ABSTRACT
This chapter suggests a methodology for determining the optimal timing and partnership terms in a real options approach that provides managerial flexibility. In this model, the decision to invest in a new drug development as an aspect of a pharmaceutical company’s consideration is represented as exercising a call option. A decision to sell ownership of a new drug is considered as a biotechnology company exercising a put option. Based on this structure, a model to determine the optimal timing is proposed by considering ownership ratio, synergy effect, and payment options.
