Biotech valuation

Biotech valuation

Biotech valuation refers to the attribution of a financial value to a company or a project within the biotechnology (biotech) industry. While the biotech industry contains also agro- and energy biotech, "biotech valuation" is usually used in the context of drug development companies and projects.

The nature of drug development project is characterised by high attrition rates, large capital expenditures, and long timelines. This makes the valuation of such projects and companies a challenging task. Not all valuation methods can cope with these particularities. The most commonly used valuation methods are risk-adjusted net present value (rNPV), decision trees, real options, or comparables.

The most important value drivers are the cost of capital or discount rate that is used, the duration of the phases, the success rates of the phases, the estimated phases costs, and the forecasted sales including cost of goods and marketing and sales expenses. Less objective aspects like quality of the management or novelty of the technology should be reflected in the cash flows estimation.

References

Boris Bogdan and Ralph Villiger, "Valuation in Life Sciences. A Practical Guide", 2008, 2nd edition, Springer Verlag.


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