Valuation in Life Sciences: A Practical Guide / Edition 3

by Boris Bogdan, Ralph Villiger

Overview

Valuation is a hot topic among life sciences professionals. There is no clear understanding on how to use the different valuation approaches and how to determine input parameters. Some do not value at all, arguing that it is not possible to get realistic and objective numbers out of it. Some claim it to be an art. In the following chapters we will provide the user with a concise val- tion manual, providing transparency and practical insight for all dealing with valuation in life sciences: project and portfolio managers, licensing executives, business developers, technology transfer managers, entrep- neurs, investors, and analysts. The purpose of the book is to explain how to apply discounted cash flow and real options valuation to life sciences p- jects, i.e. to license contracts, patents, and firms. We explain the fun- mentals and the pitfalls with case studies so that the reader is capable of performing the valuations on his own and repeat the theory in the exercises and case studies. The book is structured in five parts: In the first part, the introduction, we discuss the role of the players in the life sciences industry and their particular interests. We describe why valuation is important to them, where they need it, and the current problems to it. The second part deals with the input parameters required for valuation in life sciences, i.e. success rates, costs, peak sales, and timelines.

Product Details

ISBN-13:	9783642108198
Publisher:	Springer Berlin Heidelberg
Publication date:	05/06/2010
Edition description:	3rd ed. 2010
Pages:	370
Product dimensions:	6.10(w) x 9.20(h) x 1.00(d)

Table of Contents

Introduction 1

The Life Sciences Industry 2

Academia 2

Biotech 3

Pharma 4

Valuation 5

The Role of Valuation 5

Current Problems in Valuation 6

Basics of Valuation 11

Introduction 11

Fundamentals 11

Cash Flows 11

Discounting 13

Valuation Methods 29

Discounted Cash Flows Valuation 29

Decision Tree 32

Real Options 36

Difference Between Real Options and Financial Options 59

Valuation of Financial Options 60

Valuation in Life Sciences 67

Fundamentals 67

Drug Development 67

Medical Device Development and Approval 70

Cost 72

Success Rates 74

Time 76

Peak Sales 77

Discounting 96

Volatility 100

Project Valuation 103

Project Valuation: DCF 105

Project Valuation: Decision Tree 113

Project Valuation: Real Options 121

Simulations of Projects 134

Sensitivity Analysis and Sensitivity-Simulations 143

License Contract Valuation 146

Fundaments of Licensing 146

Valuation of License Contracts: DCF 152

Valuation of License Contracts: Real Options 160

Advanced Topics in Project and License Contract Valuation 169

Early-Stage Licensing with Possible Sublicensing 169

Simulation of License Contracts 194

Discovery and Preclinical License Deals: What's Realistic? 195

How to Read a Deal 197

The Virtual Company Model 201

Negotiating License Deals 208

Valuation License Contracts with Multiple Indications 218

Valuation Projects with Multiple Markets 232

Technology Valuation and Feed Rate 233

IP Valuation 235

Pipeline Valuation 243

Portfolio Management 245

Introduction 245

Qualitative Approaches 247

Qualitative Approaches 248

Optimal Portfolio Structure 250

Company and Stock Valuation 255

Introduction to Company Valuation 255

Theory 258

Interpretation of Valuation Results 273

Simulation on Company Level 275

Case Company Valuation 275

Stock Valuation 278

Advanced Company Valuation 284

Mergers and Acquisitions 290

Other, Less Serious Approaches 293

Exercises 305

Introduction 305

Exercises 305

Solutions 311

Case Studies 331

Introduction 331

Case Study 1 331

Case Study 2 338

Case Study 3 346

Case Study 4 354

References 363

Index 365

Editorial Reviews

From the reviews:

"‘Valuation in Life Sciences: A Practical Guide’ leads readers step by step through the theory of life sciences valuation. … it is an important read for biotech investors. … It is the first book of its kind that combines industry data and valuation theory together with practical advice. It includes valuation techniques and tools that allow investors to pick undervalued biotech sks." (GEN – genetic engineering news, February, 2007)

"Valuation in Life Sciences: A Practical Guide opens up the black box and describes, step by step, a relatively simple procedure for quantitative valuation in life sciences. The book guides the reader through the recommended procedure of quantitative valuation … . This book is recommended to those who would like to acquire a profound understanding of quantitative valuation and use a simple spreadsheet approach of their own cases." (Rudolf Gygax, Nature Biotechnology, Vol. 25 (9), 2007)

"This book provides some interesting examples – for business development and licensing executives – of where ROV may be used. … For the general reader and business development executive there is a good explanation of ROV and its applications in life science … . The book may also be of interest to biotechnology company business development executives and university technology transfer officers … . this book is essential reading as it not only provides the mathematical theory but also the applications in different types of deals." (Roger Davies, Business Development & Licensing Journal, Issue 4, 2007)

From the reviews of the third edition:

“The content and discussion contained in ‘Valuation in Life Sciences’ is excellent. The Swiss authors provide a practical guide to what mathematical tools gives meaningful valuations … . Recommended for anyone planning to be involved in the development of a biotech venture.” (C. Mathews, Amazon, December, 2010)

“The authors always keep the necessary rigour to make the book a valuable reference to professionals such as business developers, investment bankers, or analysts. … it an excellent textbook for students as well. … ‘Valuation in Life Sciences’ addresses also the financial beginner with guided and easy-to-understand examples in Excel. I highly recommend the book to everyone in financial biotech.” (Amazon, November, 2009)

“This book is an excellent overview of business development valuation and great for those who want to catch up on some techniques and tools. It gives an accurate picture of BD in pharma. For those in the business … it remains a very valuable tool.” (J. Serres, Amazon, March, 2009)

From the Publisher