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

To: Icebrg who wrote (7841)	2/7/2003 12:09:38 PM
From: keokalani'nui	Read Replies (1) \| Respond to of 52153

I suggest the need for additional discounts beyond the odds of clinical failure: 1. The nobody-really-has-an-answer discount applicable to anything in the IP portfolio other than COM, practically not quantifiable but contemplating worthlessness within the range. 2. The management pinnochio discount, not being totally truthful about clinical results or conversations with the FDA. 3. The big pharma clinical submarine discount; that is, you unexpectedly learn PFE just announced a 8000-pt expansion study using an existing 2x daily medication in your only indication which just commenced a 150-pt P2b, evaluating safety and efficacy, in an accute setting. 4. Inexperienced executive clueless discount; not able to see or understand what little value the company's platform, drug or service will add. This is elsewhere known as the white heart but empty head discount, and may be the most dangerous one of all.

To: Icebrg who wrote (7841)	2/10/2003 6:21:26 PM
From: Biomaven	Read Replies (2) \| Respond to 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