Value Drivers Under the Influence – How Licensing and Key Events Affect Valuation

The Tuesday plenary luncheon at the 2012 BIO CEO & Investor Conference featured a panel of experts representing several perspectives on valuation.

The session opened with Ben Bonifant, Senior Vice President & Practice Area Leader at Campbell Alliance, presenting results from their Corporate Value Study, which was followed by a discussion examining the key value drivers for emerging companies. Bonifant moderated the panel discussion that featured:

The Corporate Value Study examined value changers in biopharma companies, specifically those in the $50M to $2B market cap range. Others areas examined included: valuations of business models; how do valuations vary; the worth of clinical events related to valuation and how licensing affects valuation. The study examined companies in the concept / pipeline phase, the pre-proof phase, post-proof phase and the commercialization phase. The study also took a look at the partnering model, independent model and operating model (which included co-promotion, independent and outsourced).

Of importance is the finding that none of the companies in the $1B category pursued a pure development model, all pursued a commercial model.

After the study results were discussed, the conversation quickly moved to market valuation. Barbara Yanni with Merck suggested the most important step for a potential investor is when the discussions begin. She stressed the importance of getting to know not only the company but the potential compound or drug. Michael Margolis with ROTH Capital Partners echoed that sentiment, encouraging companies to get a validating partnership early. “More and more investors are pleased when a company holds on to an asset to create value,” said Michael Margolis. Rachel King with GlycoMimetics followed up on Michael’s remarks, reminding the attendees, “Partnering strategy is critically informed by financing strategy.”

The topic quickly changed to the value and need for big pharma validation. In response, Ron Renauld with Idenix Pharmaceuticals stated, “There is a clear distinction between access to resources and validation. When data speaks for itself, big pharma validation is not necessary. Companies need to keep in mind that there’s pharma time and biotech time. Biotech time is much faster.” On the other hand, Rachel King expressed her favor for big pharma validation.

When the conversation looked to the future, Barbara Yanni predicted Hepatitis C and oncology might be the next “big thing” to catch with biopharma while Rachel King expressed interest in companion diagnostics. And Michael Margolis looked to the IPO Market. “It’s been a very challenging IPO market the last couple of years. It’s more a wait and see approach in IPO’s this year. We’ve seen a very active secondary market in IPO’s the past couple of weeks. The sector needs new public companies. As a banker, I want to see more public companies.”

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