A compound option valuation model of R&D-intensive pharmaceutical companies

A compound option valuation model of R&D-intensive pharmaceutical companies

This paper presents a model for the valuation of R&D in the pharmaceutical sector, both for start-up ventures as well as for big conglomerates. The key understanding is that these projects can be seen as growth options. Traditional valuation techniques as DCF-analysis fail in valuing R&D-int...

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Hauptverfasser: Cassimon, D., Engelen, P.-J.
Format: Tagungsbericht
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Companies
Cost accounting
Economic forecasting
Energy management
Investments
Pharmaceuticals
Power generation economics
Research and development
Risk analysis
Risk management
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Engelen, P.-J.
description This paper presents a model for the valuation of R&D in the pharmaceutical sector, both for start-up ventures as well as for big conglomerates. The key understanding is that these projects can be seen as growth options. Traditional valuation techniques as DCF-analysis fail in valuing R&D-intensive pharmaceutical companies because most of their value is embedded in unexercised real options whose future value is uncertain at this moment. If one considers a company as a portfolio of real options, one can value the company based on a compound option model. This estimate will better reflect the fundamental value of the company and cannot be captured by DCF-analysis.
doi_str_mv 10.1109/KORUS.2004.1555726
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subjects Companies
Cost accounting
Economic forecasting
Energy management
Investments
Pharmaceuticals
Power generation economics
Research and development
Risk analysis
Risk management
title A compound option valuation model of R&D-intensive pharmaceutical companies
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