How to value an early-stage listed Biotech company with no revenues?

Disclaimer: The objective of this write up ( a part of my MBA case study)is for the reader to understand how financial valuation is done for an early-stage public listed company with no revenues. Krystal biotech, Inc. (KRYS, the ticker symbol), a clinical stage gene-therapy company that leverages its proprietary platform to develop therapeutic interventions for rare genetic skin diseases. This investment appraisal was done 2 years ago before the announcement of the results of pivotal phase 3 trial of B-VEC and the recent approval of FDA for treating Dystrophic Epidermolysis Bullosa. It should not be considered a recommendation for investment and the calculations for the valuation are based on the financial statements of KRYS and the assumptions made by the author. The share price of the company by the end of 2021 was $55 and with the successful outcome of phase 3 trial and FDA approval (Both confidently predicted by me), the share price is currently trading at $119. The re-dosable drug will be sold as Vyjuvek after the FDA approval in 2023. The drug will have a price of $24,250 per vial with a cost of 6,31,000 per patient per year ( Source: Biopharma Drive) and this price is not included in this forecast. The current market cap of the company is $3.08B whilst the market cap during this projection 2 years was $1.24B and hence this is not an up to date projection but it offers the reader of how to value a listed early stage biotech companies with no revenues and imputing the current value, one could easily reach the accurate projection following this article step by step.
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KRYS leverages its unique gene therapy proprietary technology platform, STAR — D (Skin targeted delivery platform) to treat rare monogenetic (Diseases caused by mutation in the single gene) skin diseases (Krystal Biotech, 2017). One of the unique value propositions of the company to treat rare skin diseases is that they have developed a topical and intradermal “off-the-shelf” treatment that can be performed in front of the physician as well as at home. This gives the company a truly differentiated non-invasive therapy which is different from the common invasive forms of gene therapy treatment paradigms. A simple topical application that can help in the restoration of the normal skin for patients with rare genetic skin diseases can be truly a game changer.

Technology platform

KRYS use patented engineered herpes simplex virus type 1 (HSV-1) viral vectors to deliver the gene of interest to treat monogenic diseases. The company differentiate from others in targeting monogenic diseases that affects skin or epithelial cells. This is leveraged using HSV-1 virus as they have strong affinity for epithelial cells (Krystal Biotech, 2017).

The unique advantages of the technological platform of KRYS are enumerated below:

1.Tailored replication incompetent HSV-1 viral vectors unlike lenti and retrovirus are non- transducing. In other words, the transduced genetic material stays episomally in the nucleus without integrating into the genome thereby alleviating the fear of disrupting the essential functions in the host cells. Moreover, they can be repeatedly administered for chronic use.

2.The genetically engineered HSV vector made by KRYS can carry high payload. They can accommodate up to 35kb (kilobase) or higher without compromising the titre for the infection unlike other commonly used viral vectors such as adeno-associated viral vectors that can only accommodate foreign DNA of less than 10kb. In fact, KRYS has used two functional copies of COL7A1 (type VII collagen) of 9kb each for the treatment of recessive dystrophic epidermolysis bullosa (RDEB). In essence, KRY’s vector platform can transduce large DNA into the cells.

3.High transduction efficiency and stable — Since HSV-1 have naturally affinity or tropisms for epithelial cells, transducing epithelial cells in the skin as well as in the lung can be achieved with ease. Moreover, the vectors are stable over several freeze-thaw cycles and are also engineered to evade immune responses from the host. The clinically validated platform targeting epithelial cells and the broad tropism of HSV-1 equip the company to use on additional tissues in the future.

Competitive advantage of topical in-vivo gene therapy over other gene therapy approaches:

1. Off the shelf product can be used for multiple patients

2. The product can be directly shipped to the local sites thereby reducing the manufacturer and supply chain costs.

3. It can be administered by care-workers without the need for hospitalisation.

4. The treatment is non-invasive and avoids any logistic burdens associated with the gene therapy approaches.

Product pipelines

Besides the products developed in-house, the company has incorporated a wholly owned subsidiary, Jeune Inc, that are developing new treatments for making the skin more aesthetic.

B-VEC (Beremagene gegerpavac)

B-VEC is tested as an investigational gene therapy (currently approved by FDA)for treating patients with dystrophic epidermolysis bullosa (DEB), a rare genetic disease causing the blistering of the skin resulting in large wound openings. DEB is caused by a mutation in COL7A1 gene which express type 7 collagen. Type 7 collagen is secreted locally by fibroblasts present in the dermis and by the basal keratinocytes and type 7 collagen is important for anchoring the fibrils at the dermis — epidermis junction. In humans, the epidermis is self- renewing and constantly regenerate every 21 days. Clinically, the recessive form (RDEB) is the most severe one whilst the dominant form (DDEB) shows broad range of blisters on the hands and the legs. The prevalence of people diagnosed with EB is close to 125,000 worldwide (KRYS corporate deck, (Krystal Biotech, 2021a)) and there is an incidence of 11.07 per 1 million people in the U.S. Patients diagnosed with RDEB is estimated to be 8 per 1 million of the EU population. DEB in children in figure 13 is commonly referred to as “Butterfly children” because of the fragility of their skin alike that of the wings of the butterfly.The current disease management are mostly channelled to alleviate the pain and the itch in the patients. In clinically severe form of RDEB, extensive stripped skin causes chronic wound infection and some leading to squamous cell carcinoma. The existing treatments are mostly palliative in nature and are expensive costing annually $200 — $400k (Krystal Biotech, 2021a) and so far, there has been no treatment for corrective DEB. The current standard of care is semi- occlusive wound dressings to reduce pain and the formation of the blisters. For the standard of care of wound management and to reduce further infections, application of antiseptics, antibiotics are topically applied. Moreover, the dressings must be checked daily and need to be re- dressed in case of exudate from the wound thereby causing high bioburden both for the patients and for the caregivers. Keratin gels and medical grade honey has been used as a standard care; the former has shown to cause the migration of keratinocytes to the wounds. B-VEC contains clinically engineered non-replicating HSV-1 vector that carries two copies of functional transgene COL7A1 that can be topically applied to the wounds of the patients in an outpatient setting. This replacement of functional COL7A1 gene expresses the functional collagen protein that holds the epidermis and dermis together thereby closing or healing the blisters and the wounds. Below exhibits from the KYRS corporate SEC explains the mode of action of B-VEC.

Competition

Direct competitors such as Abeona’s product EB101 and castle creek’s D-Fi does not possess the ease of topical application like that of BVEC rather they fall into personalised treatment. In the case of EB-101, keratinocytes from the patients are retrovirally transduced with COL7A1 and these transduced sheets of cells are grown in culture before surgically grafted on to the wounds of the patients (ClinicalTrial.gov identifier no: NCT. In the case of D-Fi, fibroblasts from the patients are transduced with lentivirus harbouring normal COL7A1 (ex-vivo engineering) and then injecting intradermally into the patients. Both the treatments are time consuming, expensive, needs invasive treatments and patient hospitalisation unlike the BVEC. The results of those studies are expected to be announced in the middle of 2022. Another competitor, Phoenix tissue repair is injecting recombinant collagen while other competitors such as Amryt pharmaceuticals are approaching with a palliative treatment. Bone marrow derived mesenchymal stem cells (MSC) have been successfully used in different types of cell therapies as they can be differentiated ex-vivo into distinct cell types. RDEB patients were injected into their chronic wounds with MSC from healthy donors and compared against the placebo injections. The patients received the treatment showed wound healing by week 12 and lasted for 4 months. In an open- label trials on children, intravenous administration of MSC showed clinical benefits however this is not molecularly supported by the collagen 7 deposition at the dermis-epidermal junctions nor the formations of the anchoring fibrils (Identifier no: NCT02323789). Grafting of epidermal skins from the donor to the wounds on the RDEB patients is also undergoing currently (Identifier no: NCT02670837). A gene therapy trial in the EU uses a self-inactivating (SIN) retroviral vector to transduce the correct copy of COL7A1 gene into the epidermal stem cells and dermal fibroblasts isolated from the patients ex-vivo and graft them back on to their wounds (GeneGraft, 2017). Another study leverages the use of lentivirus to transduce COL7A1 and intradermal injections of genetically corrected autologous fibroblasts in patients with RDEM (Identifier no: NCT02493816). Given the ease and effectiveness, BVEC seems to be a favourable prescription for the clinicians. Moreover, due to the absence of any safety issues, BVEC seems to be in a great position to access the market with the first mover advantage and have faster penetration to reach the peak sale.

KB105

KB105 is developed as an investigational gene therapy (topical gel) for the treatment of autosomal recessive congenital ichthyosis (ARCI). A type of ARCI is caused by the loss of functional variants in human transglutaminase1 gene (TGM1) causing the breaking of the epithelial barrier leading to dehydration, hypohidrosis (heat shock) and increased risk of infections due to the trans- epidermal exposure to pathogens. This phenotype is characterised by thick plate like scaling on the skin shown in figure 17. TGM1 protein is involved in the formation of skin barriers by cross- linking an envelope protein called loricrin. 20,000 cases are estimated to have ARCI and new incidences of 350–400 new babies are reported to be born with ARCI worldwide. TGM1 deficiency is associated with increased mortality in neonates and children (Source data: Corporate deck presentation of KRYS, (Krystal Biotech, 2021a)). Patients with ARCI have decreased quality of life, reported to have psychosocial issues with ostracisms and bullying experiences. So far, there is no approved treatment for the correction of ARCI and most of the current palliative treatments are limited to topical applications of retinoids.

Competition

Both Novartis and Patagonia pharmaceuticals have conducted clinical trials in the past however there were no currently active clinical trials reported. With the ease of topical application and with no safety issues, the future of KB105 treatment looks bright. So far phenotypic examination with the treatment was only observed in small areas however they are promising with reduced reversion of ichthyotic scaling. Success of treating large areas by optimising dosing regimen would be important for the effectiveness of the treatment in the future. The dose needs to be optimised because of the variability in skin turnovers across patients and the treatment need to be personalised. The new pivotal trial would be a key study taking the lessons learned from the phase1/2 studies. The probable success of KB105 will appraise the value of the company in treating monogenic rare skin diseases as the early phase 1/2 data shows promising results.

Strategy and Growth opportunities

KRYS operates in a niche market, where they are set to gain a first mover advantage in treating monogenic skin diseases with their innovative STAR-D platform and with their strong expertise in clinically engineered virus technology produced in-house and protected by a portfolio of intellectual properties (IP). FDA and EMA have designated both the assets B-VEC and KB105 as a rare orphan drug. This designation confers both economic and commercial benefits to the company. The economic benefits as per the Orphan drug act of 1983 (ODA) includes the accelerated review of the drug which reduces the duration for conducting the clinical trials and the favourable consideration for approval by the regulatory authorities with low sample size. Besides that, the company can seek up to 50% of R&D costs for tax credits, grants for R&D, waived fees by the FDA (only applicable in the US) and more importantly that the company may get 7 years of market exclusivity to sell the drug for a particular indication in the U.S and 10 years in the EU. The commercial benefits are the company can charge higher price for the product, gain faster penetration in the market, low costs for product launch and marketing and longer market exclusivity. The company will be able to charge a premium price for the product as the incidence of the patients both in the US and in the EU enable it to qualify as an ultra-orphan drug for DEB. The phase 1/2 clinical data shows a significant effect in the complete closure of the wound indicating the treatment can increase the quality of adjusted life years (QALY)in the patients and would justify a high premium price. Mean economic per year value of an orphan drug for the forecasted period of 1990 to 2030 valued $406 million compared to the non-orphan drug valued at $399 million, showing parity and significant revenue generation from orphan drugs. It is estimated that the global orphan drug sale will reach $209 billion by 2022. Their first product, B-VEC is on the verge of commercialisation once the company publishes the results of phase 3 trials in the 4th quarter of 2021 contingent on its success and FDA approval. If the product comes first in market approval, this will offer the company market exclusivity for a stipulated period warding off competitions. A successful launch of B-VEC contingent on its final approval will position KRYS a leader in treating skin diseases. Moreover, the technology is expected to have at least a feed rate of 1 or 2 assets in the pipeline. To have a competitive edge, KRYS have developed their own in-house GMP manufacturing to support their clinical and commercial needs there by keeping hold of their IP/trade secrets of manufacturing. They have developed both reproducible cost-effective upstream and downstream processes that are scalable for clinical processes to commercial ones. In addition to the current end-to-end GMP operational facility (Ancoris), the company is building a larger operational facility (Astra) which is due to be operational in 2022 which is a strategic investment for up scaling the resources for commercialisation of its products both locally and internationally (Krystal Biotech, 2021c). KRYS core business is to strengthen its position initially in a niche area (Skin) before broadening their focus to address different indications and different cell types. Indeed, in their forward-looking statement, KYRS is currently leveraging its proprietary HSV-1 engineered vectors not only for treating skin diseases (B-VEC for DEB, KB105 for ARI, KB104 for Netherton’s disease and other pre-clinical candidates) but also for treating other diseases (KB407 for cystic fibrosis, KB408 for alpha-1 antitrypsin deficiency). With their newly incorporated subsidiary, Jeune aesthetics, KRYS is entering the aesthetic market with a phase 1 trial with product KB301 that aims to increase the neocollagenesis for treating acne scars and facial wrinkles. Phase 1 study shows tolerability and no safety issues with repeated injection. The efficacy data is expected to be published soon by the company. There are other assets that are in the pre-clinical development (KB302, 303, 304), and KB303 for targeting elastin gene (Krystal Biotech, 2021b). Company is planning to file for IND for KB303 and is expected to produce safety data for phase 1 trials in 2022. The success of this program will allow the company to foray into aesthetics business that has huge market size and growth.

Risk analysis

As expected from an early-stage company, KRYS is incurring net losses since its inception and the profit generation is contingent upon on the commercialisation of its assets and then scaling its manufacturing process. It may be possible that the assets that are currently in the clinical phase may not get regulatory approvals thereby limiting the expansion of the business in the future. The company need raising additional funds in the future for developing its assets in the pipeline, a failure to do so would affects it ability to achieve profitability and growth. The probability of successful commercialisation of an asset to get a market approval in the biotechnology industry depends on multitude of factors such as the enrolment and completion of the clinical trials, Clinically effective data with limited safety issues of assets for successful regulatory approvals, development and scaling of GMP certified manufacturing or successful liaison with 3rd party manufacturers, successful commercial launch, the time to reach the peak sales, deployment of strong sales force, forging a strong relationship with the prescribers, payers and building loyalty with patients and therefore it is difficult to predict the future and the potential challenges. The company also does not have a history in developing the assets to a commercially successful products which may limit the success of the business. Though some of the assets have been granted orphan designation, it remains to be seen whether the company can get a market approval before its competitors. Even if they have given market approval, the regulatory bodies can still grant market approval for products of its competitors if their product shows superiority in effectiveness, less side effects than products from KRYS or drugs of different mode of action for the same diseases. Given the company is targeting rare niche areas, it is important to consider the commercial viability, as the product will be prescribed to a small population. Currently the company has decided to retain sole development and commercialisation, an inability to bring the product to commercial viability would relinquish some of its right by out- sourcing licenses, royalty arrangements with big pharmaceutical companies that have extensive market experiences and resources both financially and technically.

Valuation

Since the company hasn’t generated any revenues so far and has only negative earnings in the income statement, for the revenue build, it is not possible to forecast revenue from the historical growth rate. In this case, the revenue was build using a top-down approach.

Revenue estimation for B-VEC for the years of 2022–2030

Revenue estimation for KB-105 for the years of 2024–2030

Depreciation and Amortization

Straight-line method of depreciation was used. For the projection of capital expenditures (Capex), the amount from 2019 and 2020 was averaged, rounded and flat lined until 2030. Some of the common industry ways of calculating the re-investment rate is adding the net capital expenditures with changes in working capital for the year and then dividing by the return on the capital. In other words, a reinvestment rate is the expected growth rate of that of the return on capital (Damodaran, 2012). In the case of an early growth biotech company, the growth rate can jump exponentially once the drug gets approved and decline over years when the patent rights for the drug is coming to an end and hence a judicious estimation of Capex over the next 10 years is not possible and so the average value was used.

Stockholder’s equity estimation for KRYS of the year 2021–2030

Forecasted Earning Per Share (EPS)for KRYS of the years 2021–2030

Ratios to measure the return, profitability, financial and operational efficiency

Krystal Biotech’s (KRYS) consolidated forecasted income statement from 2021–2030

Krystal Biotech, (KRYS) consolidated forecasted balance sheet from 2021–2030

Discounted cash flow

1. Estimating WACC 2. Forecasting net present value of cash flows 3. Terminal value — Implied enterprise value and share price

WACC

The weighted average cost of capital (WACC) was calculated by estimating the cost of equity and the cost of debt (Table 12). The market value of the equity was calculated by multiplying the stock price with the shares outstanding and the equity value amounted to $1.25 billion. The market value of the total debt is $7.83 million and hence the total capitalisation value is $1.255 billion. From the total capitalisation value, the % of equity cap of 99.4% and the debt cap of 0.6% was calculated. The company is equity funded. Imputing the value of equity, debt and the cash equivalents, enterprise value was calculated, which is of $853 million.

Comparison of parameters for WACC for the drug industry sector from stern database against KRYS

The cost of equity was computed using the capital asset pricing model (CAPM) (Fama & French, 2006). The risk-free rate is the average of the 30-years US treasury bond yield. The expected equity market return is a rounded value from the S&P annual return for the last 30 years, which is of 10.7%. The market risk premium was calculated from the risk-free rate and from the expected equity market return. The beta value for the KRYS was taken as 1.11 from the yahoo finance. Data from stern database shows an average beta of 0.89 for the industry average for the drugs from biotechnology industry (547 companies in the U.S), 0.91 for drugs from pharmaceutical industry (287 companies) and 0.73 for industries specialises in healthcare industries (265 companies).

The industry sector average cost of capital for the biotech drug industry and pharma drug industry are 4.72% and 4.75% respectively. The industry average cost of capital is lower than the estimated cost of capital for KRYS. This is due to the current capital structure of the KYRS which is 99% equity financed and hence warrants a higher cost of capital. The cost of equity is the added market risk premium on the top of the risk-free rate. The cost of debt is computed by topping the risk-free rate with a default risk spread. In this case a default spread of A3 or A — rating for small biotech companies or start-ups with small/medium market caps was taken from the stern database. Generally, the WACC decreases over the years, and this is due to the change in the capital structure of the company as they would use more debts for optimal capital structure and therefore a decrease in beta however, the WACC was kept constant for this forecast period. From the free cash flows and the discount rates, discounted cash flow was calculated for each year till 2030 and the sum of the discounted cash flow was compiled.

DCF analysis of cash flows of KRYS from 2021 to 2030

Implied equity and enterprise value of KRYS from 2021 to 2030

Sensitivity analysis

The implied share price of $83 is based on the pricing model valuing $300K for B-VEC and 150K for KB105. The current average palliative cost for the DEB treatment is estimated to be $200 — $400k. In an upside case, aggressive pricing of $400K for BVEC — $200k for KB105 can increase the implied share price value to $114. The recent corporate sheet of KRYS biotech has estimated 125,000 patients worldwide. In these projections, a conservative estimate of 7000 patients in the Europe was used however this number could be larger. Approximately 36,000 patients in the Europe are estimated to have been suffering from different types of EB and hence the revenues can really soar high if KRYS can reach a larger patient population. With their easy to use and one-off shelf topical applying approach, the company may be able to reach the global market with aggressive campaign. With a superior efficacy and a game changer treatment rather the current palliative treatment the company would appease the clinicians and prescribers easily. If the estimated number of 125,000 patients by the company is correct and if they can aggressively reach the global market with a good penetration rate, the B-VEC can be a next blockbuster drug. Moreover, the company can ward off any generic competition once the patent expires in the next decade as it wouldn’t be easy for the generic companies to build gene therapy products and hence re-branding with reduced price can still position the product dominantly in the global market. A sensitivity analysis of implied share price with different price range of both B-VEC and KB105 is described below.

Sensitivity analysis to calculate the share price in ($) by imputing range of % of COGS

Sensitivity analysis to calculate the share price by imputing range of % of R&D

Margins — Industry Comparison

Margins of different drugs industries in comparison with forecasted margins of KRYS

The bullish side is that the company uses the same STAR-D platform to generate all its assets and the company can achieve efficient way of manufacturing its assets quickly thereby reducing the R&D costs. Moreover, the viral titre production is highly standardised and does not need other logistic issues of ex-vivo cell therapies. Despite this, it is still a big challenge for the company to scale its product and reach the global market efficiently as the company operates only in the U.S market. They may have to out-license their products or build vertical channels to meet those logistic, distribution and marketing challenges. One of the major cost drivers for biotech companies is the costs for running the clinical phases and the R&D expenses. The R&D expenses for the year 2020 for KRYS is $17.9 million, which is relatively small R&D expense. The R&D expense is 14.8% increase from 2019.The operating income for 2020 is $(33) million, an increase of 49.25% from the previous year (Krystal Biotech, 2021). The R&D cost for the KRYS is not very high compared to the large pharma companies, which can be close to a billion. The cost of running the clinical trials for KRYS should be low. This is because the KRYS investigational drug is for rare orphan diseases. Being designated as orphan drug, the company benefits from both economic and commercial benefits. The economic benefits besides market exclusivity are grants for R&D, tax benefits for up to 50% for the R&D costs during the pivotal phase 3 of the clinical trials in the U.S, waived FDA fees and the favourable regulatory approvals. The two major factors that would reduce the cost of clinical trials for orphan drugs are smaller number of patients and the shorter duration to finish the clinical trials, the latter is due to the fast-track programmes by the FDA. In fact, the average time taken from phase 2 to launch for the orphan drug is 3.9 years. The number of enrolled patients for both phase1 and phase 2 for the GEM 1/2 study for B-VEC was 9 and the large phase 3 studies has only 31 patients (Krystal Biotech, 2021). This contrasts with the hundreds of patients generally enrolled in phase 3 studies. The operating margins for the KRYS will be higher than that of both matured and other early biotech companies bringing therapies for other indications. Indeed, the forecasted operating margin of KRYS for 2022 is 25% with a market penetration of 10% and expect to reach 71% with a market penetration of 90% in 2028. Given working in a niche segment with low costs of conducting clinical trials compared to the industry average, the company could run its own clinical trial phases for other assets in the pipeline. This advantage is uncommon for many early biotech companies, who out-license to a mid-pharma in exchange of royalties, upfront payments, and for R&D redemption. KRYS have already running operational in-house manufacturing facility, ANCORIS and a larger manufacturing unit, ASTRA, which will be operational in 2022 (Krystal Biotech, 2021). The company claims that they are self-sufficient to scale from clinical phase to commercial thereby maintaining both the IP and the trade secrets that are related to both upstream and downstream processing as well as the manufacturing process, thereby avoiding the dependency with contract manufacturing organisation, which is expensive for gene therapies. Given the company has its own proprietary technology build in-house and GMP quality-manufacturing units; they do not incur the expense of paying royalties or other upfront and milestone payments. In the future, they may have to pay royalty to other parties depending on the contractual agreement with third parties in marketing and other commercialisation aspect. Strategically KRYS position themselves as a leader without building any contractual agreements with the 3rd parties so far and this demonstrates good business skills. For the European market, the company most probably would be building license and commercial agreements with royalty and milestone payments. In that case, the future financial valuations may need considering those expenses related with those contractual and licensing agreements.

Outlook

An agile launch and war-like deployment of sales resources, aggressive marketing can make or break the company in its target of penetrating the market efficiently. This includes building adequate marketing and channel mix, brand positioning, building cross-functional teams that comprises of R&D, sales force, medical science liaisons, key account managers etc. Adequate trainings to the sales staff should be provided and the key performance indicators (KPI’s) in real time must be tracked in case of any variance from the expected sales, demand, and financial forecast. Moreover, the company must map and activate the targeted stakeholders such as prescribers, KOLS and engage with the early adopters to influence the other prescribers. The successful engagement with early adopters and priming them to influence the laggards to quickly prescribe the product is key to penetrate the market successfully. To streamline the steady generation of revenue, the company must build processes or use 3rd party service to measure quantitatively the % of increase in prescriptions and retentions so that they can be reactive in real time and strategize marketing interventions in case of any deviance from the projections. Aggressive campaigns, advertisements, PR for brand building in the specific niche market is paramount for the company to position itself as a leader in treating rare genetic skin diseases. Moreover, in the US the company must build a strong patient engagement plan, direct patient advertisements, build strong brand perceptions in the patients, create incentives for the compliance and quick adoption. Supportive services for diagnosis, disease management should be built, and patients and their support groups should be educated for staying loyal with the brand. All these above-described parameters are key success factors (KSFs) for the steady generation of revenue and to build a competitive advantage over the competitors in becoming a leader in the niche market for monogenic skin diseases. The market operations in the biotech eco-system are based on building strategic partnerships. The future growth abilities and the opportunity to position themselves as a leader in the niche market is largely dependent on the management abilities and this has a profound impact in the valuation of the company.