AND THE CLOCK STARTS TICKING...
- 20 years global patent protection on new molecule
- additional market exclusivities (e.g. rare disease, children, new chemical entity, GAIN act)
RESEARCH & DEVELOPMENT PHASE
- 8-14 years
- only costs, no sales, no earnings!
- risk-adjusted discounted cash flow valuation
A) Preclinical phase (lab & animal testing)
- 1-2 years
- safety & pharmacological properties
- initial formulation
- success rate: <5%
B) Clinical phase (human testing in a clinical setting)
Phase I
- 1-2 years
- safety
- healthy volunteers (10s)
- success rate: 5-10%
Phase II
- 1-3 years
- safety & determine optimal dose
- patients with disease (100s)
- success rate: 10-45%
Phase III
- 2-4 years
- safety & demonstrate clinical benefit/risk ratio (statistical significance p<0.05)
- patients with disease vs placebo (fake drug) or standard care (100s - 1,000s)
- success rate: 40-65%
Registration/filing
- 6 months (fast-track) - 10-12 months (normal review)
- achieve marketing authorisation by FDA (US), EMA (EU) or PMDA (Japan)
- determine label (patient group, dose, warnings)
- success rate: 80-90%
RETURN PHASE
- 6-10 years
- determine pricing, reimbursement (per country/region)
- finally sales & earnings!
- phase IV (post-marketing surveillance) requirements to monitor long-term safety
- life cycle managment (e.g. new indications, formulations, Rx-to-OTC switch)
Historical valuation ranges:
- "Star" phase P/E >20x
- "Cash cow" phase P/E 10-15x
- "Mature" phase P/E >6-10x