http://avance.ri-val.com/images/top_band_a.jpg http://www.avance.ch 125 44 Bookmark the Avance Valuation Blog and always stay informed about the latest insights in valuation. Use the above subscription button for this. Avance regularly publishes a newsletter News in Avance to stimulate discussions about valuation within the pharma and biotech industry. Make sure you don't miss an update by subscribing to it. http://www.avance.ch Deepen your valuation skills with this extensive two-day workshop in San Diego. In this hands-on course you will learn how to use Excel for valuation in biotech and pharma. The first day will teach you how to structure and value license deals, while the second day will deal with the valuation of the company and technology either for fundraising, investing, or strategic decision taking. Solving a case study in Excel on your own laptop on each day, you will be well prepared to take the learned skills back into practice. http://www.avance.ch/newsletter/San_Diego_oct11.html It becomes increasingly common to stage phase 2 trials with a phase 2a and a phase 2b trial. This makes a lot of sense from an operational and risk reducing point of view, but how do we determine the probabilities for these trials? Typically, only transition probabilities for the regular phase 1, 2, 3, paradigm are published. We tell you how to figure out the probabilities you need. http://www.avance.ch/avance_on_phase2ab.html In an option agreement the pharma company pays a license fee and receives the right to in-license the project at a later point at predetermined terms. What are the reasons for these contracts and how can we value them? http://www.avance.ch/avance_on_options.html You might have heard it already: "Early-stage projects always have a negative NPV." Or "Sales estimates are so far off that you cannot rely on these valuations." What does that have to do with Black Jack? Read on and find out. http://www.avance.ch/avance_on_early_stage_myths.html Deepen your valuation skills with this extensive two-day workshop in Basel. In this hands-on course you will learn how to use Excel for valuation in biotech and pharma. The first day will teach you how to structure and value license deals, while the second day will deal with the valuation of the company and technology either for fundraising, investing, or strategic decision taking. Solving a case study in Excel on your own laptop on each day, you will be well prepared to take the learned skills back into practice. http://www.avance.ch/newsletter/HTML_Basel.html Forecast-based valuation methods include attrition risk either by adjusting cash flows by their probability (rNPV) or by adding a spread to the discount rate (NPV). We take a look at the two methods and how reliable discount tables in the literature are. http://www.avance.ch/avance_on_NPV_vs_rNPV.html Deal analysis CellGenesys - Takeda. Possible sales expectations, milestone distribution, and royalty rates. http://www.avance.ch/newsletter/docs/CellGenesysTakeda.pdf In corporate finance a major problem is project risk and how it influences the discount rate. Should we discount each project with a different discount rate or should we use one discount rate for the whole company? This question becomes particularly interesting in the case of license contracts where usually a company with a high cost of capital negotiates with a company with a low cost of capital. Is the project simply worth more because it is in a big company’s hands? Or is this all wrong? http://www.avance.ch/avance_on_project_discounting.html This article shows that the calculation of the tax value for not-yet-profitable companies needs special consideration, especially if the company is to reach profitability only with a certain probability. Unlike the case of profitable companies, the value diminishing effect of taxes for start-ups is much stronger than the tax rate itself. The article also takes a look at the effect of diversification within a company. Until now, diversification has generally been regarded as a pure risk aspect that might be rewarded with a lower cost of capital. This article exhibits how diversification has a direct effect on valu e by improving the tax value. http://www.bepress.com/jbvela/vol5/iss1/art6 Fischer Black, the first half in Black-Scholes, proposed a valuation method that uses the observable risk-free rate as discount rate. Given that the discount rate is always a matter of discussion in valuations, this approach looks very tempting. We analyse this valuation approach in the context of a drug development project. http://www.avance.ch/avance_on_Black_discount_rule.html Deal analysis Ardea - Bayer. Possible sales expectations, milestone distribution, and royalty rates. http://www.avance.ch/newsletter/docs/ArdeaBayer.pdf Biotech stocks sometimes react enormously to clinical news and are a pretty unique species in that respect. Are these value jumps justified and can we even predict them with a financial model? We have looked at the most recent developments on the stock exchanges. http://www.avance.ch/avance_on_biotech_events.html Deal analysis Plexxikon - Roche. Possible sales expectations, milestone distribution, and royalty rates. http://www.avance.ch/newsletter/docs/PlexxikonRoche.pdf Drugs are expensive compared to their cost of goods, and pharmaceutical companies are far more profitable than leaders in other industries. Pharma typically justifies the prices with high RD expenditures. The truth is more complex with farther-ranging implications. http://www.avance.ch/avance_on_drug_prices.html Deal analysis Celldex - Pfizer. Possible sales expectations, milestone distribution, and royalty rates. http://www.avance.ch/newsletter/docs/CelldexPfizer.pdf Deal analysis KyowaHakkoKirin - Amgen. Possible sales expectations, milestone distribution, and royalty rates. http://www.avance.ch/newsletter/docs/KyowaHakkoAmgen.pdf Recently several staged take-overs made headlines. What are the reasons for this structure, who profits from such a deal? And what is the implication on valuation? http://www.avance.ch/avance_on_staged_deals.html the risk premium is an important input factor for the cost of capital. Current stock market performance yields unusable results when calculating the risk premium for the CAPM. We show in this article why this is the case, why CAPM still is a good model, and how we can get more resonable measures for the risk premium. http://www.avance.ch/avance_on_risk_premium.html When performing a valuation of a biotech company, you need to know the probability that the projects make it to the market. Historically, the success rates of biological drugs were much higher than the ones of chemical compounds (NCEs). But do these figures also hold for biotech companies, i.e. companies without a large portfolio of revenue generating products? http://www.avance.ch/avance_on_NCEs_vs_NBEs.html Real options have been applied to drug development projects in many case studies. Unfortunately, in most cases the method has been abused for marketing purposes of self-proclaimed specialists to the cost of the trustworthiness of the results. We tell you how to correctly use real options, we pinpoint at the various errors, and we give you an overview of teh applicability of this valuation method. http://www.avance.ch/avance_on_real_options.html What's the optimal portfolio structure ensuring sustainable growth? Read in this article how to determine the optimal portfolio structure and how your company compares to it. http://www.avance.ch/avance_on_portfolio_structure.html Learn how to calculate the value - accepted by auditors and tax authorities - of your employee stock option plan. Include value reducing effects such as ealy execution, fluctuation, and dilution. http://www.avance.ch/avance_on_ESOP.html Don't waste time finding deal terms that match more or less industry standards. ri:val calculates the optimal term sheet for you. You aim at a 40%-60% value share with a minimum upfront payment of USD 5 Mio? No problem, ri:val gives it to you by just pressing a button. http://www.ri-val.com/knowledgebase_deal_structuring.html We have studied the clinical pipelines of public biotech companies going back to 2002 based on financial reports and found a striking difference of success probabilities compared to data derived from pharmaceutical companies. The success rates resulting from the analysis are discussed, especially in view of their implications to the management of biotech firms and investments in these companies. http://www.avance.ch/avance_biotech_success_rates.html Many biotech companies start as a spin-off from a university. The university participates in the success of the company either via an equity participation or a license contract concerning the to-be-developed IP. These early-stage contracts are a challenge for tech transfer officers and biotech entrepreneurs alike. In this article we explain how to structure these contracts. http://www.avance.ch/avance_on_sublicensing.html Have you ever felt bothered that in a valuation you have to assume sharp input parameters (e.g. US$ 317 Mio sales), while your estimates are rather vague ranges? ri:val now allows you to define your input parameters using a multitude of distributions. If you are not exactly sure about the costs, the sales, or the timelines of a project, then use the multivariate analysis of ri:val v3.3. Read more in the article. http://www.ri-val.com/knowledgebase_multivariate.html Avance has been cited in a feature article in Nature Biotechnology (January 2009) about the effects of the financial crisis on the biotechnology industry. Read the full Nature Biotechnology article here. http://www.avance.ch/downloads/bloodbath.pdf Avance conducted a survey amongst industry practitioners about the effect of the current financial crisis on biotech and pharma companies. Potential licensors and licensees alike agree that there will be more deals, but companies with cash will make use of their better bargaining position. http://www.avance.ch/avance_survey.html If you think valuation is boring then take a look at this article. We present some interesting, albeit wrong valuation methods, and some rather adventurous thoughts about how value could be determined. http://www.avance.ch/avance_on_funny_valuations.html The terminal value is taught in every text-book about valuation. In the drug development industry all projects are unique, have a very long life cycle and are hard to replace. The terminal value does not take account of these features and is unsuitable for the valuation in drug development. We discuss why. http://www.avance.ch/avance_on_terminal_value.html Up-tiered royalties are counter-intuitive and don't seem to incentivize the licensee. But they are the only reasonable structure to share the economic success. We show why. http://www.avance.ch/avance_on_tiered_royalties.html In the folllowing we will discuss the results when using ri:val for the sensitivity analysis of license contracts. We will see how biotech and pharma have different sensitivities and how these can be relevant when negotiating license deals. http://www.ri-val.com/knowledgebase_sensitivities.html Many compounds offer themselves for the treatment of various indications. When licensing such compounds, the valuation of tiered royalties and commercial milestones contains some pitfalls. In this article we explain how to handle and use them to negotiate better deal terms. http://www.avance.ch/avance_on_multi-indication.html Analysts have developed some strange short-cuts to value companies that do not fit the standard model of profitability and forecastability like biotech. We take a closer look at the P/E ratio. http://www.avance.ch/avance_on_PEratio.html Co-development deals are an attractive alternative to plain out-licensing. We explain in the following article how to easily to value those deals using our virtual company approach. http://www.avance.ch/avance_on_co-development.html Taxation of biotech companies is not important when performing a valuation, you might think. Most valuations underestimate the tax effect by wrongly implementing tax in their spreadsheet calculation. We show in the following article the effect of taxes on valuation and how to correctly apply the insights. http://www.avance.ch/avance_on_tax.html The following article gives a guideline on how to interpret press releases on license deals. http://www.avance.ch/avance_on_reading_deals.html The common way to raise capital in equity rounds is for many companies unattractive because they cannot get a fair valuation. Consequently, the new investors would excessively dilute existing shareholders. In the biotech industry companies have various alternatives to equity financing that limit dilution of shareholders. The following article gives a brief overview of pros and cons of the different financing alternatives. http://www.avance.ch/avance_on_funding_alternatives.html This first article on sales forecasting explains how to estimate the effect of different competition scenarios to estimate peak sales. http://www.avance.ch/avance_on_predicting_sales.html While most valuation parameters can be justified referring to market research, publications, or historical data, the models for the discount rate are surprisingly poor. Standard approaches like CAPM yield unsatisfactory results, and adjustments to the calculated discount rate are prone to subjective assumptions. This article explains how you can determine a realistic discount rate that corresponds to the market reality. http://www.avance.ch/avance_on_discount.html We have performed an analysis of 22 recent early-stage license deals where Avance was involved in the structuring and/or valuation. http://www.avance.ch/avance_on_deals.html It takes US$ 802 Mio to take one drug successfully to market. This was Joseph DiMasi's central message in his article in 2003 about R&D costs. This number has been cited many times and has been abused in many ways. US$ 802 Mio should discourage any rational investor from investing into drug development. In 2007 DiMasi rerun his study with new data, especially with a new set of success rates. http://www.avance.ch/avance_on_dimasi.html