Vose SoftwareModelRisk example · Pharmaceuticals and biotech
R&D Portfolio: Which Projects to Fund
Eight projects, one budget: which to fund for value, for a steady pipeline, and within the money we have?
From the model’s saved run
Which portfolio?
Value (NPV, US$m), launches and budget risk of each candidate portfolio.
| Portfolio | Mean NPV | NPV 1 in 10 (P10) | Launches expected | No launch chance | Over budget chance |
|---|---|---|---|---|---|
| Everything (8 projects) | 540 | −483 | 1.59 | 15% | 100% |
| One per mechanism (5 projects) | 538 | −437 | 1.33 | 18% | 35% |
| Late stage (4 projects) | 513 | −422 | 1.25 | 20% | 35% |
| Within budget (4 projects) | 482 | −316 | 1.00 | 28% | 2% |
Over budget: spending above US$170 million in at least one of the next 5 years.
S-curve (cumulative probability) of Everything, One per mechanism, Late stage, Within budget from the saved simulation.
The business question
A mid-sized pharma company has eight projects in development: a solid-tumour drug in Phase III, three projects in Phase II, two in Phase I and two in preclinical work.
Three pairs share a mechanism — two oncology projects act on the same apoptosis pathway, two immunology projects on the same interleukin, and two neurology projects on amyloid — so their Phase II results tend to agree. Each phase costs money, takes time and may fail. A project that fails stops spending.
The R&D budget is US$170 million a year for the next five years, and funding everything would need more in the early years. The portfolio committee is weighing four options: fund everything, fund one project per mechanism, fund only the late-stage projects, or fund a set that stays within the budget.
- Who it is for
- R&D portfolio committees, heads of development and strategy, finance teams in pharma and biotech.
- Main outputs
- For four candidate portfolios: NPV (mean and 1 in 10), expected launches, the chance of no launch, and the chance of breaking the budget · for each project: chance of launch, mean NPV, R&D cost and value per dollar · the effect of shared mechanisms · spending by year against the budget.
How the model works
Five sheets after this one, read from left to right. Each one feeds the next.
Inputs sheet
The annual R&D budget, the correlation between the Phase II results of projects that share a mechanism, the discount rate and the portfolio to chart.
Projects sheet
The duration and yearly cost of each phase. Each project's current stage, chance of success in each phase and value at launch (P10 and P90); which projects each portfolio funds.
Pipeline sheet
Three bivariate Normal copulas draw correlated uniforms for the Phase II results of each pair. VoseBernoulli decides every remaining phase. The last phase each project works on (its first failure, or the review), the year each phase would end and the launch year follow. The value at launch is discounted to today.
Spend sheet
The phase each project works on in each year — a Gantt chart of the iteration — gives its spending: the yearly cost of that phase. Each portfolio adds up the projects it funds. Its NPV, its launches, and whether it spends more than the budget in a year of the budget horizon.
Results sheet
The portfolios side by side; the projects ranked by value per dollar; how shared mechanisms make successes and failures come in pairs; spending against the budget.
ModelRisk techniques
Find similar models
- Product
- Type
- Application
- Uses
The results in detail
The projects
Each project as if funded: chance of launch, value and R&D cost (US$m).
Line chart: 90th percentile, Median, Mean, 10th percentile, Budget.
| Project | Stage | Launch chance | Mean NPV | R&D cost PV, mean | Value per US$ of R&D |
|---|---|---|---|---|---|
| A ONC-301 solid tumours | Phase III | 53% | 409 | 159 | 3.58 |
| B ONC-210 leukaemia | Phase II | 19% | 38 | 91 | 1.41 |
| C IMM-220 psoriasis | Phase II | 19% | 22 | 91 | 1.24 |
| D IMM-110 Crohn's disease | Phase I | 13% | 3 | 68 | 1.05 |
| E NEU-120 Alzheimer's disease | Phase I | 8% | 26 | 60 | 1.43 |
| F NEU-010 Parkinson's disease | Preclinical | 5% | 3 | 43 | 1.07 |
| G RARE-230 enzyme deficiency | Phase II | 34% | 45 | 112 | 1.40 |
| H ONC-020 lymphoma | Preclinical | 8% | −4 | 49 | 0.92 |
Value per US$ of R&D: the expected present value of the launch ÷ the expected R&D cost. Below 1, the project destroys value.
Shared mechanisms
Projects that share a mechanism succeed — and fail — together.
| Pair | Both launch simulated | Both launch if independent | Ratio |
|---|---|---|---|
| B and H | 3.0% | 1.5% | 2.0 |
| C and D | 5.0% | 2.5% | 2.0 |
| E and F | 1.2% | 0.4% | 2.9 |
How to read these results
- Funding everything gives the most value on average, about US$540 million, but it needs more than the US$170 million budget in the early years in every future: the Phase III drug and three Phase II projects all spend at once.
- Funding one project per mechanism keeps almost all of that value, about US$538 million. The three projects it drops — D, F and H — are early and worth little on average: about a dollar of value per dollar of R&D. It still breaks the budget about one time in three, when several Phase II trials succeed and their Phase III trials start together.
The portfolio that stays within the budget (A, E, F and G) gives up about US$56 million of value, and its chance of no launch rises from 18% to 28%, because it leaves out two Phase II projects.
The choice is between value and a steady flow of launches on one side and the budget on the other — unless more money is found, for example by partnering a Phase III.
- Projects that share a mechanism succeed and fail together: each pair launches together two to three times as often as if they were independent. Funding both projects of a pair concentrates the risk, which is why funding everything has the worst 1-in-10 value of the four portfolios.
- The Phase III drug, project A, carries every portfolio: most of the value and the reason the four NPV curves look alike. The portfolios differ in what happens if A fails — and in what they spend while waiting to find out.
See it move. Open the workbook, change an input on the Inputs sheet and run the simulation: every table and chart on this page updates in Excel.
Inputs and assumptions
Every assumption in the model, with its uncertainty and where it comes from. The figures are illustrative.
Budget and finance 4 inputs
| Assumption | Unit | Value |
|---|---|---|
| R&D budgetFor each year of the budget horizon below. | US$m a year | 170 |
| Budget horizonThe years the budget is set for. | years | 5 |
| Correlation of Phase II results within a mechanismOn the Normal scale: if the mechanism fails in one project, it probably fails in the other. | copula ρ | 0.80 |
| Discount rate | per year | 10.0% |
Chart 1 input
| Assumption | Unit | Value |
|---|---|---|
| Portfolio shown in the spending chart1 Everything · 2 One per mechanism · 3 Late stage · 4 Within budget. | 1 – 4 | 2 |
Units and conventions
- Money
- US$ million (US$m); costs discounted from the middle of each year, values from the launch year.
- Time
- Years from now; year 1 is the coming year.
- Value at launch
- The NPV, at launch, of the product's sales after all commercial costs.
- Over budget
- A portfolio's spending exceeds the budget in at least one year of the budget horizon (five years as shipped).
Key assumptions and limitations
- Phases
- Whole years, back to back; a project stops spending when a phase fails.
- Correlation
- Only through the Phase II results of projects sharing a mechanism; all other results are independent.
- Unfunded projects
- Shelved: no cost and no value. Partnering them out could recover some value.
- Data
- The company, the projects and all figures are invented for this example.
How to use it
- Enter your projects on the Projects sheet: stage, success rates by phase, value at launch.
- Mark which projects each candidate portfolio funds, and set the budget on the Inputs sheet.
- Run a simulation from the ModelRisk ribbon (10,000 samples with a fixed seed are set).
- Compare the portfolios on value, launches and budget risk; try other combinations.
ModelRisk functions used
- VoseCopulaBiNormal
- Correlated uniforms for the Phase II results of two projects sharing a mechanism (array).
- VoseBernoulli
- Whether each phase succeeds; the U argument takes the copula's uniform for Phase II.
- VoseLognormalAlt
- Each project's value at launch from its P10 and P90.
- VoseOutput, VoseSimMean, VoseSimPercentile
- Outputs and their statistics on the Results sheet.
Further reading
- Monte Carlo simulation explained (Vose guide)
- Paul, S. M. et al. (2010). How to improve R&D productivity: the pharmaceutical industry's grand challenge. Nature Reviews Drug Discovery 9, 203–214.
- Vose, D. (2008). Risk Analysis: A Quantitative Guide, 3rd edition. Wiley.
Download the workbook and run it yourself. It opens in Excel with ModelRisk. The free trial runs every example model.
Related example models
- ModelRiskOptimizer★★★★★R&D Portfolio Chosen by the OptimizerWhich projects to fund for the most value, with limits on budget risk and on the chance of no launch?Eight projects with phase-by-phase attrition and correlated Phase II results; the portfolio chosen by the Optimizer from 256 combinations.
- ModelRisk★★★★★Drug Development Risk-Adjusted NPVWhat is a compound in Phase II worth — and should we develop it ourselves or license it out?Phases with uncertain cost, time and success, then launch and patent expiry: the textbook rNPV against the simulated NPV.
- ModelChoice★★★★★Biosimilar Launch Strategy DecisionLaunch a biosimilar at risk, wait for a patent settlement, license it in, or stay out of the market?Three decisions and 13 chance events. Best first decision: At-Risk Launch, expected value $130.0m.
An illustrative example: the figures are invented for teaching and do not describe a real company, project or asset. Last updated 9 October 2026.