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Aqua Bounty Case Discussion

Advanced Corporate Finance (The University of British Columbia)

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COMM486Q
William Liaw
Cameron Strukoff
Kerry Poon
Mike Thompson

Aqua Bounty
Case Overview
Aqua Bounty Technologies is a young and rapidly growing biotechnology firm that has
developed genetically modified strains of salmon and trout that have the ability to grow to full-
size twice as fast as conventional salmon. They do this by placing the salmon growth hormone
under the control of a gene switch from the Ocean Pout, an edible arctic fish. Aqua Bounty’s
fish would be the first genetically modified animals licensed for human consumption, if FDA
approval is granted. However, in 2015, Aqua Bounty had a loss of over $5 million on $1 million
revenue, with cumulative losses of over $30 million. Elliot Entis, the CEO of Aqua Bounty has
many pipeline products and hopes to raise capital through the equity markets by engaging in an
IPO. Valuing the business continues to prove challenging as much of its valuation lies in its
ability to receive FDA approval.
Aqua Bounty has two main lines of revenue driving businesses, AquAdvantage and Shrimp
Aquaculture. AquAdvantage focuses on the development of genetically modified fish that have
the capabilities to grow twice as fast as its conventional counterparties. These genetically
modified fish are expected to yield favorable results both economically and environmentally as
they allow farmers to scale their production without significant increases in costs, produce all
year round, and reduce fish farming time.
The Shrimp Aquaculture business, valued approximately between 35m – 50m Euros, on the
other hand, focuses on enhancing the immune systems of farmed shrimp. Farmed shrimp are
often subject to bacterial infections, and although can be treated with antibiotics, these
antibiotics pose environmental risks and also risk import bans. Aqua Bounty administers IMS, a
growth hormone that boosts the immune system, as well as VPX, which prevents white spot
syndrome virus. In 2005, this was their only business segment that contributed to Aqua
Bounty’s revenues.
Entis needs to raise ~$30 million in order to fund the firm’s pursuit for regulatory approval and
he continues to debate how to value the AquAdvantage opportunity and the overall firm, given
its uncertainty in the approval process.
Risks & Considerations
There are many risks and considerations that follow with this opportunity that can impact Aqua
Bounty’s potential valuation.
- Even if Aqua Bounty receives FDA approval, there is no guarantee that customers will have a
favorable sentiment towards eating genetically modified animals

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 lOMoARcPSD|4111000

COMM486Q
William Liaw
Cameron Strukoff
Kerry Poon
Mike Thompson
- Even with FDA approval, Aqua Bounty is still required to continue meeting requirements
and guidelines with the health authority. These can prove costly for a young bio-tech firm
barely generating revenue.
- Mispricing the IPO can dissuade investor sentiment, and too low of a valuation can
significantly dilute stakes held by existing investors and the management team
- Competitors within the shrimp aquaculture business is unknown. If competitors begin to
move into this space, Aqua Bounty may lose a revenue contributing business, which may
further create ramifications for their valuation.
- Debt levels and interest payments seem to be relatively high with Aqua Bounty barely
turning profits
Valuation Considerations
- There are a lack of comparable companies to base Aqua Bounty’s valuation on as they are
first movers and pioneering this industry
- Lack of precedent transactions as a result of them being pioneers in this industry
- Potential health risks from IMS and VPX to humans may cause investigation and may reduce
the value of the shrimp agriculture opportunity
Valuation Recommendation
- Much of the valuation of Aqua Bounty rests on the FDA approval, where the AquAdvantage
opportunity has an ~33% chance that they get approval within three years’ time
- Remains difficult to calculate an appropriate discount rate given that the company is private
and lacks suitable comparable competitors, an assumption can be made of 15% - 20+%
given the high risk nature of their business and high chance of business failure
- We have been provided with projected base case financials for their business lines, in which
we could make a upper and lower cases in order to arrive at an expected value for their
various lines, which we could heavily discount to take into account the lack of clarity on
timing and approval as well as unforeseen risks in the business
- Once we have a value for the businesses, we can use the probabilities to calculate an
expected value on the whole business and produce an appropriate valuation for the IPO

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