Vose SoftwareModelChoice decision tree · Pharma and biotech
Clinical Trial Go/No-Go Decision
After Phase I: run Phase II, partner the compound, or shelve it?
From the model’s decision tree
Best first decision: Proceed to Phase II
The expected value of each first option when every later decision is also made well (the tree rolled back).
| First decision | Expected value | |
|---|---|---|
| Proceed to Phase II | $135,077,500 | ✔ best |
| Partner / Out-License | $41,750,000 | |
| Shelve Compound | $0 |
| Measure | Value |
|---|---|
| Expected value of the best strategy | $135,077,500 |
| Chance of a loss on the best strategy | 61.1% |
| Best outcome on the best strategy | $1,895,000,000 |
| Worst outcome on the best strategy | −$100,000,000 |
S-curve (cumulative probability) of Proceed to Phase II from the saved simulation.
The decision
A biotech company has completed Phase I safety trials for a novel therapeutic compound targeting autoimmune diseases. The compound shows promise but the company must decide whether to invest in Phase II efficacy trials, seek a pharmaceutical partner, or shelve the compound.
This is a multi-stage decision with enormous value at stake. Each clinical trial phase provides new information that informs the next go/no-go decision.
Objective
Maximize expected NPV. This model captures the classic pharma pipeline decision with its extreme asymmetry: most compounds fail, but successes can generate billions. Features adaptive trial design as a risk-reducing option.
The options
- Option 1: Proceed to Phase II ($25M)
Run the efficacy trial. Results determine Phase III strategy:
- Strong efficacy (20%): Full Phase III ($80M) or partner
- Moderate efficacy (35%): Phase III, adaptive trial, or partner
- Weak signal (25%): Reformulate, pivot indication, or abandon
- Safety concern (20%): Program terminated
- Option 2: Partner / Out-License ($2M)
Seek a partner before Phase II. Lower risk, but gives up most of the upside. Quality of offers depends on competitive landscape and compound profile.
- Option 3: Shelve Compound
Preserve capital. Compound may have future value if science advances.
The decision tree
The tree has 4 decisions, 8 chance events and 26 outcomes. The best path is open: at every decision the best choice is marked, and the expected value beside each branch counts every cash flow from the start. Open any other branch to see what follows it.
DecisionChance event+$ cash flow on the branch
Proceed to Phase II −$25,000,000expected $135,077,500 ✔ best
Chance: Phase II Results20% Strong Efficacyexpected $467,450,000
Decision: Phase III (Strong Data)Full Phase III −$80,000,000expected $467,450,000 ✔ best
Chance: Phase III Outcome (Strong)65% FDA Approvalexpected $713,000,000
Chance: Commercial Performance- 20% Blockbuster (>$1B) +$2,000,000,000payoff $1,895,000,000
- 40% Strong Sales +$800,000,000payoff $695,000,000
- 30% Moderate Sales +$300,000,000payoff $195,000,000
- 10% Below Expectations +$80,000,000payoff −$25,000,000
- 20% Conditional / Delayed +$200,000,000payoff $95,000,000
- 15% Phase III Failure +$5,000,000payoff −$100,000,000
- Partner Now (Strong Data) +$150,000,000payoff $125,000,000
35% Moderate Efficacyexpected $115,250,000
Decision: Phase III (Moderate Data)Proceed to Phase III −$80,000,000expected $111,500,000
Chance: Phase III (Moderate Path)- 40% Approval +$500,000,000payoff $395,000,000
- 30% Complete Response Letter +$50,000,000payoff −$55,000,000
- 30% Failure +$5,000,000payoff −$100,000,000
Adaptive Trial Design −$50,000,000expected $115,250,000 ✔ best
Chance: Adaptive Trial Results- 45% Adapted Successfully +$400,000,000payoff $325,000,000
- 30% Inconclusive +$30,000,000payoff −$45,000,000
- 25% Stopped for Futility +$5,000,000payoff −$70,000,000
- Partner Now +$60,000,000payoff $35,000,000
25% Weak Signalexpected $25,000,000
Decision: Weak Phase II SignalReformulate & Retry −$15,000,000expected $25,000,000 ✔ best
Chance: Reformulation Results- 30% Improved Efficacy +$200,000,000payoff $160,000,000
- 50% No Improvement +$10,000,000payoff −$30,000,000
- 20% New Safety Issuepayoff −$40,000,000
Pivot to New Indication −$10,000,000expected $11,500,000
Chance: New Indication Results- 25% Shows Promise +$150,000,000payoff $115,000,000
- 45% Marginal +$20,000,000payoff −$15,000,000
- 30% No Effectpayoff −$35,000,000
- Abandon +$2,000,000payoff −$23,000,000
- 20% Safety Concern / Failurepayoff −$25,000,000
Partner / Out-License −$2,000,000expected $41,750,000
Chance: Partnership Offers- 20% Strong Offer (Big Pharma) +$120,000,000payoff $118,000,000
- 45% Fair Offer (Mid Pharma) +$40,000,000payoff $38,000,000
- 35% Weak / No Offers +$5,000,000payoff $3,000,000
- Shelve Compoundpayoff $0
Change the numbers. Open the workbook with ModelChoice, change a probability or a cost in the tree, and the best decision updates at once.
Key assumptions
| Assumption | Value | Notes |
|---|---|---|
| Phase II Cost | $25,000,000 | 200-patient efficacy trial |
| Phase III Cost | $80,000,000 | Large pivotal trial, 2+ years |
| Adaptive Trial Cost | $50,000,000 | Flexible design, interim analyses |
| Reformulation Cost | $15,000,000 | New formulation, additional PK studies |
| Phase II Success Rate | 55% | Strong or moderate efficacy signal |
| Phase III Approval (Strong) | 65% | Given strong Phase II data |
| Phase III Approval (Moderate) | 40% | Given moderate Phase II data |
| Blockbuster Revenue (NPV) | $2,000,000,000 | Peak sales >$1B/year |
| Big Pharma Partnership | $120,000,000 | Upfront + milestones + royalties |
| Total Capital at Risk | $25M - $105M | Depends on go/no-go decisions |
The figures are illustrative: the companies and numbers are invented for teaching.
Try it in ModelChoice
- Strategy Table. Compare all development paths with risk-return frontier
- Sensitivity Analysis. How does Phase II success rate affect the go/no-go?
- Risk Profile. Visualize the extreme asymmetry of pharma returns
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Further reading
Download the workbook and open it with ModelChoice. The free trial opens every example.
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An illustrative example: the figures are invented for teaching. Last updated 9 October 2026.