Abstract
In addition to many need-pull innovations, a type of rare basic-research-push innovation is biopharmaceutical development. In reflecting next generation innovation, the NASDAQ Biotechnology Index (NBI) is actually moving stronger in comparison with other indicators. From the industry’s high dependence on basic research, biotech start-up, which is more excellent in combing breakthrough technologies and niche markets than the mass market and low risk-oriented large pharmaceutical companies are expected as a major driver of the innovation chain. However, from the prolonging period of pharmaceutical development, expansion of necessary investment, low possibility of success, and severe resource constraints, a drug discovery-based biotech start-up must endure the ‘Valley of Death’ as a long-term deficit state in addition to the high bankruptcy rate. Why can a biotech start-up that suffers from long-term deficits even in the financial crisis continue research and development investment? If so, what kind of criteria for investment can be utilized? Biotech start-up is defined as the portfolio of real options. As methodologies, this paper applies the real options concept to the assessment of the stockholders’ equity as technological potential and Bayesian MCMC to the parameter estimation between the net income, shareholders' equity value, and R&D costs of representative 30 companies in the NBI.
Keywords: Biotech start-up, Valley of Death, R&D investment, real options analysis, Bayesian Markov Chain Monte Carlo.
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