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Valuation and Returns of Drug Development Companies: Lessons for Bioentrepreneurs and Investors.

Authors
  • Michaeli, Daniel Tobias1, 2, 3
  • Yagmur, Hasan Basri4
  • Achmadeev, Timur4
  • Michaeli, Thomas5, 6, 7
  • 1 Fifth Department of Medicine, University Hospital Mannheim, Heidelberg University, Mannheim, Germany. [email protected] , (Germany)
  • 2 TUM School of Management, Technical University of Munich, Munich, Germany. [email protected] , (Germany)
  • 3 Department of Personalized Oncology, University Hospital Mannheim, Heidelberg University, Mannheim, Germany. [email protected] , (Germany)
  • 4 TUM School of Management, Technical University of Munich, Munich, Germany. , (Germany)
  • 5 Fifth Department of Medicine, University Hospital Mannheim, Heidelberg University, Mannheim, Germany. , (Germany)
  • 6 Department of Personalized Oncology, University Hospital Mannheim, Heidelberg University, Mannheim, Germany. , (Germany)
  • 7 Division of Personalized Medical Oncology, German Cancer Research Center (DKFZ), Heidelberg, Germany. , (Germany)
Type
Published Article
Journal
Therapeutic innovation & regulatory science
Publication Date
Mar 01, 2022
Volume
56
Issue
2
Pages
313–322
Identifiers
DOI: 10.1007/s43441-021-00364-y
PMID: 35018622
Source
Medline
Keywords
Language
English
License
Unknown

Abstract

This study evaluates the association of Biopharma company valuation with the lead drug's development stage, orphan status, number of indications, and disease area. We also estimated annual returns Bioentrepreneurs and investors can expect from founding and investing in drug development ventures. SDC Thomson Reuter and S&P Capital IQ were screened for majority acquisitions of US and EU Biopharma companies developing new molecular entities for prescription use (SIC code: 2834). Acquisition data were complemented with drug characteristics extracted from clinicaltrials.gov, the US Food and Drug Administration (FDA), and deal announcements. Thereafter, company valuations were combined with previously published clinical development periods alongside orphan-, indication-, and disease-specific success rates to estimate annual returns for investments in drug developing companies. Based on a sample of 311 Biopharma acquisitions from 2005 to 2020, companies developing orphan, multi-indication, and oncology drugs were valued significantly higher than their peers during later development stages (p < 0.05). We also estimated significantly higher returns for shareholders of companies with orphan relative to non-orphan-designated lead drugs from Phase 1 to FDA approval (46% vs. 12%, p < 0.001). Drugs developed across multiple indications also provided higher returns than single-indication agents from Pre-Clinic to FDA approval (21% vs. 11%, p < 0.001). Returns for oncology drugs exceeded other disease areas (26% vs. 8%, p < 0.001). Clinical and economic conditions surrounding orphan-designated drugs translate to a favorable financial risk-return profile for Bioentrepreneurs and investors. Bioentrepreneurs must be aware of the upside real option value their multi-indication drug could offer when negotiating acquisition or licensing agreements. © 2022. The Author(s).

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