Valuing the launch of a new pharmaceutical product: a real option case

Andrea Gamba, A. Micalizzi, P. Pellizzari - Università di Venezia


In a capital budgeting setting, we investigate the valuation and the timing of the launch of a new pharmaceutical product and of its pilot-product. We provide a model to evaluate the (real) option to launch the pilot-product in order to create the (real) option to delay the launch of the main product. The pilot product and the blockbuster are driven by two different stochastic processes and the situation is complicated by the patent expiry. Finally, by resorting to numerical analysis, we evaluate these real options and solve the problem of establishing the best time for the launch of both the main and the pilot-product.