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Biotech / Medical : Biotech Valuation
CRSP 56.98+1.1%Nov 5 3:59 PM EST
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To: LLCF who wrote (23)3/1/1999 1:37:00 PM
From: Biomaven  Read Replies (1) of 52153
 
David,

I like the methodology and think it's certainly very useful to look projects the way the company probably does... is that where you got the idea to look the value this way?

Precisely. The point is Rick's "old-fashioned way" requires us to estimate the chance of success and the likely market size. Now Novartis knows a lot more about those two numbers than we do, and so if they are spending $100m on a drug that they only own half of, this tells us something interesting about their estimate.

This method is particularly useful when you are dealing with a "real" company with lots of real choices of where to spend their money. A biotech may spend $50m on their own trial just because they see no alternative to plowing ahead - "in for a penny, in for a pound" or maybe more appropriately:

I am in blood
Steeped in so far, that should I wade no more,
Returning were as tedious as go o'er

Peter
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