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BUILDING A BUSINESS

Integrating scientific considerations into R&D project valuation

Nature Biotechnology volume 38, pages 14–18 (2020)Cite this article

Traditional valuation approaches rarely take into account scientific considerations specific to a R&D project. A question-based approach using real options offers a solution.

In the life sciences, investment decisions regarding research and development (R&D) projects, licensing deals and mergers are often based on value calculations that depend on assumptions about development time, cost and future revenues1. Scientific considerations specific to the product being developed and the indication are rarely taken into account. These value calculations — and the resulting management decisions based on them — can determine the research project’s fate and can affect the development process. All biomedical researchers should therefore have a basic understanding of the possibilities and shortcomings of financial valuation. Entrepreneurial biomedical researchers who are involved in developing new medical interventions are ideally suited to integrate financial and scientific considerations in order to calculate the value of an R&D project. Here, we explain classic financial valuation by the measures of net present value (NPV) and risk-adjusted NPV. Moreover, we introduce an alternative method based on real option analysis (ROA) that integrates financial project valuation with scientific considerations for critical path-finding in product development.

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Fig. 1: Decision tree of the younamamab case based on the QBCD analysis using the QOC tool.

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Authors and Affiliations

  1. The Netherlands Organisation for Health Research and Development (ZonMw), The Hague, the Netherlands

    Saco J. de Visser

  2. Centre for Human Drug Research (CHDR InnoS), Leiden, the Netherlands

    Adam F. Cohen

  3. Paul Janssen Futurelab, Leiden University Medical Center, Leiden, the Netherlands

    Marcel J. H. Kenter

Authors
  1. Saco J. de Visser
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  2. Adam F. Cohen
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  3. Marcel J. H. Kenter
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Corresponding author

Correspondence to Saco J. de Visser.

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The authors declare no competing interests.

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Supplementary Figs. 1 and 2 and Supplementary Table 1

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de Visser, S.J., Cohen, A.F. & Kenter, M.J.H. Integrating scientific considerations into R&D project valuation. Nat Biotechnol 38, 14–18 (2020). https://doi.org/10.1038/s41587-019-0358-x

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  • DOI: https://doi.org/10.1038/s41587-019-0358-x

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