facebookHow do pharmaceuticals and R&D firms get valuations for their stocks if they don't actually make profits? I don't see how anyone would be keen to buying non-profit stocks? - Seedly
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Anonymous

18 Apr 2019

How do pharmaceuticals and R&D firms get valuations for their stocks if they don't actually make profits? I don't see how anyone would be keen to buying non-profit stocks?

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    What are your thoughts?

    Isaac Chan

    Isaac Chan

    14 Mar 2019

    Level 11ยทBusiness at NUS

    Just to build on what Leonard mentioned, companies may value such firms on industry specific multiples, such as which stage of approval a drug is within the FDA in the US. So you basically attach a dollar value of the company to the number of drugs in a certain approval stage.

    For tech / social media companies like Twitter, the valuation could be based on the number of users, click rate etc.

    Most multiples used in valuation may be EV / EBITDA, but the multiples here might be EV / Users, EV / Clicks, EV / Stage etc.

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      Basically these firms are valued differently because they are not operating on a revenue generating model/revenue generating plan in the future.

      Twitter is one such company which was only concerned with user growth without a revenue generating model until it reached sufficient scale to introduce ads.

      For most pharamacuticals research entities, revenues only stream in once the drug is released to market or developed to the patentable stage. Until then, the company is almost always operating at a loss with zero revenue. Therefore investors often look at the results and observations from its early testing stages to determine its progress and promise, and valuation can rise immensely when these companies file for patents.

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