DCF Help. Biotech case study

Valuation Case Study

For this case study, we would like you to calculate the suggested ownership of “Investor B” in a biotech startup “Company A” following a $10m investment in 2017.

Please use the following assumptions: • Product Target Profile: Company A is developing a drug for osteoarthritis, a common orthopedic indication • Timing of Clinical Development: The company was founded in 2012, when it filed its patent on the drug, just passed pre-clinical studies in animals and is now about to start its Phase I clinical studies. There will be 3 clinical study phases before approval. Expectation is to get market approval in 8 years, i.e. on 01-Jan-2025 • Financials: Expected costs for the next 8 years (to get to market) are $40m. Expected peak sales in 10 years from, i.e. in FY2027 are $200m. Expected EBITDA in in FY2027 is $100m . Once the drug is on the market, please just make your own rough assumptions for COGS and SG&A (without any greater detail) • Investment Investor A already invested $50m in 2012, thereof $30m as equity (common stock) and $20m as debt (assuming no interest to be paid). Cash at the company before Investor B’s investment is $15m. Investor B is now investing $10m.

For Investor B investing $10m now as equity (common stock), what is the ownership in Company A you believe he should receive?

Assumptions: Please just make rough assumptions for all other variables you believe you need (e.g. COGS, etc.).