Publication
Title
Incorporating technical risk in compound real option models to value a pharmaceutical R&D licensing opportunity
Author
Abstract
The valuation of multi-staged pharmaceutical R&D can be interpreted as a chain of real options. In valuing these compound option models, a crucial problem is how to deal with the different types of risk. Previous models, such as Cassimon et al. (2004), offer a closed-form solution for the valuation of a new drug development using a generalized n-fold compound option model, but implicitly bundle both commercial and technical risk in one risk measure. We extend this model by explicitly incorporating technical risk, while still preserving the closed-form solution of the model. As such, this extended model is better suited to handle real-life valuation cases in the pharmaceutical industry. We document the theoretical model with a real-life project of a major pharmaceutical multinational.
Language
English
Source (journal)
Research management / Industrial Research Institute. - Westport, Conn., 1958 - 1987
Publication
Westport, Conn. : 2011
ISSN
0034-5334
Volume/pages
40:9(2011), p. 1200-1216
ISI
000297092200005
Full text (Publishers DOI)
Full text (publishers version - intranet only)
UAntwerpen
Faculty/Department
Research group
Publication type
Subject
Affiliation
Publications with a UAntwerp address
External links
Web of Science
Record
Identification
Creation 11.10.2011
Last edited 13.04.2017
To cite this reference