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| Author: | Brach, M. A. Paxson, D. A. |
| Title: | A gene to drug venture: Poisson options analysis |
| Journal: | R. and D. Management
2001 : VOL. 31:2, p. 203-214 |
| Index terms: | PHARMACEUTICAL INDUSTRY OPTIONS R&D POISSON DISTRIBUTION |
| Language: | eng |
| Abstract: | The authors provide a Poisson real option model of a gene-to-drug venture. First the authors describe a general new drug discovery programme as well as a specific secretory protein research programme. Then the authors model both the candidate secretory gene and the 'hot' gene discoveries as Poisson processes. Gene deal value sizes are modeled as lognormal distributions. Then the authors calculate the expected R&D value (EV) of the Poisson discoveries times the value distributions, for both stages. Finally, for generic collaborating-funding arrangements, the authors show the Merton (1976) standard mixed diffusion-jump option value, compared to a risk neutral 'intrinsic' value. Under simple assumptions, the real option value is substantial, even if there is no intrinsic value. |
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