Use of Real Options for Valuation of R&D Projects in the Pharmaceutical Industry

Mikkel Antonsen

Student thesis: Master thesis


The main objective of this thesis is to explore the application of real options used for valuation of pharmaceutical R&D projects. Today, the use of real options in valuation of R&D projects is quite limited. Instead, most companies rely on the traditional present value approaches when valuing assets. The thesis constructs a valuation model incorporating elements of present value approach, risk-adjusted present value approach and real option approach. The model consists of 4 steps. The model is then tested on a R&D project, NN9526 conducted by Novo Nordisk. The thesis finds that the practical application of applying real option analysis for valuation purposes in the pharmaceutic pharmaceutical industry is somewhat limited due to the high complexity of the model. However,when applied under close scrutiny, the model does contributes to increased value of pharmaceutical R&D projects. However,the input parameters used in calculating the real options can easily be biased by the analyst conducting the valuation resulting in potential wrongly estimated valuation of the project being valued.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2019
Number of pages83