Senior 2 $380,000 $760,000
Management
Regional 5 $260,000 $1,300,000
Managers
MSLs 8 $250,00 $4,000,000
Sales Reps 120 $180,000 $21,600,000
Support Staff 12 $80,000 $960,000
Total $28.6 million

44 I
 ENT
TREATM
TING
ACCOUN
SG&A Typically is Typically Much Higher than Direct Sales Force Cost

SG&A
Revenues Expense SG&A Salesforce Worldwide
Company 2006 ($mil) ($mil) Margin Cost ($mil) Revenue / Rep U.S. Reps Reps
Pfizer $ 48,371 $ 15,589 32% $ 4,140 $ 1,389,971 8,800 34,800
GlaxoSmithKline $ 45,500 $ 14,268 31% $ 4,375 $ 1,229,730 9,000 37,000
Sanofi-Aventis $ 38,934 $ 10,641 27% $ 3,342 $ 1,364,191 6,500 28,540
Novartis $ 36,749 $ 13,157 36% $ 1,940 $ 2,370,903 5,200 15,500
AstraZeneca $ 26,475 $ 9,464 36% $ 1,950 $ 1,765,000 6,000 15,000
Merck $ 22,636 $ 8,165 36% $ 1,900 $ 1,741,231 8,000 13,000
Wyeth $ 20,351 $ 6,501 32% $ 1,575 $ 1,695,917 5,000 12,000
Bristol-Myers Squibb $ 17,914 $ 6,270 35% $ 1,348 $ 1,628,545 3,300 11,000
Eli Lilly $ 15,691 $ 4,890 31% $ 2,175 $ 950,970 7,000 16,500
Schering-Plough $ 10,594 $ 4,718 45% $ 1,618 $ 827,656 4,500 12,800
King Pharmaceuticals $ 1,998 $ 714 36% $ 193 $ 1,816,364 1,100 1,100
Sepracor $ 1,196 $ 764 64% $ 333 $ 629,474 1,900 1,900
Reliant Pharmaceuticals $ 800 $ 550 69% $ 126 $ 1,111,111 720 720
Sciele $ 293 $ 145 49% $ 114 $ 450,769 650 650
Source: Cowen Pharma, Jan 2007 and Torreya Partners Analysis

It is important to estimate variable cost components of a new drug introduction

beyond direct sales force costs.

45 I
 ENT
TREATM
TING
ACCOUN
Illustration of a Launch Budget for a Primary Care Product
New Drug Launch Costs 2011
Marketing Regulatory & Prod Developm ent
Travel 1,000,000 Surveillance system 250,000
Advertorial Media 6,000,000 800 number 20,000
Patient Starter Kit 30,000 Orange book costs 100,000
Launch Sales Aid 86,500 PDUFA establishment 50,000
Launch Campaign Art 100,000 Total 420,000
Small Science Flash Card 43,000
Patient Ed Booklet & Holder 98,750 Personnel
Direct to Patient Concepts 58,000 Representatives (1500) including salary, benefits & fleet 262,500,000
Printing Sales Aids 250,000 Recruiting, Travel and Misc Personnel Expenses 75,000,000
Testing 12,000 Managed care organization (100) 15,000,000
Media to PCPs and GI docs - Sales Management, MSLs, Outcomes Grp (80) 20,000,000
Launch Journal Advertising 1,500,000 Total 372,500,000
Launch Media 2,000,000
Launch Convention Panels 40,000 Sam ples
MDAlert 37,000 Manufacturing, Packaging 50,000,000
PharmAlert 32,000
Pharmacy Sell Sheet 27,000 Sales
Managed Care Sales Aid 37,000 Sales Incentive (trip/other) 3,000,000
Formulary Stickers 15,000 Training 1,500,000
Shelf Talker 20,000 Inventory sample cost 1,000,000
Web site 250,000 Total 5500000
Direct Mail 205,000
Product Website Development 60,000 Shipping costs 1,000,000
Premium Item Give-Aw ays 107,000
Launch Meeting (does not include hotel and flight arrangements) 1,000,000 Total
Marketing Plan -Consulting
Sales Training Modules 120,000 $ 446,916,750
Promo Items -
Rebate 20,000
Trade Show Booths 150,000
RCW Account service fee 630,500
Drug Med Ed 3,000,000
Sample packaging 568,000
Marketing Total 17,496,750

46 I
RISK ESTIMATION
 Important to Diagram Key Development Steps and Risks

KEY CLINICAL EVENTS AND POTENTIAL OUTCOMES

Phase 1: Phase 1b: Phase 2: Phase 3: Drug Approval /
Done Q3 2008 Done Q2 2009 Done 2010 Done 2012 Label: 2013

Opportunity to show Opportunity to find Critical to get the dose Write the label, confirm If we can beat on efficacy
range of doses clear efficacy and start right, establish a safety the safety profile and and match safety we
to see safety profile. profile and begin to dose. Consider head to have a giant drug.
Hopefully, primate tox write the label. Animal head trials vs. standard
is complete and we carcinogenicity done. of care, noting points of
have a backup differentiation. Get QT
compound in Phase 1. study done. Drug Safe and
Superior to existing
meds

Phase 3: Large Drug Safe, not

safety confirmation Superior but adds
trial / write label to existing meds

Drug approvable
Phase 2: Dose and
but inferior to
Safety Confirmed
existing meds

Terminate /
Phase 1b: Initial
Phase 3: Not Safe Consider Other
Proof of Concept
Indications

Terminate / Terminate /
AR9281 Phase 1a
Phase 1b: Not Safe Consider Other Consider Other
Safety Trial
Indications Indications

Terminate Terminate Terminate

Phase 1: Not safe
Development Development Development

I
48 48
 MOST DRUG CANDIDATES FAIL TO BE APPROVED
Using Industry Average Failure Rates to Handicap Risk (PTRS)

100%

80% 100%

60%
80%
Cumulative probability
of success (percent)
40% 52%

20% 26%
18%
15%

0%
Pre-Clinical Successful Phase I/IIa Phase IIb Phase III NDA
IND Successful Successful Successful Successful
Submission

Stage of Development

49 I
 WIDE RANGE OF SUCCESS RATE ESTIMATES
Studies of Drug Approval Risk

Probability of FDA Approval

Probability of FDA Approval for Products Entering (%)

STUDY Preclinical Phase I Phase II Phase III FDA Notes

Lehman Brothers (1997) 4 10 30 63 90

Myers / Howe (1997)(1) 22 24 32 64 75
DiMasi / Manocchia (1997) – – – – 90 (2)
Kaitin (1995) (1) – 20 30 62 75
DiMasi / Hansen / Grabowski / Lasagna (1997, 1995) – 23 31 64 –
Struck (1994 biotech) 38 69 79 92 100
Struck (1994 conventional NCE) 11 25 33 66 100
DiMasi / Seibring / Lasagna (1994) – – – – 83
Wenzel (1993) – 30 63 –
Grabowski (1991) – 23 31 64
Tucker / Blozan / Coppinger (1988) ? ? ? ? ?
Sheck / Cox / Davis et al. (1984) – 17 – – –
Hansen (1979) – 19 50 – –
Recombinant Capital (o.D.) 19 30 60 –
Bienz-Tadmor / DiCerbo / Lasagna (1992) – 29 – – – (3)
Grosse / DiMasi / Nelson (1996) – 21 – – – (4)
Average 19 25 38 66 87
Average (excl. high and low) 18 23 34 64 87

Source: "Real Option Valuation in R&D Decision-Making in Pharmaceuticals" by Dr. Gunnar Pritsch, Associate Principal, McKinsey & Co.
(1) No empirical study, but “conclusion estimates”.
(2) Gastrointestinal: 79%; anti-infective: 84%; cardio: 90%; oncology: 92%; antiviral: 93%; endocrine: 94%; neuropharmacologic + radiologic: 100%.
(3) Peptide hormone analogous: 24%; antiviral 29%; antineoplastics: 33%; cardiovascular: 34%.
(4) Data 1980-89; number reflects average expected success for all recombiment protein and monoclonal antibody drugs; all recombinants: 19-43%;
new recombinants: 15-39%; therapeutic MAbs: 4-29%.

50 I
 OVERALL SUCCESS RATE OF DRUG APPROVAL: 21%
Success Rates from a Recent Study

Avance published a study in November 2009 of over 200 companies listed on

public stock exchanges, tracking their clinical drug candidates from 2003-2009.

Success Rate /
Transition Duration
Stage Cost ($ million) Probability (%) (Months)
Phase I 5 71% 12
Phase II 12 44% 26
Phase III 68 69% 34
NDA 3 NA 18
Total 88 21% 90
In biotech the success rate was even lower, averaging 9% for NCEs and 15% for
biologicals.

51 I
 Another Updated Study: DiMasi – March 2010

Source: JA DiMasi, L Feldman, A Seckler and A Wilson, “Trends in Risks Associated With New Drug
Development: Success Rates for Investigational Drugs,” Clinical Pharmacology and Therapeutics, March
2010, pp. 272-277.

52 I
 Success Rates Depend on Therapeutic Indication

Source: DiMasi, J.A., 2001, “Risks in New Drug Development: Approval Success Rates for
Investigational Drugs”, Clin Pharmacol Ther, vol. 69, p. 297-307.

53 I
 Transition Probabilities by Therapeutic Class

Source: JA DiMasi, L Feldman, A Seckler and A Wilson, “Trends in Risks Associated With New Drug
Development: Success Rates for Investigational Drugs,” Clinical Pharmacology and Therapeutics, March
2010, pp. 272-277.

54 I
 Small versus Large Molecule

Source: JA DiMasi, L Feldman, A Seckler and A Wilson, “Trends in Risks Associated With New Drug
Development: Success Rates for Investigational Drugs,” Clinical Pharmacology and Therapeutics, March
2010, pp. 272-277.

55 I
THE DISCOUNT RATE
 ENT
TREATM
TING
ACCOUN
Discount Rates Used in Industry

Nominal / Real Discount Rate

Company Source
Actelion Nominal 13.2% HY Report 2009
Large Pharma A Real 10% 2010 Interview
Spec Pharma A Nominal 12% 2010 Interview
Large Biotech A Nominal 10% 2009 Interview
Spec Pharma B Nominal 14% 2009 Interview
Large Pharma B Nominal 12% 2009 Interview
AstraZeneca Nominal 11% Annual Rpt 2008
Range 10 to 14%

57 I
 ENT
TREATM
TING
ACCOUN
Nominal Versus Real Discount Rates

Nominal rates include the effects of inflation.

Real rates have been adjusted for inflation.

It is important to match cash flows in the forecast to the type

of rate used:

Nominal cash flows with nominal rates and real cash flows with real
rates.

It’s an important distinction because many pharma revenue forecasts

are real whether stated or not. Price increases that are modeled in are
above and beyond normal inflation.

58 I
 Discount Rate Should Reflect the Cost of Capital

What is the Cost of Capital?

 The cost of capital is a measure of the opportunity cost of capital in an economy.
A company’s cost of capital should equal the marginal return available to
investors in the next best investment opportunity of similar risk available in the
capital markets
 The cost of capital should reflect:

 The return available to investors in the economy on risk-free instruments

 The return that investors require for taking systematic risk over and above
the risk-free rate
 Systematic risk is that which cannot be diversified away.
 Traditionally measured as the weighted average of the cost of equity and
debt. Known as the Weighted Average Cost of Capital (WACC).

The Cost of Capital is the opportunity cost of money in a competitive market

economy and is a guide to the right discount rate.

59 I
 Estimating The Cost of Capital using WACC Approach

THE TRADITIONAL APPROACH TO WACC

Weighted Average
Cost of Capital (WACC)

Cost of Debt Cost of Equity

Risk-Free Credit Country/ Risk-Free Equity Equity Country/

Rate Spread Political Tax Shield Rate Beta Market Political
Risk Risk Risk
Premium Premium Premium

Business Financial
Risk Risk

WACC is a weighted average of cost of equity and debt, where the weights for cost of debt
and cost of equity are determined by market values of equity and debt. Because a number of
inputs to WACC are of statistical nature, WACC is a range rather than a point estimate.

60 I
 TRADITIONAL APPROACH TO WACC (CONT’D)
RISK-FREE RATE EQUITY BETA(1)

Because equity is a long-term investment, The beta is a risk measure which

a risk-free rate representing a long-term represents the non-diversifiable risk
horizon is most appropriate. associated with an equity investment
Consequently, we utilize the 30-year U.S. measured relative to the overall equity
Treasury as the risk-free rate in the CAPM. market. It is a function of asset risk and
financial risk.

EQUITY MARKET RISK PREMIUM POLITICAL RISK PREMIUM

The equity market risk premium is the The political risk premium represents the
excess return expected for the equity incremental return investors require for
market relative to the long-term bond use of their funds in international
market. The figure that is used normally investments and represents non-
ranges between 4 and 8%. systematic risks such as expropriation.

(1) When calculating the asset beta for high-levered, non-investment grade companies, it is important to utilize a “debt beta” in the calculation.

61 I
 Discount Rates in Practice

CAPM near useless

Industry betas are
(betas on risky pharma
better if you must use
companies often very
beta
low)

We prefer to pick a Another approach is to

fixed rate that reflects look at industry wide
the leveraged implied cost of equity
opportunity cost of from actual market
equity prices.

62 I
VALUATION CONSIDERATIONS IN LICENSING
 PARTNERSHIP AND NPV
Partnering a Program Splits the NPV Between the Original Developer and the Partner

NPV= $30
Illustrative Value to
Original Milestones
Total Program Value License
Developer
Royalties
NPV= $80

R&D

Sales

COGs
NPV= $50
R&D Sales
S&M
License
Value to
Partner COGs
Milestones S&M
R&D Royalties

64 I
 Negotiating and Valuing Licensing Deals

NPV Split

• What percent of the rNPV goes to the licensor and licensee?

• Generally the licensor can get more than 50% of the value
• Generally the split is more favorable to the licensor on earlier deals
• Generally the split is more favorable to the licensor when the licensee
is small or in financial difficulty

rIRR to the Licensee

• A key benchmark is what return on investment goes to the licensee

(risk-adjusted internal rate of return)
• A smart licensee avoids putting his capital to work in order to boost
the rIRR
• A smart licensor tries to get the lowest rIRR deal possible
• Surprisingly, many counterparties in pharma negotiations pay less
attention to this metric than they should.

65 I
 Partnership Economics in a Recent Torreya Advised Transaction

PARTNERSHIP DASHBOARD
66 I
 Bargaining Tactics when In-Licensing

BARGAINING TACTICS WHEN IN-LICENSING

1. Pick deals with large scale and high rIRRs

2. Know your rIRR limit – generally in the 20 to 30% range.

3. Focus on putting largest payments after key risk points

have been passed

4. Focus discussion on precedent transactions (example at

right)

5. Focus discussion on key issues (e.g., reimbursement,

compliance, other related product revenues)

6. Focus discussion on fit and good job that can be done

7. Include equity as consideration if licensor is cash-strapped

(often is misvalued)

8. Understand liquidation preferences of licensor / seller

67 I
 Bargaining Tactics when Out-Licensing

BARGAINING TACTICS WHEN OUT-LICENSING

1. Ask licensor to show what they can do for you. Get financial forecasts if
possible. Ask for a capabilities presentation.

2. Figure out the licensor’s financial modeling approach and assumptions

as best as possible.

3. Figure out the licensor’s hurdle rate on rIRR.

4. Solve for the licensor’s model and the rIRR as terms change.

5. Focus less on deal comparables.

6. Try to get payments made early in the collaboration.

7. Avoid including equity as consideration.

68 I
 Solving for the Other Side’s Model

ONE SHOULD ALWAYS TRY TO GUESS THE OTHER SIDES VALUE

Assume $20 million upfront, $160 million in milestones and a 22% royalty.

Cash Flows to BigPharma from Partnership Transaction - US

Items 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2024 2029
Forecast Revenue 0 0 0 0 0 0 0 624 1,686 2,918 4,339 5,972 8,836 12,450
Cost of Goods Sold 0 0 0 0 0 0 0 62 169 292 434 597 884 1,245
Royalty payment to Biotech 0 0 0 0 0 0 0 137 371 642 954 1,314 1,944 2,739
BigPharma development expense 5 10 20 20 50 50 10 0 0 0 0 0 0 0
SG&A and launch cost 0 0 0 0 (30) (30) 0 (156) (422) (642) (954) (1,314) (1,944) (2,739)
Milestone payments to Biotech 20 0 40 0 60 60 0 200 0 0 0 0 0 0
BigPharma Pre-tax cash flows (25) (10) (60) (20) (140) (140) (10) 68 725 1,342 1,996 2,747 4,064 5,727
After-Tax Cash Flow (25) (10) (60) (20) (140) (140) (10) 53 565 1,047 1,557 2,143 3,170 4,467
Probability of Success in Year 10% 20% 40% 40% 70% 70% 85% 100% 100% 100% 100% 100% 100% 100%
Probability of Payment if Deal in 2008 100% 50% 25% 25% 20% 20% 15% 10% 10% 10% 10% 10% 10% 10%
Probability Adjusted Cash Flow (25) (5) (15) (5) (28) (28) (2) 5 57 105 156 214 317 447

$ $ $ $ $ $ $
EPS Impact with success (0.00) (0.00) (0.01) (0.00) (0.02) (0.02) (0.00) $ 0.01 $ 0.08 $ 0.15 $ 0.22 $ 0.31 $ 0.45 $ 0.64

BigPharma Tax Rate 22%

BigPharma Rate of Return on

Partnership 36%

Value created at BigPharma by deal: $6,104 million for an investment of $ (78) million in expected terms.

The deal on the table here is for a Phase 1b cardiometabolic drug. The
proposal made of 20mm upfront gives the licensor (big pharma company) a
generous return of 36%. However, the project is highly risky. The licensee
should keep bargaining to try to get the pharma’s return down to a sub 25%
area. This will require getting the upfront to be higher.

69 I
THE M&A SETTING
 M&A and Licensing Valuation Analysis are Conceptually Similar

Same exercise but now we are valuing a company rather than a drug.

Sum the rNPVs of the projects of the target company with adjustment
for overhead costs or model the company as a whole (will shown an
example for Eli Lilly).

This gives the target company intrinsic valuation.

Try not to overpay. Valuation is treacherous, particularly with terminal

value assumptions.

Problem is that most M&A deals involving later stage and marketed
assets are NPV negative.

Two ways to think about this:

1. Look at the IRR on your own company – what is your cost of cash?
2. Look at missing elements – particularly the target’s pipeline.

71 I
 ACH
APPRO
TION
VALUA
LILLY’S
OF
DING
RSTAN
UNDE
OUR
M&A Analysis Approach at One Pharma

• The Pharma has a well developed approach

– Step 1. Identify cash flows from identifiable products
– Step 2. Discount the cash flows at a rate in the low teens to get the DCF value
– Step 3. Compute the target purchase price as the equity value plus a premium of
30 to 50% (typically 40%) plus debt less cash
– Step 4. Compare the DCF to purchase price of the target
• The difference between enterprise value and DCF is known as pipeline or
science value
• If pipeline value is negative then the valuation test suggests acquire
• If pipeline value is greater than 50% then the valuation test suggests avoid
• If pipeline value is between 0 and 50% then study further and make a
business judgment
• This approach leaves significant room for quantitative and qualitative judgment. It is
intelligent and designed to avoid situations where the pharma overpays for targets.

72 I
Consequences of a Hypothetical 2004 Acquisition of a Specialty Pharma

Revenues Operating Income (ex-Synergies)

$1,377

Operating Income (ex-syergies)

$3,966 $1,207

$3,549
$996 $1,000
$3,072 $3,163
Revenues

$2,777 $841 $856

$2,725
$2,373 $726
$2,199 $625

$351 $377
$270
$699 $772 $803 $216
$526

2005 2006 2007 2008 2005 2006 2007 2008

Operating Margin 28.4% 41.1% 30.7% 30.6% 38.9% 32.5% 30.8% 45.4% 33.9% 31.6% 46.9% 34.5%
Allergan Warner Chilcott Pro Forma Allergan Warner Chilcott Pro Forma

Source: Wall Street projections Source: Wall Street projections

EPS 2003-2008 CAGR

18.8% accretive
19.9% accretive

14.1% accretive 20.5% 21.4% 22.4%

$6.51
8.4% accretive
2005-2008 CAGR
17.9% 18.7%
$5.54 $5.48 17.0%
$4.62 15.2%
$4.42 13.3%
$3.87 12.9%
$3.28 $3.55

Revenue Operating Income (ex-synergies) EPS

2005 2006 2007 2008

Allergan Warner Chilcott Pro Forma

Allergan Pro Forma
Source: Wall Street projections
 Factors to Consider in NPV Models of Pharmaceutical Companies

Model each drug in an additive manner.

• Revenues and cost curves for each drug.

• Use reasonable estimates to the curves for the models.

Take drugs out at least 10 to 15 years – past patent expiration dates

• Analyst reports generally stop too soon

• Pay careful attention to patent issues and associated cliffs
• Use analyst reports to get the estimates started

Carefully think about the role of R&D in the model.

• If you keep R&D in then you need a terminal value

• If you leave it out or scale it down then no terminal value required

Be aware of how your own company looks through the same lens

• For the purpose of a stock for stock merger it’s important to look at each party with the
same analytical approach
• If you ignore their pipeline, you should ignore yours etc.

74 I
DISCLAIMER

These materials have been provided to you by Torreya Partners LLC or Torreya Partners (Europe) LLP together with their respective affiliates and the members,
directors, officers, employees, advisers or agents of each of them (together “Torreya Partners”) and may not be used or relied upon for any purpose other than as
specifically contemplated by a written agreement with Torreya Partners. t The information used in preparing these materials was obtained from public sources
and is intended only for educational and illustrative purposes. The material herein was prepared by the authors and may not represent the opinions or methods
employed by Torreya Partners. Torreya Partners assumes no responsibility for independent verification of the validity of the content herein nor can it indicate
that the content is complete and accurate in all material respects. No representation, warranty or undertaking, express or implied, is made and no responsibility
is accepted by Torreya Partners as to or in relation to the accuracy or completeness or otherwise of these materials or as to the reasonableness of any other
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form the basis of any contract. To the extent such information includes estimates and forecasts of future financial performance (including estimates of potential
cost savings and synergies) prepared by or reviewed and discussed with the managements of your company and/or other potential transaction participants or
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materials were designed for us by specific persons familiar with the business and the affairs of your company and Torreya Partners assumes no obligation to
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business and prospects.

Nothing contained herein should be construed as tax, legal or accounting advice. You (and each of your employees, representatives or other agents) may
disclose to any and all persons, without limitation of any kind the tax treatment and structure of the transactions contemplated by these materials and all
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