AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b

INCT-if INTERNATIONAL WORKSHOPS ON PHARMACEUTICAL R&D
Mdulo 4: Valorao de Empresas e Produtos - PARTE 1/2

Recife: 02 de abril de 2012 So Paulo + Hubs de webconferncia*: 04 de abril de 2012 *Belm | Belo Horizonte | Braslia | Campinas | Curitiba | Florianpolis | Fortaleza | Goinia Joo Pessoa | Manaus | Porto Alegre | Ribeiro Preto | Rio de Janeiro | Salvador
Palestrantes: Patrik Frei, PhD

Fundador e CEO da Venture Valuation AG (Sua), empresa de consultoria especializada na prestao de servios de avaliao e valorao de empresas com elevado potencial de crescimento. Tambm produtora e mantenedora da base de dados Biotechgate. Patrik autor dos livros Assessment and Valuation of high growth companies, Starting a Business in the Life Sciences: From Idea to Market e Building Biotechnology: Starting, Managing, and Understanding Biotechnology Companies, bem como de inmeros artigos sobre valorao, incluindo publicaes na Nature Biotechnology e Chimia. Anteriormente, foi CFO de empresa global no segmento de logstica e atuou em empresas de vrios pases. Graduado em Negcios pela Universidade de St. Gallen e Doutorado pelo Swiss Federal Institute of Technology, EPFL Lausanne. Recentemente, foi nominado como uma das 20 pessoas mais influentes no setor de cincias da vida, na Sua, pela revista de negcios Bilan, ao lado de indivduos notveis como Ernesto Bertarelli (Serono), Daniel Vasella (Novartis) e Henry B. Meier (HBM BioVentures).
Johan Ohlsson, MS
Analista de negcios na Venture Valuation AG. Especialista em avaliaes financeiras e estratgicas de empresas emergentes com alta taxa de crescimento. Juntamente com Patrik Frei, tem ministrado workshops internacionais em inmeros pases. Anteriormente, ocupou posies de executivo de desenvolvimento de negcios e analista estratgico na empresa Pharmalicensing. Tambm atuou como analista snior do Bioseeker Group e como pesquisador na rea de oncologia no Microbiology and Tumor Biology Centre (MTC), KarolinskaInstitutet. Bacharel em Finanas e Mestre em Biologia Molecular pela Universidade de Sdertrn.
Organizao:
x
Patrocnio:
Copatrocnio
Apoio:
www.venturevaluation.com
Company and Product Valuation for Pharma and Biotech

Dr. Patrik Frei | Mr. Johan Ohlsson April 2012 | Brazil
Copyright 2012 Venture Valuation. All Rights Reserved.
Overview Course
9.00

Welcome & Introduction to Valuation Assessment of the company prior to Valuation Company Valuation approaches
10.30 11.00 12.30 14.00
Break
Lunch Case study Company valuation
Product valuation / Deal structure Product valuation / Deal structure Q&A, Final discussion and Wrap up
15.30 16.00 17.00 17.30
Break
Closing
INCT-if International Workshops on Pharmaceutical R&D April 2012
Scope of this course

-
Determine the value => assessment / value drivers Main valuation approaches, tools & techniques How to value a company
Venture Valuation
Mission Independent assessment and valuation of technology driven companies / products in growth industries Information services / Life Sciences Databases Offices Zurich, Europe (Munich, Lisbon, Ireland); North America (Toronto, Halifax); Asia (Korea, India) Collaboration in Brazil: Axonal Consultoria Tecnolgica Ltda., So Paulo Employees 7 people in Switzerland 7+ representatives / partners around the world Scientists and finance experts 6 people in JV India Office
Valuation Service
Track Record Over 250 valuated companies (world-wide) Clients Investors, companies, government and academic institutions Finance experts work hand in hand with experienced industry specialists (pharma, biotechnology, medical technology and high-technology) - Valuation Reports - Licensing Candidate Search - Portfolio Valuation Workshop with company on site
5
Expertise
Products
Approach
| BIOTECHGATE.COM | TEAM | ADVISORY BOARD | STATISTICS | REFERENCES | SCIENTIFIC BASIS | LOCATIONS COMPANY | PRODUCTS & SERVICES | SERVICES | VALUATION PROCESS | METHODS Copyright 2012 Venture Valuation. All Rights Reserved.
Biotechgate.com
Country www.Austrianbiotech.com www.Canadianlifesciences.com www.Frenchbiotech.com www.Germanbiotech.com www.Indianbiotech.com www.Italianbiotech.com www.Scandinavianlifesciences.com www.Swisslifesciences.com www.Usalifesciences.com Total (www.biotechgate.com) Biotech Biotech Therap R&D Ser
26 150 79 139 17 65 154 90 1085 2346 48 192 220 542 148 250 268 166 967 3939
Biotech related
12 256 59 152 152 237 96 61 214 1792
Pharma
Medtech
20 104 53 226 10 155 390 352 798 2652
14 64 27 59 44 100 56 60 154 996
In total there are over 23000 companies in the database.

Partners Biotechgate.com
Brazilianlifesciences.com
Basics of Valuation?
Why?
When?
What?
Why Valuation
-
Value before investment (pre money value): EUR 1,5 m Investment: EUR 0,5 m Value after investment (post-money value): EUR 2,0 m Share Investor: 0,5 m / 2 m = 25%
0.5 m 25% 1.5 m 75%
Pre-money value Investment

10
Why Valuation
-
Out-licensing of a phase II product Deal terms: up-front CHF 1 m milestones CHF 20 m royalties 7% rNPV of product rNPV of deal rNPV of product: rNPV of deal: Splitt Biotech / Pharma: ? ? CHF 30 m CHF 10 m 33% / 66%
11
rNPV: risk adjusted net present value

When do a Valuation?
Think ahead Be prepared for negotiations Know the fundamentals What assumptions have been used Out-licensing or financing round?
=> On going exercise
12
Valuation of what?
1. Valuation of a product Licensing deal Strategic development decision 2. Valuation of a company Investment / Financing round Merger / Acquisition Measure success of company development
13
Definitions
Value: implies the inherent worth of a specific thing Price: depending on the market (supply / demand); whatever somebody is prepared to pay Price is what you pay. Value is what you get.
By Warren Buffett
14
Rational on Valuation
Why assessment and valuation of high growth companies? - Industry lacks transparency - Valuation is key issue in development - Very difficult (high uncertainties) - High potential for investors - Long investment cycle - Traditional valuation methods unsuited - Complex technology and IP situations
15
Mind-set of Investors
Take high risk, but expect high returns Pressure from investors Compete in capital market
Probability of failure Government Bond Bonds Blue Chip Company Internet company (Nasdaq) Biotechnology Company 0% 5% 10% 50% 80%
Return 3% 5% 9% 20% 50%

16
Mindset of Investors Example

Risk of failure of 80% (4 out of 5): 5 companies, investment of EUR 1 m each One successful, 4 total loss The successful company must finance the others (5 * EUR 1 m plus adequate return)
17
Venture Capital Cycle

Understand the Venture Capital Cycle Look at the whole Company Life Cycle
VC Investment Venture Capital Investment Cycle Exit
Required IRR
Required IRR
FF&F
Series A
Series B
Series C
IPO, Trade sale 18
VC Investment Process
Due Diligence / Assessment
Deal flow
Initial screening
Negotiation
Valuation
Monitoring
Exit
Access to projects
Decision making and negotiations
Reporting and support
Divesting and generating return
19
Exit possibilities
Investor look for exit possibilities to realize return Sale of shares => very difficult Exit via different channels possible: Merger & Acquisition (M&A) Management Buy-out (MBO) Initial Public Offering (IPO)
20
10
Mind-set of Pharma
Fuel pipeline Portfolio approach Compete with Investors Collaboration vs. acquisition Are dependent on Biotech Tend to get involved earlier
21
Risk vs. Return

Expected Return
Pre-clinical
Phase I
Phase II
Public Market
Phase III Product on the market Government Bond
Venture Capital
Risk
22
11
Biotech vs. Dow Jones
23
Riskpremium vs. Value
A dj
Valu
us t me
nt
e Ad
ded
Liqu
idity
Systematic risk riskless rate of return
Seed Leads
Start-up Pre-clinical
First Stage Phase I
Expansion Stage Phase II
IPO phase III

24
Company value
Discount rate
Ca s hF
l ow
12
Risk as a major factor

1. What is risk? 2. How can we capture risk? 3. How can risk be quantified?
25
What is Risk?
The quantifiable likelihood of loss or lessthan-expected returns. (source: investorwords.com)
If outcomes will occur with known or estimable probability, the decisionmaker faces a risk. Certainty is a special case of risk in which this probability is equal to zero or one. (source: about.com)
26
13
Risk as a major factor

1. What is risk? 2. How can we capture risk? => Assessment of the company 3. How can risk be quantified? => rating of factors
27
From risk to assessment

1. Understand the fundamentals 2. Assumptions drive the valuation => assessment is key Assessment: 1. Management 2. Market 3. Technology
28
14
Overview Course
9.00

10.30 11.00 12.30 14.00
Break
15.30 16.00 17.00 17.30
Break
Closing
29
Assessment
Why is assessment important? Valuation is all about assumptions Understand the risk Quantify the risk Different perception of company
30
15
Valuation Framework
Qualitative Analysis (Softfactors)
Risk Analysis
Quantitative Analysis
Management Market Science & Technology

discount rate
Cas hF low Adj ustm ent Value Adde d Liquid ity Pr emium
systematic risk premium risk free base rate
Seed
Start-up
First Stage
Expansion Stage
IPO
Company Stage
Valuation
31
Value Drivers
Soft factors are essential ... - Management - Market - Science & Technology ... and the company stage to define the risk profile of company
Qualitative Analysis (Softfactors)
Risk Analysis
Quantitative Analysis
Management
Cas h Flow
discount rate
Adj
Market Science & Technology
Valu e Adde d Liqui dity Prem ium
ustm ent
sy stematic ris k pr emium risk free base rate
Seed
Start-up
First Stage
Expansion Stage
IPO
Company Stage
Valuation
32
16
Management
1. Completeness skills 2. Track record / experience 3. Motivation / Incentive structure 4. Organization 5. Emotional intelligence / social competence 6. Composition and involvement of boards
1 none / very poor 2 low / poor 3 4 5 6
insufficent sufficent
good
high
33
Market Environment
Industry Structure: (Five forces by Michael Porter)
1. Threat of new Entry 2. Rivalry among existing competitors 3. Pressure from substitute products 4. Dependencies on customers 5. Dependencies on suppliers
6. Current and future market potential 7. Customers 8. Political / legal dependencies 9. Cost and Sales estimations
1 2 3 4 5 6 none / low / insufficent sufficent very poorCopyright 2012 Venture Valuation. All Rights Reserved. poor
good
high
34
17
Sciences & Technology

1. Intellectual Property (IP) 2. Unique selling proposition 3. Alliances/partnerships 4. Management of future discoveries 5. Time to market
1 none / very poor 2 low / poor 3 4 5 6
good
high
35
Company stages
source: Schmidtke.
36
18
From Rating to Valuation

Discount rate
Discount rate
1 none / very poor
2 low / poor
Cash
Flow
Value Adde d
Adjus tmen t
early stage expansion stage first stage financing second st. financing later stage
good
devesting
high
Liquid ity
Systematic risk riskless rate of return
Venture phase
Seed
Start-up
First Stage
Expansion Stage
IPO
seed financing
start up financing
profit loss
Assessment / Rating
Adjustment factor for relative valuations

37
Rating - Assessment
-
Management (rating 1-6) Market (rating 1-6) Product, Sciences & Technology (rating 1-6) Score to determine at upper or lower end of spectrum Start-up Stage: 50% to 70% Discount rate
=> => => => 50% - 55% 55% - 60% 60% - 65% 65% - 70%
38
Score
above 95 70 95 45 70 below 45
19
Overview Course
9.00

10.30 11.00 12.30 14.00
Break
15.30 16.00 17.00 17.30
Break
Closing
39
Valuation Methods
Content Introduction Methods Discounted Cash Flow Other Valuation approaches Example
40
20
High growth Companies

-
Often no revenues / earnings Value = potential of the future and associated risk Influence factors: Management Market Science and Technology Stage of company
41
Valuation Approaches
Operations-based methods: business plan, fundamentals Market-based methods: price, trends, comparison difficulties
Discounted Cash Flows (DCF) rNPV* Method Real Options Venture Capital method Market Comparables Comparable Transactions
Operations methods Mixed method Market methods
* rNPV: risk adjusted net present value)

42
21
Used Methods
-
Cash Flow based Method (DCF) Relative valuation Method Venture Capital / Exit based Method rNPV Method Option pricing Method
=> there is no the right method => combination of different methods
43
Valuation Methods
44
22
Discounted Cash Flow

Machine to produce one 100 USD bill in 3 years Risk = 0 Discount rate = 8% (time value of money) No input needed
Value of machine?
(one time in year 3) (every year)
100 (1.08)3 79.4

100 0.08
1250
45
Basic DCF
46
23
Discounted Cash Flow

1
Determine Free Cash Flows for year 1 to 5 or 3/10
FCF
2
Calculate Terminal Value
Terminal Value
3
Discount to PV
Discount with Discount Rate
4 $$$$
Add FCF
Sum of Free Cash Flows
47
Free Cash Flow

1
FCF
Determine Free Cash Flows for year 1 to 5 or 3/10
2
Terminal Value
3
Discount to PV
4 $$$$
Add FCF
Revenues - Costs - Depreciation = Earning before interest and tax (EBIT) - Taxes = Operating Profit + Depreciation = Cash Flow - Investments - Change in Working Capital = Free Cash Flow (FCF)
48
24
Calculate Terminal Value

1
a) Normalized Free Cash Flow (nFCF):
FCF
2
Terminal Value
last year as basis plus growth rate

(estimate: nFCF = FCF5*(1+g))
3
Discount to PV
b) Terminal value (TV): perpetuity based on nFCF & growth rate

TV = nFCF (d-g) d: discount rate g: growth rate
4 $$$$
Add FCF
Growth rate (g): industry long-term growth
49
Discount rate
1
FCF
Assumptions: interest rate i=10% today (K0) 1.00 EUR 0.62 EUR future (K1) (n=5 years) n 1.61 EUR K0(1+i) n 1.00 EUR K1/(1+i)
2
Terminal Value
3
Discount to PV
Content of the discount-rate: - Depreciation of currency and - Risk => Qualitative analyzes => = 1.6 X
4 $$$$
Add FCF
50
25
Discount rate
1
FCF
2
Terminal Value
Discount rate: - 1) Time value of money (risk free rate) - 2) Risk of getting the money back - Risk of Equity Risk of Debt Risk can be measured in different ways: - Credit Rating - Rating (Moodys) => Assessment - Attrition rate for product development - Volatility of stock - Company stage
3
Discount to PV
4 $$$$
Add FCF
51
Discount rate
1
FCF
2
Terminal Value
3
Discount to PV
a) Company stage 1 Seed Stage leads 2 Start-up Stage pre-clinical 3 First Stage phase I 4 Second Stage phase II 5 Later Stage phase III
70% 50% 40% 35% 25%
to to to to to
90% (20x)* 70% (10x)* 60% (8x)* 50% (6x)* 40% (5x)*
*X-times the investment in 5 years necessary => (1+80%)^5 = 19x
4 $$$$
Add FCF
b) Rating based => Determine area within range

52
26
WACC - Discount rate

1
WACC: weighted average cost of capital
FCF
2
Terminal Value
Cost of equity: Cost of debt: Equity ratio: Debt ratio:
50% 15% 0.8 0.2
3
Discount to PV
4 $$$$
Add FCF
WACC: 0.8*50% + 0.20*15% = 43%
53
Sum of FCF (NPV)

1
FCF
2
Terminal Value
In 1000 EUR
Year 1 -99 -99 (1.35)1 -73
Year 2 76 76 (1.35)2 42
Year 3 126 126 (1.35)3 51
Year 4 137 137 (1.35)4 41
Year 5 128 128 (1.35)5 29
TV 500 500 (1.35)5 112 201
FCF formula
3
Discount to PV
PV Total (sum)
4 $$$$
Add FCF
54
27
Valuation Methods
55
Liquidation value
Machine made of pure silver weights exactly 30 ounce Silver: USD 15 / ounce
Value of machine? Liquidation value: 450 USD Continue use: 1250 USD
56
28
Relative Value
no known market price for silver similar USD 100-machines have traded 9 and 15 times their estimated annual output
Value of machine? => Value range 900 USD to 1500 USD
57
Market Comparable
Ratio
Revenues Earnings EBITDA Employees Company specific factors
Company Value: EUR 10 m 50 employees
10 employees Company Value: EUR 2 m*

* (10/50) x 10 m = 2 m
58
29
Exit value (VC Method)

Value of machine in 5 years is 1800 USD Machine will produce USD bills from year 6 50% probability machine will break in first 5 years
Value of machine? => USD 1800 * 50% = 900 USD
59
VC method
Exit Value Present Value
Present today year 1
Future Exit year
60
30
Summary Methods
Cash flow based Market comparable Exit value Average (value) Price vs. Value: 1. Collector is prepared to pay 1600 2. Nobody is interested 1250 900 - 1500 900 1017 - 1217
61
Valuation Methods
62
31
EXAMPLE Bio-tech AG
Valuation of Bio-tech AG Company founded 2002 Service company Screening for Biotech companies First revenues from screening services Requires investment of: EUR 100000 Financing stage: First Stage Valuation according to DCF method
63
EXAMPLE Bio-tech AG
Data of Bio-tech AG Good, experienced management Medium market size, little expansion possibilities / ambition Product innovation small, me-too, inexpensive production Qualitative analyses produces the following data: Discount rate Growth rate (d): (g): 35% (medium risk) 7%
64
32
EXAMPLE Bio-tech AG
Year 1
Revenues Costs Profit / Cash Flow Investments Free Cash Flow (FCF)
+ = =
240 239 1 100 -99
65
EXAMPLE Bio-tech AG
Liquidity plan
Revenues Service 1 Revenues Service 2 Revenues total Material Staff Marketing Lease, Infrastructure others Costs total Profit / Cash Flow Investments Free Cash Flow (FCF) + + = + + + + + = = = year 1 240 240 96 105 10 18 10 239 1 100 -99 year 2 320 75 395 158 105 10 18 8 299 96 20 76 year 3 410 120 530 212 131 10 18 8 379 151 25 126 year 4 430 190 620 248 157 15 18 10 448 172 35 137 year 5 510 210 720 288 209 15 18 12 542 178 50 128
66
33
EXAMPLE Bio-tech AG
Calculation of Continuing value (CV) nFCF from year 6*: Terminal value (TV): Calculation (with d = 35%; g = 7%):
* estimated based on year 5
140000 500000
CV =
nFCF (d-g)
140000 (0.35-0.07)
= 500000
67
Bio-tech AG
In 1000 EUR
Year 1 -99 -99 (1.35)1 -73
Year 2 76 76 (1.35)2 42
Year 3 126 126 (1.35)3 51
Year 4 137 137 (1.35)4 41
Year 5 128 128 (1.35)5 29
CV 500 500 (1.35)5 112 201
FCF formula PV total (sum)
FCF: Free Cash Flow CV: Continuing value
68
34
Value of Bio-tech AG
Implication for investment Company value (pre-money) is around EUR 201000 Investor receives around 33% of the company for his investment of 100000 The founders will have around 67%
Pre-money Value Investment
100 33.2% 201 66.8%
69
Overview Course
9.00

10.30 11.00 12.30 14.00
Break
Product valuation / Deal structure Product valuation / Deal structure Q&A Final discussion and Wrap up
15.30 16.00 17.00 17.30
Break
Closing
70
35
Case Study Glycart

- Glycart acquired by Roche in July 2005 - For USD 180 m - Swiss company; founded in 2000 spin-off from ETH in Zurich - Technology platform to enhance the activity of therapeutic antibodies (cancer / autoimmune diseases) - Pre-clinical products - Existing collaboration with Roche (1 year) - 30 employees
71
Case Study Glycart

- Raise USD 31 m in the past - Planned to raise another USD 35 m => valuation too low - Acquisition offer by mid-sized Pharma auction process / parallel fund raising
72
36
Case Study Glycart

Valuation: Pre-clinical compounds USD 180 m? Technology Platform? Keeping control?
USD
Value enhancement for own products?
Synergies
Value
Value
Case Study GeneData

1. Assess Genedata according to grid 2. Perform Valuation of Genedata 3. Decide if you would buy shares (yes / no)
Price paid
73 74
37
Introduction Case Study

Case Study
1. GeneData 2. Novartis Venture Fund 3. Venture Valuation
Portfolio Company
Valuation Advisor
Investor
75
Gene Data Assessment

- Strong Management, but too focused on sciences rather than business - 1999 as strong market for Bioinformatics - Sophisticated products, innovative development approach
Weak Management Market Science & Technology
Medium X
Strong
X X
76
38
Gene Data Stage
- Just to become profitable - Starting international expansion, product ready => First stage financing => discount rate 40% - 60%
77
Gene Data Cash Flow

in USD 000s
2000 6200 1400 2250 80 20 2450 80 517 80 1933
2001 2000 4000 80 50 4870 80 500 100 4350
Planned 2002 2003 2500 8000 100 1850 5550 100 583 100 4967 3500 11000 100 3600
2004 4500 16000 100 6100
Sales - R&D expenses - Other Costs - Depreciation - Tax Net Profit (NOPLAT) + Depreciation - Change in Working Capital - Investments Free Cash Flow (FCF)
11000 18000 29000 45000
10800 18300 100 917 100 9883 100 1333 100 16967
78
39
Gene Data assumptions

Some Calculations - Discount rate (d): 42% => based on stage and assessment/risk profile - Growth rate (g): 15% => Based on industry growth - Normalized FCF (in USD 000s): 17000 => based on FCF in 2004 - Terminal Value: 62963 => 17000 / (42%-15%)
79
Gene Data Valuation

Valuation:
2000 FCF (in 1'000 $) Discount Present value Value 1933 2001 4350 2002 4967 0.349 1'735 2003 9883 0.246 2'431 2004 0.173 2'939 TV 0.173 10'905
16967 62963
0.704 * 0.496 1'361 = 2'157 21528
Discount: 1/(1+d)^year => 1/(1.42)^5 = 0.173

80
40
Gene Data Sensitivity

Sensitivity Analysis
Discount (d) 38% 40% 42% 44% 46% 11% 24'270 22'037 20'121 18'462 17'015 13% 25'277 22'845 20'776 18'999 17'459 Growth rate (g) 15% 17% 26'458 23'781 21'528 19'610 17'960 27'865 24'881 22'401 20'311 18'530 19% 29'567 26'189 23'425 21'125 19'185
81
Gene Data Today

- Leading Bioinformatics company - Still privately owned - 125 employees - Locations: Japan / US / Germany / Switzerland (HQ) - Clients include Pharmaceutical, Agrochemical, Industrial Biotechnology and Non-Profit Research Organizations
www.genedata.com
82
41
Overview Course
9.00

10.30 11.00 12.30 14.00
Break
15.30 16.00 17.00 17.30
Break
Closing
83
42

AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b

Hochgeladen von

Dokumentinformationen

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b

Hochgeladen von

Copyright:

Verfügbare Formate

INCT-if INTERNATIONAL WORKSHOPS ON PHARMACEUTICAL R&D

Mdulo 4: Valorao de Empresas e Produtos - PARTE 1/2

Palestrantes: Patrik Frei, PhD

Company and Product Valuation for Pharma and Biotech

10.30 11.00 12.30 14.00

Lunch Case study Company valuation

15.30 16.00 17.00 17.30

Copyright 2012 Venture Valuation. All Rights Reserved.

INCT-if International Workshops on Pharmaceutical R&D April 2012

Scope of this course

Copyright 2012 Venture Valuation. All Rights Reserved.

INCT-if International Workshops on Pharmaceutical R&D April 2012

14 64 27 59 44 100 56 60 154 996

In total there are over 23000 companies in the database.

INCT-if International Workshops on Pharmaceutical R&D April 2012

Copyright 2012 Venture Valuation. All Rights Reserved.

Copyright 2012 Venture Valuation. All Rights Reserved.

INCT-if International Workshops on Pharmaceutical R&D April 2012

Copyright 2012 Venture Valuation. All Rights Reserved.

0.5 m 25% 1.5 m 75%

Pre-money value Investment

INCT-if International Workshops on Pharmaceutical R&D April 2012

rNPV: risk adjusted net present value

=> On going exercise

Copyright 2012 Venture Valuation. All Rights Reserved.

INCT-if International Workshops on Pharmaceutical R&D April 2012

Copyright 2012 Venture Valuation. All Rights Reserved.

INCT-if International Workshops on Pharmaceutical R&D April 2012

Return 3% 5% 9% 20% 50%

Copyright 2012 Venture Valuation. All Rights Reserved.

INCT-if International Workshops on Pharmaceutical R&D April 2012

Mindset of Investors Example

Copyright 2012 Venture Valuation. All Rights Reserved.

Venture Capital Cycle

IPO, Trade sale 18

Copyright 2012 Venture Valuation. All Rights Reserved.

INCT-if International Workshops on Pharmaceutical R&D April 2012

Due Diligence / Assessment

Decision making and negotiations

Reporting and support

Divesting and generating return

Copyright 2012 Venture Valuation. All Rights Reserved.

Copyright 2012 Venture Valuation. All Rights Reserved.

INCT-if International Workshops on Pharmaceutical R&D April 2012

Copyright 2012 Venture Valuation. All Rights Reserved.

Risk vs. Return

INCT-if International Workshops on Pharmaceutical R&D April 2012

Biotech vs. Dow Jones

Copyright 2012 Venture Valuation. All Rights Reserved.

Riskpremium vs. Value

Systematic risk riskless rate of return

First Stage Phase I

Expansion Stage Phase II

IPO phase III

Copyright 2012 Venture Valuation. All Rights Reserved.

INCT-if International Workshops on Pharmaceutical R&D April 2012

Risk as a major factor

Copyright 2012 Venture Valuation. All Rights Reserved.

Copyright 2012 Venture Valuation. All Rights Reserved.

INCT-if International Workshops on Pharmaceutical R&D April 2012

Risk as a major factor

Copyright 2012 Venture Valuation. All Rights Reserved.

From risk to assessment

Copyright 2012 Venture Valuation. All Rights Reserved.

WACC: 0.850% + 0.2015% = 43%