Anyone investing in biotech stocks will be faced with the challenge of finding the right price for a company’s shares. Experts share their most reliable valuation methods.
In part one of this series, we looked at how a biotech investor should look into many qualitative aspects of a biotech company’s business plan to decide if it is a good investment. In this second part, we will explore some of the most popular valuation methods experts use to determine the right price for a biotech stock, and how they decide if it’s worth investing in.
Unfortunately, there is no single formula that can condense the multiple parameters influencing a biotech stock — market potential, cash burn rate, the management team, the business strategy, intellectual property, and even unpredictable events such as a global pandemic. Still, the information gathered by investors can be translated into reasonable assumptions that can then be used to get a good idea of the worth of a particular investment in a biotech stock.
“Particularly for the valuation of early-stage projects, technical knowledge is important,” noted Peter Abelin, Life Science Senior Consultant at the Danish valuation consultancy firm Xplico. Knowing well the potential of the technology being developed and how it compares to what is on the market or under development by competitors is a good first step to determine how likely a product is to make it to the market —