Valuing Carryforwards for the Small Cap Biotechnology Subindustry


Under the 2017 tax law, carryforward rules for net operating losses (NOLs) allow corporations to apply these losses forward for up to twenty years of taxable income. Startup corporations primarily engaged in basic research or that require rapid growth to be sustainable can go a number years with no positive earnings and thus accumulate net operating losses. These losses can be used to reduce tax obligations in the future. This paper estimates the value of NOLs across firms in a specific subindustry: small cap biotechnology. A valuation method based on ARIMA estimates of future income is used to calculate the value of the NOLs that can be carried forward. The results indicate that even for a subindustry which typically has net operating losses for many years in a startup phase, the expected value of the future benefit of a reduction in taxes is actually fairly modest.
Requires Subscription or Fee PDF

Unless specified by prior arrangement, the author agrees to the following terms and assurances:

  1. For myself and on behalf of the other authors listed on this work, I assign to thinkBiotech LLC the copyright* in the contribution for the full term throughout the world.
  2. I/we further give to the following assurances
    1. I am the sole author of the contribution, or, if not, I have the written authority of the other authors to transfer the copyright* to thinkBiotech LLC and give these warranties;
    2. I and (where appropriate) the other authors are entitled to transfer the copyright to thinkBiotech LLC and no one else would be entitled to prevent us from publishing the contribution;
    3. To the best of my/our knowledge, all the facts in the contribution are true and accurate;
    4. The content of the contribution is entirely original to me (and where appropriate to the other authors) or, if not, the written permission of the owner of the copyright in any material copied from elsewhere has been obtained for all media (all such permissions to be attached to the contribution as supplementary files);
    5. Nothing in the contribution is obscene or libellous;
    6. Nothing in the contribution infringes any duty of confidentiality which I/or the other authors may owe to anyone else.
    7. I and/or the other authors have obtained the appropriate clearances from my/our employer(s) or other concerned institution(s).
* Works by US government employees prepared as part of official duties are in the public domain and the authors are therefore exempt from copyright assignment.