Net Present Value-Based Analyses of Products in Development by Pharmaceutical and Biotech Firms: NPV-Based Analyses of Biopharmaceutical Products

Abstract

The productivity of pharmaceutical research and development (R&D) has steadily declined over the past 10 years. The value-based evaluation approach is expected to lead to a better understanding of the value structure of pharmaceutical products compared to the current volume-based one by identifying key drivers for improving R&D productivity. In the present study, we conducted a comparative analysis based on a conventional valuation methodology across the nationality and business model of pharmaceutical firms using a value-based database. We selected five major pharmaceutical firms in terms of corporate value from Japan, the U.S., and Europe, as well as three biotech firms. We chose five representative pipeline products from each of these firms. Comparative analyses using net present value or NPV, peak sales, and lifespan that is represented as the ratio of total sales to peak sales revealed significant differences based on firm types and the origin of products (in-house or external), which have not been observed in the conventional volume-based approach. Thus, the findings provide additional implications for pharmaceutical value-formation processes and mechanisms. The present study advocates a segmented analysis of the activities of individual firms and emphasises the utility of value-based management for improving R&D productivity.