Investors are advised to be aware of clues given by a biotechnology company’s financial reports before they invest in the highly unpredictable sector, experts said at a forum yesterday.
Growth prospects, technical capacity, and capital reserves are the main factors to consider in assessing the viability of investing in a biotechnology company, PricewaterhouseCoopers (PwC) Taiwan deputy chairman Audrey Tseng (曾惠瑾) said.
Growth prospects encompasses the business model of a company, and the terms it has established with its distributors that determine licensing schemes and milestone payments upon regulatory approval and reaching of sales targets, Tseng said
Regarding technical capacity, Tseng said that a new drug development company’s prospects can often been seen in its expenditure.
“We assess the rate of growth of research & development expenditure, and its proportion in relations to operating costs and consolidated revenues,” Tseng said.
A biotechnology firm’s survival depends on its cash reserves, she said.
In the event of a failed clinical trial, a company with ample cash might be able to bide its time and continue its research, while its cash-strapped peer perishes, she said.
“We also calculate the number of years a company might be able to continue operating in the black,” Tseng said, adding that she has found levels of cash reserves in the sector to be adequate.
Companies become defenseless when they have ran out of cash, and might have to turn over their unfinished work at bargain prices as their operations go into the red, she said, adding that a number of new drugs developed by Taiwanese companies are based on compounds acquired from foreign companies.
Tseng said that taxes on stock options remains a tremendous challenge for the sector.
In light of the lower salary for key researchers, companies often grant stock options, she added.
However, taxes are due upon the purchase of the new shares, and the expense adds to financial losses by researchers when the shares of their company swings wildly, she said.
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