Our expertise in performing business and asset valuations covers a wide range of technology types including small molecules, biologics and cell and gene therapies. Valuations have been a staple of our practice since our inception in 2009, and since that time, we have performed numerous valuations across a variety of clinical indications for clients, including investors, universities, research institutes, biotechs and pharmaceutical companies. We precisely tailor each project, carefully considering the type and subject of the valuation.
We supplement standard methodologies with hand-picked expert consultants who bring deep domain experience and several decades of ‘real world’ judgement. Alacrita also draws upon several proprietary data sources, which we use to support assumptions with real-world evidence.
Why choose Alacrita for your valuation?
Understanding the key value inflection points for a pipeline asset and defining an overall value for a technology or business is vital, especially in transaction negotiations and commercial strategy. As a multi-disciplinary firm, in addition to valuations, Alacrita’s expertise in product development and strategy and commercialization, allows us to draw on important insights that other valuation firms may not have.
- For licensors, our valuations can help you understand the worth of your technology, which type of deal is best suited, and what is achievable and desirable within a partnership.
- For licensees, we can provide a professional, independent valuation as part of due diligence of a proposed investment, something that can be hugely beneficial in risk-analysis and negotiations.
- For development programs, we can help you shape your development strategy, evaluate alternatives and identify the strengths and weaknesses in value terms that can be vital for capital allocation and clinical positioning. For example, by comparing valuation scenarios in one disease versus another can make sure you are targeting the most profitable market.
The depth of our work in pharmaceutical & biotech valuations varies considerably, from a high-level estimation through to a comprehensive analysis that draws upon extensive primary and secondary market research. We also provide follow-on support to clients and can help identify, connect and negotiate with prospective industry partners.
We work closely with you to gain an understanding of the purpose of the valuation work and to develop a detailed understanding of the underlying science, the clinical data generated to date, future development plans, potential commercial costs and revenues.
The accuracy of any valuation depends on the accuracy of the underlying variables and assumptions e.g. time to market, price, patient population etc. For most life science valuations there is significant uncertainty behind all assumptions; industry standard models often deliver a single number valuation, which provides a false sense of accuracy and obscures tail-risk in a program.
NPV valuation model & Monte Carlo simulations
We accommodate real world uncertainty into our proprietary NPV valuation model and incorporate Monte Carlo simulations for virtually every assumption. This results in a range of valuations which is more realistic, and informative, than a single number. Our analysis also identifies which assumptions are contributing most to the uncertainty in the model.
To develop a realistic valuation, we carefully consider each variable and assumption and try to base them on real world evidence and data; typically, we would explore the following areas in order to do this:
- Positioning of the technology (e.g. target product profile)
- Evaluation of scientific, CMC and clinical data (to inform probability of success, development path and commercial performance)
- Assessment of IP and other barriers to entry (to inform franchise durability)
- Market size and dynamics (number of patients, pricing strategy and comparables)
- Commercial potential and market penetration (including competitive landscape, current standards of care and the competitiveness of the target product profile)
- Development costs, timelines and probability of success
- Sub-license fees due to a technology originator
We often supplement a bottom-up risk-adjusted rNPV with a comparables analysis, to ensure our assumptions are in line with market trends. No two situations are absolutely identical, and frequently it may be necessary to compare assets that are, for example, at different stages of development. Our models consider this and try to correct for these differences as effectively as possible.
Sample of recent projects:
Supporting a biotech company’s pharma partnerships: A biotech company needed support with an active partnering process with several major pharma companies. The lead partner had set out aggressive timelines, another was validating the technology in-house, a third was assessing confidential clinical data and a fourth was entering confidentiality.
To secure maximum negotiating leverage, we supported the company with robust valuation models and key lines of argument and rebuttal to be used in term-sheet discussions and subsequent negotiations
Forecasting future royalty streams of a marketed oncology drug: Alacrita provided provided valuation support to a licensor of a marketed oncology drug looking to monetize its royalty stream. We developed a multi-year forecast of future sales with consideration of the strength of patent protection, significance of non-patent protection, competitor landscape, threats and opportunities. Using the model, Alacrita set out future royalty streams and their present values based on a number of different scenarios.
Valuation of a cancer therapy for a licensing deal: A biotech company developing small molecule drugs for oncology was in the process of licensing negotiations with a pharma company for its lead asset. The asset, set to enter the clinic in the next year, was being developed for four CNS cancer indications. The company asked Alacrita to develop a current and future valuation of the lead asset and model various deal term scenarios to guide ongoing licensing discussions.
- Assessing commercial viability of biosimilars: A European pharma company seeking to license a development-stage follow-on biologic needed to assess the commercial potential of a second-generation antibody against a validated oncology target.
- Valuation of pipeline for fundraising activities: An oncology biotech company with a proprietary therapeutics development platform technology was in the process of fundraising activities. The company's pipeline included three main therapeutics in development, each for three distinct indications. The company asked Alacrita to develop a current pipeline valuation in order to guide their financing discussions, which were scheduled to occur in two weeks time.
- Valuation of a re-purposed combination drug for Alzheimer's disease: A clinical stage biotech company developing treatments for Alzheimer's disease was looking for a valuation of its Phase II-ready therapeutic drug. The drug was a re-purposed combination of two known drugs with a well-documented safety profile, however unlike most other Alzheimer's drugs in development, it was part of a small pool of pipeline drugs that claimed to be disease-modifying, and in particular its primary aim was to stop disease progression at the prodromal/mild disease stage.
The company was looking for Series A financing of £20m in venture investment in order to progress the drug through a Phase II clinical trial. To prepare for discussions with investors, Alacrita was asked to develop an independent valuation of the drug.
Valuation of a first in class, Phase I/II oncology drug
Challenge: Our client was preparing for an IPO to fund a registration study of a first-in-class targeted small molecule in a genetically defined patient population. The product was also in early clinical trials in a number of other cancer types in combination with established therapies, including pembrolizumab. The company needed a robust, defendable valuation to communicate the company’s prospects to new public equity investors.
Solution: Alacrita’s team reviewed extensive documentation from the company to develop a clear picture of the compound, the clinical data generated to date, the toxicology profile, the clinical strategy, intellectual property and other important parameters. We then used data from a 225-physician survey in the major pharmaceutical markets to precisely understand the incidence and prevalence of patients in the target patient population who would be eligible for this treatment. For every other assumption in the model, we researched comparable drugs and companies and interviewed experts in the field to develop robust, evidence-based valuation inputs. These spanned development costs, development timings, oncology drug prices, historic cancer drug sales curves, numbers of oncology sales and marketing personnel for comparable companies launching their first drug, historic market share for other oncology drugs, average CoGS for commercial products, and typical Sales and G&A.
We inputted these assumptions into our proprietary valuation model, which uses Monte Carlo simulations to accommodate real world uncertainty. After explaining our assumptions and rationale with the client, we issued a formal report which encompassed all the supporting data around each assumption and the key output, rNPV for the compound.
Case Study: Valuation and due diligence of a Phase II dermatology asset
Challenge: Alacrita was engaged to conduct a due diligence and valuation of a Phase II dermatology asset. The company was undergoing a recapitalization and new investors were seeking an independent assessment of the company. The company had a broad Phase II clinical trial program in atopic dermatitis/eczema, psoriasis, molluscum contagiosum and HPV. One of the Phase II trials had failed its primary endpoint, but the company was planning a Phase III in a modified patient population.
Solution: We reviewed the company’s dataroom, including clinical data and correspondence with FDA. We interviewed company executives to hear their story and spoke with several investigators who were participating in the clinical trial program to get a better understanding of the Probability of Success of subsequent efficacy trials.
To get a more independent perspective and to understand the market potential, we conducted an online survey of 50 dermatologists and pediatricians to understand how they reacted to the target product profile, and to what extent they would prescribe the drug given the alternative treatment options that are currently available, especially in atopic dermatitis and psoriasis.
We then built a risk-adjusted valuation model of the asset, using Monte Carlo simulation to accommodate real-world uncertainty for most assumptions. We reported our findings to the client on time and on budget and the report was referred to extensively by the new investor syndicate.
Case Study: Assessing the potential of an antibody platform technology pipeline
Challenge: For a division of a multinational pharmaceutical company, Alacrita evaluated a pipeline agreement with an antibody platform technology company.
Solution: Alacrita assessed the commercial potential of the opportunity and provided a critical analysis of the rNPV model in use by the negotiation team. Alacrita thoroughly tested the underlying assumptions using real world data incorporated into a Monte Carlo simulation model. The approach provided greater insight into the impact of the underlying uncertainties, allowing the key outputs (e.g. NPV) to be expressed as a range, with confidence intervals, rather than as a single number. It also enabled material sensitivities to be identified.
In addition, Alacrita reviewed a relevant selection of early-stage biotechnology deals to generate a ‘comparables’ analysis. This allowed the proposed transaction to be benchmarked against analogous transactions, also serving as a useful cross-check of the rNPV analysis.
Alacrita helped the in-house team build the case for the deal at board level, emphasizing the value of the strategic logic of the deal and setting out the non-financial drivers of the opportunity.
Recent valuation white papers & blog posts
A variety of approaches have been developed to evaluate pharmaceutical assets, but two similar yet distinct methods are most commonly used. Venture capitalists and large investment firms typically employ net present value (NPV) calculations while pharmaceutical companies more commonly use risk-adjusted net present value calculations (rNPV). This paper summarizes the limitations and benefits of each method and considers the current discount rates commonly applied by both investors and pharmaceutical companies.
- Pipeline asset valuation: garbage in – garbage out
Inevitably, no matter how solid the model, the result can only be as good as the quality of the inputs. And it is in determining the input variables where we find the most frequent sources of error. In this blog post we are going to focus on the most common mistakes we see in determining inputs in building valuation models.
- Pharma Valuations: When to Use Incidence and/or Prevalence
Many would agree that input assumptions are the most important part of a pharma or biotech portfolio valuation. Of these, one particularly critical assumption is the addressable patient population, which is dependent on the epidemiology of a specific disease. Whilst finding epidemiological figures for well-researched diseases is often straightforward, the task becomes particularly complex when you consider poorly reported incidence and prevalence rates for rare and ultra-rare indications.
- What's wrong with NPV valuations?
This paper briefly documents an alternative risk-profiled Monte Carlo rNPV valuation (rpNPV), and highlights a material divergence between the perspective of a biotech company (with a single or small number of projects) and Big Pharma (with a broad portfolio).
Discussion of our valuation approach
Anthony Walker discussing Alacrita’s valuation methodology with Mike Ward: