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 (/)

Mathematical
Operations
Add (+)
Probability & Statistics
Subtract (-)
Multiply (*)
Divide (/)

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

Mathematical
Operations
Add (+)
‘For all else, there’s a
calculator for that
Subtract (-)
Multiply (*)
Divide (/)

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 $14KCosts 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 $488KCosts of Goods Sold
TOTAL REVENUE
TOTAL EXPENSES
$60K $95K $140K $1,975K

Regeneron Pharmaceuticals
Income Statement – YR 2015 10-K

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 ($)
Annual Product Sales ($)

future sales
(Top Down Approach)
US Population (#)
Market Share (%)
Income Statement
Product Sales
IncomeExpensesProfits/Losses
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

Total Population
Product Sales
% treated w/ drugs
# treated patients
Modelling
Disease
24

Total Population
Product Sales
% treated w/ drugs
# treated patients
Modelling
Disease
$
25

Total Population
Product Sales
% treated w/ drugs
# treated patients
2015
15%
$0
48M
321M
10%
4.8M
75%
3.6M
0%
0
$800
Modelling
Disease
26

Total Population
Product Sales
% treated w/ drugs
# 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

Total Population
Product Sales
% treated w/ drugs
# 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

Total Population
Product Sales
% treated w/ drugs
# 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

Total Population
Product Sales
% treated w/ drugs
# 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
Total Population
Product Sales
% treated w/ drugs
# 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
Expected Value
& Royalties
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
Expected Value
& Royalties
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
Expected Value
& Royalties
Lifetime Total Inventor Share: $0.6B
37

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

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

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
Positive(+)Negative(-)
Time
Product Launch
20 yrs
Profits
Investment

Cash Flows
($‘000)
43

($‘000)
44
Net Cash Flows

Expected
Value
Net cash flow
Time20 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

ROI =
Cost of Investment
=
Profit
Investment
Return on
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
=

ROI =
Cost of Investment
=
Profit
Investment
Return on
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

ROI =
Cost of Investment
=
Profit
Investment
Return on
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
adapted from Nature Review Drug Discovery 9: 203- 214 (March 2010)
& Journal of Health Economics 47: 20-33 (February 2016)50

Probability of
Technical Success
& Journal of Health Economics 47: 20-33 (February 2016)
Hit -> Approval = 4% p{TS}
51

Probability of
Technical Success
Phase I -> Approval = 12% p{TS}
52

Probability of
Technical Success
Phase II -> Approval = 20% p{TS}
53

Probability of
Technical Success
Phase II -> Approval = 20% p{TS}
Phase III -> Approval = 56% p{TS}
54

Considering
Risk
Net cash flow
Time20 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

ROI =
Cost of Investment
=
Profit
Investment
Considering
Risk
$6B*(.20) - $0.5B
$0.5B
=
$8B*(.10) - $0.6B
$0.6B
=
Project A
Project B
56

ROI =
Cost of Investment
=
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)

ROI =
Cost of Investment
=
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

ROI =
Cost of Investment
=
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

Assets
Debt
Cash
Assets
Liabilities
Shareholder
Equity
Making an
Investment Balance Sheet

House
Mortgage
(Debt)
Down payment
+ principal payments
on mortgage
Making an
Investment

House
Mortgage
(Debt)
Down payment
on mortgage
$1000K
$800K
$200K
Making an
Investment

House
Mortgage
(Debt)
Down payment
on mortgage
$1000K
$800K
$200K
$1300K
$700K
$600K
($200K+$100K+$300K)
Interest
Making an
Investment

House
Mortgage
(Debt)
Down payment
on mortgage
$1000K
$800K
$200K
$850K
$700K
$150K
$1300K
$700K
Interest
Interest
Making an
Investment
$600K
($200K+$100K+$300K)
($200K+$100K-$150K)

House
Mortgage
(Debt)
Down payment
on mortgage
$1000K
$800K
$200K
$850K
$700K
$150K
$1300K
$700K
Interest
Interest
Debt/Equity
Ratio
$600K
($200K+$100K+$300K)
($200K+$100K-$150K)
D/E=400%
D/E=117% D/E=467%

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

Stay in touch…
Eric Vieira, PhD
www.linkedin.com/in/ericvieira
@emvieira00
71
THANK YOU!

Managing Money Managing Success - 05.10.2016

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