Navigating Preclinical Medical Device Valuation: The Role of a Medical Device Consulting Firm in Mitigating Investment Risks
May 2023
Preclinical medical devices are those that have not yet been tested on humans and are still in the development phase. Investing in a preclinical device can create high-risk, however can also potentially deliver significant rewards. A valuation of the innovation prepared by an entity that is at an arm’s length from the development team delivers an honest evaluation of the technology’s potential value and associated risks.
This is one area where a medical device consultant can provide significant value. A medical device consultant is an expert in the medical device industry who can provide investors, startups, and established businesses with insightful advice and direction. They can deliver a realistic and triangulated evaluation of the value of the potential preclinical medical device. In this article, we will discuss how a medical device consultant’s valuation of a preclinical medical device can increase the comprehension and more accurate prediction of the successful commercialization probability.
Investors must value preclinical medical devices to make informed investment decisions. There are numerous advantages to evaluating preclinical medical devices, including:
Risk Mitigation
Valuing preclinical medical devices identifies potential risks associated with the development and commercialization of the device. Early identification and mitigation of these risks can help reduce the device overall risk profile and increase its likelihood of success.
Valuation Provides Vital Investor data
The valuation of preclinical medical devices provides investors with vital data that enables them to make educated investment decisions. Investors can determine their investor strategy in the device by analyzing the potential market, competition, technical feasibility, regulatory requirements, and financial projections.
Identifying Potential Market Opportunities
The valuation of preclinical medical devices supports the identification of market opportunities. By analyzing the potential market and competition, investors can identify devices with the potential to fill a market gap.
Establishment of Potential Partnerships
Valuing preclinical medical devices can help identify potential partners. Investors can identify companies or organizations that may be interested in collaborating or syndicating with the device’s development team by analyzing the competitive landscape and identifying potential market opportunities.
Identify potential partners
Valuing preclinical medical devices can help identify potential partners. Investors are able to identify companies or organizations that may be interested in collaborating or syndicating with the device’s development team by analyzing the competitive landscape and identifying potential market opportunities.
Enhance Interactions with Stakeholders
The valuation of preclinical medical devices can enhance communication with stakeholders, such as investors, regulators, and potential partners. By providing clear and concise accurate information regarding the device’s potential market, technical feasibility, and regulatory requirements, stakeholders will be able to make informed decisions regarding their involvement with the device.
When evaluating a preclinical medical device, a medical device consulting firm should perform a range of valuation processes. These techniques will aid investors in understanding the device’s potential value for making informed investment decisions.
Comprehend Financial Forecasts:
A third-party defensible financial valuation steeped in well-delineated assumptions is critical to resonating credibility with potential investors. Valuation analysis aims to provide key decision makers with a defensible range of prices, which are backed by in-depth research and sound methodology, making a technology’s valuation vital to both potential acquirers and innovators seeking an exit.
Traditional financial valuation methods are inadequate for development-stage life science technologies. The challenge requires a team experienced with the nuances of Medtech, able to accurately capture the value and deliver a justifiable financial valuation for an emerging medical device that may be pre-clinical, or where comparables do not enjoy your value proposition.
Strategy Inc.’s valuation services consider the intricate nuances and unique elements of medical technology innovation and markets and provide decision-makers with an independent defensible pricing strategy backed by in-depth research and rigorous methodology. Our proprietary medical device financial modelling and simulation capabilities have been developed over 20 years and benchmarked against current and relevant industry barometers.
A life science technology’s potential value is:
- Supported by a thorough qualitative analysis of the market, current industry trends, and economic drivers to build credible projections
- Informed by a review of the competitive landscape, product comparisons, and the adoption of relevant current technologies
- Determined through triangulation of discounted cash flows, industry comparables and valuation by stage
Financial Valuation usually considers the following market projections:
- Modified discounted cash flow analysis
- Private company comparable analysis, when available
- Public company comparable analysis, where applicable
Discounted cash flow (DCF) analysis is a method of financial valuation that evaluates the potential cash flows associated with a preclinical medical device. Using financial projections, the consultant can estimate potential future cash flows and then discount them to their present value. This method can assist investors in determining the potential return on investment and making informed investment decisions.
The DCF analysis considers the device’s potential revenue and any costs associated with its development, manufacturing, and marketing. By estimating potential future cash flows and discounting them to their present value, investors can gain a clearer understanding of the device’s overall value.
Financial modeling including revenue projections is driven by multiple volume scenarios, penetration and adoption rates, average sales price, and other key drivers specific to their target market. Volume projections developed using competitive, population and epidemiological data, published studies, and other considered variances influenced by clinical application.
Market Research Analysis
One of the primary reasons to consult a medical device consulting firm for a preclinical device is to determine the device’s market potential. The consultant can conduct market research and analysis to determine the market size, the intended audience, and the device’s potential demand.
Investors can make more informed decisions about the potential return on their investments if they are aware of the market’s potential. For instance, if the market for a preclinical medical device is anticipated to be small, investors may determine that the potential return is not worth the risk.
Regulatory Analysis
Medical devices, including preclinical devices, are subject to stringent regulations. It can be difficult and time-consuming to comprehend the regulatory requirements for a preclinical device. Medical device consultants have extensive knowledge and experience navigating medical device regulatory requirements.
By working with a medical device consultant, investors can better understand the regulatory landscape for a preclinical device. In addition, they can ensure that the device is being developed in accordance with regulatory requirements, thereby reducing the likelihood of regulatory issues in the future.
Competitive Assessment
Assessing the competitive landscape is another essential aspect of preclinical medical device evaluation. A medical device consulting firm can conduct a competitive analysis to determine if any competing products are in development or on the market.
Assessing the competitive landscape can aid investors in understanding the device’s potential demand and market share. It can also assist them in identifying potential acquisition or partnership opportunities that could increase the value of their investment.
Analysis of Technical Feasibility
Analysis of technical feasibility is a technique used to evaluate the technical feasibility of a preclinical medical device, including design, development stage, and intellectual property. The medical device consultant is able to review preclinical data and evaluate the potential risks of further development. This method assists investors in understanding the device’s development stage and potential value. For instance, if the device is in its early stages of development, its risk profile may be higher and its potential return on investment may be lower. In contrast, the risk profile may be lower and the potential return on investment may be greater if the device is closer to commercialization.
When evaluating a preclinical medical device, it is essential to consider multiple evaluation techniques. Each technique offers a unique perspective on the device’s potential value and can assist investors in making more informed investment decisions.
Investing in a preclinical medical device can be a high-risk but potentially lucrative endeavour. Working with a medical device consulting firm to perform an evaluation can increase the likelihood of profitable investments. By identifying market potential, comprehending regulatory requirements, assessing the competitive landscape, evaluating the development stage, and providing a valuation, a medical device consultant can provide investors, start-ups, and established businesses with valuable insight and direction.
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