Guide to Biotech Asset Valuation Methods Coauthored by Academic Affiliate Amitabh Chandra and Vice President Sumon Mazumdar
February 23, 2024
Accurately valuing biotech assets is crucial to funding future life-saving drugs and therapies. However, the drug development process can be highly expensive, risky, and lengthy. Methods used for valuing these assets, therefore, must account for the unique facets of the drug development process. To address this gap, Analysis Group academic affiliate Amitabh Chandra and Vice President Sumon Mazumdar coauthored an article on methods to value biotech assets that account for the unique aspects of the drug development process.
In the article, Professor Chandra and Dr. Mazumdar outline the basics of the drug development process, the regulatory hurdles faced by industry entrepreneurs, and the related risks undertaken by biotech investors. The authors then detail three of the most frequently used methods to value biotech assets: the “risk-adjusted” net present value (rNPV) method, the basic venture capitalist (VC) valuation formula, and the real options method. They also explain some of the strengths and limitations of each method and illustrate how differences of opinion – or valuation gaps – between investors and entrepreneurs can develop.
Professor Chandra and Dr. Mazumdar conclude by noting that, “A deeper understanding of the fundamental drivers of a drug candidate’s value under different valuation approaches may allow VCs and entrepreneurs to objectively analyze, and resolve differences in their assessment of, [a] drug candidate’s value.”
The article, “Biotech Asset Valuation Methods: A Practitioner’s Guide,” was published in the Journal of Investment Management.