The Myth of Option Pricing
Given the high costs and risks of research and research alliances, many drug companies have turned from pricing deals and programs with traditional net-present-value methods to option pricing models like Black-Scholes. The problem is that they don't help: Black-Scholes works best for pricing highly liquid assets in situations for which one has a huge database of comparable situations and a good understanding of the volatility of potential returns. Research programs are rarely liquid and biology doesn't permit exact modeling. Traditional NPV methods generally work pretty well, particularly combined with just-in-time decision-making techniques which add into the equations the value of new information.
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