Determining the value of drug development candidates and technology platforms
- PDF / 206,743 Bytes
- 16 Pages / 595 x 842 pts (A4) Page_size
- 6 Downloads / 208 Views
Keywords: biotechnology, valuation, drug development, technology platforms, real options
Dr Kerstin M. Bode-Greuel Partner, Bioscience Valuation BSV GmbH, Am Zigeunerbergl 3, D-82491 Grainau, Germany Tel: +49 8821 96 69 79 0 Fax: +49 8821 96 69 79 29 E-mail: [email protected]
Determining the value of drug development candidates and technology platforms Kerstin M. Bode-Greuel and Joachim M. Greuel Date received: 7th December, 2004
Abstract This paper explains a comprehensive and systematic approach to evaluate drug development projects and technology platforms, using an augmented version of net present value (NPV). The benefits of financial models for value-driven project and portfolio management, licensing negotiations and investors’ decisions are discussed.
INTRODUCTION The value of biotechnology companies is driven by anticipated future product and revenue streams, or by the impact that a technology platform is expected to have on the value of assets. Furthermore, ownership of intellectual property rights, well-educated scientists and extensive experience of the management team add to the value of the company by reducing R&D and market risk. This paper focuses on the quantitative financial evaluation of technologies and product development candidates, the major determinants of company value. Quantitative financial evaluation of biotechnology investments is not an easy task. Biotechnology companies are typically dealing with innovative and, therefore, particularly uncertain technologies and drug development candidates. The applications and the impact of a technology are often not clearly defined, and new drug development targets are not validated. However, financial evaluation and risk analysis are essential for the following reasons: • Investors request financial indicators and defined value propositions to fund biotech operations. • Senior management of biotech companies needs to understand the
risk and expected financial impact of their projects for prioritisation and maximisation of company value. • While establishing technology partnerships and licensing agreements, the involved parties need to understand the financial value generated by a deal, and to ensure market-conformity and fair deal terms. The determinants of value in the biotechnology industry are expected cash inflows from marketed assets, R&D and market uncertainty, cost and speed of development, and strategic opportunities arising from technologies and projects. The revenue-generating products of biotechnology companies are usually not marketed drugs, because the financial power to support late stage development and launch is often lacking. Instead, development candidates are licensed out or developed with a partner, leading to various models of cost/revenue share. Sometimes, more than two partners are involved. Only quantitative financial analysis that properly reflects the risks and the choice of projects will reveal to what extent the involved parties benefit from overall project value. This paper describes a widely acc
Data Loading...
