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Mirror, Mirror,What’s Our Valuation?
By Cori Gorman, PhD, MBA, DNA Gateway International, LLP / DNA Bridges^®, Inc.

The value of any biotechnology company is affected by both the overall environment for investing and partnering. These external factors change with time; both investing and partnering are rebounding from the lows seen two to five years ago. The local environment of investment also varies with the sophistication, experience and location of the investors. For instance, West Coast VCs tend to give higher valuations then East Coast VCs, but they like West Coast companies and may ask you to move. The environment will affect the valuation of a company when it is valued in comparisons to the current value placed on comparable opportunities.

The important factors which investors will use when determining the value of your company include: the stage of development, the technology, people and market. Each investor may have a differing view on which of these 4 factors is most important. Investors often self-select for their preference of stage of development (company and first compound); therefore, it is important to match potential investors with their pattern of investment. Arch Venture Partners, Forward Ventures, CHL Medical Partners LP, Forward Ventures, Intersouth Ventures, Convergent Ventures, LLC ,Skyline Partners, Assess Partners, Abingworth Management Limited, Seaflower Associates, Inc., 5 AM Ventures all have been involved in seed or early stage investments.

For many investors, technology, which includes intellectual property, is the most important factor followed by the potential for the development of several products based on a platform technology. For others the quality and experience of the team of people is considered first. And of course the market size is important as is the assessment of competition.

Their Value or Yours

For a very early stage biotech company the best way to assess value is through assessing comparable companies. The task here is to network as diligently as possible and dig out what the professional investors who focus on seed stage deals are doing generally. Look for entrepreneur groups or clusters that can serve as avenues to finding other entrepreneurs or professionals that work with entrepreneurs. On-line resources for finding data funding obtained by companies comparable to yours check out:
http://www.moneytreeinc.com
http://www.angelscorner.com/news.htm
http://www.cednc.org/news/regional_news/200

Your Check List
Parameters used to Value Biotechnology Companies

Intellectual Property

IP: Much of the value of an early stage biotech company is in the strength of their patents and staff. Patents for new drugs and therapeutic products give the owner the right to exclusive exploitation for a period of 20 years

Quality R&D: To assess this VCs will analyze competitive government R&D grants, reputation of the scientists involved, collaborations with respected research institutions and interest in the company from industry specialists

Platform Technology: Platform technology has the potential to yield a range of many different drug candidates

Product Pipeline: A company that diversifies across a range of product types will be less volatile than a company with only one product in the pipeline.

The Stage of Development: Drug and Company

Commercial Development: Validation of academic results in a commercial setting

Stage of Development: Assess what stage of the company's development the company to estimate the time frame in which earnings can be expected.

Clinical Trials: Stage of clinical development can be used to assess time to market.

Cash Reserves: Early stage biotech companies can consume large amounts of capital for research and development, and may not report earnings for a number of years.

The People

Senior Management and Other Key Staff: Look at the management track record in delivering successful research milestones. It is also important to consider the commercialization strategy of the company and the quality of scientific advisers.

Quality R&D: To assess this look at award of government R&D grants, reputation of the scientists involved, collaborations with respected research institutions and interest in the company from industry specialists

The Market

Compare existing drugs to treat the disease and what the estimated demand for the new drugs would be.