NPV Analysis of the Antifungal

Market

Project Report
Dayananda Singh
(IIPM)

Contents
1. Introduction………………………………………………….
 2. What is NPV………………………………………………….
3. What is Antifungal…………………………………………...
4. Questions to consider in NPV analysis………………………
5. Executive summary………………………………………….
6. Hypothetical example of NPV analysis……………………...
7. Conclusion……………………………………………………

Introduction: -
Over one billion people suffer from fungal infection worldwide and this number is growing
through Athlete’s foot, dandruff, vaginal yeast infection and fungal nail makes up the bulk of
these cases. The growth of antifungal market is due to several factors: 1) increase in the number
of people living in an immunocompromised state which makes them more susceptible to fungal
infections 2) fungi are becoming increasingly resistant to standard therapies 3) many of the
standard therapies have a high toxicity and/or significant adverse events which results in a need
for more efficacious antifungal. These have been a factor that has lead to nearly 6 billion dollar
antifungal market.
What is NPV:-
NPV (Net Present Value) is the difference between the present value of cash inflows and the present
value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or
project. NPV analysis is sensitive to the reliability of future cash inflows that an investment or
project will yield. The net present value brings into consideration all the cash flows over the life
of a project. The weights applied are based on the time value of money, means the sum of money
received in the future are worthless then the sum received today. Before getting into the NPV
analysis we need to understand the market and with that the strength, weakness, opportunity and
threat. Playing monopoly in the market is the ultimate way out for fetching revenue and
sustainability of the business.

What is Antifungal:-
A drug used to treat fungal infections. It works on the basis that it destroys the fungal cells and
kills the organism but it cannot destroy the mammalian cell walls leaving the host unaffected.
Even amongst the fungus various genus are there which is susceptible to some drugs only.
Examples of antifungal drugs include miconazole (MONISTAT) and clotrimazole (LOTRIMIN,
MYCELEX)
Questions to consider in NPV analysis:-
As we perform NPV analysis, we need to consider the issues and concerns such as-
1. Is net present value analysis used when appropriate?
2. Are the rupee estimates for expenditures and receipts reasonable?
3. Are the times projected for expenditures and receipts reasonable?
4. Are the proper discount rates used in the net present calculations?
5. Are the proper discount factors used in analysis?
6. Are the discount factors properly calculated from discount rate?
7. Have all cash flows be considered?
The above are the parameters that we should consider when perform NPV analysis.
Executive Summary:-
The market for antifungal agents continues to grow. According to an article in BioBN, "the
worldwide market for treatment of invasive fungal infections is estimated to reach $2.4 billion in
2003 and to grow to $3.1 billion in 2008." One recent studies show that Out of nine million
patients at-risk, 1.2 million will go on to develops fungal infections.
Furthermore, according to the 43rd Annual Interscience Conference on Antimicrobial Agents
and Chemotherapy, within the last 5 years, infections due to clinically relevant fungi such as
Candida, Aspergillus, and Fusarium have come to the forefront as common and significant
causes of morbidity and mortality in immunocompromised patients. So there is a huge potential
of doing business in the said market as the number of fungal infection keeps increasing and the
organism becomes resistive to the drugs leading to the requirement of discovering new drugs.
More and more companies have become attracted to the antifungal market in the past decade for
the following reasons: to address the unmet needs of an increasing patient population, to develop
new compounds that can combat the fungi that have grown resistant to standard therapies, and to
meet the challenges of reducing negative side effect profiles. Innovation and best marketing
strategies along with new drug discoveries is what we need to go higher than others in a such
highly competitive market.

Hypothetical example of NPV analysis:-

• The director of “xyz ltd”, a pharmaceutical company, determines that the company cost
of capital is 15%. Information of cash flows of three projects engaged in new drug
discoveries are given below-

Project A Project B Project C

Annual profit (loss) Rs. Rs. Rs.
Year 1 5, 00,000 20, 00,000 2, 00,000
Year 2 5, 00,000 10, 00,000 8, 00,000
Year 3 5, 00,000 5, 00,000 8, 00,000
Year 4 5, 00,000 -5, 00,000 28, 00,000
Year 4 5, 00,000 -5, 00,000 48, 00,000
25, 00,000 25, 00,000 90, 00,000
Let’s calculate the NPV of the respective project and analyze it accordingly-

Project A Project B Project C

Discount Cash present cash present cash present
Factor flow value flow value flow value
Investment 1.000 -25,00,000 -25,00,000 -50,00,000 -50,00,000 -60,00,000 -60,00,000
Year 1. 0.870 5,00,000 4,35,000 30,00,000 26,10,000 10,00,000 8,70,000
Year 2 0.756 5,00,000 3,78,000 20,00,000 15,12,000 20,00,000 15,12,000
Year 3 0.658 5,00,000 3,29,000 15,00,000 9,87,0000 20,00,000 13,16,000
Year 4 0.578 5,00,000 2,86,000 5,00,000 2,86,000 40,00,000 22,88,000
Year 5 0.497 5,00,000 2,48,500 5,00,000 2,48,000 60,00,000 29,82,000
-8,23,500 6,43,5000 29,68,000

Analysis of NPV value-

Profitability index
Project A Project B Project C
16,76,500/25,00,000 56,43,500/50,00,000 89,68,000/60,00,000
= 0.67 = 1.13 1.49
As per the NPV value project C and B are accepted as they have positive value, while A is not
accepted as it has negative value. If only one project could be undertaken, project C would be
chosen as it has the highest profitability index, i.e. it gives the greatest NPV per Rs investment.
Conclusion:-
 The total global market for antifungal agents was worth more than $13.5 billion in 2005 and
declined to just under $12.2 billion in 2006. Antifungal agents for humans held the highest share
of the market through the forecast period. In 2012 they will reach nearly $14 billion, a CAGR of
4.5%.
So, since the number of person infected with fungus is increasing and resistivity of the organism
is also increasing the word “need” of new drug is coming into picture. So there is opportunity of
doing such a business for discovering new compounds or drug for the treatment of the disease to
match the increasing demand. From the analysis it is come to know that the fungal disease is
ramifying amongst the people, so it has a great potential in the market.