NRA NPV Forecast For Investigational Product – Free Tool

March 11, 2020

BioHeights has launched an NRA NPV forecast calculator for an investigational therapeutic.

Net Present Value (NPV) calculation is a common tool to assess the value of an investigational product. Importantly, non-risk adjusted (NRA) NPV forecast can help answer the key question: Should you even consider developing this product? By comparing NPVs of different products, we can judge which one is worth pursuing, financially speaking. As opposed to risk-adjusted NPV, NRA NPV assumes that the drug will reach the market, i.e., each stage of development will be successful.

Building an NPV forecast model from scratch is even more time intensive than building a customized drug revenue forecast. Instead, you can test various assumptions using our flexible tool. In the main menu, go to Tools – NRA NPV Forecast Calculator.

The tool allows users to test Revenue, Cost, and Cash Flow assumptions

Currently, users can pick one indication and one geography. We are working on expanding the model to several indications and geographies.

Basic model inputs are located on the left side and cover Revenue, Costs, and Cash Flow parameters. Each input has an information box (in the right hand corner) with descriptions and tips.

Output example: Basic inputs

On the right side, the output section includes the NPV in USD, a Revenue-vs-Costs chart, and a Discounted Cash Flow (DCF) chart. The NPV color varies from green for >$50M, to yellow for $0-$50M, to red for <$0. Both charts and NPV react instantly to input changes.

Additionally, Advanced Options below offer more inputs.

Example of Advanced Inputs

Revenue Inputs

The underlying revenue algorithm is the same as the one in the Revenue Forecast Calculator. If you are not sure how to select revenue parameters, we recommend testing the revenue calculator first.

Expenses and Costs

Overall, there are two main approaches for calculating expenses. One approach is to use % of sales. This is done for General & Administrative, Royalties, and commercial Expenses in Perpetuity. The other approach is to use total cost distributed over the specified number of years. R&D and commercial Launch Expenses are calculated using the second approach.

Specifically, R&D Expenses include preclinical, clinical, and regulatory expenses. These expenses are incurred before the Launch year. Currently, the R&D Expenses follow a normal distribution function, with the minimum in the current year and the maximum in the year before Launch (L-1).

Similarly, commercial Launch Expenses include Sales, Marketing, Pricing & Reimbursement, and relevant Medical Affairs expenses. These expenses follow a bell-curve distribution, with the peak in the Launch year. By default, the costs are distributed over 6 years, from L-3 to L+2, inclusively. Alternatively, users can modify this range in Advanced Options.

Of note, Expenses in Perpetuity refer to commercial costs expressed as % of sales. This expense is zero during years without revenue.

Finally, the Corporate Tax Rate is 21% for the U.S. However, users can adjust the tax rate in Advanced Options, especially when selecting a different geography. Note that the model takes into account losses incurred during the drug development stage. Consequently, a reservoir of losses accumulates and is carried forward to offset future income.

Cash Flow Parameters

Lastly, Cash Flow calculations take the time variable into account. In simple terms, money today are more valuable than money in the future. Therefore, the weight of future profits is lower, or ‘discounted’. Hence, the Discounted Cash Flow (DCF) model.

The basic input section contains only WACC (weighted average cost of capital), as this is one of the most sensitive parameters in the model. Additionally, users can modify depreciation & amortization, working capital, and CAPEX in Advanced Options.

Mathematically speaking, NPV = Discounted Cash Flows (DCF) + D Terminal Value. We calculate the latter using 20 years of free cash flow and 0% growth in perpetuity. Currently, users cannot adjust these two parameters.

We have added a risk-adjustment option to the RA NPV forecast calculator.

Disclaimer: This tool is the property of BioHeights LLC. We designed this NRA NPV forecast model for educational purposes only. Importantly, this is not a financial advice. BioHeights LLC and its members are not responsible for anybody’s actions, losses, or damages resulting from using this tool.

Try it and shoot us an email at bioheights@pm.me with any questions, comments, request, and feedback. We look forward to hearing about your experience with the tool.

Net Present Value (NPV) calculation is a common tool to assess the value of an investigational product. Importantly, non-risk adjusted (NRA) NPV forecast can help answer the key question: Should you even consider developing this product? By comparing NPVs of different products, we can judge which one is worth pursuing, financially speaking. As opposed to risk-adjusted NPV, NRA NPV assumes that the drug will reach the market, i.e., each stage of development will be successful.

Building an NPV forecast model from scratch is even more time intensive than building a customized drug revenue forecast. Instead, you can test various assumptions using our flexible tool. In the main menu, go to Tools – NRA NPV Forecast Calculator.

The tool allows users to test Revenue, Cost, and Cash Flow assumptions

Currently, users can pick one indication and one geography. We are working on expanding the model to several indications and geographies.

Basic model inputs are located on the left side and cover Revenue, Costs, and Cash Flow parameters. Each input has an information box (in the right hand corner) with descriptions and tips.

Output example: Basic inputs

On the right side, the output section includes the NPV in USD, a Revenue-vs-Costs chart, and a Discounted Cash Flow (DCF) chart. The NPV color varies from green for >$50M, to yellow for $0-$50M, to red for <$0. Both charts and NPV react instantly to input changes.

Additionally, Advanced Options below offer more inputs.

Example of Advanced Inputs

Revenue Inputs

The underlying revenue algorithm is the same as the one in the Revenue Forecast Calculator. If you are not sure how to select revenue parameters, we recommend testing the revenue calculator first.

Expenses and Costs

Overall, there are two main approaches for calculating expenses. One approach is to use % of sales. This is done for General & Administrative, Royalties, and commercial Expenses in Perpetuity. The other approach is to use total cost distributed over the specified number of years. R&D and commercial Launch Expenses are calculated using the second approach.

Specifically, R&D Expenses include preclinical, clinical, and regulatory expenses. These expenses are incurred before the Launch year. Currently, the R&D Expenses follow a normal distribution function, with the minimum in the current year and the maximum in the year before Launch (L-1).

Similarly, commercial Launch Expenses include Sales, Marketing, Pricing & Reimbursement, and relevant Medical Affairs expenses. These expenses follow a bell-curve distribution, with the peak in the Launch year. By default, the costs are distributed over 6 years, from L-3 to L+2, inclusively. Alternatively, users can modify this range in Advanced Options.

Of note, Expenses in Perpetuity refer to commercial costs expressed as % of sales. This expense is zero during years without revenue.

Finally, the Corporate Tax Rate is 21% for the U.S. However, users can adjust the tax rate in Advanced Options, especially when selecting a different geography. Note that the model takes into account losses incurred during the drug development stage. Consequently, a reservoir of losses accumulates and is carried forward to offset future income.

Cash Flow Parameters

Lastly, Cash Flow calculations take the time variable into account. In simple terms, money today are more valuable than money in the future. Therefore, the weight of future profits is lower, or ‘discounted’. Hence, the Discounted Cash Flow (DCF) model.

The basic input section contains only WACC (weighted average cost of capital), as this is one of the most sensitive parameters in the model. Additionally, users can modify depreciation & amortization, working capital, and CAPEX in Advanced Options.

Mathematically speaking, NPV = Discounted Cash Flows (DCF) + D Terminal Value. We calculate the latter using 20 years of free cash flow and 0% growth in perpetuity. Currently, users cannot adjust these two parameters.

We have added a risk-adjustment option to the RA NPV forecast calculator.

Disclaimer: This tool is the property of BioHeights LLC. We designed this NRA NPV forecast model for educational purposes only. Importantly, this is not a financial advice. BioHeights LLC and its members are not responsible for anybody’s actions, losses, or damages resulting from using this tool.

Try it and shoot us an email at bioheights@pm.me with any questions, comments, request, and feedback. We look forward to hearing about your experience with the tool.

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