managing money managing success - 05.10.2016

May 10, 2016 © UniTechAdvisors, LLC Eric Vieira PhD

Managing Money Managing Success

The Language of Finance & Accounting

• Budgets • Capital • Cash • Costs • Cost of Capital • Cost of Goods Sold • Direct Costs • Discount Rate • Discounted Cash

Flows • EBITDA • Equity

• Expenses • Facilities &

Administration ( F&A rates)

• Fringe Benefits • Indirect Costs • Interest Rate • Internal Rate of

Return • Liabilities • Loss • Net Present Value • Opportunity Costs

• Probability of technical success

• Profits • Revenue • Revenue Projections • Return on Investment • Risk • Royalty • S,G, and A • Time Value of Money

© UniTechAdvisors, LLC 2

The Black-Scholes pricing formula for call options

Call option: is an agreement that gives an investor the right, but not the obligation, to buy a stock, bond, commodity or other instrument at a specified price within a specific time period.

3


Shows the expected benefit of purchasing the underlying outright

4


Shows the expected benefit of purchasing the underlying outright

Provides the current value of paying the exercise price upon expiration

5

Mathematical Operations

Add (+) Subtract (-) Multiply (*) Divide (/)



Add (+)

Probability & Statistics

Subtract (-) Multiply (*) Divide (/)



Add (+)





Add (+)


‘For all else, there’s a calculator for that



book·keep·ing /ˈbo͝okˌkēpiNG / noun: bookkeeping the activity or occupation of keeping records of the financial affairs of an individual or business, and part of the process of accounting.


Budgeting your life Grad School

(20s-30s) Income $28,000

$1,500 $100 $130

EXPENSES, monthly

$23,700

Expenses, annually + taxes $28,554

ANNUAL SAVINGS (LOSS), Net $(554)

Rent/Mortgage+ Utilities

Phone Childcare

Transportation Student Loans

Debt Incidentals

EXPENSES, annually

$150

$35 $60

$1,975


Budgeting your life Grad School

(20s-30s) Post-Grad (30s-40s)

Income $28,000

$1,500 $100 $130

EXPENSES, monthly

$23,700

Expenses, annually + taxes $28,554

ANNUAL SAVINGS (LOSS), Net $(554)

Rent/Mortgage+ Utilities

Phone Childcare

Transportation Student Loans

Debt Incidentals

EXPENSES, annually

$150

$35 $60

$1,975

$160,000

$3,200 $400 $200

$101,400

$156,000

$4,000

$2000 $1000

$500 $350 $800

$8,450


Setting up a lab

YR1 YR2 YR3 Salary PI (50%) $50K $50K $50K

Tech (100%) $35K $35K $35K Student (100%) $25K $25K

Fringe (35% F/S, 15% Stu) $30K $34K $34K

Reagents $10K $15K $15K

Equipment $15K

TOTAL DIRECT Cost $140K $159K $159K

F & A / Indirect Cost (56%) $70K $89K $89K

Modified Total Direct Cost $125K $159K $159K

TOTAL NEED $210K $247K $247K


Setting up a lab

YR1 YR2 YR3 YR4 Salary PI (50%) $50K $50K $50K $65K

Tech (100%) $35K $35K $35K $40K Student (100%) $25K $25K $50K

Fringe (35% F/S, 15% Stu) $30K $34K $34K $44K

Reagents $10K $15K $15K $20K

Equipment $15K $20K

TOTAL DIRECT Cost $140K $159K $159K $239K

F & A / Indirect Cost (56%) $70K $89K $89K $123K

$125K $159K $159K $219K

TOTAL NEED $210K $247K $247K $362K


Modified Total Direct Cost

Running a company

YR1 YR2 YR3… Revenues

Product Sales

Licensing Income $35K $45K $60K Contract Services $50K $80K

$100K $150K $300K $10K $20K $120K

$116K $180K $434K

Taxes

Earnings before I,T,D,A $(56K) $(85K) $(234K)

PROFIT (LOSS) $(56K) $(85K) $(294K)

$25K

Expenses

Research & Development

Sales, General & Administration

$6K $10K $14K Costs of Goods Sold

TOTAL REVENUE

TOTAL EXPENSES

$60K $95K $140K


Running a company

YR1 YR2 YR3… …YR6 Revenues

Product Sales $1,800K Licensing Income $35K $45K $60K $75K

Contract Services $50K $80K $100K

$100K $150K $300K $400K $10K $20K $120K $300K

$116K $180K $434K $1,188K

Taxes $130k

Earnings before I,T,D,A $(56K) $(85K) $(234K) $787K

PROFIT (LOSS) $(56K) $(85K) $(294K) $656K

$25K

Expenses

Research & Development

Sales, General & Administration

$6K $10K $14K $488K Costs of Goods Sold

TOTAL REVENUE

TOTAL EXPENSES

$60K $95K $140K $1,975K


Regeneron Pharmaceuticals Income Statement – YR 2015 10-K


Presenter

Presentation Notes

1988-2015 (28 Years) R&D Expense (total): $7.3B S,G&A (total): $2.4B

fore·cast /ˈfôrˌkast / verb gerund or present participle: forecasting to predict or estimate a future event or trend.


Market models informs future sales

Disease Market Model (Top Down Approach)

US Population (#)

Target Population (#)

Market Share (%)

Penetrated Market (#)

Annual Cost of Therapy ($)

Annual Product Sales ($)




US Population (#)


Market Share (%)




Income Statement

Product Sales

Inco

me

Expe

nses

Pr

ofits

/Los

ses

Licensing Revenue

COGS

R & D

S,G & A

Earnings/Losses per Share


fi·nan·cial mod·el·ling / fəˈnan(t)SHəl,fīˈnan(t)SHəl / /ˈmädliNG / Adjective gerund or present participle: modelling the task of building an abstract representation (a model) of a real world (financial) situation.


Total Population % of pop >65 yrs of age

# of pop >65 yrs of age

Product Sales

© UniTechAdvisors, LLC

Disease X prevalence (%)

# patients w/ Disease X % treated w/ drugs

# treated patients

% market share of Drug 451

# patients treated w/ Drug 451

Ann. Cost of Rx (MFG price; $)

Modelling Disease

23



Product Sales




# treated patients




Modelling Disease

24



Product Sales




# treated patients




Modelling Disease

$ 25



Product Sales




# treated patients




2015

15%

$0

48M

321M

10% 4.8M

75%

3.6M 0%

0 $800

Modelling Disease

26



Product Sales




# treated patients




2015

15%

$0

48M

321M

10% 4.8M

75%

3.6M 0%

0 $800

2020

17% 56M

$372M

335M

10% 5.6M

75%

4.2M 10%

0.4M $880

Modelling Disease

27



Product Sales




# treated patients




2015

15%

$0

48M

321M

10% 4.8M

75%

3.6M 0%

0 $800

2020

17% 56M

$372M

335M

10% 5.6M

75%

4.2M 10%

0.4M $880

2025

19% 66M

$939M

347M

10% 6.6M

75%

4.9M 20% 1M

$950

Modelling Disease

28



Product Sales




# treated patients




2015

15%

$0

48M

321M

10% 4.8M

75%

3.6M 0%

0 $800

2020

17% 56M

$372M

335M

10% 5.6M

75%

4.2M 10%

0.4M $880

2025

19% 66M

$939M

347M

10% 6.6M

75%

4.9M 20% 1M

$950

2030

21% 74M

359M

10% 7.4M

75%

5.6M 40%

2.2M $950

$2,112M

Modelling Disease

29



Product Sales




# treated patients




2015

15%

$0

48M

321M

10% 4.8M

75%

3.6M 0%

0 $800

2020

17% 56M

$372M

335M

10% 5.6M

75%

4.2M 10%

0.4M $880

2025

19% 66M

$939M

347M

10% 6.6M

75%

4.9M 20% 1M

$950

2030

21% 74M

359M

10% 7.4M

75%

5.6M 40%

2.2M $950

$2,112M

2035

21% 79M

370M

10% 7.9M

75%

5.9M 60%

3.6M $950

$3,386M

Modelling Disease

30

Modelling Disease



Product Sales




# treated patients




2015

15%

$0

48M

321M

10% 4.8M

75%

3.6M 0%

0 $800

2020

17% 56M

$372M

335M

10% 5.6M

75%

4.2M 10%

0.4M $880

2025

19% 66M

$939M

347M

10% 6.6M

75%

4.9M 20% 1M

$950

2030

21% 74M

359M

10% 7.4M

75%

5.6M 40%

2.2M $950

$2,112M

2035

21% 79M

370M

10% 7.9M

75%

5.9M 60%

3.6M $950

$3,386M

2040

22% 82M

380M

10% 8.2M

75%

6.2M 15%

0.9M $80

$74M

31

Future Product Sales


($‘000)

32

val·u·a·tion /ˌvalyəˈwāSH(ə)n / noun: valuation; plural noun: valuations an estimation of something's worth, especially one carried out by a professional appraiser.


Expected Value & Royalties

Product Sales


2015

$0

2020

$372M

2025

$939M

2030

$2,112M

2035

$3,386M

2040

$74M

34

Cost of Goods Sold (COGS)

Product Sales


2015

$0

$0

2020

$93M

$372M

2025

$94M

$939M

2030

$211M

$2,112M

2035

$339M

$3,386M

2040

$7M

$74M

Product Sales, Net $0 $279M $845M $1,901M $3,048M $67M


35

Royalty Rate (8% of Net Product Sales)


Product Sales


2015

8%

$0

$0

2020

8%

$93M

$372M

2025

8%

$94M

$939M

2030

8%

$211M

$2,112M

2035

8%

$339M

$3,386M

2040

8%

$7M

$74M


Royalty Payments $0 $22M $68M $152M $244M $5M


36

Royalty Rate (8% of Net Product Sales)


Product Sales


2015

8%

$0

$0

2020

8%

$93M

$372M

2025

8%

$94M

$939M

2030

8%

$211M

$2,112M

2035

8%

$339M

$3,386M

2040

8%

$7M

$74M



Lifetime (20+ yrs) Total Net Product Sales: $30B

Lifetime Total Royalty Payments: $2B


Lifetime Total Inventor Share: $0.6B

37

Year 0 $100.00Year 1 $50.00Year 2 $30.00Year 3 $100.00 $20.00

Year 0 $100.00 $86.38 $92.11Year 1 $50.00Year 2 $30.00Year 3 $115.76 $100.00 $20.00

Year 0 $100.00 $100.00 $86.38 $86.38 $92.11 $92.11Year 1 $105.00 $90.70 $50.00 $47.62Year 2 $110.25 $95.24 $30.00 $27.21Year 3 $115.76 $115.76 $100.00 $100.00 $20.00 $17.28

Scenario 3Scenario 2Scenario 1

Scenario 1 Scenario 2 Scenario 3


Future Value Present Value

Assume: Interest Rate (i) = 5% Discount Rate (r) = 5%

FV=PV*(1+i)^n PV=FV/(1+d)^n PV={FV1/(1+d)^1} + {FV2/(1+d)^2} + {FV3/(1+d)^3}

Time Value of Money


Presenter

Presentation Notes

This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received.

Year 0 $100.00Year 1 $50.00Year 2 $30.00Year 3 $100.00 $20.00

Year 0 $100.00 $86.38 $92.11Year 1 $50.00Year 2 $30.00Year 3 $115.76 $100.00 $20.00

Year 0 $100.00 $100.00 $86.38 $86.38 $92.11 $92.11Year 1 $105.00 $90.70 $50.00 $47.62Year 2 $110.25 $95.24 $30.00 $27.21Year 3 $115.76 $115.76 $100.00 $100.00 $20.00 $17.28

Scenario 3Scenario 2Scenario 1



Future Value Present Value

Assume: Interest Rate (i) = 5% Discount Rate (r) = 5%

FV=PV*(1+i)^n PV=FV/(1+r)^n PV={FV1/(1+r)^1} + {FV2/(1+r)^2} + {FV3/(1+r)^3}

Time Value of Money


Presenter

Presentation Notes

This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received.

Net Present Value


2015 2020 2025 2030 2035 2040


Net Present Value (r=25%) $0 $7M $7M $5M $3M $0.02M

Lifetime Total, Royalty Payments: $2B

via Discounted Cash Flows (DCF)

Net Present Value (via DCF): $100M

40

de·ci·sion-mak·ing / dəˈsiZHən / /ˈmākiNG / noun: decision-making the action or process of making decisions, especially important ones.


Cash Flow Curve

Break-even Point

Net cash flow

Posit

ive

(+)

Neg

ativ

e (-)

Time

Product Launch

20 yrs

Profits

Investment


Regeneron Pharmaceuticals Cash Flows


($‘000)

43

Regeneron Pharmaceuticals


($‘000)

44

Net Cash Flows

Expected Value

Net cash flow

Posit

ive

(+)

Neg

ativ

e (-)

Time 20 yrs

Project A

Project B

Profits of Project B are projected to be 35% > than the projected profits of Project A

? What do you do ? © UniTechAdvisors, LLC 45

SCENARIO ANALYSIS

• Definition: A performance measure that allows the comparison of investment opportunities

ROI = Gain from Investment – Cost of Investment

Cost of Investment =

Profit

Investment

Return on Investment




Profit

Investment


Project A $6.0B - $0.5B

$0.5B =

Project B $8.0B - $0.6B

$0.6B =

$5.5B

$0.5B =

$7.4B

$0.6B =




Profit

Investment


$0.5B =

$0.6B =

=

=

$5.5B

$0.5B =

$7.4B

$0.6B =

11X return

12X return


Project A

Project B

48

$6.0B - $0.5B

$8.0B - $0.6B



Profit

Investment


$0.5B =

$0.6B =

=

=

11X return

12X return

$5.5B

$0.5B =

$7.4B

$0.6B =


Project A

Project B

49

$6.0B - $0.5B

$8.0B - $0.6B

Probability of Technical Success

© UniTechAdvisors, LLC adapted from Nature Review Drug Discovery 9: 203- 214 (March 2010) & Journal of Health Economics 47: 20-33 (February 2016) 50


© UniTechAdvisors, LLC adapted from Nature Review Drug Discovery 9: 203- 214 (March 2010) & Journal of Health Economics 47: 20-33 (February 2016)

Hit -> Approval = 4% p{TS}

51



Hit -> Approval = 4% p{TS} Phase I -> Approval = 12% p{TS}

52



Hit -> Approval = 4% p{TS} Phase I -> Approval = 12% p{TS} Phase II -> Approval = 20% p{TS}

53



Hit -> Approval = 4% p{TS} Phase I -> Approval = 12% p{TS} Phase II -> Approval = 20% p{TS} Phase III -> Approval = 56% p{TS}

54

Considering Risk

Net cash flow

Posit

ive

(+)

Neg

ativ

e (-)

Time 20 yrs

Project A

Project B

Project B has a 10% chance of success, while Project A has a 20% chance of success.

? What do you do ? © UniTechAdvisors, LLC 55

PROBABILISTIC VALUATION



Profit

Investment

Considering Risk

$6B*(.20) - $0.5B

$0.5B =

$8B*(.10) - $0.6B

$0.6B =


Project A

Project B

56



Profit

Investment

Considering Risk

$6B*(.20) - $0.5B

$0.5B =

$8B*(.10) - $0.6B

$0.6B =

$0.7B

$0.5B =

$0.2B

$0.6B =


1.4X return =

=

Project A

Project B

57

(a loss)



Profit

Investment

Considering Risk

$6B*(.20) - $0.5B

$0.5B =

$8B*(.10) - $0.6B

$0.6B =

$0.5B =

$0.6B =


=

=

Project A

Project B

58

1.4X return

(a loss)

$0.7B

$0.2B



Profit

Investment

Considering IRR / Hurdles

$6B*(.20) - $0.5B

$0.5B =

$8B*(.10) - $0.6B

$0.6B =

$0.5B =

$0.6B =


=

=

Project A

Project B

Internal Rate of Return … Hurdle Rate : Growth => 1.8X

59

1.4X return

(a loss)

$0.7B

$0.2B

in·vest /inˈvest/ verb gerund or present participle: investing expend money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property, or by using it to develop a commercial venture.


Assets Debt

Cash

Making an Investment


Presenter

Presentation Notes

�Assets: What the company owns Liabilities: What the company owes Shareholders’ equity: What is the company worth

Assets Debt

Cash

Assets

Liabilities

Shareholder Equity


Balance Sheet


Presenter

Presentation Notes


House

Mortgage (Debt)

Down payment + principal payments

on mortgage



Presenter

Presentation Notes


House

Mortgage (Debt)


on mortgage

$1000K $800K

$200K



Presenter

Presentation Notes


House

Mortgage (Debt)


on mortgage

$1000K $800K

$200K

$1300K

$700K

$600K ($200K+$100K+$300K)

Interest



Presenter

Presentation Notes


House

Mortgage (Debt)


on mortgage

$1000K $800K

$200K

$850K $700K

$150K

$1300K

$700K

Interest

Interest


$600K ($200K+$100K+$300K)

($200K+$100K-$150K) © UniTechAdvisors, LLC 66

Presenter

Presentation Notes


House

Mortgage (Debt)


on mortgage

$1000K $800K

$200K

$850K $700K

$150K

$1300K

$700K

Interest

Interest

Debt/Equity Ratio

$600K ($200K+$100K+$300K)

($200K+$100K-$150K) © UniTechAdvisors, LLC 67

D/E=400%

D/E=117% D/E=467%

Presenter

Presentation Notes


The Language of Finance & Accounting

• Budgets • Capital • Cash • Costs • Cost of Capital • Cost of Goods Sold • Direct Costs • Discount Rate • Discounted Cash

Flows • EBITDA • Equity

• Expenses • Facilities &

Administration ( F&A rates)

• Fringe Benefits • Indirect Costs • Interest Rate • Internal Rate of

Return • Liabilities • Loss • Net Present Value • Opportunity Costs

• Probability of technical success

• Profits • Revenue • Revenue Projections • Return on Investment • Risk • Royalty • S,G, and A • Time Value of Money


Resources

• How to Read a Financial Report (2014) by John Tracy • At the Helm: Leading Your Laboratory, Second Edition (2010)

By Kathy Barker • Entrepreneurial Finance, Third Edition: Finance and Business

Strategies for the Serious (2014) by Steven Rogers and Roza Makonnen

• Commercializing Successful Biomedical Technologies: Basic Principles for the Development of Drugs, Diagnostics and Devices (2011) by Shreefal S. Mehta

• Biotechnology Valuation: An Introductory Guide (2008) by Karl Keegan

• Getting to Yes: Negotiating Agreement Without Giving In (2011) by Roger Fisher, Bruce Patton (Editor), William Ury

• The Founder's Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup (2013) by Noam Wasserman


BOOKS

Resources

• Investopedia (www.investopedia.com) • NIH Grants & Funding site (www.grants.nih.gov/oer.htm) • Daily Worth (www.dailyworth.com)


WEBSITES

University/Medical Centers • Grants & Contracts Office {pre-award} • Office of Research & Projects Administration {post-award}

NYC Small Business Services (SBS)

• NYC Business Solutions centers NY Public Library

• Science, Industry and Business Library (SIBL)- 34th street

LOCAL ADMINISTRATORS & SUPPORT

http://www.investopedia.com/

http://www.grants.nih.gov/oer.htm

http://www.dailyworth.com/

Stay in touch… Eric Vieira, PhD www.linkedin.com/in/ericvieira @emvieira00

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THANK YOU!