Answers - Finance

Net Present Value (NPV) refers to the sum of a series of cash flows in and out. NPV ta

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

kes into account the series of cash paid or received in today’s value. This is differe

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

t from a layman calculation of cash flows which only takes into account the dollar val

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

ue of the cash flows. Take for example we take out $1000 from our pockets to invest in

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

a business venture. In one year’s time, the business venture pays out $1,100 and we pu

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

t this money into our pocket.

To a layman, the net investment gain is $100 ($1,100 -

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

1,000). Using NPV, the amount is smaller. This is because we take into account what ou

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

r $1,000 initial amount would have earned us if we put it in the bank. Assuming that t

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

e interest rate is 5%, our $1,000 would have earned us $1,050. Therefore the net inves

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

tment gained would have been $50 ($1,100 - $1,050). That’s not all. The amount is what

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

we gained in one year’s time. But in today’s time, that $50 would have worth less toda

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

y. That means if we put less than $50 into the bank, we would have gotten that $50 in

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

ne year’s time. The exact amount is $47.62($50 / 105%). This amount is the Net Present

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

Value of our cash out flow of $1,000 (denoted by a negative sign) and a cash inflow o

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

$1,100 in one year’s time (denoted by a positive sign).

Sounds complicated? Here’s a

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

nother way of looking at it. That $1,100 in one year would have a present value of $1,

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

47.62 ($1,100 / 105%). Since we took out $1,000 to gain that $1,100 (which has a prese

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

nt value of $1,047.62), the NPV is $47.62.

After you have understood the concept, you

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

would not have to subject yourself to this kind of calculation. You can use a time lin

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

e to present the above concept and an Excel Formula to calculate the Net Present Value

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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Answers - Calculate Net Present Value

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