Net present value approaches for drug discovery

Andreas M Svennebring,Jarl Es Wikberg

doi:10.1186/2193-1801-2-140

Abstract

Three dedicated approaches to the calculation of the risk-adjusted net present value (rNPV) in drug discovery projects under different assumptions are suggested. The probability of finding a candidate drug suitable for clinical development and the time to the initiation of the clinical development is assumed to be flexible in contrast to the previously used models. The rNPV of the post-discovery cash flows is calculated as the probability weighted average of the rNPV at each potential time of initiation of clinical development. Practical considerations how to set probability rates, in particular during the initiation and termination of a project is discussed.

Highlights

Drug discovery and development programs offer particular difficulties in the estimation of profitability, largely due to their high attrition rates, but they offer opportunities to handle the problem because of the welldefined phases of the process
In view of the high risk involved and the constant decline in productivity among the industry, the financial aspects of drug discovery endeavors, risk-adjusted net present value (rNPV) extensions tailored for the evaluation of drug discovery projects are urgently needed
Due to the extremely large number of compounds theoretically possible to prepare in a drug discovery endeavor, we assume that the probability of finding additional compounds for development is high

Summary

Introduction

Drug discovery and development programs offer particular difficulties in the estimation of profitability, largely due to their high attrition rates, but they offer opportunities to handle the problem because of the welldefined phases of the process. Presentations and demonstrations of the implementation of the rNPV calculation in drug development projects found in literature generally start only right at the initiation of the phase I clinical trial, in the discovery and development pipeline. In drug discovery endeavors, the time from initiation of the project to the generation of the first candidate drug ready for clinical development may vary from a few years and up without any distinct upper limit or guarantee that a compound ever will be found.

Results

Conclusion