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Open Access Highly Accessed Research

Net present value approaches for drug discovery

Andreas M Svennebring* and Jarl ES Wikberg

Author Affiliations

Department of Pharmaceutical Biosciences, Division of Pharmaceutical Bioinformatics, Biomedical Centre, Box 591, Uppsala University, SE751 24, Uppsala, Sweden

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SpringerPlus 2013, 2:140  doi:10.1186/2193-1801-2-140

Published: 1 April 2013

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