The valuation of a NDA using a 6-fold compound option
This paper presents a new methodology for valuing new drug applications (NDA) and the R&D of pharmaceutical companies based on real option models. Traditional valuation models fail to capture the full value created by R&D to pharmaceutical companies, because they do not correctly model the n...
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| Veröffentlicht in: | Research policy 2004, Vol.33 (1), p.41-51 |
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| creator | Cassimon, D Engelen, P.J Thomassen, L Van Wouwe, M |
| description | This paper presents a new methodology for valuing new drug applications (NDA) and the R&D of pharmaceutical companies based on real option models. Traditional valuation models fail to capture the full value created by R&D to pharmaceutical companies, because they do not correctly model the nature of the process of developing a new drug. It is a series of consecutive phases from R&D to commercialisation, where each phase is in fact an option on executing the following phase, i.e. a compound option. For a NDA, the R&D phase can best be presented as a 6-fold compound option on the commercialisation phase. Using a generalisation of Geske’s compound option model, we derive a closed-form solution for a
n-fold compound option model, and apply it to calculate the value of a NDA using sector average figures. |
| doi_str_mv | 10.1016/S0048-7333(03)00089-1 |
| format | Article |
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| source | Elsevier ScienceDirect Journals Complete - AutoHoldings; RePEc |
| subjects | Compound options Multivariate analysis Multivariate normal integral Options trading Pharma Pharmaceutical industry R&D Real options Research & development Studies Valuation |
| title | The valuation of a NDA using a 6-fold compound option |
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