Non-risk adjusted NPV forecast model with Basic and Advanced inputs – one indication, one geography
Net Present Value (NPV) calculation is a common tool to assess the value of an investigational product. Importantly, 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 better and worth pursuing, financially speaking.
Building an NPV forecast model from scratch is even more time intensive than building a customized
drug revenue forecast. Instead, you can test various Revenue, Cost, and Cash Flow assumptions using our flexible NPV forecast tool below.
General Description
- Currently, users can pick one indication and one geography. We are working on expanding the model to several indications and geographies.
- Information boxes (in the right hand corner of each parameter) provide descriptions and tips for each input.
- Additionally, Advanced Options below offer more inputs.
- The NPV color varies from green for >$50M, to yellow for $0-$50M, and to red for <$0. NPV updates instantly as inputs change.
- Importantly, NPV is non-risk adjusted (NRA). We have risk adjustment available in the RA NPV calculator.
Test NPV sensitivity to variations in different parameters using
Tornado Plot.
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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.
Costs
We describe Cost parameters in detail in our
Profit Forecast Calculator. There, users can get insights into how cost parameters influence Gross Profit Margin, Profit Margin, and Net Income. Here, we summarize the cost parameters.
- Overall, costs are calculated either as % of sales or as a total cost distributed over the specified number of years.
- Specifically, Royalties, Commercial Expenses in Perpetuity and General & Administrative (G&A) expenses are expressed as % of sales.
- In contrast, R&D Expenses follow a normal distribution function and are incurred before Launch. Usually, they comprise preclinical, clinical, and regulatory expenses.
- Similarly, Commercial Launch Expenses follow a bell-curve distribution, with the peak in the Launch year. Typically, they comprise Sales, Marketing, Pricing & Reimbursement, and relevant Medical Affairs expenses.
- Finally, the default value for the Corporate Tax Rate is 21%. However, it differs depending on geography and tax law.
- Importantly, users can further fine tune Cost parameters in Advanced Options.
Cash Flow Parameters
- Lastly, Cash Flow calculations take the time variable into account.
- Optionally, in the basic input section, users can adjust WACC (weighted average cost of capital).
- Also, users can modify depreciation & amortization, working capital, and CAPEX in Advanced Options.
- Mathematically, NPV = Discounted Cash Flows (DCF) + D Terminal Value. The latter is calculated using 20 years of free cash flow and 0% growth in perpetuity. Currently, users cannot adjust these parameters.
Uncertainty In Inputs and NPV
Many, if not all, inputs are uncertain. Ideally, you would want to generate not a single NPV but a range of NPVs reflecting variability in inputs. Head out to our 5th calculator,
NPV Sensitivity Analysis, to find out which input makes the biggest difference.
Confused or stuck? Please send any questions, comments, and requests to
bioheights@pm.me.We will respond quickly.
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Disclaimer: This NRA NPV model/ calculator is the property of BioHeights LLC. We designed this model only for educational purposes. 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 model.
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