Research On The Application Of Binary Tree Model To The Evaluation Of The Value Of New Drugs Under Investigation

With the development of medical technology,in the current market environment,combined with the recent significant impact of the Novel Coronavirus Pneumonia on human society,countries have paid more and more attention to the development of new drugs,but with the average investment in new drug research and development gradually increased,some new drug R & D companies have to find various methods to integrate external resources,so that they have sufficient funds to complete R & D projects.Therefore,pharmaceutical companies often use economic activities such as licensing transactions,cooperative research and development,and direct mergers and acquisitions to get external capital,this brings higher requirements for the evaluation of new drugs under development.At present,there are relatively few cases of market transactions in China that independently evaluate the value of new drugs in research.Generally,the evaluation of new drug values in research will only be involved through overall corporate mergers and acquisitions,asset restructuring or sale.Less,not enough attention,the traditional valuation method is often used in the evaluation of the market.The research and development process of new drugs has the characteristics of multiple stages?high risks and long cycles.Traditional evaluation methods ignore the benefits of uncertainty during the research and development process and the management flexibility of the management of the R & D company during the R & D process.At the end of each experimental phase,before entering the next experimental phase,the manager has decision-making options,and can make choices on whether to enter the next phase of investment based on the R & D results of this phase and the expectations of the future market.Therefore,in the process of new drug research and development,it fully reflects the value of management flexibility and has certain real option attributes.Then,when evaluating the value of new drug research,we must consider the value of management flexibility reflected in the development process of new drugs.At this time,we can consider management flexibility as a real option,and the value of management flexibility is the new drug development process.The value of real options.During the development of new drugs,the exercise price(project cost)of the underlying assets and options are constantly changing.When the options of the previous stage are completed,the management has the right to opt out of the project investment or continue with the next research.Such management flexibility fully reflects the characteristics of exchange options and exit options.In order to be able to accurately quantify the value of options in the research and development of new drugs,this article introduces the real option method when evaluating the value of research and development of new drugs.Based on the specific application research of the real options method,domestic and foreign scholars have proposed a binary tree option pricing model and BS options.There are two commonly used calculation models for pricing models,but in the current application of the real options method,there are problems such as inconsistent model setting,unreasonable parameter selection,high application complexity and difficulty in generalization.This article analyzes the value composition of new drugs under development,combines the characteristics of the new drug development process and the characteristics of two pricing models.It is considered that the binary tree model can handle more complex option types,and has a simple structure that is easy to understand.The calculation process is intuitive and transparent.The model is more suitable for evaluating the value of new drugs under development.In order to overcome the limitations of traditional evaluation methods,this article uses the binary tree pricing model to evaluate the value of the new drug under investigation based on the real option properties of the new drug under investigation,and demonstrates the case of Sihuan Pharmaceutical Co.,Ltd.under evaluation of the value of B drug.The traditional NPV method and the real option method were used to evaluate the value of the drug B in research,and the results showed that the option value of the drug B in research that could be calculated using the real option method was ignored,and the value of the new drug in research was integrated with the option value.Compared with the traditional NPV method,the results are higher.This also verifies that when using the traditional NPV method to evaluate the value of the research project,it does not take into account the benefits brought by the uncertainty of the new drug in research and the value of management flexibility,resulting in The underestimation of the value of new drugs under development has caused pharmaceutical companies to suffer losses when seeking to integrate external resources.This article proposes that the binary tree model is more applicable than the B-S model when evaluating the value of new drugs under development,and can optimize the structure of the binary tree model.For example,the GARCH model is used to predict the volatility ?,trying to make the selection of parameters in the model more consistent with the actual situation of new drugs under development.In order to make the binary tree pricing model more rational,scientific and standardized in the application of new drug value evaluation,gradually improve the real option pricing system of new drug in research,and enrich China's domestic evaluation of new drug and other intellectual property assets method.