You Want to Partner, But What’s Your Early Drug Candidate Worth?

25 November, 2014

Biotechnology companies rely heavily on alliances with pharmaceutical companies to finance their research and development expenditures, and pharmaceutical firms rely heavily on alliances to supplement their internal research and development. And those partnerships are a good thing: Drugs that are jointly developed are more likely to advance in clinical trials than drugs that are developed by a single company. However, inexperienced biotech companies often receive substantially discounted payments when signing their first deal.

So, how do you know what your drug candidate is worth?  Linda Pullan, of Pullan Consulting, provides a no-formulas approach to drug candidate valuations explained in the ShareVault-sponsored white paper and solution brief.

The complexity of valuing a drug candidate for a partnering deal can vary greatly. Drug candidates that have completed a Phase II program have more defined product profiles and can be valued using, in part, market research and physician interviews. But earlier drug candidates can be more difficult to value due to ever-changing market conditions and regulatory requirements, the high risk of technical failure, and long development timelines before value is realized.

Valuation methods exist, but all are imperfect, and at the end of the day the value of your project is ultimately what someone is willing to pay for it. And what a partner is willing to pay for your drug candidate will most likely be based on how well they understand the opportunity, how well it fits with their strategy and portfolio of drugs, and the extent of the competition.

Because valuation is more than just numbers and statistics, it is crucial that you form a strong narrative around your opportunity. Yes, strong science can speak for itself, but often being able to appreciate the implications of that science is difficult. As a young company, you need to clearly tell your story in a way that is compelling and resonates with potential partners. This story must be powerfully conveyed from the very first point of contact. To do that, you have to focus on the key questions that a partner wants answered: “Why this drug?” What’s special about your opportunity? What unmet medical need does it address?

If the uniqueness of your opportunity is not clearly conveyed right from the start, a partner might not dig any deeper and might never appreciate the value you’re bringing to the table. After that, be prepared to clearly demonstrate the drug’s potential as well as its risks and its path to market. Clearly communicating those four things will help put you on the path to those hot licensing deals.

  • What’s special about this drug candidate?
  • What is its potential use?
  • What are the risks, and when can they be addressed?
  • What is its path to market?

For a more in-depth look at early drug candidate valuation methods you can watch a recording of the webinar, Valuation of Your Early Drug Candidate.