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Every business owner is approached from time to time by would-be buyers who express interest in courting them for acquisition. The way you handle those early interactions can make a huge difference in the likelihood of a successful and lucrative sale. Even if you are

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

not interested in selling today, these early inquiries can provide you with valuable information about the marketplace, who the active buyers are, and what drives the value of your company, who people perceive as your competition. All of this information will be in

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

Examples of combination products may in

aluable when you do decide it's time to sell.

First of all, realize that approximately 85% of the approaches you may get from potential buyers will in reality be approaches from intermediaries who may or may not have an actual buyer who might acquire you. The old “I

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

have a buyer for your company” is one tactic less sophisticated intermediaries use to begin a dialog with a prospective seller.

Six Questions to Ask Callers

Begin the conversation by clarifying that you expect the conversation to be entirely confidential. Next, ge

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

out your pencil, ask questions, and take notes. Here are six important questions to ask anyone who calls expressing interest in your company.

1. Ask them directly - Are they an intermediary and if so do they have they been engaged by a private equity fund or a str

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

Combination pro

ategic corporate buyer who has expressed interest in your company?

2. Tell me about the buyer, what do they do, how large are they, where are they based?

3. Why does the buyer think your company might be a good acquisition?

4. If the buyer is a private equity f

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

nd, ask what size companies do they target? What companies do they own that are similar to yours and how have those companies performed?

5. Regardless of the type of buyer, ask what level of profits (pretax profits as a percentage of sales) do they find attractive?

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

What growth rate do they consider desirable?

6. And the most important question, how do they typically value their acquisition targets?

Most buyers have a pre-set formula they use to price acquisitions. It’s usually based on a multiple of pretax cash flow the ta

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

get company generates. Asking this question can help you learn of a range of possible values they may set and provide you with valuable information about the potential value of your business.

Active buyers will often tell you that they fully value a business – meani

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

ng they pay perhaps a 5–6 multiple of free cash flow. Buyers who start off by saying that they do not pay the most will probably not be aggressive in pricing, but may still be very good buyer for other reasons, i.e. they pay cash at closing. It’s perfectly normal th

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

t many of the people you talk with will try to duck the question entirely. They do not want you to lose interest by quoting too low a multiple and are also afraid of quoting you a multiple, because it may set your expectations too high. Both are valid concerns. As

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

Following aspects would a

result, ducking the question is not necessarily an indication that they are not serious.

Working with Buy-Side Representatives

If the caller says they represent buyers, ask who they are representing. If they will not tell you, there is a good chance that they have

dd to the challenges in developing combination products:

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

n’t been actively engaged by anyone. You do NOT want people casually "shopping" buyers for you. They tend to be careless about confidentiality.

If the buyer’s representative has a reputable buyer who sounds like a good fit, ask the caller to send you a nondisclosur

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

or confidentiality agreement that has been signed by both the intermediary and the buyer.

Sell-Side Representation

For those callers who admit that they are intermediaries (business broker or investment banker depending on the size of your company) who want to rep

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

resent you, ask them the same questions outlined above. If they are active in your industry, they should have valuable information from which you can benefit.

Ask them what makes them different or better than others at what they do. If you like what you hear, ask th

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

m to send you info on their firm for your files.

If you are serious about talking with a prospective buyer, bring in a good investment banker or business broker who handles sell-side engagements. They can provide you with valuable help in asking the right questions,

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

Professional from academic institutions, pharmaceutical industries, health care indust

presenting information about your company, and creating the right image for you with to the buyer from the start. Involving a professional does cost money, but it can greatly increase your chances of putting together a successfully transaction.

Involving a professi

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

nal also helps protect your confidentiality. There will be far fewer calls into your place of business, if someone offsite handles all follow-up contacts and information requests. I suggest that you start off by paying a professional an hourly rate to do this for yo

.

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

u. Most experienced intermediaries charge between $250 and $500 per hour for this type of help.

Of course you can also handle preliminary discussions on your own, but make sure you get a signed non-disclosure in place before you discuss any details about your compa

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

Companies that provide selfless information through particip

y. Then proceed slowly and cautiously. But most importantly, take notes. Even if the conversations do not go anywhere, at least you will have collected valuable information that will pay huge dividends the next time you talk with a buyer about selling your company

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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