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Biotech / Medical : Biotech Valuation -- Ignore unavailable to you. Want to Upgrade?

To: Biomaven who wrote (1380)	8/4/2000 2:10:19 AM
From: Dave K	Read Replies (1) \| Respond to of 52153

Peter, thanks for sharing your valuation skills. You have an interesting angle and I'm with you until... "One then looks at what the market is presently capitalizing such drugs at (perhaps 15x to 20x sales) and figure out what the market cap attributable to the drug will be at peak" Where do you find a breakdown of market cap attributable to an individual drug ? Relatively easy if you're looking at a company with only one such drug with sales but not so when the sales are derived from multiple drugs. Maybe an example could illustrate ? Thanks Dave

To: Biomaven who wrote (1380)	8/4/2000 11:12:52 AM
From: biowa	Read Replies (1) \| Respond to of 52153

Peter, Excellent post on a valuation alternative to the standard discount model. One bone to pick: No self respecting analyst should be using a 75% discount rate - to get that far back down the pipeline they'd have to be looking at target hits, maybe leads, no way they're valuing even pre-clinical candidates. Another alternative to your model is to break out the technical risk from the market risk. That is determine an expected revenue number based on the probabilities of various revenue levels given product approval and launch , this should take into account market risk. Then adjust this for technology risk at the stage of development using the standard heuristics (1 of 10 pre-clinical candidates make it to market, 1 of 5 PI candidates make it...), which if you really feel the need can be adjusted because it's "it's a simple variant of a known European-approved widely used drug ." Then the appropriate discount rate from peak year revenue is (depending which side of another argument you want to take) either the risk-free rate or the "ordinary business" rate for the company under consideration. biowa