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Decision Tree — Drug Development Stage Gates (Phase II to Approval)

A pharmaceutical stage-gate tree with costs paid as each phase starts: funding Phase II rolls back to $70.7M against $35.0M for out-licensing now, with a Phase III go decision on a positive readout — and a risk profile showing the 83% chance the programme loses money. Illustrative values.

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Phase II oncology asset — fund in-house, out-license or stop?Phase II oncology asset — fund in-house, out-license or stop?Risk-adjusted NPV, US$ millions; each stage's cost is paid when it starts2 decisions · 4 chance nodes · 9 outcomes · maximise expected valueOPTIMAL FIRST CHOICEFund Phase II in-house·EV $70.7MOut-license the asset nowStop developmentOut-license after Phase II$220.0Mnet $175.0M$35.0M$0Fund Phase II in-housecost $45.0M · net $70.7MPositive0.32Negative0.68Run Phase IIIcost $180.0M · net $361.6MMeets primary endpoint0.58Misses primary endpoint0.42Approved0.9Complete response letter0.1Best-in-class uptake0.25Base case0.5Crowded market0.25Development strategyEV $70.7MPhase II readoutEV $115.7MPhase III go / no-goEV $361.6MPhase III readoutEV $541.6MRegulatory reviewEV $933.8MPeak-sales scenarioEV $1,037.5M$2,100.0Mnet $1,875.0M · P 0.042$900.0Mnet $675.0M · P 0.084$250.0Mnet $25.0M · P 0.042$0net −$225.0M · P 0.019$0net −$225.0M · P 0.134$0net −$45.0M · P 0.68DecisionChanceOutcomeOptimal strategyRejected alternativeRisk profile·outcome distribution of the optimal strategy00.350.7−$500M$0$500M$1,000M$1,500M$2,000Mfinal outcome, net of costs0.1530.680.0420.0840.042EVExpected value$70.7MStandard deviation$434.8MWorst outcome−$225.0MBest outcome$1,875.0MP(loss)0.833Distinct outcomes5What the rollback showsBest first choice: “Fund Phase II in-house”, EV $70.7M — $35.7M ahead of the next best, “Out-license the asset now” ($35.0M).If the path reaches “Phase III go / no-go”: “Run Phase III” ($361.6M) over “Out-license after Phase II” ($220.0M).Following it, the outcome ranges from −$225.0M to $1,875.0M across 5 possible results, standard deviation $434.8M; an 83% chance of a loss.Note: Stage success rates are of the order of published oncology benchmarks: Phase II about 1 in 3, Phase III just over 1 in 2, approval about 9 in 10.Note: Illustrative sales NPVs for a fictional asset.

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title "Phase II oncology asset — fund in-house, out-license or stop?"
subtitle "Risk-adjusted NPV, US$ millions; each stage's cost is paid when it starts"
currency $
unit M
decimals 1
risk-profile on
note "Stage success rates are of the order of published oncology benchmarks: Phase II about 1 in 3, Phase III just over 1 in 2, approval about 9 in 10."
note "Illustrative sales NPVs for a fictional asset."

decision "Development strategy"
  "Fund Phase II in-house" cost 45 -> chance "Phase II readout"
    "Positive" p 0.32
      decision "Phase III go / no-go"
        "Run Phase III" cost 180 -> chance "Phase III readout"
          "Meets primary endpoint" p 0.58 -> chance "Regulatory review"
            "Approved" p 0.90 -> chance "Peak-sales scenario"
              "Best-in-class uptake" p 0.25 -> 2,100
              "Base case" p 0.50 -> 900
              "Crowded market" p rest -> 250
            "Complete response letter" p rest -> 0
          "Misses primary endpoint" p rest -> 0
        "Out-license after Phase II" -> 220
    "Negative" p rest -> 0
  "Out-license the asset now" -> 35
  "Stop development" -> 0