Improving value assessment of high-risk, high-reward biotechnology research: the role of ‘thick tails’

Sebastien Casault; Aard Groen; Jonathan D. Linton

doi:10.1016/j.nbt.2013.12.001

Improving value assessment of high-risk, high-reward biotechnology research: the role of ‘thick tails’

Sebastien Casault
, Aard Groen
, Jonathan D. Linton

Innovation & Organisation

Research output: Contribution to journal › Article › Academic › peer-review

6 Citations (Scopus)

14 Downloads (Pure)

Abstract

This paper presents work toward improving the efficacy of financial models that describe the unique nature of biotechnology firms. We show that using a 'thick tailed'power law distribution to describe the behavior of the value of biotechnology R&D used in a Real Options Pricing model is significantly more accurate than the traditionally used Gaussian approach. A study of 287 North-American biotechnology firms gives insights into common problems faced by investors, managers and other stakeholders when using traditional statistical techniques.

Original language	English
Pages (from-to)	172-178
Number of pages	7
Journal	New Biotechnology
Volume	31
Issue number	2
DOIs	https://doi.org/10.1016/j.nbt.2013.12.001
Publication status	Published - 25-Mar-2014

Keywords

valuation approach
valuation models and predictability
ENTREPRENEURSHIP
BIOTECHNOLOGY FIRMS

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10.1016/j.nbt.2013.12.001

Improving value assessment of high-risk, high-reward biotechnology researchFinal publisher's version, 591 KBLicence: Taverne

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6 Citations
1 Chapter
1 Article

Examination of the behavior of R&D returns using a power law
Casault, S., Groen, A. J. & Linton, J. D., Apr-2013, In: Science and Public Policy. 40, 2, p. 219-228 10 p., scs082.
Research output: Contribution to journal › Article › Academic › peer-review
6 Citations (Scopus)
Selection of a portfolio of R&D projects
Casault, S., Groen, A. J. & Linton, J. D., 2013, Handbook on the theory and practice program evaluation. Link, A. N. & Vonortas, N. S. (eds.). Cheltenham: Edward Elgar Publishing, p. 89 - 115
Research output: Chapter in Book/Report/Conference proceeding › Chapter › Academic › peer-review

Cite this

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abstract = "This paper presents work toward improving the efficacy of financial models that describe the unique nature of biotechnology firms. We show that using a 'thick tailed'power law distribution to describe the behavior of the value of biotechnology R\&D used in a Real Options Pricing model is significantly more accurate than the traditionally used Gaussian approach. A study of 287 North-American biotechnology firms gives insights into common problems faced by investors, managers and other stakeholders when using traditional statistical techniques.",

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KW - valuation models and predictability

KW - ENTREPRENEURSHIP

KW - BIOTECHNOLOGY FIRMS

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Improving value assessment of high-risk, high-reward biotechnology research: the role of ‘thick tails’

Abstract

Keywords

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Research output

Examination of the behavior of R&D returns using a power law

Selection of a portfolio of R&D projects

Cite this