The first book to provide a simple and practical means of valuing biotech companies
The book begins with a short history of the biotechnology industry; this is important as although it is about 30 years old, the first company went public only in 1996, so it is possible to plot the course of investment waves and dips
It examines the European industry and its evolvement, and draws parallels between the similarities and differences between that and the US
Looks at the various companies which make up the biotech industry (therapeutic; life sciences; and the medical technology company) and gives tools for the investor to properly evaluate them
Praise for Biotechnology Valuation "Keegan states that the valuation of Biotech companies is as much an art as a science. This brief but comprehensive review of the skills and knowledge required, not of just the financial market and sentiment, but also of the technical attributes of a company and the drug development and regulatory hurdles that must be overcome, highlights the importance of the breadth of understanding required. Biotech investing is not for the timid, but it can bring substantial returns. Keegan's book, punctuated with his personal experience and opinions, is a good place to start."
-Chris Blackwell, Chief Executive, Vectura Group plc
"A user-friendly, yet thorough discussion of a notoriously difficult topic. Dr Keegan's book is a fine resource for both business types and academicians."
-Steve Winokur, Managing Director, CanaccordAdams
"A highly readable and comprehensive explanation of the technical and commercial parameters that influence biotechnology companies at all stages of development, providing clear context for selection from the toolkit of valuation methodologies the author recommends to assess company and product performance, or ascribe value."
-Dr L.M. Allan, Director, Bioscience Enterprise Programme, University of Cambridge
"A fabulous approach to a difficult topic."
-Deirdre Y. Gillespie, MD, President & CEO, La Jolla Pharmaceutical Company
Acknowledgements xi
1 Introduction 1
Biotechnology Background 5
2 Traditional Valuation Methods 11
The Value of a Company 11
Accounts - Providing the Data for Valuation Analysis 12
The Income Statement 13
Balance Sheet 17
Cash Flow Statement 20
Income Statement Multiples 22
Balance Sheet Multiples 26
Summary 27
Discounted Cash Flow Analysis 27
Net Present Value 27
Constructing the DCF 28
Projecting the Cash Flow Stream 29
Choosing a Discount Rate 30
Other Thoughts 37
3 The Drug Development Process 39
The Drug Development Process 40
Drug Discovery and Research 44
Pre-Clinical Development 44
Clinical Trials 48
What Investors Should Look For When Analysing Clinical Trials 56
Conclusion 59
The Regulatory Process 59
Regulation in the US 60
Regulation in Europe 63
The Label 64
Timelines for Approval 65
Post Approval 65
Investment Lessons 66
Case Study # 1 66
4 Biotechnology Company Valuation 69
Data Collation 71
NPV of the Pipeline 75
Calculations 80
Sensitivity Analyses 86
DCF of Whole Company 92
EBIT DCF of Products 97
Comparables Valuation 99
NPVs are Additive 101
Using all the Tools Available to Reach a Valuation Conclusion 101
Market Models 104
Conclusion 105
Appendix 1 106
Example 1 106
Example 2 108
Example 3 108
Appendix 2 116
Biosimilar Update 116
5 Decision Trees and Real Options 119
Decision Trees 120
Discount Rate 124
Deriving Scenarios 125
Conclusion 125
Decision Tree Example 126
Real Options 126
Valuing Options 129
Estimation of the Input Variables 138
Conclusions 139
6 Biotechnology Investing 141
Types of Healthcare Investment 141
Biotechnology Sector Evolution 143
Biotechnology Investment Cycles 145
Biotechnology Business Models 152
Focus on People 154
Cash 155
Product Pipeline 155
Commercial Risks 156
Newsflow 158
Lessons from Biotech Investing 160
7 Early-stage Valuation 161
Private Valuation 162
Discounted Cash Flow Method 166
Comparable Valuation 168
Venture Capital Method 170
Discount Rates 173
Conclusion 173
Glossary 175
References 189
Index 193
