Epoch 39: PART 2 - R&D Budget Neutral Externalization Strategies

Building Financial Models for Asset Externalization

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Hello Avatar! Welcome back for another week of biotech analysis. This week we are following up with Part II of our series from last week on R&D Budget Neutral Externalization strategies.  Last week we introduced the topic of asset externalization and took you through a few common deal structures used by pharma.  We focused our attention on the two frameworks which provide the most budget neutral opportunity to advance science outside the walls of the parent without impacting the R&D budget - newco spinouts and direct external R&D investment. This week is more of a tactical discussion.  We will go into detail on how to model the financial implication around executing these types of deals.

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INTRODUCTION

Today we conclude our brief two part series on budget neutral asset externalization. 

During “PART 1: R&D Budget Neutral Externalization Strategies”, we will laid out frameworks for R&D externalization and take you through the pros and cons of different approaches.

Today, in “PART 2: R&D Budget Neutral Externalization Strategies” we will be more tactical in our discussion and walk you through exactly how to build your own financial models to assess these transactions.

MODELING 101

As is often the case when making any decision with economic implications we prefer to create models to simulate outcomes.  Typically this is in the form of an excel spreadsheet with a number of inputs which allow the user to simulate outcomes and facilitate decision making.  The figure below covers the key steps to generating a model for forecasting asset externalization financial outcomes.