I have an upcoming interview and wanted a high-level overview on what metrics are used to value healthcare companies. Is it EV/EBITDA and P/E or any industry specific ones?
Given that lot of biotechs are smaller and start-ups with negative net income, is EV/Sales more often used. What about pharma companies given that they have lot of R&D expenses? Any special valuation metrics used for them. DCF might not be best way for biotech company given sales can fluctate from year-to-year and business isn't very stable.
Any comments/help is greatly appreciated.
Check the official website of Damodaran: http://pages.stern.nyu.edu/~adamodar/
EV/EBITDA commonly used, P/E's too, EV/Revenue sometimes. Operating metrics include occupancy rates and bed capacity utilization for inpatients and per-doctor patient numbers for outpatient services(a quick Google will turn up the formulas). Note that this is my experience for a hospital valuation.
Healthcare Industry Valuation (Originally Posted: 01/06/2013)
What are the common characteristics associated with healthcare companies? Any specific metrics looked at?
"Healthcare" is more of a thematic category than an industry.. valuation will vary substantially from Pharma to Insurers to REITs, etc.
Healthcare Specific Valuation (Originally Posted: 02/08/2010)
I have an interview with the healthcare group of a MM bank coming up. I was just wondering if there are different valuation multiples and techniques specific to the healthcare industry. I know in Tech you see things like EV/page views and in FIG uses Tier 1 ratios and tangible common equity ratios. Does anyone know about HC?
which bank?
for early stage firms, check out real option theory and monte carlo valuations. not sure if these are done in practice, though.
^^ don't those seem a bit too technical and 'advanced' to be asked in interviews?
i would also be interested in getting some feedback on valuation of healthcare companies
I don't know if it's too technical, but I've gotten some pretty crazy questions during interviews. ie for FIG someone asked me why a bank would choose subordinated debt over senior secured debt... So I figure better safe than sorry.
Be prepared for valuation questions on pharma/biotech firms. They are mostly based on Inline and Pipeline drug estimated future sales. Estimated sales are accounted for at a rate depending on the phase in pipeline, you probably need to be familiar with these concepts.
Particular multiples are EV / Peak Sales.
I think there have been some threads about this in the past on WSO.
Pharma modeling / valuation resources (Originally Posted: 09/08/2016)
Does anyone know a good book or other resource where they walk you through product-by-product forecast and valuation of a pharma company and the the resulting cost base (R&D, M&S, G&A etc). In other words, where they go into the details of the differences between generics vs patented products, patent cliffs in various regions (US has a steeper patent cliff than EU for example etc), how R&D is different depending on the type of products, differences in margins in different therapeutic areas (onco higher margins etc).
Appreciate any help!
Look through Martin Shkreli's YouTube channel. He has a 4+ hour video on building a model for Valeant.
I don't know of a book or primer, but I would try to find good equity research for prominent products in the area of interest (onco, cf, etc). Those are helpful to identify what R&D / SG&A / Peak Sales look like over the period of exclusivity. They can also be useful if they show how various partnership agreements work (royalty fee vs. other). I think you hit on a lot of the pertinent differences.
Good luck.
Forecasting for the Pharmaceutical Industry - Arthur Cooke
This should answer your questions around product forecasts.. probably not much about valuation though
Need help with biopharma valuation (Originally Posted: 09/03/2012)
Hi guys,
I'm a rookie with basic knowledge of valuations and am currently trying to value a large unlisted biopharma. I need some advice on the basics on where to start etc. Anyone willing to help via pm???
Cheers
Private placement history
Valuation Help Needed - Pharmaceutical Companies (Originally Posted: 12/26/2017)
Hi all,
I am currently trying to build out a public comps for a company within the pharmaceutical industry. The issue is that despite being around for roughly two decades, they have consistently operated at a net loss for every year. Apparently, this is not that uncommon due to the fact that these companies will spend millions on R&D, patents, licensing, and other paramount assets for the business before working to develop a revenue stream.
Therefore, when it comes to public comps, many of the similar companies I have found show negative multiples. However, this is not the case for all of my comps, just some that are still in the early stages of operations. I would appreciate any guidance or feedback on how to proceed.
Would I be wise to ignore the companies with the negative multiples, even some are the best comps within my skill set (in terms of products and business model)? Should I look for other metrics that might be more applicable? Candidly I have never performed valuations for early stage/growth companies, so I am out of my element here.
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