Valuation of pharmaceutical research and development project methods incorporating risks and uncertainties (Real Options Analysis and Monte Carlo Simulation)

The paper provides an overview of the modern possibilities of evaluating research and development projects through a concrete example of a drug candidate from the Gilead company called Magrolimab. The analysis pointed out the specifics of pharmaceutical research and development projects in the business and financial sense: the long duration of the project and its phases, the main factors of uncertainty related to the project, related economic and regulatory aspects and the potential opportunities of management to influence the project during its course. An overview of various managerial flexibilities as well as valuation approaches using real options analysis methods and Monte Carlo simulation is given. The current status of the Magrolimab project from a macroand micro-perspective, the risks and uncertainties related to it, as well as the possibilities of managerial flexibilities related to this project, were particularly pointed out. Valuation results using methods that include risks and uncertainties are given, individually and comparatively in relation to the net present value method. In the end, the potential advantages and synergy of different approaches were pointed out based on the concrete example of the candidate Magrolimab.