Partnership Conditions for New Drug Development Based on a Real Option

Open Access
Kim, Min-Jung
Graduate Program:
Industrial Engineering
Master of Science
Document Type:
Master Thesis
Date of Defense:
Committee Members:
  • Tao Yao, Thesis Advisor
  • Harriet Black Nembhard, Thesis Advisor
  • real option
  • drug development
  • partnership
The partnership between a big pharmaceutical company which has capital and marketing resources and a biochemical company which possesses intellectual property of a candidate drug has become a trend in new drug development projects. While preoccupation of market share is important for big pharmaceutical companies, such positioning is beyond a small biotechnology company’s capabilities to deal with a project which requires substantial time and huge investment to commercialize the product. To realize a mutually beneficial partnership, conditions and timing should satisfy the both parties. This paper suggests a real option methodology by which managerial decisions have their basis in the value of the option premium to determine the optimal timing and conditions accompanying the partnership. Various factors such as contractual finances, ownership ratio, project value, and money policy have consideration to determine the optimal timing. This study can provide the interests of the both the pharmaceutical and biomedical companies with a blueprint for partnership.