Hand-Typed Probability Input Inflated Drug Valuation by 4.5x, Developer Reports
A developer of Somota, a drug valuation tool from the company Codebat, found that a Phase 2 cancer drug was valued at $1.29 billion. After correcting two errors, the same drug with the same sales forecast was valued at $283.5 million. The main error was a 30% probability of success that had been typed in by hand with no source, while public industry data gives roughly 10.8% for an oncology drug at Phase 2. The second error charged the full development cost as if it were only incurred if the drug succeeded, when in practice later trial costs depend on earlier trials passing. The developer notes that the unsourced input also had the largest effect on the valuation, and suggests labeling the source of every input in any model.
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