Production of a New Drug: A Sequential Investment ProcessUnder Uncertainty
AbstractOn the basis of a database of more than 80 thousand records on total retails and production costs of the pharmaceutical industry worldwide we consider four classes of drugs. We evaluate the expected profits of an investment in a new drug in the four classes of pharmaceutical products by considering the standard NPV evaluation. We compare these outcomes with the evaluation of the expected profits of the four new drugs obtained by the real option approach. Interestingly enough quite different outcomes are obtained. These results loom on the capacity of standard methods to give a reliable evaluation of real investment projects that are analogous to compound options
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Bibliographic InfoPaper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 453.
Date of creation: Jul 2005
Date of revision:
compound option; real option valuation; net present value; drugs;
Find related papers by JEL classification:
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
- L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-11-09 (All new papers)
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