The value of any biotechnology company is affected by both the
overall environment for investing and partnering. These external factors change
with time; both investing and partnering are rebounding from the lows seen two
to five years ago. The local environment of investment also varies with the
sophistication, experience and location of the investors. For instance, West
Coast VCs tend to give higher valuations then East Coast VCs, but they like West
Coast companies and may ask you to move. The environment will affect the
valuation of a company when it is valued in comparisons to the current value
placed on comparable opportunities.
The important factors which investors will use when determining the value of
your company include: the stage of development, the technology, people and
market. Each investor may have a differing view on which of these 4 factors
is most important. Investors often self-select for their preference of stage of
development (company and first compound); therefore, it is important to match
potential investors with their pattern of investment. Arch Venture Partners,
Forward Ventures, CHL Medical Partners LP, Forward Ventures, Intersouth
Ventures, Convergent Ventures, LLC ,Skyline Partners, Assess Partners,
Abingworth Management Limited, Seaflower Associates, Inc., 5 AM Ventures all
have been involved in seed or early stage investments.
For many investors, technology, which includes intellectual property, is the
most important factor followed by the potential for the development of several
products based on a platform technology. For others the quality and experience
of the team of people is considered first. And of course the market size is
important as is the assessment of competition.
Their Value or Yours
For a very early stage biotech company the best way to assess value is through
assessing comparable companies. The task here is to network as diligently as
possible and dig out what the professional investors who focus on seed stage
deals are doing generally. Look for entrepreneur groups or clusters that can
serve as avenues to finding other entrepreneurs or professionals that work with
entrepreneurs. On-line resources for finding data funding obtained by companies
comparable to yours check out:
http://www.moneytreeinc.com
http://www.angelscorner.com/news.htm
http://www.cednc.org/news/regional_news/200
Your Check List
Parameters used to Value Biotechnology Companies
Intellectual Property
IP: Much of the value of an early stage biotech
company is in the strength of their patents and staff. Patents for new drugs
and therapeutic products give the owner the right to exclusive exploitation
for a period of 20 years
Quality R&D: To assess this VCs will analyze competitive government
R&D grants, reputation of the scientists involved, collaborations with
respected research institutions and interest in the company from industry
specialists
Platform Technology: Platform technology has the potential to yield a
range of many different drug candidates
Product Pipeline: A company that diversifies across a range of
product types will be less volatile than a company with only one product in
the pipeline.
The Stage of Development: Drug and Company
Commercial Development: Validation of academic
results in a commercial setting
Stage of Development: Assess what stage of the company's development
the company to estimate the time frame in which earnings can be expected.
Clinical Trials: Stage of clinical development can be used to assess
time to market.
Cash Reserves: Early stage biotech companies can consume large
amounts of capital for research and development, and may not report earnings
for a number of years.
The People
Senior Management and Other Key Staff: Look at the
management track record in delivering successful research milestones. It is
also important to consider the commercialization strategy of the company and
the quality of scientific advisers.
Quality R&D: To assess this look at award of government R&D grants,
reputation of the scientists involved, collaborations with respected
research institutions and interest in the company from industry specialists
The Market
Compare existing drugs to treat the disease and what the
estimated demand for the new drugs would be.
