1. A Generalised Model for Valuing Early Stage Technology Palisade Europe User Conference 2008 Michael Brand © 2008 Captum Capital Limited

2. 2 About Captum… Formed in 2004 Transatlantic presence Specialised consulting to: –Private companies (pre-IPO ) –Life science sector (Biotech, Med Dev, Pharma) –Business development, valuation, partnering MasterClasses in Finance, Leadership –Valuation Masterclass attended by over 350 executives in UK and Europe

3. 3 Valuing Technology Technical Risk –Will it work? –Scale up issues –Regulatory hurdles Market Risk –Customer acceptance –Pricing issues –Competition

4. 4 Valuing Risk £ X £200,000 £0 0.5 or What value of X are you indifferent between a fixed sum and playing the game? £1 £1,000 £10,000 £20,000 £50,000 £100,000

5. 5 Valuing Technology Early-stage Technology Company Development Cost NPV Success NPV Failure

6. 6 Valuation Parameters Cash Flow Probability of achieving cash flow Discount rate (less uncertain) CsCs CfCf P (1 – P) t

7. 7 Stepwise Development ConceptDevelopmentManufacturingMarket launch Development can fail at any milestone along the development pathway

8. 8 Drug Discovery Process Pre- Clinical Phase 1Phase 2Phase 3FDA S F S S S S F F F F

9. 9 General Value Model Risk Adjusted NPV = Risk Adjusted NPV Sales Income Risk Adjusted NPV Development Cost +

10. 10 Case: ReJuven8 Innovative wound care treatment Demonstrated on animals, limited human trial Requires manufacturing scale-up for: –Small and Large scale human clinical trials –FDA Approval Post FDA approval, sales launch This case has been written by Captum Capital Limited for educational purposes only. Any resemblance to any actual person, company, organization or technology is entirely accidental. Data included in this case is for illustration only, and should not be relied on for accuracy.

11. 11 ReJuven8 Development Scale upCT1CT2FDA 0.7 0.4 0.6 0.9 0.5 0.1 1.2 0.2 1.5 0.2 0.5 0.3 Cash Flow $m Overall Probability of FDA Approval = 0.15

12. 12 ReJuven8 PreSales Model

13. 13 Binary Decisions

14. 14 ReJuven8 Presales NPV

15. 15 Forecasting Sales Top Down Bottom Up Total Market Size ($/yr) Market Share (%) Price/unit ($/unit) User Penetration (%) Potential Users (units) Sales

16. 16 Market Penetration P t = K P o e kt K + P o (e kt – 1) P 0 =1 K=10 PtPt Time, t abc k a =2 b =1 c =0.5 Verhulst Pearl Equation

17. 17 Adding Post Launch Sales

18. 18 ReJuven8 Post Sales NPV

19. 19 Year 1 Sales Distribution

20. 20 ReJuven8 3 Year Sales

21. 21 ReJuven8 5 Year Sales

22. 22 Summary Model Advantages –Graphical depiction of technology/market risk –Flexible: facilitates development strategy –Intuitive: based on realistic probabilities –Effective communication tool Downside –Valuing very early stage technology difficult –Most investors are risk adverse (<eNPV) –Requires analytical discipline

23. 23 Contact Michael Brand e: mjb@captum.commjb@captum.com t: +44 (0) 115 988 6154 m: +44 (0) 7980 257 241 Captum Capital Limited Cumberland House 35 Park Row Nottingham NG1 6EE United Kingdom