Upload
bruno-thiebaut
View
225
Download
0
Embed Size (px)
Citation preview
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
1/43
INCT-if INTERNATIONAL WORKSHOPS
ON PHARMACEUTICAL R&DMdulo 4: Valorao de Empresas e Produtos - PARTE 1/2
Recife: 02 de abril de 2012So Paulo + Hubs de webconferncia*: 04 de abril de 2012
*Belm | Belo Horizonte | Braslia | Campinas | Curitiba | Florianpolis | Fortaleza | GoiniaJoo Pessoa | Manaus | Porto Alegre | Ribeiro Preto | Rio de Janeiro | Salvador
Palestrantes:
Patrik Frei, PhD
Fundador e CEO da Venture Valuation AG (Sua), empresa de consultoria especializada na prestao deservios de avaliao e valorao de empresas com elevado potencial de crescimento. Tambm produtora emantenedora da base de dados Biotechgate. Patrik autor dos livros Assessment and Valuation of highgrowth companies, Starting a Business in the Life Sciences: From Idea to Market e Building Biotechnology:
Starting, Managing, and Understanding Biotechnology Companies, bem como de inmeros artigos sobrevalorao, incluindo publicaes na Nature Biotechnology e Chimia. Anteriormente, foi CFO de empresaglobal no segmento de logstica e atuou em empresas de vrios pases. Graduado em Negcios pelaUniversidade de St. Gallen e Doutorado pelo Swiss Federal Institute of Technology, EPFL Lausanne.Recentemente, foi nominado como uma das 20 pessoas mais influentes no setor de cincias da vida, na Sua,pela revista de negcios Bilan, ao lado de indivduos notveis como Ernesto Bertarelli (Serono), Daniel Vasella(Novartis) e Henry B. Meier (HBM BioVentures).
Johan Ohlsson, MS
Analista de negcios na Venture Valuation AG. Especialista em avaliaes financeiras e estratgicas deempresas emergentes com alta taxa de crescimento. Juntamente com Patrik Frei, tem ministrado workshopsinternacionais em inmeros pases. Anteriormente, ocupou posies de executivo de desenvolvimento denegcios e analista estratgico na empresa Pharmalicensing. Tambm atuou como analista snior doBioseeker Group e como pesquisador na rea de oncologia no Microbiology and Tumor Biology Centre (MTC),KarolinskaInstitutet. Bacharel em Finanas e Mestre em Biologia Molecular pela Universidade de Sdertrn.
Organizao: Patrocnio:
x
Copatrocnio
Apoio:
http://www.cnpem.org.br/http://www.redemineirapi.com/scripts/site/?area=homehttp://www.fipase.org.br/8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
2/43
CT-if International Workshops on Pharmaceutical R&D April 2012 1
www.venturevaluation.com
CompanyCompany andand ProductProduct ValuationValuation
forfor PharmaPharma andand BiotechBiotechDr. Patrik Frei | Mr. Johan OhlssonDr. Patrik Frei | Mr. Johan Ohlsson
April 2012 | BrazilApril 2012 | Brazil
Copyright 2012 Venture Valuation. All Rights Reserved.
www.venturevaluation.com
Overview Course
9.00 Welcome & Introduction to Valuation
Assessment of the company prior to Valuation
10.30 Break
11.00 Company Valuation approaches
12.30
Lunch14.00 Case study Company valuation
Product valuation / Deal structure
15.30 Break
16.00 Product valuation / Deal structure
17.00 Q&A, Final discussion and Wrap up
17.30 Closing
Copyright 2012 Venture Valuation. All Rights Reserved. 2
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
3/43
CT-if International Workshops on Pharmaceutical R&D April 2012 2
www.venturevaluation.com
- Determine the value => assessment / valuedrivers
- Main valuation approaches, tools &techniques
- How to value a company
Scope of this course
Copyright 2012 Venture Valuation. All Rights Reserved. 3
www.venturevaluation.com
Mission
Offices Zurich, Europe (Munich, Lisbon, Ireland); NorthAmerica (Toronto, Halifax); Asia (Korea, India)
Collaboration in Brazil: Axonal ConsultoriaTecnolgica Ltda., So Paulo
Employees 7 people in Switzerland
7+ representatives / partners around the world
Scientists and finance experts
6 people in JV India Office
Independent assessment and valuation of
technology driven companies / products in
growth industries
Information services / Life Sciences Databases
Venture Valuation
Copyright 2012 Venture Valuation. All Rights Reserved. 4
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
4/43
CT-if International Workshops on Pharmaceutical R&D April 2012 3
www.venturevaluation.com
Track Record Over 250 valuated companies (world-wide)
Clients Investors, companies, government and academic
institutions
Expertise Finance experts work hand in hand with experienced
industry specialists (pharma, biotechnology, medical
technology and high-technology)
Products - Valuation Reports
- Licensing Candidate Search- Portfolio Valuation
Approach Workshop with company on site
COMPANY | PRODUCTS & SERVICES | SERVIC ES | VALUATION PROCESS | METHODS | BIOTECHGATE.COM | TEAM | ADVISORY BOARD | STATISTICS | REFERENCES | SCIENTIFIC BASIS | LOCATIONS
Valuation Service
Copyright 2012 Venture Valuation. All Rights Reserved. 5
www.venturevaluation.com
In total there are over 23000 companies in the database.
CountryBiotechTherap
Biotech -R&D Ser
Biotechrelated
PharmaMed-tech
www.Austrianbiotech.com 26 48 12 14 20
www.Canadianlifesciences.com 150 192 256 64 104
www.Frenchbiotech.com79 220 59 27 53
www.Germanbiotech.com 139 542 152 59 226
www.Indianbiotech.com 17 148 152 44 10
www.Italianbiotech.com 65 250 237 100 155
www.Scandinavianlifesciences.com 154 268 96 56 390
www.Swisslifesciences.com 90 166 61 60 352
www.Usalifesciences.com 1085 967 214 154 798
Total (www.biotechgate.com) 2346 3939 1792 996 2652
Biotechgate.com
Copyright 2012 Venture Valuation. All Rights Reserved. 6
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
5/43
CT-if International Workshops on Pharmaceutical R&D April 2012 4
www.venturevaluation.com
Partners Biotechgate.com
Copyright 2012 Venture Valuation. All Rights Reserved. 7
www.venturevaluation.com
Brazilianlifesciences.com
Copyright 2012 Venture Valuation. All Rights Reserved. 8
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
6/43
CT-if International Workshops on Pharmaceutical R&D April 2012 5
www.venturevaluation.com
Basics of Valuation?
Why?
When?
What?
Copyright 2012 Venture Valuation. All Rights Reserved. 9
www.venturevaluation.com
1.5 m
75%
0.5 m
25%
Pre-money value
Investment
- Value before investment (pre -money value): EUR 1,5 m
- Investment: EUR 0,5 m
- Value after investment(post-money value):EUR 2,0 m
- Share Investor:0,5 m / 2 m = 25%
Why Valuation
Copyright 2012 Venture Valuation. All Rights Reserved. 10
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
7/43
CT-if International Workshops on Pharmaceutical R&D April 2012 6
www.venturevaluation.com
- Out-licensing of a phase II product
- Deal terms: up-front CHF 1 mmilestones CHF 20 mroyalties 7%
- rNPV of product ?
- rNPV of deal ?
rNPV of product: CHF 30 m rNPV of deal: CHF 10 m
Splitt Biotech / Pharma: 33% / 66%
rNPV: risk adjusted net present value
Why Valuation
Copyright 2012 Venture Valuation. All Rights Reserved. 11
www.venturevaluation.com
- Think ahead
- Be prepared for negotiations
- Know the fundamentals
- What assumptions have been used
- Out-licensing or financing round?
=> On going exercise
When do a Valuation?
Copyright 2012 Venture Valuation. All Rights Reserved. 12
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
8/43
CT-if International Workshops on Pharmaceutical R&D April 2012 7
www.venturevaluation.com
Valuation of what?
1. Valuation of a product
Licensing deal
Strategic development decision
2. Valuation of a company
Investment / Financing round
Merger / Acquisition
Measure success of companydevelopment
Copyright 2012 Venture Valuation. All Rights Reserved. 13
www.venturevaluation.com
Definitions
Value: implies the inherent worth of aspecific thing
Price: depending on the market (supply /demand); whatever somebody is preparedto pay
Price is what you pay. Value is what you get.By Warren Buffett
Copyright 2012 Venture Valuation. All Rights Reserved. 14
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
9/43
CT-if International Workshops on Pharmaceutical R&D April 2012 8
www.venturevaluation.com
Rational on Valuation
Why assessment and valuation of high
growth companies?
- Industry lacks transparency
- Valuation is key issue in development
- Very difficult (high uncertainties)
- High potential for investors
- Long investment cycle- Traditional valuation methods unsuited
- Complex technology and IP situations
Copyright 2012 Venture Valuation. All Rights Reserved. 15
www.venturevaluation.com
Mind-set of Investors
Take high risk, but expect high returns
Pressure from investors
Compete in capital market
Probability of failure Return
Government Bond 0% 3%
Bonds 5% 5%
Blue Chip Company 10% 9%
Internet company (Nasdaq) 50% 20%
Biotechnology Company 80% 50%
Copyright 2012 Venture Valuation. All Rights Reserved. 16
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
10/43
CT-if International Workshops on Pharmaceutical R&D April 2012 9
www.venturevaluation.com
Mindset of Investors
Example Risk of failure of 80% (4 out of 5):
5 companies, investment of EUR 1 meach
One successful, 4 total loss
The successful company must financethe others (5 * EUR 1 m plus adequatereturn)
Copyright 2012 Venture Valuation. All Rights Reserved. 17
www.venturevaluation.com
Venture Capital Cycle
FF&F
Understand the Venture Capital Cycle
Look at the wholeCompanyLife Cycle
IPO,
Trade sale
Series CSeries BSeries A
VC
InvestmentExit
Required IRRRequired IRR
Venture Capital
Investment Cycle
Copyright 2012 Venture Valuation. All Rights Reserved. 18
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
11/43
CT-if International Workshops on Pharmaceutical R&D April 2012 10
www.venturevaluation.com
VC Investment Process
Deal
flow
Moni-
toringExit
Access to
projects
Reporting and
support
Divesting and
generatingreturnDecision making and negotiations
Initial
screening
Due
Diligence /
Assessment
Negotiation
Valuation
Copyright 2012 Venture Valuation. All Rights Reserved. 19
www.venturevaluation.com
Exit possibilities
Investor look for exit possibilities torealize return
Sale of shares => very difficult
Exit via different channels possible: Merger & Acquisition (M&A)
Management Buy-out (MBO)
Initial Public Offering (IPO)
Copyright 2012 Venture Valuation. All Rights Reserved. 20
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
12/43
CT-if International Workshops on Pharmaceutical R&D April 2012 11
www.venturevaluation.com
Mind-set of Pharma
Fuel pipeline
Portfolio approach
Compete with Investors
Collaboration vs. acquisition
Are dependent on Biotech
Tend to get involved earlier
Copyright 2012 Venture Valuation. All Rights Reserved. 21
www.venturevaluation.com
Risk vs. Return
Product on
the market
Risk
ExpectedReturn
Pre-clinical
Phase I
Phase II
Phase III
Government
Bond
Public Market
Venture Capital
Copyright 2012 Venture Valuation. All Rights Reserved. 22
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
13/43
CT-if International Workshops on Pharmaceutical R&D April 2012 12
www.venturevaluation.com
Biotech vs. Dow Jones
Copyright 2012 Venture Valuation. All Rights Reserved. 23
www.venturevaluation.com
Riskpremium vs. Value
riskless rate of
return
Systematic risk
Liquidity
ValueAdded
CashFlowAdjustment
Seed Start-up First Stage Expansion Stage IPO
Leads Pre-clinical Phase I Phase II phase III
Discountr
ate
Companyvalue
Copyright 2012 Venture Valuation. All Rights Reserved. 24
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
14/43
CT-if International Workshops on Pharmaceutical R&D April 2012 13
www.venturevaluation.com
Risk as a major factor
1. What is risk?
2. How can we capture risk?
3. How can risk be quantified?
Copyright 2012 Venture Valuation. All Rights Reserved. 25
www.venturevaluation.com
What is Risk?
The quantifiable likelihood of loss or less-than-expected returns. (source: investorwords.com)
If outcomes will occur with known orestimable probability, the decisionmakerfaces a risk. Certainty is a special case ofrisk in which this probability is equal to zeroor one. (source: about.com)
Copyright 2012 Venture Valuation. All Rights Reserved. 26
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
15/43
CT-if International Workshops on Pharmaceutical R&D April 2012 14
www.venturevaluation.com
Risk as a major factor
1. What is risk?
2. How can we capture risk?=> Assessment of the company
3. How can risk be quantified?=> rating of factors
Copyright 2012 Venture Valuation. All Rights Reserved. 27
www.venturevaluation.com
From risk to assessment
1. Understand the fundamentals
2. Assumptions drive the valuation
=> assessment is key
Assessment:
1. Management
2. Market
3. Technology
Copyright 2012 Venture Valuation. All Rights Reserved. 28
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
16/43
CT-if International Workshops on Pharmaceutical R&D April 2012 15
www.venturevaluation.com
Overview Course
9.00 Welcome & Introduction to Valuation
Assessment of the company prior to Valuation
10.30 Break
11.00 Company Valuation approaches
12.30 Lunch14.00
Case study Company valuation
Product valuation / Deal structure
15.30 Break
16.00 Product valuation / Deal structure
17.00 Q&A, Final discussion and Wrap up
17.30 Closing
Copyright 2012 Venture Valuation. All Rights Reserved. 29
www.venturevaluation.com
Assessment
Why is assessment important?
Valuation is all about assumptions
Understand the risk
Quantify the risk
Different perception of company
Copyright 2012 Venture Valuation. All Rights Reserved. 30
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
17/43
CT-if International Workshops on Pharmaceutical R&D April 2012 16
www.venturevaluation.com
Valuation Framework
Management
riskfree base rate
systematicrisk premium
LiquidityPremium
ValueAdded
CashFlowAdjustment
Seed Start-up First Stage Expansion Stage IPO
discountrate
Company Stage
Market
Science &
Technology
Qualitative Analysis
(Softfactors)Risk Analysis Quantitative Analysis
Valuation
Copyright 2012 Venture Valuation. All Rights Reserved. 31
www.venturevaluation.com
Value Drivers
Soft factors are essential ...
- Management
- Market
- Science & Technology
... and the company stage
to define the risk profile of company
Management
riskfreebaserate
systematicriskpremium
LiquidityPremium
ValueAdded
CashFlowAdjustment
Seed Start-up FirstStage Expansion Stage IPO
discountrate
Company Stage
Market
Science &
Technology
Qualitative Analysis
(Softfactors)Risk Analysis QuantitativeAnalysis
Valuation
Copyright 2012 Venture Valuation. All Rights Reserved. 32
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
18/43
CT-if International Workshops on Pharmaceutical R&D April 2012 17
www.venturevaluation.com
Management
1. Completeness skills
2. Track record / experience
3. Motivation / Incentive structure
4. Organization
5. Emotional intelligence / social
competence
6. Composition and involvement of
boards
highgoodsufficentinsufficentlow /
poor
none /
very poor
1 2 3 4 5 6
Copyright 2012 Venture Valuation. All Rights Reserved. 33
www.venturevaluation.com
Market Environment
Industry Structure: (Five forces by Michael Porter)
1. Threat of new Entry
2. Rivalry among existing competitors
3. Pressure from substitute products
4. Dependencies on customers5. Dependencies on suppliers
6. Current and future market potential
7. Customers
8. Political / legal dependencies
9. Cost and Sales estimations
highgoodsufficentinsufficentlow /
poor
none /
very poor
1 2 3 4 5 6
Copyright 2012 Venture Valuation. All Rights Reserved. 34
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
19/43
CT-if International Workshops on Pharmaceutical R&D April 2012 18
www.venturevaluation.com
Sciences & Technology
1. Intellectual Property (IP)
2. Unique selling proposition
3. Alliances/partnerships
4. Management of future
discoveries
5. Time to market
highgoodsufficentinsufficentlow /
poor
none /
very poor
1 2 3 4 5 6
Copyright 2012 Venture Valuation. All Rights Reserved. 35
www.venturevaluation.com
Company stages
source: Schmidtke.
Copyright 2012 Venture Valuation. All Rights Reserved. 36
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
20/43
CT-if International Workshops on Pharmaceutical R&D April 2012 19
www.venturevaluation.com
risklessrateofreturn
Systematicrisk
Liquidity
ValueAdded
CashFlowAdjustment
S ee d S ta rt -u p F ir st S t ag e E xp an si on S ta ge I PO
Discountrate
highgoodsufficentinsufficentlow /
poor
none /
very poor
1 2 3 4 5 6
earlystage
seed
financing
start up
financing
firststage
financing
expansionstage devesting
secondst.
financing
later
stage
profit
loss
Venturephase
Assessment / Rating
Discount rate
Adjustment factor
for relative
valuations
From Rating to Valuation
Copyright 2012 Venture Valuation. All Rights Reserved. 37
www.venturevaluation.com
Rating - Assessment
- Management (rating 1-6)
- Market (rating 1-6)
- Product, Sciences & Technology (rating 1-6)
Score to determine at upper or lower end
of spectrum
Start-up Stage: 50% to 70%
Score Discount rate
above 95 => 50% - 55%
70 95 => 55% - 60%
45 70 => 60% - 65%
below 45 => 65% - 70% Copyright 2012 Venture Valuation. All Rights Reserved. 38
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
21/43
CT-if International Workshops on Pharmaceutical R&D April 2012 20
www.venturevaluation.com
Overview Course
9.00 Welcome & Introduction to Valuation
Assessment of the company prior to Valuation
10.30 Break
11.00 Company Valuation approaches
12.30 Lunch14.00
Case study Company valuation
Product valuation / Deal structure
15.30 Break
16.00 Product valuation / Deal structure
17.00 Q&A, Final discussion and Wrap up
17.30 Closing
Copyright 2012 Venture Valuation. All Rights Reserved. 39
www.venturevaluation.com
Valuation Methods
Content
- Introduction Methods
- Discounted Cash Flow- Other Valuation approaches- Example
Copyright 2012 Venture Valuation. All Rights Reserved. 40
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
22/43
CT-if International Workshops on Pharmaceutical R&D April 2012 21
www.venturevaluation.com
- Often no revenues / earnings
- Value = potential of the future andassociated risk
- Influence factors:
Management
Market
Science and Technology
Stage of company
High growth Companies
Copyright 2012 Venture Valuation. All Rights Reserved. 41 Copyright 2012 Venture Valuation. All Rights Reserved.
www.venturevaluation.com
Valuation Approaches
Operations-based methods:business plan, fundamentals
Market methods
Operations methods
Mixed method
Market-based methods:price, trends, comparison difficulties
Discounted Cash Flows (DCF)
rNPV* Method
Real Options
Venture Capital method
Market Comparables
Comparable Transactions
* rNPV: risk adjusted net present value) Copyright 2012 Venture Valuation. All Rights Reserved. 42
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
23/43
CT-if International Workshops on Pharmaceutical R&D April 2012 22
www.venturevaluation.com
- Cash Flow based Method (DCF)
- Relative valuation Method
- Venture Capital / Exit based Method
- rNPV Method
- Option pricing Method
=> there is no the right method
=> combination of different methods
Used Methods
Copyright 2012 Venture Valuation. All Rights Reserved. 43 Copyright 2012 Venture Valuation. All Rights Reserved.
www.venturevaluation.com
Valuation Methods
Content
- Introduction Methods
- Discounted Cash Flow- Other Valuation approaches- Example
Copyright 2012 Venture Valuation. All Rights Reserved. 44
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
24/43
CT-if International Workshops on Pharmaceutical R&D April 2012 23
www.venturevaluation.com
Discounted Cash Flow
- Machine to produce one 100 USD bill in 3years
- Risk = 0
- Discount rate = 8% (time value of money)
- No input needed
Value of machine?
(one time in year 3) (every year)
100 100
(1.08)3 0.0879.4 1250
Copyright 2012 Venture Valuation. All Rights Reserved. 45
www.venturevaluation.com
Basic DCF
Copyright 2012 Venture Valuation. All Rights Reserved. 46
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
25/43
CT-if International Workshops on Pharmaceutical R&D April 2012 24
www.venturevaluation.com
Discounted Cash Flow
Determine Free Cash Flows for year 1 to 5 or 3/10
Calculate Terminal Value
Discount with Discount Rate
Sum of Free Cash Flows$$$$4
FCF
1
Terminal Value
2
Discount to PV
3
Add FCF
Copyright 2012 Venture Valuation. All Rights Reserved. 47
www.venturevaluation.com
Free Cash Flow
Determine Free Cash Flows for year 1 to 5 or 3/10
Revenues
- Costs
- Depreciation
= Earning before interest and tax (EBIT)- Taxes
= Operating Profit
+ Depreciation
= Cash Flow
- Investments
- Change in Working Capital
= Free Cash Flow (FCF)
FCF
1
Terminal Value
2
Discount to PV
3
$$$$4
Add FCF
Copyright 2012 Venture Valuation. All Rights Reserved. 48
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
26/43
CT-if International Workshops on Pharmaceutical R&D April 2012 25
www.venturevaluation.com
Calculate Terminal Value
a) Normalized Free Cash Flow (nFCF):
last year as basis plus growth rate(estimate: nFCF = FCF5*(1+g))
b) Terminal value (TV):
perpetuity based on nFCF & growth rateTV = nFCF d: discount rate
(d-g) g: growth rate
Growth rate (g): industry long-term growth
Discount to PV
3
$$$$4
Terminal Value
2
FCF
1
Add FCF
Copyright 2012 Venture Valuation. All Rights Reserved. 49
www.venturevaluation.com
Discount rate
Assumptions: interest rate i=10%
today (K0) future (K1) (n=5 years)
1.00 EUR 1.61 EUR K0(1+i)n
0.62 EUR 1.00 EUR K1/(1+i)
n
Content of the discount-rate:
- Depreciation of currency and
- Risk => Qualitative analyzes
=> = 1.6 X
FCF
1
Terminal Value
2
$$$$4
Discount to PV
3
Add FCF
Copyright 2012 Venture Valuation. All Rights Reserved. 50
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
27/43
CT-if International Workshops on Pharmaceutical R&D April 2012 26
www.venturevaluation.com
Discount rate
Discount rate:
- 1) Time value of money (risk free rate)
- 2) Risk of getting the money back
- Risk of Equity Risk of Debt
Risk can be measured in different ways:
- Credit Rating
- Rating (Moodys) => Assessment
- Attrition rate for product development
- Volatility of stock
- Company stage
FCF
1
Terminal Value
2
$$$$4
Discount to PV
3
Add FCF
Copyright 2012 Venture Valuation. All Rights Reserved. 51
www.venturevaluation.com
Discount rate
a) Company stage
1 Seed Stage leads 70% to 90% (20x)*
2 Start-up Stage pre-clinical 50% to 70% (10x)*
3 First Stage phase I 40% to 60% (8x)*4 Second Stage phase II 35% to 50% (6x)*
5 Later Stage phase III 25% to 40% (5x)*
*X-times the investment in 5 years necessary => (1+80%) 5 = 19x
b) Rating based
=> Determine area within range
FCF
1
Terminal Value
2
$$$$4
Discount to PV
3
Add FCF
Copyright 2012 Venture Valuation. All Rights Reserved. 52
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
28/43
CT-if International Workshops on Pharmaceutical R&D April 2012 27
www.venturevaluation.com
WACC - Discount rate
WACC: weighted average cost of capital
Cost of equity: 50%
Cost of debt: 15%
Equity ratio: 0.8
Debt ratio: 0.2
WACC: 0.8*50% + 0.20*15% = 43%
FCF
1
Terminal Value
2
$$$$4
Discount to PV
3
Add FCF
Copyright 2012 Venture Valuation. All Rights Reserved. 53
www.venturevaluation.com
Sum of FCF (NPV)
FCF
1
Terminal Value
2
Discount to PV
3
$$$$4
In 1000 EUR Year 1 Year 2 Year 3 Year 4 Year 5 TV
FCF -99 76 126 137 128 500
formula-99 76 126 137 128 500
(1.35)1 (1.35)2 (1.35)3 (1.35)4 (1.35)5 (1.35)5
PV -73 42 51 41 29 112
Total (sum) 201
Add FCF
Copyright 2012 Venture Valuation. All Rights Reserved. 54
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
29/43
CT-if International Workshops on Pharmaceutical R&D April 2012 28
www.venturevaluation.com
Valuation Methods
Content
- Introduction Methods- Discounted Cash Flow- Other Valuation approaches- Example
Copyright 2012 Venture Valuation. All Rights Reserved. 55
www.venturevaluation.com
Liquidation value
- Machine made of pure silver
- weights exactly 30 ounce
- Silver: USD 15 / ounce
Value of machine?
Liquidation value: 450 USD
Continue use: 1250 USD
Copyright 2012 Venture Valuation. All Rights Reserved. 56
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
30/43
CT-if International Workshops on Pharmaceutical R&D April 2012 29
www.venturevaluation.com
Relative Value
- no known market price for silver
- similar USD 100-machines have traded
- 9 and 15 times their estimated annualoutput
Value of machine?
=> Value range 900 USD to 1500 USD
Copyright 2012 Venture Valuation. All Rights Reserved. 57
www.venturevaluation.com
Market Comparable
Ratio
Revenues
Earnings
EBITDA
Employees
Companyspecificfactors
Company Value:EUR 10 m
50 employees
10 employees
Company Value:
EUR 2 m*
* (10/50) x 10 m = 2 m
Copyright 2012 Venture Valuation. All Rights Reserved. 58
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
31/43
CT-if International Workshops on Pharmaceutical R&D April 2012 30
www.venturevaluation.com
Exit value (VC Method)
- Value of machine in 5 years is 1800 USD
- Machine will produce USD bills from year 6
- 50% probability machine will break in first 5years
Value of machine?
=> USD 1800 * 50% = 900 USD
Copyright 2012 Venture Valuation. All Rights Reserved. 59
www.venturevaluation.com
VC method
Present
Value
today
Present
year 1 Exit year
Future
Exit
Value
Copyright 2012 Venture Valuation. All Rights Reserved. 60
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
32/43
CT-if International Workshops on Pharmaceutical R&D April 2012 31
www.venturevaluation.com
Summary Methods
Cash flow based 1250
Market comparable 900 - 1500
Exit value 900
Average (value) 1017 - 1217
Price vs. Value:
1. Collector is prepared to pay 16002. Nobody is interested
Copyright 2012 Venture Valuation. All Rights Reserved. 61
www.venturevaluation.com
Valuation Methods
Content
- Introduction Methods
- Discounted Cash Flow- Other Valuation approaches- Example
Copyright 2012 Venture Valuation. All Rights Reserved. 62
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
33/43
CT-if International Workshops on Pharmaceutical R&D April 2012 32
www.venturevaluation.com
Valuation of Bio-tech AG
Company founded 2002
Service company
Screening for Biotech companies
First revenues from screening services
Requires investment of: EUR 100000
Financing stage: First Stage
Valuation according to DCF method
EXAMPLE Bio-tech AG
Copyright 2012 Venture Valuation. All Rights Reserved. 63
www.venturevaluation.com
Data of Bio-tech AG
Good, experienced management
Medium market size, little expansion possibilities /
ambition
Product innovation small, me-too, inexpensiveproduction
Qualitative analyses produces the following data:
Discount rate (d): 35% (medium risk)
Growth rate (g): 7%
EXAMPLE Bio-tech AG
Copyright 2012 Venture Valuation. All Rights Reserved. 64
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
34/43
CT-if International Workshops on Pharmaceutical R&D April 2012 33
www.venturevaluation.com
Revenues + 240
Costs - 239
Profit / Cash Flow = 1
Investments - 100
Free Cash Flow (FCF) = -99
Year 1
EXAMPLE Bio-tech AG
Copyright 2012 Venture Valuation. All Rights Reserved. 65
www.venturevaluation.com
Liquidity plan year 1 year 2 year 3 year 4 year 5
Revenues Service 1 + 240 320 410 430 510
Revenues Service 2 + 75 120 190 210
Revenues total = 240 395 530 620 720
Material + 96 158 212 248 288
Staff + 105 105 131 157 209
Marketing + 10 10 10 15 15
Lease, Infrastructure + 18 18 18 18 18
others + 10 8 8 10 12
Costs total = 239 299 379 448 542
Profit / Cash Flow = 1 96 151 172 178
Investments - 100 20 25 35 50
Free Cash Flow (FCF) = -99 76 126 137 128
EXAMPLE Bio-tech AG
Copyright 2012 Venture Valuation. All Rights Reserved. 66
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
35/43
CT-if International Workshops on Pharmaceutical R&D April 2012 34
www.venturevaluation.com
Calculation of Continuing value (CV)
nFCF from year 6*: 140000
Terminal value (TV): 500000
Calculation(with d = 35%; g = 7%):
* estimated based on year 5
CV =nFCF(d-g)
=140000
(0.35-0.07)= 500000
EXAMPLE Bio-tech AG
Copyright 2012 Venture Valuation. All Rights Reserved. 67
www.venturevaluation.com
In 1000 EUR Year 1 Year 2 Year 3 Year 4 Year 5 CV
FCF -99 76 126 137 128 500
formula
-99 76 126 137 128 500
(1.35)1 (1.35)2 (1.35)3 (1.35)4 (1.35)5 (1.35)5
PV -73 42 51 41 29 112
total (sum) 201
FCF: Free Cash Flow
CV: Continuing value
Bio-tech AG
Copyright 2012 Venture Valuation. All Rights Reserved. 68
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
36/43
CT-if International Workshops on Pharmaceutical R&D April 2012 35
www.venturevaluation.com
100
33.2%201
66.8%
Pre-money
Value
Investment
Implication for investment
Company value (pre-money)is around EUR 201000
Investor receives around33% of the company forhis investment of 100000
The founders willhave around 67%
Value of Bio-tech AG
Copyright 2012 Venture Valuation. All Rights Reserved. 69
www.venturevaluation.com
Overview Course
9.00 Welcome & Introduction to Valuation
Assessment of the company prior to Valuation
10.30 Break
11.00 Company Valuation approaches
12.30
Lunch14.00 Case study Company valuation
Product valuation / Deal structure
15.30 Break
16.00 Product valuation / Deal structure
17.00 Q&A Final discussion and Wrap up
17.30 Closing
Copyright 2012 Venture Valuation. All Rights Reserved. 70
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
37/43
CT-if International Workshops on Pharmaceutical R&D April 2012 36
www.venturevaluation.com
Case Study Glycart
- Glycart acquired by Roche in July 2005
- For USD 180 m
- Swiss company; founded in 2000 spin-offfrom ETH in Zurich
- Technology platform to enhance the activityof therapeutic antibodies (cancer /autoimmune diseases)
- Pre-clinical products
- Existing collaboration with Roche (1 year)
- 30 employees
Copyright 2012 Venture Valuation. All Rights Reserved. 71
www.venturevaluation.com
- Raise USD 31 m in the past
- Planned to raise another USD 35 m =>valuation too low
- Acquisition offer by mid-sized Pharma
auction process / parallel fund raising
Case Study Glycart
Copyright 2012 Venture Valuation. All Rights Reserved. 72
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
38/43
CT-if International Workshops on Pharmaceutical R&D April 2012 37
www.venturevaluation.com
Valuation:
Pre-clinical compounds USD 180 m?
Technology Platform?
Keeping control?
Value enhancementfor own products?
Value
Value
Synergies
Pricepa
id
USD
Case Study Glycart
Copyright 2012 Venture Valuation. All Rights Reserved. 73
www.venturevaluation.com
Case Study GeneData
1. Assess Genedata according to grid
2. Perform Valuation of Genedata
3. Decide if you would buy shares (yes / no)
Copyright 2012 Venture Valuation. All Rights Reserved. 74
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
39/43
CT-if International Workshops on Pharmaceutical R&D April 2012 38
www.venturevaluation.com
Introduction Case Study
Portfolio Company
InvestorValuation Advisor
Case Study1. GeneData
2. Novartis Venture Fund
3. Venture Valuation
75 Copyright 2012 Venture Valuation. All Rights Reserved.
www.venturevaluation.com
Gene Data Assessment
- Strong Management, but too focused on sciences ratherthan business
- 1999 as strong market for Bioinformatics
- Sophisticated products, innovative development approach
Weak Medium Strong
Management X
Market X
Science & X
Technology
Copyright 2012 Venture Valuation. All Rights Reserved. 76
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
40/43
CT-if International Workshops on Pharmaceutical R&D April 2012 39
www.venturevaluation.com
Gene Data Stage
- Just to become profitable
- Starting international expansion, product ready
=> First stage financing => discount rate 40% - 60% Copyright 2012 Venture Valuation. All Rights Reserved. 77
www.venturevaluation.com
Gene Data Cash Flow
Planned
in USD 000s 2000 2001 2002 2003 2004
Sales 6200 11000 18000 29000 45000
- R&D expenses 1400 2000 2500 3500 4500
- Other Costs 2250 4000 8000 11000 16000- Depreciation 80 80 100 100 100
- Tax 20 50 1850 3600 6100
Net Profit (NOPLAT) 2450 4870 5550 10800 18300
+ Depreciation 80 80 100 100 100
- Change in Working Capital 517 500 583 917 1333
- Investments 80 100 100 100 100
Free Cash Flow (FCF) 1933 4350 4967 9883 16967
Copyright 2012 Venture Valuation. All Rights Reserved. 78
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
41/43
CT-if International Workshops on Pharmaceutical R&D April 2012 40
www.venturevaluation.com
Gene Data assumptions
Some Calculations
- Discount rate (d): 42%
=> based on stage and assessment/risk profile
- Growth rate (g): 15%
=> Based on industry growth
- Normalized FCF (in USD 000s): 17000
=> based on FCF in 2004
- Terminal Value: 62963
=> 17000 / (42%-15%)
Copyright 2012 Venture Valuation. All Rights Reserved. 79
www.venturevaluation.com
Gene Data Valuation
Valuation:
Discount: 1/(1+d)^year
=> 1/(1.42)^5 = 0.173
2000 2001 2002 2003 2004 TV
FCF (in 1'000 $) 1933 4350 4967 9883 16967 62963
Discount 0.704 0.496 0.349 0.246 0.173 0.173
Present value 1'361 2'157 1'735 2'431 2'939 10'905
Value 21528
*
=
Copyright 2012 Venture Valuation. All Rights Reserved. 80
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
42/43
CT-if International Workshops on Pharmaceutical R&D April 2012 41
www.venturevaluation.com
Gene Data Sensitivity
Sensitivity Analysis
Growth rate (g)
Discount (d)11% 13% 15% 17% 19%
38% 24'270 25'277 26'458 27'865 29'567
40% 22'037 22'845 23'781 24'881 26'189
42% 20'121 20'776 21'528 22'401 23'425
44% 18'462 18'999 19'610 20'311 21'125
46% 17'015 17'459 17'960 18'530 19'185
Copyright 2012 Venture Valuation. All Rights Reserved. 81
www.venturevaluation.com
Gene Data Today
- Leading Bioinformatics company
- Still privately owned
- 125 employees
- Locations: Japan / US / Germany / Switzerland (HQ)
- Clients include Pharmaceutical, Agrochemical,Industrial Biotechnology and Non-Profit Research
Organizations
www.genedata.com
Copyright 2012 Venture Valuation. All Rights Reserved. 82
8/2/2019 AXONAL Company and Product Valuation (Part I), Brazil April 2012 1.03b
43/43
www.venturevaluation.com
Overview Course
9.00 Welcome & Introduction to Valuation
Assessment of the company prior to Valuation
10.30 Break
11.00 Company Valuation approaches
12.30 Lunch14.00
Case study Company valuation
Product valuation / Deal structure
15.30 Break
16.00 Product valuation / Deal structure
17.00 Q&A, Final discussion and Wrap up
17.30 Closing
Copyright 2012 Venture Valuation. All Rights Reserved. 83