Objective

To help a US-based firm establish valuations and price targets on gene-editing companies with only preclinical products.

Challenges

• Traditional valuation approaches such as the net present value (NPV) analysis and comparable company analysis could not justify the prevailing share prices
  
• The companies had to be valued not only on the basis of known factors such as collaboration revenue, but also unknown factors such as product and collaboration revenue from future therapies
  

CRISIL's Solution

• The CRISIL team quickly discovered that the companies did not fit traditional biotechnology valuation frameworks as they held intellectual property (IP) licenses that could be used to create new pipelines
  
• As gene editing technology advances, these pipelines should be able to target additional diseases with multi-gene defects. In the near term, the companies may continue to form collaborations with pharmaceutical and biotechnology companies looking to buy into the gene editing space
  
• The present value of these pipelines and collaborations was the value of the gene editing platform
  
• The team identified the listed companies that had a history of being front-runners in innovative technologies such as monoclonal antibodies, RNA therapeutics and CAR-T. For each front-runner company, the team traced the major events in the lead product candidate lifecycle. The team then calculated the market-adjusted share price movement and the market value addition associated with each milestone event
  
• A comparison across the set of companies showed consistency in the dollar value of the market value addition associated with each event category
  
• The team then shortlisted the most relevant companies from the data set and used the data to impute the average market value addition associated with progress of the lead candidate. The data was adjusted for risk and IP strength, and was used to calculate valuation scenarios
  

Client Impact

• The client's analyst team appreciated the analytical rigor of the valuation exercise and used the approach and scenario analysis to present a logical and unique method to value the companies
  
• The company's Investor Relations (IR) team also expressed confidence that investors would appreciate it
  

Questions

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