New biotech model
How do I model a new biotech with no products out in the market? PDUFA for first small indication is coming in august + one other later stage indication, and have a handful of early stage indications in pipeline. Co I’m looking at has no approvals rn and likely only to get 1 (my assumption; not factual)
No revenues besides grants so no COGS. Would I just skip down from revenue to OpEx? I can’t calc gross margins, R&D % of sales, etc bc of no revenue so how do I even go about modeling them? Seems like a 3 statement model is absolutely useless for new biotechs.
Based on the most helpful WSO content, here's how you can approach modeling a new biotech company with no products currently on the market:
Key Steps for Modeling a New Biotech Company:
Revenue Build:
Peak Sales Estimation:
Probability Adjustments:
Operating Expenses (OpEx):
Cash Flow Projections:
Sensitivity Analysis:
Example Structure for the Model:
Revenue Projections:
Operating Expenses:
Cash Flow Projections:
Additional Considerations:
By following these steps, you can create a robust model for a new biotech company, even in the absence of current revenues.
Sources: Biotech finance: from IB to VC / HF to funded startup, Biotech finance part 2: valuation methodologies and modeling considerations, Projecting out drugs that are in FDA approval process, Biotech finance part 2: valuation methodologies and modeling considerations, Biotech/Life Sciences Vertical in IB: Day to day
Meh, DCF still works. Quick way is just do a peak sales multiple for an M&A takeout down the road.
But you build your top down based on epidemiology, patient pop addressable, penetration, pricing, etc., and do it every year till patent expire and give no terminal value. Then run your dcf and you’ll get a price. It’s pretty easy idk what ur on about. just be thoughtful on assumptions…
Cogs for small mol do 5% once commercialized.
Peak sales usually 5-6 years post approval.
Ur a beast, thanks
Would you adjust this based on likelihood of approval? Say peak sales are $10billion and the drugs likelihood of approval is 50%, wouldn’t the theoretical peak sales be $5 billion?
Yeah that’s why have to be thoughtful in assumptions. That’s a key driver yes.
Quick way (ex):
Drug for disease X approved 2025, peak sales year 2031, take revs 2031 times multiple of 3 times prob of success, take NpV of this (7 years). Divide by shares and there’s a PT.
Ahhh ok ok makes sense. Why three times? Also how do you accurately define the probability of success? I know it’s more art than science at this point.
Phase 1 60-80% —> phase 2 —> 30-40% —> phase 3 25-35% —> FDA 10-20%
I’m not sure why it’s x3 p(success) either, can you explain?
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