Healthcare financial models
Healthcare companies are valued in two very different ways, depending on whether their products have reached the market. A development-stage biotech is worth the probability-weighted value of drugs that may never be approved, so it is modelled programme by programme: patients and price after launch, risk-adjusted by the chance of clearing every stage still ahead, and moved by binary events such as a trial readout. A medtech company with products on the market is worth what its installed base earns: systems placed, procedures performed on each, and the instruments, service and lease payments every procedure pulls through.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: healthcare.Updated 2 October 2026
The models
Advanced · ~50 min
Biotech rNPV and sum-of-the-parts model
Value a development-stage biotech programme by programme: build a launch curve from patients and price, risk-adjust by stage, discount to an rNPV, and sum the parts to a price per share.
Inspect the workbookCore · ~35 min
Medtech installed-base and consumables model
Roll an installed base of sold and leased systems, drive procedures and consumables from utilisation, separate recurring from capital revenue, account for leased systems as capital, and decide whether a system is worth more sold or leased.
Inspect the workbookHow to work through it
Start with the biotech readout lab, which values a company on either side of its next trial and reads the probability of success off the share price. Then open the biotech rNPV model to see the same values built from patients, prices and stage probabilities for three programmes. The medtech model is the other half of the sector: change utilisation or the share of systems leased and watch recurring revenue, margins and free cash flow move. Each model has a starter workbook that leaves one schedule for you to build.
The mechanics they share
Each schedule is one reusable calculation, explained on its own page with the rows it occupies in every model that uses it.
Healthcare schedules
Clinical probability and stage gating
The chance of reaching the market, and what it weights
Healthcare schedules
Launch curve
Patients times price, ramped to peak, eroded at exclusivity loss
Healthcare schedules
Programme rNPV
Revenue to risk-adjusted cash flow to a value
Healthcare schedules
Sum of the parts
Programmes, corporate costs, net cash, per share
Healthcare schedules
Binary events: the Phase 3 readout
Value on success, value on failure, the implied probability
Healthcare schedules
Installed base and utilisation
Systems shipped, retired and in use, and procedures
Healthcare schedules
Consumables pull-through and recurring revenue
Instruments per procedure, service, leases, margins
Operating schedules
Capex and depreciation (PP&E roll-forward)
Opening, plus capex, less depreciation, closing
Operating schedules
Working capital schedule
Receivables, inventory and payables in days
Healthcare schedules
Placement economics: sell or lease
Lifetime value of a system sold or leased, payback
Practise first
Biotech Readout · 12 min
Multiply stage probabilities, risk-adjust a programme, value a company in each outcome with a cash floor, and read the implied probability of success off a share price.
Depreciation Waterfall · 10 min
Forecast depreciation from a capex plan rather than a ratio, read a capex-to-depreciation multiple, and say which part of the spend is buying growth and which is only standing still.
Three-Statement Linker · 8 min
Walk any event through all three statements in the right order, with the right signs, and prove the balance sheet balances rather than asserting it.
Where this work is done
Cover a sector, publish a view, defend it to clients. The best writing training on the map.
How to get in and prepareLong/short equity, credit, macro or multi-strategy. A view, sized, with a stop.
How to get in and prepareAdvise on M&A and capital raising. The training ground the rest of the map feeds off.
How to get in and prepareEarly-stage minority investing. Judgement about people and markets, far less modelling.
How to get in and prepareBuy control of established companies using debt, improve them, sell them.
How to get in and prepareRead
- Biotech Valuation: rNPV, Launch Curves and the Sum of the Parts · How a development-stage biotech is valued: probability of success by phase, a launch curve from patients and price, rNPV per programme, the sum of the parts.
- How to Build a DCF Model: Build Order, Terminal Value and the Sanity Checks · Building a DCF end to end: unlevered free cash flow, WACC, both terminal value methods cross-checked, the equity bridge, and the sensitivity table.
- Equity Research Interview Questions: The Coverage Mindset · The equity research interview question bank: stock pitches with price targets, estimate-building, earnings reactions, and how ER differs from IB.
- How to Build a Three-Statement Model That Actually Balances · The build order for a three-statement model: revenue drivers, working capital, fixed assets, the debt schedule, and making the balance sheet balance.
- Financial Modelling Best Practices: The Conventions That Make a Model Auditable · The formatting, structure and formula conventions that separate a bank-grade model from a spreadsheet nobody else can open, and the anti-patterns to avoid.
- Hedge Fund Stock Pitch Template and Framework · A framework for building a hedge fund stock pitch: thesis, variant perception, valuation, catalysts and risks, and what portfolio managers look for first.
- "Walk Me Through the Three Statements" — And Every Follow-Up · How to answer walk me through the three financial statements, and the classic 10 dollars of depreciation follow-up, with the linkage logic being tested.
The vocabulary
Questions
How is a biotech valued differently from a medtech company?
A biotech with no approved product is valued on probability: each programme’s cash flows after launch are weighted by the chance of reaching the market, which is why its value jumps or collapses on a trial result. A medtech company with products on the market is valued on its installed base and how hard each system is worked, so it is modelled more like a recurring-revenue business than a pipeline.
What do healthcare interviews test?
For biotech: rNPV, stage probabilities of success, peak sales, loss of exclusivity and how to value a binary event. For medtech: installed base, utilisation, the razor-and-blade split between capital and recurring revenue, and leasing against selling. The biotech readout lab drills the first set, and each model page lists the mistakes a reviewer looks for.
Why does recurring revenue matter so much in medtech?
Because it is earned on every procedure for the life of every installed system, so it grows with the base and is far more predictable than system sales, which depend on hospital capital budgets. Investors pay a higher multiple for it, and a company that shifts towards leasing raises its recurring share at the cost of revenue and cash today.