The Value of Not-Yet-Issued Priority Review Vouchers

In this article, we develop a model to value not yet issued priority review vouchers. Priority Review Vouchers (PRVs) are awarded by the US Food and Drug Administration (FDA) to biotechnology and pharmaceutical companies. To qualify for a PRV, a company must successfully develop and receive a positive review for a new drug application, biologic, or countermeasure that the FDA has designated as a PRV candidate. The treatment must be innovative and target a rare pediatric disease, tropical disease, or a critical medical countermeasure. Once issued, a PRV becomes a liquid asset that can be bought and sold an unlimited number of times prior to its use for securing a priority review by the FDA for a new drug application. This liquidity makes PRVs a valuable source of non-dilutive capital for the initial holder. Contracts can be executed to transfer rights to PRVs that have not yet been issued, further enhancing their market potential. The ability to sell PRVs before issuance increases their attractiveness for biotech and pharmaceutical firms. We develop a model linking the market for transactions in expected PRVs to the existing PRV market, framing it as a contingent claim on PRVs as well as a spot market. We analyze specific spot and contingent transactions involving PRVs and conduct simulations to demonstrate how the model incorporates key factors influencing PRV values in both markets.