When traditional biotech companies advance through the clinic towards the market, often there is an interest in acquiring a revenue stage product to jumpstart the commercial infrastructure.
A module in our next Locust Walk Institute on May 4th and 5th will cover an indepth session on how to finance and value commerical product acquisitions.
Below is a six step mini guide to give you a preview of the full module:
Step 1: Calculate the product P&L
Figure out what the product is worth by building a fully integrated financial model backed by primary and secondary market research, something Locust Walk routinely does and each company needs
Step 2: Prepare the product value for the exit
Take the P&L from step 1 and project the future value of the product using a DCF and precedent transaction multiples analysis
Step 3: Determine the purchase price
Based on the product projections, strategic considerations of the buyer and seller, and comparable transactions, determine the cost to acquire the product/company today
Step 4: Structure the deal
Structure the acquisition using a combination of debt, equity, and royalty finance depending on the acquiring company’s stage (pipeline), status (public or private) and unique attributes of the acquired product
Step 5: Create the returns analysis
Determine returns threshold for appropriate investor, which will vary not just by investor type but also the profile of the product (relaunch, currently growing, declining, at the FDA, etc)
Step 6: Value the company today
Calculate the implied equity pre-money today based on the prior 5 steps. The value of the product and the value of the acquiring company is not the same thing, even if the company has no pipeline other than the acquired product.
Does this sound overly complicated? Don’t worry, we will go step by step and show with a real-world model how this process works. Join us May 4th and 5th.
Register for Locust Walk Institute: Financing from idea to IPO before April 15th to get the early bird discount.
Written by Geoff Meyerson