Sangeeta Puran
Mayer Brown International, Senior Associate, London, UK

Overview

Earlier in March, 2009, the author completed a study examining the methods used to value drug development programmes. The study was conducted by interviewing individuals over a period of four months in the UK from a representative sample of twelve leading industry participants, including small biotech business development (“biotech”), large pharma and large biotech business development (“pharma”), financial analysts (“analysts”) and venture capitalists (“VCs”).

This article considers the results of the study, including the effects of the current market conditions on the application of methods used to value drug development projects and the key valuation issues in acquisition, licensing and partnering negotiations.

This article will be in two parts. The first part will provide an introduction to valuation methodology and report on the methods used by the participants to value drug development projects. In this part, we will also consider the VC approach to valuing early stage projects.

The second part of this article will consider the different biotech and pharma approaches in acquisition, licensing and partnering negotiations, the valuation approach of analysts setting share prices and the key challenges in forecasting the revenues, costs and risks associated with a drug development project.