Putting a price on biotech

The exercise was the first step in an attempt to apply real option theory to medical intervention development. However, this is actually closer to risk adjusted cash flow calculations than incorporating real scientific options. In therapy development, future cash flows are obviously highly uncertain. Therefore, adjusting these cashflows (typically by multiplying the value by the chance you will reach that phase) results in risk-adjusted NPV  (or rNPV). Correcting for the chance cash flows will occur obviously has significant impact on value estimations for risky projects, but this will not provide insight into the knowledge that is created in developing medical interventions.