Valuation

Is valuation a black art than a science? There are a myriad views on the valuation. We believe that valuation is always biased during the negotiation process. For example- An investor would like to lower the valuation by using a higher discount/target rate and an entrepreneur would like to raise its valuation by showing huge earnings and growth. Similarly, the owner of the business would like to lower the valuation for tax purposes by projecting lower cash flows; high growth rates etc while the appraiser for Tax authorities would like to raise the value and so on.

We, at Farmantra, provide an independent valuation and follow an accepted approach to value biotech or pharmaceutical companies – public or private.

There are mainly three approaches of Valuation – Intrinsic, Relative and Option. In any of these approaches, the key is assumptions.

The process to value a public company is a different ball game than to value private companies where the data is very limited. In the case of biotech companies, besides the limited data, they have huge risks of failure at different milestones. These risks cannot be eliminated but can be mitigated by having a good portfolio of products.

Hence, if we value the biotech companies, one of the key areas that we focus is on assessing the risks of the company. In order to assess the risks, we ask the right questions. The following figure demonstrates some of the questions:

What’s the market potential of your product and the risks associated to it?
What are the risks associated with the regulatory approval?
How would you manage the funding for the product development?
What is the difference between the clinical design of your product Vs clinical trials already conducted for approved products?
How clinically and statistically significant is your product?
What are the competitive advantages shown by pre-clinical data?

Should you need more information regarding our methodology, please write to us or call us.