Application of timing option for preventing the opportunity loss in Japan's biotech start-ups

Abstract

Biotech start-ups are expected as a rapid commercialization method from life science rather than big pharmaceutical companies. There are about 300 public companies in 1500 biotech start-ups in the U.S.A., but only 22 public companies in about 500 biotech start-ups in Japan. Why is there such a big numerical difference between both countries? As main key word, timing option is defined as the deferring valuable rights also as a call option to timely start a project in real options. It is considered as a useful tool to decide the optimal timing in trade-off between the irreversible investments as sunk costs and the risky but promising biopharmaceutical projects. If all business chances are assumed as perpetual American call options, we can characterize, calculate and forecast the optimal timing of project starting by parameter setting. Objectives of this paper are to seek the characteristics of the optimal start timing, to understand model structures, and to forecast the optimal timing. Implications are to understand the trade-off between the deferring for uncertain reduction and the opportunity cost of not yet deciding, to control the optimal timing, and to improve the development of innovative new drug from life science.