Værdiansættelse i medicinalindustrien ved anvendelse af realoptioner

Casper Elnegaard

Student thesis: Master thesis


The main objective of this thesis is valuation of a Research & Development project in the pharmaceutical industry with the application of real options. The theory of real options has been analyzed for several centuries because of its ability to recognize and calculate the value of strategic flexibility. Despite this fact, the use of real options in practice is not widespread. In order to analyze the possibility of applying real options in the pharmaceutical industry, the thesis is divided in three parts: A theoretical part analyzing the use of valuation and real options through a generic model, an empirical part concerning the characteristics of a R&Dproject in the pharmaceutical industry and a case where a generic real options model is applied in order to complete a valuation of the Parkinsons product Lu 02-750 in Lundbeck A/S. The future of Lundbeck A/S is partly dependent on the value of this project. The theoretical part analyzes the use of traditional valuation models and real options. When combining the advantages of traditional valuation theory and real options, a 6-step generic model is found. The empirical part finds that the real options approach is especially beneficial in R&D-projects because they follow a phase-investment, where the management has several opportunities during the project execution. The projects contain large uncertainty and risk regarding future outcome. By applying real options part of the risk will be removed and thereby adding value. In the case solution, the thesis takes advantage of the generic 6-step real options model. The model calculates the base case value and the real option value of Lu 02-750. The calculations show that the total expected value of the project is DKKm 53.2, where the base case value represents a value of DKKm 27.6 and the real option DKKm 25.2. The simulation of the inputs in the base case shows that a small change in the inputs can affect the value significantly, thus increasing the importance of recognizing the strategic flexibility in a project with high uncertainty and large possibilities during the project. Based on the analysis of the theory and the application of real options, it is concluded that real options will be able to expand the decision making, because it recognize the strategic value of the project. Although the model will add value to the project, the use of real options complicates the process of a valuation and the approach is not user-friendly. If the approach is applied in practice, the user ought to emphasize the assumptions behind the model, in order to correctly accept or reject the project.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2011
Number of pages124