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Biotech / Medical : Biotech Valuation
CRSP 52.79+3.3%2:05 PM EST
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To: Icebrg who wrote (7841)2/10/2003 6:21:26 PM
From: Biomaven  Read Replies (2) of 52153
 
Erik,

Thanks for re-posting that MF post on biotech valuation.

My overall comment is that it's simplistic in that it treats all drug candidates as equivalent, just so long as they are in the same phase. A phase III drug for a big indication that is based on solid Phase II results (something like NBIX's Indiplon) is very different from a "go for broke" Phase III that would have been killed at birth (or maybe Phase I) by any self-respecting pharma.

I don't disagree with the overall valuation methodology. My own version of this (discussed way back near the beginning of this thread) is to look at potential peak sales for a drug, assign a reasonable P/S ratio and then discount the resulting large amount for both the chance of approval and also for the time value.

IJ did just this for the model he constructed for SEPR - too bad the model turned out to be wrong on some of the probabilities of success and didn't take into account the issue of the convertible debt.

Right now the market appears to be assigning negative value to most early stage projects. Only time will tell if the market is correct in this assessment.

A friend of mine a few years back (in the good old days) did do a regression analysis of a bunch of second-tier biotechs and came up with a formula for how much each product candidate in each phase was worth. I'm not sure whether people would now laugh or cry if they could see the numbers it showed.

Peter
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