Most biotechs are pre-revenue, meaning valuations are driven primarily by risk-adjusted pipeline value rather than earnings. Edison analysis uses risk-adjusted NPV (rNPV) as the primary methodology, probability weighting future cash flows from each development programme by stage. We complement this with discounted cash flow analysis for commercial stage businesses and comparables, including peer trading multiples and precedent transactions/deal benchmarks.

Clinical trial phases signal risk reduction and value inflection. Typically, Phase 1 tests safety in small groups, Phase 2 explores early efficacy and dosing, and Phase 3 confirms benefit at scale for regulators. For investors, each step improves probability of success, which Edison analysis estimates rises from c.15% in Phase 1 to over 50% by Phase 3, supporting valuation uplift.

As most biotechs are pre-revenue, they typically finance R&D activities through external raises. As incremental equity capital is issued, it dilutes existing shareholders. The burn rate is roughly calculated as operating/free cash outflows for the period. Cash runways are calculated as cash divided by cash burn, providing the number of periods of operations which could be covered by current cash.

A biotech catalyst is a defined event that can materially change a company's valuation by reducing uncertainty. The most impactful include clinical data readouts, regulatory decisions, and partnership deals.
• Clinical results, especially Phase 2 or 3
• FDA or EMA approvals
• Licensing agreements
Edison analysis finds share price moves are typically largest around binary clinical outcomes, where expectations are reset quickly.