How would you concretely measure the value of your work in the short and long term? During my lecture, I asked such a question from the students studying drug development at the University of Turku. The question was quite difficult. I received only one answer. Well, as anyone who teaches knows, even simple questions may get only one answer.

According to the brave respondent, the value of the work done in drug development could be measured by the number of patients treated with that drug in the future. It was easy to offer a countering question: Is the development of orphan drugs then not valuable in this sense? There is considerable uncertainty about the future number of patients in the initial stages of a drug development project.

Value is a concept that occurs in various contexts in healthcare and the pharmaceutical sector. It would probably be accurate to state that it occurs everywhere. In fact, in drug development and research, it has always been a question of creating value and (expected) value. For this reason, we need metrics to measure the value of this work now and in the future. The indicators should be more detailed than, for example, improving diseases, producing health, alleviating suffering, or preventing diseases.

Concrete indicators of value suitable for basic research include patents, entrepreneurship, access to funding, scientific publications, scientific activity, and various forms of cooperation with companies, for example.

In addition to value creation, valuation, i.e. the determination of value, is central to the venture capitalists investing in the initial and growth phase of a company. A venture capitalist should be able to assess the opportunities and potential for a stock exchange listing or consolidation, for example. In addition to formal analysis, this requires experiential knowledge and networks. An investor can also deduce something about a potential investment based on the type of financing arrangement the target company is applying for.

The interest of larger companies tends to increase as the drug development project progresses from the pre-clinical phase to phases I–III of human studies. Large international pharmaceutical companies are needed if the drug is to be manufactured, distributed, and marketed worldwide. One measure of the profitability of a research and development project is its risk-adjusted net present value, which is required in measuring net discounted cash value. In other words, the net value of cash flows at various times is calculated according to the current monetary value, also considering the probabilities of success in each of the project phases. If the cash flow is positive, the investment is likely to pay for itself and the project will generate a profit. In pharmaceutical research, there is a high probability of a research project failing along the way. In phases I–III, the probability of success at each stage of the study is roughly in the range of 40 to 65 per cent. The rules for the multiplication of probabilities should be kept in mind.

Attractive investments can lead to an auction of sorts, which can cause the price of a product or company to rise. Failure to purchase the product or abandon the investment may result in a rejection error. The risk here, on the other hand, is an acceptance error. An expensive innovation can prove worthless over time. In the recent decades, the economic history of various sectors is full of examples of both of these misconceptions.

Once a drug has passed the research and marketing authorisation phase, a slightly different value discussion is required. The authorities evaluating a new drug and the payers of the drug (insurance companies, among others) look at its therapeutic and economic value. In this case, it is assessed whether the new drug produces more life years and better quality of life than other existing treatment methods, for example. The new drug will be weighed against a range of factors: methods used health economics will be utilised in assessing whether or not the new drug is a cost-effective treatment, as well as what will be the budgetary impact of its introduction on, for example, the drug costs of a hospital. If the new drug does not provide added value, or the payers do not have a willingness to pay for the added value, it is unnecessary for the seller to expect to get a better price for their product when compared to the existing drugs. Another possibility is that payers are reluctant to introduce the drug at that stage at all. Not even when the drug is already authorised and has passed the lengthy process of research and development as well as the previous stages of valuation.

Value must therefore be measured continuously throughout the life cycle of a drug. Participants and instruments change along the way, making the journey ultimately risky and difficult to predict.

Juha Laine, Professor of Practice