The purpose of this short article is to give the reader an understanding of the comparable method of Biotech valuation.
In other Medium Articles Banksia has discussed value modelling and the more technical rNPV (Reverse Net Present Value) valuation methods. Another common valuation method, often applied by the Large Pharma Companies is by ‘comparables’, i.e. looking at actual deal data from a similar Biotech company as a benchmark. You’ve probably applied this methodology if you’ve bought or sold something second hand online. “I have an item for sale, I wonder what I could sell it for?”. Most of us would look online for similar items for sale, gauge a price range and list the item within that range.
A secondary purpose for this short article is to give the reader some scope and scale of the value of succeeding Biotechs. The valuations and deal sizes can be truely staggering.
Below is a chart showing the range these deals and valuations can span.
The way comparables work in action would be if a Large Pharma Company wanted to do a deal with Banksia BioPharm, the overall deal including royalties would be a derivative of the company (Banksia) and its BaRA product’s value. If the Large Pharma Company decided that we were most like Crealta Holdings and Seres Therapeutics (see above), the overall deal value would be in the US$500 to US$510 Million range.
So that’s how Biotech Valuation by Comparables works…