Net present value approaches for drug discovery

Springerplus. 2013 Apr 1;2(1):140. doi: 10.1186/2193-1801-2-140. Print 2013 Dec.

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.

Keywords: Biotechnology; Drug development; Drug discovery; Investment under uncertainty; Life science; NPV; Risk-adjusted net present value; rNPV.