ALS 472: Valuation in the Life Sciences
Course Number: ALS 472
Course Name: Valuation in the Life Sciences
Year: Second-year
Semester: Fall 2012, Spring 2013
No. Units: 0.5
Faculty/Instructor(s): Luann Bangsund
Description
This course will focus on the valuation methods used in life science industry. The material covered will include the basics of valuation, including defining cash flow, estimating cost of capital and calculating terminal values. It will also address the challenges of estimating value for technology firms in the early stages of development. Firms in the life science industry hold particular challenges in valuation due to the long time to market and the significant capital needed to complete the lengthy approval process required by the US regulatory system. Due to the nature of the discovery, development and commercialization process, it is likely that a project or firm valuation will be required at several stages of the process as ownership shifts from R&D firms, to development firms and on to firms that will market the products. The involvement of venture capital in the capital raising process sharpens the need for understanding the appropriate methods of valuation in preparation for negotiation of ownership interests.
Most valuation courses focus on the valuation of a firm; however, in this course students will learn to address the issues of valuation, which are created by the limited exclusivity periods (patent protection) typical for intellectual property. Students will learn to not only use the basic DCF methods used for firm valuation, but also the rNPV ("Risk Adjusted Net Present Value") method specific to the industry. The course will address valuation of projects, intellectual property and licenses.
Prerequisites
ALS 350 and ALS 351
Learning Objectives
Students who successfully finish the class should be able to:
- Explain the difference between the various valuation methods and when each method is appropriate
- Determine a value for a firm using the following valuation methodologies
- Discounted Cash Flow (DCF)
- Relative Value Method
- Venture Capital Method
- Determine a value for a project with a finite life using rNPV
- Calculate free cash flow
- Calculate the expected cost of equity and WACC
- Calculate a terminal value using multiple methods
- Use sensitivity analysis to help identify the important value drivers inherent in a vlaution model, including changes in the cost of capital and cash flow assumptions
- Use scenario analysis to support a base case valuation
Grading
The course is highly participatory and students are expected to contribute significantly to the learning experience through the class discussions. Just showing up does not count toward participation — active and contributive discussion is required.
Because class participation represents a large percentage of grading, more than one absence will have a negative impact on a student’s grade.
Grading will be determined as follows:
| Percentage of course grade | |
| Problem Sets | 10% |
| Excel models | 15% |
| Valuation project | 30% |
| Participation | 45% |
Required Texts