Valuation

Pre-Size™: the valuation model of innovative companies

Contrary to common practices Van Leeuwenhoeck Research does not apply the simple but unreliable discounted cash-flow method on revenue-generating products alone, but rather approaches the entire product pipeline for valuation.

Valuation parameters
The input needed from the company under review to create a reliable valuation is paramount. We closely work together with senior management to gauge all essential elements that constitute the required input for our valuation model (the information is usually given to us under non-disclosure). Risk factors, time line estimates and product parameters are applied in a sensible way, using a distribution model with a mean and a spread for all uncertain elements in the valuation. All individual products, whether under research, in pre-clinical or clinical phases, under registration, or already marketed, undergo the rigorous screening and attribute labeling before being used in the valuation determination process. This process is a Monte Carlo Simulation Analysis with up to 5,000 iterations, resulting in a time-related company valuation that is far more precise than any other method used in the market.

The model outlined
The VLR valuation model Pre-Size™ is a three-dimensional model featuring product development through all phases (research – preclinical – Phases I-II-III – registration - market) for all products in the pipeline. In essence every product is characterised by the existing and expected contingencies in time and money related to each product. All expenses per phase, detailed to the lowest level (such as cost per patient in Phase-III, cash burn, out-of-pocket costs), and all revenues (such as milestone related capital injections, license revenues) are matched with uncertainties per phase transition (characterised as a distribution with a mean and a spread). The time axis goes back to the product development start and extends all the way to the expiration of revenue generating products and patents. The only thing our model cannot do of course is predict currently non-existing products generated in Research that may contribute to future revenues. Therefore our company valuation as described in our Research Reports represents a safe and lower border of the valuation distribution. The VLR Research Reports contain elements of the valuation model, but do not reveal company confidential information that is necessary for VLR to fine tune the model in order to narrow the bandwidth of the valuation.

Assumptions
To calculate the value of the company we make use of the information given to us by the company regarding the pipeline and the costs involved in the different phases. Next to this we conduct a thorough analysis of the market(s) the company is active, including a competitive analysis. Also the product life cycle of a drug and the risk factors involved in the development phase(s) are taken into account.