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Time Is Money: Is There A Better Way To Value Asset Duration In Biopharma Deal-Making?

 
• By Andy Smith

Time is the least considered driver of asset valuations in life sciences – and may be a factor behind the low level of M&A deals so far this year. ICON’s Andy Smith provides some advice to the C-suite and business development managers on strategies to clarify the duration aspect in risk-sensitive transaction negotiations.

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As the chase for great assets in biopharma gets tighter, the decision to proceed with a merger, acquisition or strategic transaction usually comes down to price. It’s also likely that both parties to the deal will rely on the standard discounted cash flow (DCF) methodology as the basic criteria to set the value of the asset, reinforced by estimates of future sales growth and market share. Yet while time or duration aspects of value – how long the asset will deliver an optimal return to investors – have significant influence on the ultimate price paid, they are rarely discussed. And why not?

This article aims to bring the role of duration in pharmaceutical valuations into the light, so that the next time an investment banker mentions the large terminal value component of...

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