Realoptioner i aktieanalysen: Et værktøj til værdiansættelse i medicinalbranchen?

Anne Katrine Schjønning & Philip Møller Olsen

Student thesis: Master thesis


The literature concerning real options is filled with appraisals of how the real option method enables the user to capture the value of flexibility. The use of real options as a managerial tool seems to be in focus, and the literature gives only a little attention to the real options approach as an equity research tool. This master thesis investigates the applicability of real options as an appropriate tool in equity research on pharmaceutical companies, by testing the following two hypotheses. (1) Real options as an add-on to the traditional DCF-model isn’t used by analysts. (2) In practice is it possible to use real options for quantifying flexibility when valuing companies. A literature review of real options in general and its transition from financial options, has been conducted. The review concludes that the lack of market data due to the projects illiquidity makes the quality of the input estimates questionable. Especially the estimation of value of the underlying real asset and its volatility needs careful attention. This combined with the models showing a high sensitivity to changes in these variables makes the results even less reliable. H. Lundbeck A/S is used as case company, as the literature mentions the pharmaceutical industry as an obvious industry for the use real options. The industry is recognized by its high level of R&D spending, patents and uncertainty about the success of each development phase. The analysis finds evidence that the characteristics of the pharmaceutical industry causes the options to move deep-in-the-money and thereby making the real options approach redundant. It is suggested that a similar analysis is also conducted for other industries, where real options might be useful, in order to make a general statement of the applicability of real options as an equity research tool. The final conclusion is that the real option approach can help quantify the value of flexibility, if the approach and the models are fitted correctly with the estimates, the model will be precise. Another conclusion is, that it is possible to conduct a real options analysis with public information as the only source. The downside is, that it is not certain that it will ever be possible to estimate a satisfying input. Hence, the results will be imprecise. On top modelling the real options is also very time consuming and it might very well be, that the time of the analysts is spend better on other tasks.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2013
Number of pages117