Valuing Early-Stage Pharma Deals

Given the ongoing difficulties venture firms have funding themselves, the emphasis within the industry is on capital efficiency – in other words, finding mechanisms to cut the burn rate while building enough value to result in an exit that can return cash to investors at a three- or fourfold multiple. That's led a number of firms – and their venture backers – to make what a few years ago would have been a heretical decision: eschewing drug development in favor of cutting platform-related deals. Adimab LLC has been one of the most vocal start-ups promoting this admittedly cash-conscious model, but others are piling on, including newly minted Ablexis LLC, which in June 2010 raised a $12 million Series A from Pfizer Venture Investors and Third Rock Ventures. [See Deal] ( See "In The Midst Of A Shakeout, Biotech VCs Must Embrace New Partners, New Math," START-UP , September 2010 Also see "In the Midst Of A Shakeout, Biotech VCs Must Embrace New Partners, New Math" - Scrip, 1 September, 2010..)

Given pharma's desire to access innovation ever earlier, such a strategy might make sense – provided potential licensers are willing...