Due diligence is the process by which buyers conduct investigation and evaluation of potential acquisitions and investments. Among various classes of due diligence, commercial due diligence is one of the key ones as it is associated with the future revenue generating potential of the business. For healthcare and life sciences investors, one could argue for a case of rigorous due diligence. The reason being- life sciences based sectors usually have a high risk when compared with other sectors. A rigorous commercial due diligence helps to mitigate risks and in certain cases, conducting objective due diligence might be a fiduciary requirement.

Commercial due diligence usually involves extensive 'external analysis' and often comprises assessment of the market, competitive landscapes and customers. We briefly describe each of these elements here. The objectives of market assessment are to establish the current market size, future market size and the expected growth. As a best practice, BiopharmaVantage emphasises on 'forward looking' metrics and understanding of the fundamental drivers of the market. It is also vital to know which 'market segment' would the target compete in. Subsequent research and analysis should focus on 'deep-diving' into this market segment. We have seen numerous examples of 'inappropriate segments' where the targets reference to the attractiveness of the entire market but in reality, only has the potential to compete in a sub-segment of it.

Assessment of competitive landscape is another critical element of the commercial due diligence exercise. A good practice is to assess both- the current landscape as well as future landscape. This is important for assets and businesses that have a longer gestation period (e.g. pharmaceutical, diagnostics, medical devices, etc.) i.e. it takes a long time to get the product to the market. The focus of competitive landscapes should be target market segment, but one should be cognizant of competition from other markets and segments. Our wider definition of competitors is simple- any business asset/entity that has the potential to affect revenue adversely.

Customer assessment is an integral component of commercial due diligence. Appropriate customers need to be identified based on the target market segments, factoring in the B2B and B2C aspects of the business. Interviewing customers allow one to gain insights on their preferences, key asset attributes, current and future buying behaviour, etc. This also enables assessment of the target's offerings to address unmet or under-met needs, ability to deal with evolving needs, value proposition and its sustainability. Sources of information include market reports, databases, government resources, competitors, interviews with KOLs and other key stakeholders.


About Author

BiopharmaVantage is a consulting firm that specialize in providing commercial due diligence services to healthcare, life sciences, medical devices and related sectors investors. If you would like to explore how we can assist, then please contact us.

Contact: Julie Kalash, Business Development Manager, BiopharmaVantage, Oxford, UK

Email: [email protected]

Our website: http://www.biopharmavantage.com