Financial valuation methods for biotechnology
April 16, 2010
In 2009 BIOSTRAT BIOTECH CONSULTING set out to explore and map the various answers the these questions. We wanted to understand better the reality of biotechnology valuation and to share this understanding with theorists and practitioners alike looking for an overview of the different viewpoints on and approaches to biotechnology valuation.
We designed an online survey which was conducted among biotech industry professionals over a period of three month from December 2009 to February 2010. The respondents were recruited through various professional online network and user groups. 389 people responded.
The main conclusions of the survey:
- rNPV is the primary/preferred valuation method for most industry professionals involved in biotech valuations
- Real Options is only used by approximately 10 percent of the respondents, and when asked about their primary valuation method only 4 percent mentioned Real Options.
- Even among financial valuations experts very few (5 percent) use Real Options as primary valuation method.
- Among all but one of the stakeholder groupings the classic DCF analysis is still a widely used method when performing biotech valuations - except venture capital companies. Not one respondent from this grouping answered that DCF was their primary method.
The full survey results can be downloaded here.
Next: Discount rates
In our next biotech insight paper we report on the use of different discount rates by different stakeholders when making valuations of biotechnology projects and firms. We found that there are significant differences and the implications are obviously profound when taking account of the long-term nature of most biotechnology projects and investments.