Biotechnology Valuation: An Introductory Guide


  • 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 ...
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  • 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

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Product Details

  • ISBN-13: 9780470511787
  • Publisher: Wiley
  • Publication date: 1/6/2009
  • Series: Wiley Finance Series
  • Edition number: 1
  • Pages: 218
  • Product dimensions: 6.80 (w) x 9.60 (h) x 1.00 (d)

Meet the Author

KARL KEEGAN is currently a managing director and global head of life sciences equity research at CanaccordAdams, a global investment bank focussing on small to mid cap companies. Karl has been a financial analyst covering the biotechnology sector for over eleven years and has previously worked at Dresdner Kleinwort Benson, UBS and Banc of America. Karl and his team have been consistently highly ranked in institutional surveys throughout his career. Prior to embarking on his finance career, Karl completed postdoctoral assignments in the US and UK and worked in the pharmaceutical industry both as a bench scientist and in strategic planning. Dr. Keegan holds a BSc in Pharmacology from University College Dublin, Ireland, MPhil and PhD degrees in Pharmacology from University of Cambridge, UK and MSc in Finance from London Business School, UK. A native of Dublin, Ireland, he now lives in Kent, UK.

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Table of Contents

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

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