Question

7) Axon is an early-stage biotech research company with a single product, AX484, in its pipeline. Recently, Axon successfully received IND status for AX484, and has been preparing to test the new compound in phase 1 clinical trials. Axon has neither the capital nor the clinical trial expertise to navigate AX484 through the regulatory approval process, and is looking for a partner to help fund the costs of the trial and serve in an advisory role.

Earlier this year, the general partners of BioLab Ventures (BLV) met with the management team of Axon to negotiate the terms of a series A round of financing (Axon had initially been financed by the founders, and was currently renting space in a shared laboratory facility). A number of important questions needed to be addressed including the current "pre-money" valuation of Axon, the amount of equity that would be acquired by BLV, and the amount BLV would pay to acquire that equity.

A) BioLab Ventures was preparing to offer $10 million for a 40% equity interest in Axon. What is the current (i.e., pre-money) valuation of Axon implied by this offer? (Note: Your answer should be expressed in units of millions of dollars.)

$____million

B) We will build a simple financial model to estimate the value of BLV's offer. Assume that Axon's management has estimated AX484's total addressable patient population to be 5 million patients. Moreover, the cost of treatment is projected to be $1000 per year, and at that price they will capture 20% of the addressable market. For simplicity, they assume that their market share will stay constant every year for 13 years after product launch, at which time loss of exclusivity will increase competition from generics and drive sales to zero. Under these assumptions, and using a discount rate of 10% per year, what would be the present value of revenues at the moment of commercial launch? Assume the first cash flow occurs 1 year after launch. (Note: Your answer should be expressed in units of millions of dollars.)

$____million

Answer 1

A)

The current pre-money valuation is calculated by dividing offer price with the percentage stake taken

which comes out to be $10Million/40% = $ 25 Million

B) Present Value $7103.35 Million calculated as-

Year	Cashflow	Present Value @10%
1	1000 ($ 5Million X 20% X $1000)	909.0909
2	1000	826.4463
3	1000	751.3148
4	1000	683.0135
5	1000	620.9213
6	1000	564.4739
7	1000	513.1581
8	1000	466.5074
9	1000	424.0976
10	1000	385.5433
11	1000	350.4939
12	1000	318.6308
13	1000	289.6644
Present Value	7103.356