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Biotech / Medical : VD's Model Portfolio & Discussion Thread

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To: Andrew H who wrote (1457)	6/26/1997 10:05:00 PM
From: biowa	of 9719

!Kung, >> Care to provide a simple example and explain a bit more about how one arbitrarily choses a reasonable pv?<< You should know better than to ask an academic for a simple example...by the way, I assume you mean a reasonable discount rate? IMO, 20% is often the starting point for a company in a fairly stable industry, with reasonably predictable and current earnings. You might add 5% to that for companies that depend on risky pipelines for continued earnings growth or in a rapidly evolving industry, that have somewhat predictable and current or very near term earnings (i.e., only the most stable biotechs) for a rate of 25%. You might give companies with ongoing positive net income expected in the next year or two, a rate of 30-35%, based on a subjective judgement of several factors. Anything farther out than that may deserve a 35-40% rate. Note that VC typically expects at least a 40% return, and usually more like >50%, so you see that there is a regular trend as companies mature. This is all for example only. I probably wouldn't use exactly these numbers, and I'm sure V1 would differ from these as well, but I hope this helps. biowa

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