Introduction to Real Options



About the Course:

When deliberating as to which research projects to fund, discount cash flow is necessary but not sufficient. Real Options is designed to account for the serendipitous value that may arise out of research projects. This is an important consideration as some of the best selling products–Rogaine and Viagra, for example–were discovered by happenstance. Also, Real Options is designed to address the value of the options that one has at later stages as a result of near-term decisions that are made.

In this fascinating session, Gill Eapen demonstrates Real Options and Decision Options through scenarios such as:

  • The value of licensing a pharmaceutical product with three new indications
  • Market entry strategy for a new consumer product
  • Designing a solar hybrid plant in view of competitive threats
  • Risk of, and potential impact of, cannibalization when combining two drugs

Through the presentation of these scenarios, the following are among the issues discussed:

  • Whether discounts should be taken for non-exclusive options
  • How downside risk can be controlled with real options
  • Framing uncertainties in research and development
  • How an option to delay an investment can impact value

Course Leader: Gill Eapen, Founder and Managing Principal, Decision Options, LLC

Decision Options pioneered the practical application of options-based valuation of private assets to aid decision making in industries that show high levels of uncertainty and flexibility such as life sciences, energy, technology, and financial and legal services.

Prior to establishing Decision Options, Gill was group director at Pfizer, responsible for the financial analysis and planning of the research-and-development portfolio with investments exceeding $4 billion per year and economic value exceeding $50 billion. Before that, he was manager at Deloitte Consulting Group. Previous employers also include Hewlett-Packard Company and Asea Brown Boveri.

Gill holds graduate degrees from the University of Chicago and Northwestern University as well as an undergraduate degree from the Indian Institute of Technology.

Course Length: Approx. 1.0 hours

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