Value Creation in Early-Stage Canadian Biotechnology Firms

Value Creation in Early-Stage Canadian Biotechnology Firms

When we work with STEM founders, one thing is very clear. These are deep-thinking professionals that are incredibly bright. Occasionally, we have to remind ourselves why we get a seat at the table with them. This blog post adds colour to the methods in which a value-oriented fractional CFO can help a founder meet her goals.

Biotechnology founders have worked hard academically. They stand above the crowd to generate insights on drug discovery, data-driven innovation and their ability to rally large teams of STEM experts. Often though, they need that partner on the business side that can advise on GTM, talent, finance and overall execution of these business strategies. One particular area of valuation and business strategy that isn't well understood by STEM entrepreneurs is real options theory. Interestingly, they may be the most well-suited to develop the elaborate simulations used to value real options, but the fact remains that real options are a very specialized niche within finance and strategy.

So what is a real option? Understanding real options is done best by conceptualizing. If you have the ability to cancel contract, you have a real option. If you have the ability to extend a contract, you have a real option. If you have an opportunity to exit an investment, you have a real option. In essence, a real option is the option to pursue a flexible business model. Optionality adds considerably value given that it simultaneously increases flexibility and reduces risk. There is a general typology to real options[i] and it is as follows: the option to defer, the option to expand or contract, the option to abandon or license, the option to switch, the option to phase investment and the option to grow.

The option to defer refers to the firm's ability to postpone an investment or a critical decision. The option to expand or contract provide the firm with the ability to control its size, which can be defined along multiple metrics. The option to abandon or license represents the firms ability to cancel or monetize its investment by offlaying it to another entity. The option to switch refers to the firm's ability to change and be versatile, whether that involves processes, labs or geographic locations. The option to phase investment is an option to increase its investment as milestones are achieved as opposed to making large initial, and highly uncertain, investments. Finally, the option to grow makes reference to the firm's ability to make a decision on whether or not proceed.

Developing real options requires strong management. Valuing real options requires specific technical abilities. A solid fractional CFO must be able to help a STEM founder improve their valuation using real options.

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[i] Valuation in Life Sciences, 3rd edition, Bogdan, Boris and Villiger, Ralph, Springer Verlag, 2010

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Rebecca Scott
Web Designer

Rebecca is a Web Designer at BluePrint CPAs. She is a graduate of St. Clair College’s Internet Applications and Web Development Program and has worked as a freelance web designer before joining the BluePrint team.

BluePrint CPAs is a management consultancy that simplifies digital, financial and talent strategies. Our team helps entrepreneurs and their teams grow profitable and modern businesses.

Kit Moore, BluePrint CPAs President & Lead Tax Advisor
Kit Moore, CPA, CA
President & Lead Tax Advisor

Kit Moore, is an entrepreneur that simplifies digital strategy for other business owners. The team at BluePrint CPAs can assist you with web design, development, analytics, management systems and, more importantly, your overall business strategy. The toughest part of digital transformation is re-training your team - and we have pros to help with that as well.

BluePrint CPAs is a management consultancy that simplifies digital, financial and talent strategies. Our team helps entrepreneurs and their teams grow profitable and modern businesses.

Kit Moore, BluePrint CPAs President & Lead Tax Advisor
Kit Moore, CPA, CA
President & Lead Tax Advisor

Kit Moore, is an entrepreneur that simplifies tax and financial strategy for other business owners. The team at BluePrint CPAs can assist you with financial technology, tax strategies, mergers & acquisitions, succession & exit planning and, more importantly, your overall business strategy.

BluePrint CPAs is a management consultancy that simplifies digital, financial and talent strategies. Our team helps entrepreneurs and their teams grow profitable and modern businesses.

Joe Marra, MBA
Senior Associate, Strategy Consulting

Joe is a Senior Associate, Strategy Consulting at BluePrint CPAs. He is a recent graduate of the MBA Program at the Schulich School of Business and has most recently worked for Bayer Inc and the Ford Motor Company of Canada. His experience in marketing, sales, and human resources spans various industries including hospitality, logistics, life sciences and automotive manufacturing. Joe loves working with entrepreneurs to develop their digital strategies and help them grow their business.

BluePrint CPAs is a management consultancy that simplifies digital, financial and talent strategies. Our team helps entrepreneurs and their teams grow profitable and modern businesses.