Purpose
Although the life sciences provide immense value to our daily lives through the development of life-saving medications and medical devices, valuing businesses that operate in the life sciences space poses a challenge for the average investor. Not only does understanding these companies often require a scientific background, but also knowledge of the regulatory landscape.
Life Sciences Investing shares detailed explanations paired with case studies to walk through one potential method of valuing such companies. Of note, despite our data-backed approached, valuation is still a highly subjective endeavor. This newsletter is merely informational and does not provide any investment advice or recommendations (see disclaimer here).
Companies of interest
Life Sciences Investing focuses on valuing early-stage and mid-stage companies that develop and commercialize pharmaceuticals, medical devices, or gene therapies. Many assets associated with these companies will be in the clinical research phase or will have been recently launched. Since these assets will not have an extensive commercial history, accurate insights into their future earnings potential are less likely to be priced in by the market, increasing the likelihood of identifying undervalued assets.
The valuation process
The value of a company is equal to the net present value of all its future cash flows added to the current value. We estimate the current value of most life sciences companies based on a recent balance sheet. More importantly, we estimate future cash flows as the product of the probability of success and estimated future earnings. Further details on the valuation methodology will be shared in upcoming articles.
Interpreting valuations
Calculating the valuation for a company is not the only factor in investment decision-making. As an example, many investors require a wide margin of safety between their valuation estimate and the market capitalization of a company. Others combine the valuation with technical indicators when investing. Life Sciences Investing does not suggest any particular method; it only provides one estimate of a company’s value calculated through one potential valuation method. You should use this valuation or adjust any assumptions at your own risk (see disclaimer here).
What do I get with a free subscription?
A free subscription grants you access to valuations for either entire companies or individual assets (such as a medication or medical device). Although the articles will focus on a single publicly-traded company in the United States, the principles shared in the articles could be applied when valuing other companies.
What do I get with a paid subscription?
A paid subscription would give you access to 2 more types of articles.
First, paid subscribers will receive articles with detailed explanations underlying the valuations shared with all subscribers. Paid articles will explain why specific numbers in free articles were chosen and will provide an Excel file allowing you to change the assumptions made in free articles to see how it affects the valuation. You could conduct your own sensitivity analysis, pressure-test & modify assumptions, or even use the file to value another company.
Second, paid subscribers receive timely notifications about how current issues could affect their investments. The life sciences sector can change rapidly. As an example, the Inflation Reduction Act of 2022 (IRA) had major implications for pharmaceutical companies. Some companies stopped developing specific assets due to the IRA. However, even experts initially disagreed on the impact it would have, based solely on its text. Its estimated impact changed as the Center for Medicare & Medicaid Services released its official guidance about the IRA. In early 2025, there was serious consideration that the IRA could be repealed. What could this mean for your portfolio? When major events like this occur, paid subscribers will receive clear explanations of the potential impacts for which they could prepare.
Our suggestion? Try out the free subscription for a month or two. If you are serious about investing in the life sciences and our approach fits well with your investing style, then consider purchasing the paid subscription.
What else?
For more content, check out the articles we have written on SeekingAlpha. These are written exclusively for SeekingAlpha and are not reproduced in the newsletter.
