An alliance timing game under real options in biopharmaceutical industry

A real options game of alliance timing decisions in biopharmaceutical research and development

Abstract In this article we examine the alliance timing trade-off facing both pharmaceutical and biotech firms in a stochastic and competitive environment. Specifically, we introduce a real options game (ROG), where a pharmaceutical company can choose between two competing biotech firms by sequentially offering a licensing deal early or late in the new drug development process. We find that, when the alliance raises the drug market value significantly, the agreement is signed late in the drug development process. This suggests that the postponement effect implied by the use of real options prevails over the biotech firms’ competition effect, which would instead play in favor of an early agr…

An Open Innovation Decision Support System to Select a Biopharmaceutical R&D Portfolio

Drugs available in the market today, selected several years ago under very uncertain future scenario, have experienced a long and expensive process of research and development carried out following both a closed and an open innovation path. To support this critical selection process, we propose a Decision Support System, able to choose among different candidates the most promising drugs along their best development path. The Decision Support System, based on a real options portfolio optimization model, mapping tools, and what-if rules as well, has been applied to a numerical example available in literature, and the research findings show interesting managerial and academic implications. Cop…

A real options based support system to open innovation

Pharmaceutical R&D process (PR&DP) has been deeply investigated by different streams of literature; the interest is due to the strategic implication of the related decisions undertaken. The PR&DP has been revolutionised by the biotech advent and as a consequence R&D managers cannot avoid to consider Open Innovation paradigm during this decision process. Starting from a Real Option optimization model available in literature, the paper aims at proposing a decision support system (DSS) able to suggest the candidate products to be included in the best R&D portfolio varying input parameters (resilient products), to provide a products Pareto analysis that aims at individuating the products for wh…

Real Options Analysis (ROA)opens innovation: the biopharmaceutical case

Risky choices in strategic environments: An experimental investigation of a real options game

Managers frequently make decisions under conditions of fundamental uncertainty due the stochastic nature of the outcomes and competitive rivalry. In this study, we experimentally test a theoretical model under fundamental uncertainty and competitive rivalry by designing a sequential interaction game between two players. The first mover can decide either to choose a sure outcome that assigns a risky outcome to the second mover or to pass the decision to the second mover. If the second player gets the chance to decide, she can choose between a sure outcome, conditioned by the assignment of a risky payoff to the first mover, or the sharing of the risky outcome with the first mover. We then int…

Biopharmaceutical alliances and competition: a real options game approach

Uncertain outcome presentations bias decisions: experimental evidence from Finland and Italy

Even in their everyday lives people are expected to make difficult decisions objectively and rationally, no matter how complex or uncertain the situation. In this research, we study how the format of presentation and the amount of presented information concerning risky events influence the decision-making process, and the propensity to take risk in decision makers. The results of an exploratory survey conducted in Finland and in Italy suggest that decision-making behavior changes according to the way the information is presented. We provide experimental evidence that different representations of expected outcomes create distinct cognitive biases and as a result affect the decisions made. Th…

Open innovation: A real option to restore value to the biopharmaceutical R&D

The pharmaceutical landscape has changed, and new business models, based on alliances, are increasingly being adopted in this industry. Biotechnology advances have pushed this development, and pooling complementary resources coming from incumbents and newcomers is a key skill to succeed: these are the premises for a quick spread of the open innovation (OI) paradigm in this industry. R&D portfolio selection needs R&D project evaluation, and Real Options Analysis (ROA) is acknowledged as a powerful tool to evaluate uncertain projects that have an intrinsic flexibility. The present research aims to foster the use of ROA in the OI field in order to encourage firms to undertake this innovation mode…

BIOPHARMACEUTICAL ALLIANCES AND COMPETITION: A REAL OPTIONS GAMES APPROACH

The competitive landscape where pharmaceutical and biotechnology companies operate has changed radically due to a scientific/technological progress that has revolutionised the process by which drugs are developed. In fact, pharmaceutical industry more and more relies on advances in biochemistry and molecular biology. As a consequence, the number of partnerships between pharmaceutical and biotech firms has grown significantly. Research contributions addressing the biopharmaceutical alliances design have also focused on the optimal timing to sign a partnership. In this paper, we introduce and analyse the effect of competition in biotechnology industry by modelling the decisions of whether and…

An Open Innovation Decision Support System to Select a Biopharmaceutical R&D Portfolio

Drugs available in the market today, selected several years ago under very uncertain future scenario, have experienced a long and expensive process of research and development carried out following both a closed and an open innovation path. To support this critical selection process, we propose a Decision Support System, able to choose among different candidates the most promising drugs along their best development path. The Decision Support System, based on a real options portfolio optimization model, mapping tools, and what-if rules as well, has been applied to a numerical example available in literature, and the research findings show interesting managerial and academic implications

Open innovation: A real option to restore value to the biopharmaceutical R&D

Abstract The pharmaceutical landscape has changed, and new business models, based on alliances, are increasingly being adopted in this industry. Biotechnology advances have pushed this development, and pooling complementary resources coming from incumbents and newcomers is a key skill to succeed: these are the premises for a quick spread of the open innovation (OI) paradigm in this industry. RD to achieve this goal the authors propose a closed-form model that is easy to implement, to evaluate the OI initiative for selecting an optimal RD i.e. licensing-in or not) and the self-financing policy. The proposed model can be easily implemented into a spreadsheet, and the inputs needed to run it a…

An user friendly Real Options based Model to Optimize Pharmaceutical R&D Portfolio

Pharmaceutical industry pays great attention to its R&D process because it is a long, dynamic, very expensive, and uncertain process. On the other hand this process can be modelled as a step-wise process and each stage allows to achieve better information and generally lower uncertainty. In order to build up the best portfolio a tool able to capture the intrinsic flexible nature of the process should be selected: real options analysis has this characteristic but as widely demonstrated in literature, is narrowed to very limited cases because its perceived complexity. Basing on OptFolio, a model available in literature, this paper proposes an user friendly programming model based on Real Opti…