The standard methods used to value multi-billion dollar biotech companies are almost entirely useless at predicting their actual worth.
Investors and banks spend millions filtering 'comparable transactions' based on a drug's clinical stage, but this data only explains 8.8% of a company's valuation. In reality, the 'stage' of a drug is a poor predictor of value, yet it remains the primary driver of how these companies are priced and traded.
How Well Do Comparable Transaction Filters Predict Biotech Valuations? Evidence from 1,976 Financing Events
SSRN · 6222438
<div> Venture capital investors and investment banks routinely construct comparable transaction sets by filtering on clinical development stage, therapeutic indication, and drug modality to value biotech companies. Despite the near-universal adoption of this framework, limited empirical evidence supports the assumption that these variables meaningfully predict pre-money valuations. I test this assumption using 1,976 biotech financing transactions spanning 2013 to 2026, sourced from SEC EDGAR fil