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Biotechnology / Pharmaceuticals

The completion of the Human Genome Project has launched the pharmaceutical sector into a revolutionary phase - one in which developments in genomics and proteomics promise fresh approaches to treating disease. New computer techniques have accelerated the process of drug discovery and this in turn creates challenges for managers who are now faced with a wider range of investment possibilities than ever before. Many companies are responding with strategic alliances or mergers and acquisitions to maximize the value of their innovation assets. The staged and costly nature of pharmaceutical R&D makes it particularly amenable to Real Options analysis, because go / no-go investment decisions are required at all the different stages in the development of a new drug.

We at the Real Options Group can help biotech and pharmaceutical managers gain a deeper insight into the value of their research by quantifying the worth of strategic and operational options embedded in their projects – options such as deferral, staging, abandonment, and expansion, all the way from the R&D stage to marketing expansion strategy for a new drug with related indications. Using our ROG software we can model and analyze the available options in a graphical format that provides an intuitive aide for managers involved in the decision-making process. In addition, we can model the impact of competitor responses and quantify their impact on the value of the project.

ROG can help pharmaceutical companies address important issues and questions such as:

·        What is the value of our R&D project at a given stage in the R&D pipeline ? What is the minimum price we should sell the rights to a biotech firm?

·         How much should we pay for someone else’s product, technology, or company?

·         Should we enter a licensing agreement, and on which terms?

·       How can we prioritize our product development or capital allocation efforts under budget constraints? When should we abandon projects, expedite, expand or redirect our activities?

·     How can we achieve a balanced portfolio of cash-generating vs innovative or blockbuster products?

·        Should we follow a parallel or sequential marketing expansion strategy for related indications of a new drug?

·       How would our strategic R&D investment affect our competitors, how might they respond, and what impact would their reaction have on our value?

·         Should we collaborate on R&D, make a strategic alliance or proceed alone?