This is a multi-layered M&A case requiring candidates to first diagnose why OncoCo's core business is declining (patent expiration and generic entry), then evaluate whether acquiring liquid morphine commercial rights is strategically sound. The case tests financial analysis, market sizing, and qualitative strategic judgment—the key insight is that high EBITDA margins alone don't justify an acquisition if the business model mismatch and reputational risks are substantial.
A private equity client owns a specialized pharma manufacturer called OncoCo which focuses on cancer treatments. OncoCo is not only profitable, but also experienced steady growth in the past years. Hence, the PE fund was surprised when the management board of OncoCo stated that they expect declining profits in the future. OncoCo’s management board has also suggested, to cushion the decline with the acquisition of an additional asset. In particular, OncoCo’s board received the opportunity to purchase the commercial rights of liquid morphine.
The PE fund has asked us to figure out why a decline is expected and whether they should move forward with the acquisition.