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Investing in a stock is like buying a business. Unfortunately, most investors either don't understand this principal or are merely looking for quick and easy money. In appr

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

aising businesses, there are three main approaches; market, asset and income.

Income Approach

The basic principal for this method is that it uses historical market data. T

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

he general theory is that if one can find sufficiently similar companies that have been sold in arm's length transactions, then those transactions may form a basis for an ind

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

ication of value for the interest being valued.

The common methods are price-earnings-ratio (PER) and price-to-book ratio (PB). Analysts normally compare these ratios with

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

he industry or its historical figures.

PER = Market price ? Earnings per share (EPS)

If Company M's PER is ten times against the industry's fifteen times, Company M is unde

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

rvalued.

PB = Market price ? Book value per share

If Company M's PB is 1.5 times against the industry's 2.0 times, Company M is lowly valued compared to the industry. Gene

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

rally, if a company's PB is lower than 1 time, it indicates that the market price is lower than the owner's cost.

Asset Approach

This approach is called adjusted book value

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

, net asset value or asset accumulation. The book value of the assets and liabilities are adjusted to reflect its fair market value. The asset values are totaled and the to

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

al of the liabilities is subtracted to derive the total value of the company. The most common is the revised net asset value (RNAV) where analyst adjusts all its assets and

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

liabilities to market value.

RNAV per share = (Revised assets market value - Revised liabilities value) ? number of shares

Company M is a holding company. Its subsidiary,

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

Company N is also listed on the exchange. The RNAV will use the market value instead of the book value of Company N to determine the overall revised market value of Company

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

M's assets. The figure will provide a more reflective value for Company M as compared to its historical book value.

Income Approach

The income approach is the most appropr

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

ate method for valuing an ongoing company. An investment in any asset is worth no more than the present value of its expected future cash flow which can be in the form of ea

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

rnings, dividends or free cash flow to equity.

The most common method used by analyst is single period capitalization method (SPCM). SPCM converts the single period of inco

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

me into value by dividing it with a capitalization rate. This method relies on two assumptions; a stable annual financial return (which can be a proxy for every year in perp

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

etuity) and a constant growth rate (which is a proxy for the annual compound growth rate in perpetuity).

Company's value = Income ? Capitalization rate = [Cash flow x (1 + g

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

] ? R - g

Where: cash flow can be in the form of dividend per share (DPS) or free cash flow per share, g = the future growth rate of cash flow, R = the required rate of retu

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

rn for an investor, Capitalization rate = R - g

However, one of the main problems with this method is the accuracy of estimates of the company's future dividend growth rate,

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

i.e. 'g'. Investors need to understand the company's businesses and the potential of the company's future earnings prospects before being able to provide a reasonable and

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

accurate 'g'.

Among the three approaches, the value indicated by the income approach is more appropriate and will have the greatest influence in valuing an operating company

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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Construction industry is related to the building and assembling of any structure on site. Many people think of construction as one thing, but it's a series of tasks which combine to make one project. In a normal construction project, there is a project manager which oversees the specific operation, as well as subcontractors like painters and carpenters as well as internal employees. The whole operation is headed by someone titled the construction manager.

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