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Acknowledgements xi 1 Introduction 1 Biotechnology Background 5 2 Traditional Valuation Methods 11 The Value of a Company 11 Accounts ? Providing the Data for Valuation Analysis 12 The Income Statement 13 Balance Sheet 17 Cash Flow Statement 20 Income Statement Multiples 22 Balance Sheet Multiples 26 Summary 27 Discounted Cash Flow Analysis 27 Net Present Value 27 Constructing the DCF 28 Projecting the Cash Flow Stream 29 Choosing a Discount Rate 30 Other Thoughts 37 3 The Drug Development Process 39 The Drug Development Process 40 Drug Discovery and Research 44 Pre-Clinical Development 44 Clinical Trials 48 What Investors Should Look For When Analysing Clinical Trials 56 Conclusion 59 The Regulatory Process 59 Regulation in the US 60 Regulation in Europe 63 The Label 64 Timelines for Approval 65 Post Approval 65 Investment Lessons 66 Case Study # 1 66 4 Biotechnology Company Valuation 69 Data Collation 71 NPV of the Pipeline 75 Calculations 80 Sensitivity Analyses 86 DCF of Whole Company 92 EBIT DCF of Products 97 Comparables Valuation 99 NPVs are Additive 101 Using all the Tools Available to Reach a Valuation Conclusion 101 Market Models 104 Conclusion 105 Appendix 1 106 Example 1 106 Example 2 108 Example 3 108 Appendix 2 116 Biosimilar Update 116 5 Decision Trees and Real Options 119 Decision Trees 120 Discount Rate 124 Deriving Scenarios 125 Conclusion 125 Decision Tree Example 126 Real Options 126 Valuing Options 129 Estimation of the Input Variables 138 Conclusions 139 6 Biotechnology Investing 141 Types of Healthcare Investment 141 Biotechnology Sector Evolution 143 Biotechnology Investment Cycles 145 Biotechnology Business Models 152 Focus on People 154 Cash 155 Product Pipeline 155 Commercial Risks 156 Newsflow 158 Lessons from Biotech Investing 160 7 Early-stage Valuation 161 Private Valuation 162 Discounted Cash Flow Method 166 Comparable Valuation 168 Venture Capital Method 170 Discount Rates 173 Conclusion 173 Glossary 175 References 189 Index 193 |