Rady Children's Institute
David H. Crean
Managing Partner
Cardiff Advisory
(858) 461-9490
Case Study: Valuation of Rady Children's Institute for Genomic Medicine for a Venture Investment Buyout
Client
Rady Children’s Institute for Genomic Medicine
Industry
Whole-Genome Sequencing (rWGS) and diagnostic services platform
Valuation
Challenges
- Intangible Assets: The primary value resided in the proprietary, clinically validated genomic data sets, rWGS protocols, and the accelerated lab-to-bedside workflow.
- Market Risk: High growth potential in genomic diagnostics but facing reimbursement uncertainty and competition.
Engagement
Cardiff Advisory served as the independent valuation expert on behalf of Rady Children’s Institute for Genomic Medicine (RCIGM) to support the valuation expectations of the client in order to execute a spin-out of the commercial assets and intellectual property (IP), specifically its rapid Whole-Genome Sequencing (rWGS) and diagnostic services platform.
The confidential transaction was completed with a top tier venture investment (VC) firm.
Executive
Summary
RCIGM is a non-profit organization, embedded within Rady Children’s Hospital-San Diego. It is a pioneer in applying rWGS to quickly diagnose and guide treatment for critically ill newborns, demonstrating significant clinical utility and cost savings.
The VC firm sought to utilize the assets and IP, curated genomic databases, and streamlined clinical-to-lab operational model across their portfolio of companies.
The valuation needed to determine the fair market value of the commercial assets for the buyout and the subsequent equity stake.
Cardiff Advisory, leveraging its deep expertise in life sciences and healthcare M&A/valuation was tasked with a comprehensive business and IP valuation.
Valuation
Approaches
Used
Discounted Cash Flow (DCF) Analysis:
This was the primary method, focusing on the future commercial entity’s projected revenue from:
- Diagnostic Services: Fees for rWGS and associated clinical interpretation services sold to external hospitals.
- Licensing Revenue: Licensing of proprietary clinical-genomic databases and software (like the variant curation pipeline) to pharmaceutical companies and other diagnostic labs.
- Milestone-Driven Valuation: Revenue and terminal value projections were tied to achieving critical clinical and operational inflection points (e.g., securing national third-party payer reimbursement, reaching a target volume of external hospital clients) .
Market Comparable Approach (Guideline Public Company & Transaction Method):
- Comparables: Identified publicly traded and recently acquired genomic sequencing companies, specialty diagnostic labs, and precision medicine data platforms.
- Metrics: Applied multiples such as Enterprise Value/Revenue and Enterprise Value/Gross Profit, adjusting for RCIGM’s superior operational speed and clinical validation.
Cost to Recreate (Applicable to IP/Assets):
- Assessed the cost and time required for a competitor to replicate RCIGM’s clinically validated, high-speed rWGS workflow and curated database, establishing a floor value for the key intangible assets.
Outcome
and Impact
Cardiff Advisory’s valuation provided a defensible, detailed, and milestone-adjusted valuation range for the commercial assets. This range was crucial in the final negotiation, enabling the VC firm to secure its required equity stake and purchase.
- VC: Closed the investment.
- Rady Children’s Foundation: Able to divest a business that was dilutive to its overall hospital business.
- The Valuation: Highlighted the substantial, sustainable value created by the clinically-validated data and rapid turn-around-time, aligning the founders’ mission with the investors’ financial goals.
Disclosure
David H. Crean, Ph.D., is a Managing Partner for Cardiff Advisory LLC, an M&A investment banking strategic advisory firm focused on the Life Sciences and Healthcare sectors. This article is provided for informational purposes only and does not constitute an offer, invitation, or recommendation to buy, sell, subscribe for or issue any securities.
The principals of Cardiff Advisory LLC are registered representatives of BA Securities, LLC Member FINRA SIPC, located at Four Tower Bridge, 200 Barr Harbor Drive, Suite 400 W. Conshohocken, PA 19428. Cardiff Advisory LLC and BA Securities, LLC are unaffiliated entities. All investment banking services and securities are offered through BA Securities, LLC, Member FINRA SIPC.