Based On The Compound Real Option Biotechnology Research And Development Project Investment Evaluation Research

That whether the biotechnology companies can make an accurate prediction ofthe future development direction, preemptively develop core patent product whichhas technology competitiveness and broad market prospects and apply for manyperipheral patent or not, not only relate to whether the companies can capture marketshare and reap excess profits or not, but also relate to the size of its furtherdevelopment space. Innovative research and development is the core of thebiotechnology companies to survive and develop. The decision maker inbiotechnology companies should be able to appraise R&D investment scientificallyand rationally. The biotechnology R&D projects generally have features such as hugecapital investment, long cycle and high-risk, so it is very complex to appraise itscientifically. Traditional investment appraisal methods (NPV or NPV methodimprovement) can not appraise the biotechnology R&D projects scientifically.Compound real options, as a decision-making tools, can be used to make multi-stagesequence of investment decisions and is suitable for the characteristics of thebiotechnology R&D projects.This paper using compound real options characteristics of biotechnology R&Dprojects, modern numerical analysis techniques, financial engineering and modernproject management theory to study the advantages of compound real options theorywhen it is applied to biotechnology R&D projects investment decision and buildseparately technical deterministic and uncertainty biotechnology R&D projectsmulti-stage compound real option pricing model, on the basis of summary theresearch progress of real options and compound real options theoretical model, theirmodel solution and application. Then, a closed form solution of technicaldeterministic model is proposed and numerical solution of technical uncertaintymodel is discussed. Finally, the models are applied to case studies.Comparing the calculation results of technical uncertainty model and technicaldeterministic model, we found that technical deterministic model overestimate thevalue of the biotechnology R&D projects. And with the biological technologyenterprise value increasing, the biotechnology R&D projects were increasinglyovervalued. The technical deterministic model will overestimate threshold in the beginning of the biotechnology R&D projects, and underestimate threshold in thelater. The sensitivity analysis for the technical uncertainty model shows that thecompound real option value of biological technology research and developmentprogram is increasing as project instantaneous returns increasing, and decreasing asrisk free interest rate or technical uncertainty increasing. It also shows that thethreshold is increasing as technical uncertainty increasing，and decreasing as projectinstantaneous returns or risk free interest rate increasing.