Valuing a company is both an art and a science. From market size to intellectual property and team expertise, many factors need to be taken into account. And valuing companies in the life sciences industry – shaped as it is by disruptive innovation, stringent regulation and a healthy dose of uncertainty, especially in the current geopolitical climate – comes with its own set of challenges. Still, it’s crucial to get an accurate valuation of a company to attract funding, plus it offers an opportunity to reflect on the company’s position in the wider field.

 In an effort to demystify the process, we spoke to valuation expert Pierre Corval. Pierre set out the key ingredients of a successful valuation and shared invaluable advice for anyone embarking on this journey in 2025.

How do experts approach the valuation of a life sciences start-up?

Valuing a start-up is far from straightforward, because, in short, there’s very little to go on. As Pierre explained, ‘you’re trying to value something that could go in many different directions, which makes for a nebulous process’. Nonetheless, there are several routes through the valuation maze – and the role of Pierre and his colleagues is to provide a map.

For Pierre, the first thing to ask is: where is the company in its overall lifecycle? As he put it: ‘If you’re a very early-stage company, with relatively little financial or clinical data, we nearly always advise going for a general, easy-to-apply approach called a book value multiple, which attempts to capture a firm’s value relative to its invested capital.

‘On the other hand,’ he continued, ‘if you’re a clinical phase company, you will likely have a more detailed business plan, with revenue forecasts, sales projections and so on, which we can draw on.’ Still, Pierre noted that the valuation method adopted for each company is often quite bespoke, with companies in different fields of the life sciences valued differently. Medtechs, for example, share attributes with other tech companies, and so are often valued using a discounted cash flow (DCF) analysis, which estimates the value of a company based on its expected future cash flow, discounted back to its present value.

By contrast, pharma products take longer to get to market and have more risk attached to them at every stage, so valuers generally use a risk-adjusted net present value (rNPV) approach for pharma companies, adjusting each future cash flow to the probability of it occurring.

‘In this case,’ Pierre explained, ‘we’ll start by analysing your business plan to assess the credibility of the sources, the size of the market, the other players in this space and the potential in terms of patient numbers. This gives us a picture of the company’s current and potential future revenue – which can then be translated to free cash flow, or value.’ As he continued: ‘There are 10 to 15 different steps to get from a patient who uses a company’s product to the company’s value, but our job is to simplify this information and funnel it into a final number. We’re always walking the line between complexity and simplicity– it’s important to keep things simple, where possible!’

How should CEOs approach valuation?

First of all, if you’re approaching your company’s valuation as a one-off, you’ve already gone wrong in Pierre’s eyes. ‘You should always have a valuation to hand, just as you always have your business plan to hand,’ he explained. ‘It might not get refreshed every single day, but it should be looked at multiple times a year as the market sees new entrants or clinical trial readouts.’

A company’s first valuation is something of a heavy lift, requiring executives to prepare a lot of data and hone the company’s business plan. But once you’ve wrangled the numbers into a story, that story can shape your entire business trajectory, both externally and internally. ‘A valuation isn’t just a piece of paper to present to investors – though it is, of course, necessary for this purpose too,’ Pierre asserted. ‘It can be used as a tool to manage your business, because it helps you see things you might not otherwise see and take a different route. For example, you might have planned to manufacture your product in a certain country, but then you realise that if you harness a different supply chain in a different country with a different cost structure, your net present value increases by 10%.’

So, valuation should not be seen solely as a means to generate investment. Indeed, Pierre stressed that start-ups should get investors involved at the latest stage possible, because this generally results in a safer valuation. In his words: ‘It all comes back to dilution – the earlier you take money, the higher your dilution. So if you can survive with what you have or public grants for a while, then you should. Take the funding when you need something major or you have a clear plan for how to use the money, such as the next stage of a clinical trial.’

What are the most common misconceptions and red flags?

Pierre was keen to unpick the common fallacy that higher is always better in valuation. ‘By all means, most CEOs intuitively want the highest possible valuation as quickly as possible,’ he said. ‘But when you do this, you’re often boxing yourself into difficult expectations for the future, and you may face big dips in value later on if things don’t pan out the way you hope. In many ways, it’s better to start with a lower valuation that is more aligned with reality and then build from there – you don’t want to overpromise and underdeliver.’ Indeed, Pierre claimed that up to 75% of the valuations he encounters (across all company sizes, not just start-ups) are overly optimistic, but these ‘hockey stick forecasts’ just set companies up for disappointment.

Adding to this, Pierre stressed that the company’s forecast needs to be backed by clear data. ‘If you don’t have a defined answer for exactly how and why your company will succeed, who will want to invest in it?’ he questioned. ‘You need to be able to articulate the market size, the potential, the risks. Otherwise, that’s a huge red flag for investors and other stakeholders.’

Of course, as Pierre recognised, instinct is a huge part of investing: investors resonate with some companies over others. For example, some investors like to take the higher-risk, higher-reward route of pharma products while others favour the safer wins of medtech. But, in his words, ‘our role is to help investors put gut feeling as far away as possible by bringing the facts to the fore.’ He continued: ‘I realise that we’re in the business of forecasting the future, which is never certain. But if you can back up your assertions with reliable, robust sources, you’re going to make a much more convincing case. There are widely available studies that provide probability of success – it’s an easy win if you include these in your plan.’

What do CEOs need to bear in mind in the current climate?

According to recent reporting from EY, global macro-economic factors such as rising inflation, higher interest rates, commodity shortages and market volatility are creating significant headwinds for businesses and economies. And this wider landscape has a knock-on impact on valuations and investment. As Pierre put it: ‘You might not think that trade wars going on elsewhere would affect start-ups in Europe, but we’re all part of an ecosystem, and if one part of the ecosystem isn’t working, it will have repercussions. I think 2025 is shaping up to be a much more difficult year to raise funding, even in Switzerland.’

In this uncertain climate, many investors are looking for safety, which isn’t the best news for start-ups – especially those with innovative, disruptive products. Still, Pierre expressed that there are ways to weather the storm. ‘Start-ups will need to be patient,’ he said. ‘This is a phase and phases pass. 2025 should be about consolidation and preparation, so that you’re ready for when investor appetites come back – hopefully sooner rather than later. It’s impossible to predict the future, but I don’t think it’s time to panic.’

Above all, even with investors erring on the side of caution, there are opportunities to seize if you can tell a compelling story about your company. In Pierre’s words: ‘At this risk-averse time, all the threads have to come together seamlessly, but if you have a CEO who is good at selling and your valuation is grounded in reality, with robust data, you’ve got a good narrative and the odds will be in your favour!’