Correspondence: Kerstin M. Bode-Greuel, Bioscience Valuation BSV GmbH, Am Zigeunerbergl 3, Grainau 82491, Germany. E-mail: k.bode-greuel@bioscience-valuation.com

¹received his PhD in Organic Chemistry from the Technical University Berlin in 1979. He then joined the Schering AG as a medicinal chemist doing research work in the endocrinology and cardiovascular field for 5 years. In 1985 he moved into development and finally led the chemical development department for many years. In 1999 he moved to project management and became head of project and portfolio management of Specialized Therapeutics, a business unit of Schering AG located in the United States. He finally got promoted to heading global project management. After the acquisition of Schering AG by Bayer AG he joined the Berlin School of Economics where he is now in charge for building a new MBA programme for pharmaceutical management.

²is Founding and Managing Partner of Bioscience Valuation and Bioscience Market Research in Germany and the USA. He began his professional career as head of a research team at Bayer AG. He joined Strategic Services Practice of Andersen Consulting – Switzerland and Germany after achieving his MBA at Wharton School, University of Pennsylvania. Joachim was Investment Manager at New Medical Technologies, a Swiss Venture Capital Fund, before founding Bioscience Valuation. He attained his PhD at Max Planck Institute for Brain Research in Frankfurt after studying biology in Germany and Cambridge, United Kingdom. He is member of American Finance Association, and Institute for Operations Research and the Management Sciences.

³is Founding and Managing Partner of Bioscience Valuation – Germany and the USA, and of Bioscience Market Research, USA. Her 20 years of experience cover virtually all therapy areas in pharmaceutical R&D and strategic marketing. She held senior positions at Bayer AG and, after 5 years of independent management consultancy, co-founded Bioscience Valuation. Her publications include two expert SCRIP reports, professional journal articles and chapter of a book. She is Associate Lecturer at University of Essen's Master class programme, as well as Speaker/Workshop Leader in international conferences. Kerstin studied medicine in Germany and United Kingdom, and corporate finance at Wharton School of the University of Pennsylvania.

Received 26 January 2009; Revised 26 January 2009; Published online 11 August 2009.

Abstract

Biotechnology investors are increasingly concerned about taking the risk of investing in the development of innovative drugs, and pharmaceutical companies are worried about maintaining their high profitability in the future. The question is how to build a portfolio of research and development (R&D) projects that fulfils the financial expectations of investors and shareholders. State-of-the-art net present value algorithms are applied to different types of projects at entry into development in order to evaluate their financial attractiveness and their ability to generate adequate returns. Based on the currently applied cost of capital for pharmaceutical and biotechnology companies the attractiveness of the so-called blockbuster model is clearly supported. The increasingly favoured specialty model, however, will only provide sufficient returns to biotechnology investors if significant sales volumes are reached. Complementing a company's development portfolio with risk-reduced projects could be an attractive way to ensure sustained growth for both biotechnology and pharmaceutical companies.