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product development, likely market size, market share and reimbursement, and pricing issues are much clearer. Then it is appropriate to give greater weight to more quantitative approaches to valuation of projects, such as Net Present Value and Return on Investment analyses. At earlier stages of development, it is misleading to place too great an emphasis on these features, so surrogates must be found to ensure sound assessment of commercial worth to allow comparison across projects. These surrogates which measure unmet need include assessment of morbidity and mortality, degree of market satisfaction with current treatment approaches, and some assessment of likely customer valuation of the development candidate. Questions for consideration include What is the potential value of the current portfolio? Does it meet corporate growth targets? Is there an appropriate balance of risk and reward? Is activity focused on areas of greatest value for the future? |
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Because different methodologies are used at different stages, it is not usually desirable to make comparisons between individual early stage projects and individual later stage projects. This does not preclude comparison between groups of projects, for instance, by therapeutic area. |
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Commercial valuation must recognize that there are many different potential portfolios represented by the projects in development. These include different customer groups, for example, general practitioners and specialists, different regional groups, such as developing markets and developed markets, etc. Assessment of the portfolio value varies according to which of these groups is considered. |
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Financial evaluation requires agreement on appropriate discount rates. In most circumstances, agreement is easiest when using the company cost of capital. It is important to recognize that this discount rate accounts for financial risk and that the development risk is accounted for by the R&D feasibility assessment. Adjusting the discount rate according to stage of development may lead to double counting for development risk. |
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V.
Data Gathering and Review |
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This section considers methods for gathering input data. |
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It is evident that the quality of the process depends entirely on the quality of the input data gathered; all the sophisticated analysis in the world does not compensate for inadequate source data. Several issues must be addressed in deciding how to gather the data: |
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