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Real Options and Incremental Search in Pharmaceutical R&D Project Portfolio Management

Magazzini, Laura and Pammolli, Fabio and Riccaboni, Massimo Real Options and Incremental Search in Pharmaceutical R&D Project Portfolio Management. Creativity and Innovation Management, 25 (2). pp. 292-302. ISSN 09631690 (2015)

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This paper investigates the role of real options reasoning in R&D project portfolio management and investment decisions of pharmaceutical firms. We analyse a unique dataset that integrates information on initiation and termination of clinical trials at the level of specific medical indications. Consistent with existing literature, we find a positive relationship between market size and firm entry in clinical trials. We also show that the option value of R&D investments, as proxied by the scope of R&D projects, affects the selection of target markets. Moreover, high-risk research areas attract more entry, in line with the predictions of real options theory. However, we also find that more flexibility in project duration and delayed project discontinuation attract higher rates of entry. Departures from pure real options reasoning are motivated by the presence of incremental learning in pharmaceutical R&D.

Item Type: Article
Identification Number: 10.1111/caim.12119
Additional Information: SCOPUS ID: 2-s2.0-84929774441
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
R Medicine > RM Therapeutics. Pharmacology
Research Area: Economics and Institutional Change
Depositing User: Caterina Tangheroni
Date Deposited: 06 Oct 2016 14:19
Last Modified: 06 Oct 2016 14:19
URI: http://eprints.imtlucca.it/id/eprint/3571

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