A listed biotechnology company had developed a significant capability in viral vector manufacturing and was considering spinning it out into a joint venture with a major CDMO. The client had already generated a profitable business serving third parties using its platform and asked Alacrita to conduct a valuation exercise to determine the value of its potential contribution to the joint venture.
Alacrita developed a risk-adjusted valuation model for the client’s bioprocessing business including the following items:
- Contract development and manufacturing revenues;
- Risk-adjusted royalty tail revenue from third party contracts;
- Fixed and variable operating costs.
Building on the detailed inputs from the client's financial model, we modeled contract development and manufacturing revenues and the associated operating cost structure at high level and agreed appropriate ranges for those inputs with significant associated uncertainties.
For the prospective royalty income streams we developed projections for the associated product revenues in the US and EU5. The remainder of the available opportunity was be estimated as a multiple of the major market opportunity. We reviewed the client's projections as inputs (where available) but used our experience and judgement to develop assumptions for key inputs (e.g. clinical development timelines, adoption curves etc) into the valuation model where more specific data from the client was absent.
We used Monte Carlo simulations to develop a range and probability distribution for rNPV and also used comparables analysis to cross-validate our findings.