Early stage valuation of drug development is complicated and often considered unnecessary given that standard valuation methods can lead to negative numbers. Most early stage investors use the method known as “making it up” to value really early stage inventions.
More than that, a large problem is that a company or university performing services early on will often perceive the value of its contribution as far greater than the value provided by any other participant in the development of that pharmaceutical active — and far greater that actually provided. For example, universities often want a high royalty rate in a license agreement even though the drug in development is still early preclinical. This perceived “value” is usually offered without any regard to the commercial reality that a viable product cannot support more than a certain royalty and that several other technologies may have to be licensed to provide a successful pathway to market.
“Valuation in Life Sciences: A Practical Guide” by Boris Bogdan and Ralph Villiger provides a very thorough case guide for the theory and practice of the valuation of life science products. It is geared towards both pharmaceutical/biotech investors and business professionals dealing with drug and medical device development. Set out in 334 pages, this book can move your practices away from making educated guesses.
This book provides a thorough explanation of the theory of valuation, including discounted cash-flow and real options. It then shows how to value projects, patents, licenses, and companies using examples of business deals and licensing. It includes valuation tools in life sciences as well as practical examples for business development executives to understand ROV and its applications in life science.
The best part of this book is how complete it is in coverage. It guides the reader through the risks and costs of lead development, preclinical testing, Phase I, II and II testing and approval. It also provides guidance of licensing valuation and portfolio management.
Whether you are a biotechnology company business development executive and university technology transfer officer, you can benefit by having knowledge on your side. While it is true that value is in the eye of the beholder, at the end of a negotiation and the signing of a contract, the licensor and licensee must realize that the goal is to receive a fair value for the services rendered and to ensure that the pharmaceutical can be successfully commercialized.
“Valuation in Life Sciences: A Practical Guide” by Boris Bogdan and Ralph Villiger is available form Amazon.
See more on licensing and valuation here: What’s A Reasonable Royalty Rate?
