Rnpv Modeler

rNPV Modeler — The Valuation Engine

Risk-adjusted NPV is the gold standard for biotech asset valuation because it isolates development failure as a discrete variable rather than burying it in the discount rate. A standard DCF says "this asset is worth $500M at a 30% discount rate." An rNPV says "this asset has a 15% chance of generating $3.3B in risk-free present value, minus $350M in certain development costs, yielding $150M in expected value." The second statement is auditable. The first is not.

This skill consumes outputs from pos-calculator (probability), peak-sales-forecaster (revenue), and cost-estimator (costs) to produce the complete valuation.

How to Run

Input

Steps

Step 1 — Construct the Revenue Model

Build a year-by-year revenue projection from launch through loss of exclusivity (LOE):

Year 1-3:  Ramp (S-curve, using launch analog)
Year 3-7:  Growth to peak sales
Year 7-10: Peak plateau
Year 10+:  LOE erosion (small molecule: 80% drop Y1, biologic: 30% drop Y1-3)

Apply: Net Revenue = Gross Revenue x (1 - rebates/discounts) Typical net-to-gross: 60-75% in US (after Medicaid, 340B, commercial rebates)

Step 2 — Construct the Cost Model

Pre-approval costs:  Phase-by-phase R&D costs (from cost-estimator)
Post-approval costs: COGS + SG&A + Medical Affairs
  COGS: 10-25% of net sales (modality-dependent)
  SG&A: 25-35% of net sales (Year 1-3), declining to 15-25% at maturity
  Medical Affairs: 5-10% of net sales

Step 3 — Apply Phase-Gated Probabilities

This is what makes rNPV different from standard NPV. Each cash flow is weighted by the cumulative probability of reaching that point:

rNPV = Σ [ (Revenue_t - Cost_t) x PoS_cumulative_t ] / (1 + r)^t

Where PoS_cumulative_t is the probability that the drug has reached the stage generating that cash flow:

Critical nuance: Development costs are probability-weighted because they are decision-dependent (you stop spending if the drug fails). Some models treat costs as certain — this overestimates negative cash flows and understates rNPV.

Step 4 — Select Discount Rate

Decision rule: Use pure rNPV (risk-free rate) when PoS inputs are well-calibrated and program-specific. Use WACC when PoS inputs are generic base rates without program adjustments. The pure approach avoids double-counting risk.

Step 5 — Calculate rNPV

rNPV = Σ [(Revenue_t x LOA - Cost_t x PoS_t) / (1 + WACC)^t]

Express as:

• Point estimate: Single rNPV value with stated assumptions
• Range: Low / Base / High scenarios varying PoS, peak sales, and discount rate
• Per-share: rNPV / fully diluted shares (for public company valuation)

Step 6 — Sensitivity Analysis (Tornado Diagram)

Vary each input +/- 20% and measure rNPV impact:

SENSITIVITY ANALYSIS — [Asset Name]

                          rNPV Impact (Low → High)
Peak Sales        ████████████████████████ ($-80M → $+80M)
Phase 2 PoS       ██████████████████ ($-60M → $+60M)
Discount Rate      ████████████████ ($-50M → $+50M)
Phase 3 Cost        ██████████ ($-30M → $+30M)
Launch Year          ████████ ($-25M → $+25M)
COGS %                ██████ ($-20M → $+20M)

The tornado identifies which assumptions matter most — focus diligence effort there.

Step 7 — Monte Carlo Simulation (Optional)

For higher-fidelity analysis, run 10,000+ simulations varying:

• Peak sales: lognormal distribution around base case
• PoS: beta distribution bounded by low/high estimates
• Costs: normal distribution with +/- 30% range
• Timeline: uniform distribution +/- 1 year per phase
• Discount rate: triangular distribution around WACC estimate

Output: probability distribution of rNPV showing:

• Probability of positive rNPV (investment attractiveness)
• Median vs. mean rNPV (mean > median indicates positive skew = option value)
• P10/P50/P90 values for range communication

Step 8 — Platform Optionality (Innovation)

Traditional rNPV values a single indication. But platform technologies have cross-indication optionality that rNPV misses. Apply real options framework:

Embedded options in biotech:

• Option to expand: Success in Indication 1 de-risks the platform for Indications 2-5. Value = rNPV of additional indications x probability of platform validation x option discount
• Option to abandon: Ability to stop spending if data is negative. Value already captured in phase-gated PoS
• Option to defer: Ability to delay investment pending competitive/scientific developments

Platform premium calculation:

Platform Value = Lead Indication rNPV + Σ [Follow-on Indication rNPV x P(platform works)]
Where P(platform works) = PoS of lead indication (success validates the platform)

For mRNA, gene therapy vectors, ADC linkers, or other platform technologies, this premium can be 50-200% of lead indication rNPV.

Output

rNPV VALUATION — [Asset Name]
Indication: [primary indication]
Current Phase: [phase]
Date: [assessment date]

Key Assumptions:
  Peak Sales: $[X]B (Year [Y] post-launch)
  LOA: [X]% (from pos-calculator)
  WACC: [X]%
  Development Timeline: [X] years to approval
  Remaining Dev Costs: $[X]M
  COGS: [X]% of net sales
  Patent Expiry: [Year]

rNPV Summary:
  Base Case: $[X]M
  Low (P25):  $[X]M  [key driver]
  High (P75): $[X]M  [key driver]

  rNPV per Share: $[X] (vs current price: $[X])
  Implied Upside/Downside: [X]%

Value Inflection Analysis:
  Current rNPV (Phase [N]):     $[X]M
  Post-positive data rNPV:      $[X]M  (=[X]x increase)
  Post-approval rNPV:           $[X]M  (=[X]x increase)

Sensitivity: [Top 3 drivers in tornado format]

Platform Optionality (if applicable):
  Lead indication rNPV:          $[X]M
  Follow-on indications (N=[X]): $[X]M (probability-weighted)
  Total platform value:          $[X]M
  Platform premium:              [X]% above lead-only rNPV

Monte Carlo (if run):
  P(rNPV > 0):    [X]%
  Mean rNPV:       $[X]M
  Median rNPV:     $[X]M
  P10 / P50 / P90: $[X]M / $[X]M / $[X]M

Error Handling

Cross-Domain Connections

• Biotech-venture/pos-calculator: Provides probability inputs (the most impactful variable)
• Biotech-venture/peak-sales-forecaster: Provides revenue inputs
• Biotech-venture/cost-estimator: Provides cost inputs
• Biotech-venture/deal-economics: Uses rNPV to derive deal terms (25-35% rule)
• Biotech-venture/diligence-scorecard: rNPV feeds the financial attractiveness pillar
• Investing/intrinsic-value: rNPV is the biotech-specific version of DCF valuation
• Investing/risk-architecture: Parallel framework — both quantify risk-weighted expected values