Chapter 16 - The Healthcare Special | London IB Prep

G2G Chapter 16 - The Healthcare Special | London IB Prep G2G ADVISORY Chapter 16

The Healthcare Special

Pharma, MedTech, Services & Biotech - Models, Metrics & Valuation Cram Sheet - Coming Soon Available on launch day Deep dive into healthcare investment banking: from patent cliff quantification to pipeline rNPV valuation. Frameworks for London IB interviews and deal work across Big Pharma, Biotech, MedTech, Healthcare Services, CROs/CDMOs, Life Sciences Tools, and emerging genomics.

Chapter Roadmap

This chapter maps the healthcare sector as understood by London investment banking teams: Big Pharma: Large integrated companies with patent protection, patent cliffs, and R&D-driven growth. Specialty Pharma: Focused on niche therapies and rare diseases. Higher concentration risk. Biotech: R&D companies developing novel therapies. High risk, high reward. Often pre-revenue or early-revenue. Medical Devices / MedTech: Capital equipment + consumables. Razor/blade recurring revenue models. Healthcare Services: Hospitals, clinics, diagnostic labs. Fee-for-service and capitated reimbursement. Life Sciences Tools: Instruments, reagents, software for research. Recurring consumables. CROs/CDMOs: Contract research and manufacturing. Fee-based, backlog-driven revenue. Animal Health & Consumer Health: Veterinary and OTC segments with unique dynamics. Genomics & Precision Medicine: Emerging segment. Early-stage, high valuation uncertainty. PART I - FOUNDATIONS

Healthcare Metrics I

Pharma & Biotech Fundamentals Revenue by Product / Franchise Pharma companies report revenue by drug and therapy area. Track concentration: top drug as % of total revenue. Concentration >50% = high risk. Monitor each franchise for peak sales, current attach rate, and trend. Patent Cliff / LOE (Loss of Exclusivity) Date when generic or biosimilar competition can enter. The single biggest revenue risk in pharma. Revenue typically drops 70-90% within 2 years of small-molecule LOE. Biosimilars erode slower: 30-50% in year 1. Quantify revenue at risk by LOE date. Pipeline Value Present value of drugs in clinical development. Probability-weighted by stage: Preclinical ~5%, Phase I ~10%, Phase II ~15-20%, Phase III ~50-60%, Filed ~85-90%. Sum across all pipeline assets = pipeline rNPV. Peak Sales Estimate Projected maximum annual revenue for a drug at market maturity. Driven by addressable patient population, market penetration assumptions, and pricing. Critical input to pipeline valuation. R&D Productivity R&D spend ÷ number of drugs approved over a period. Industry average: $1-2B per approved drug. Declining productivity is a structural industry challenge. Royalty Revenue Income from licensing IP to other companies. Near 100% gross margin but declining as patents expire. Extract as a separate revenue stream in DCF.