This paper provides a valuation framework that links centralconcepts from technology and innovation management (TIM), sequentialmodels of the new product development (NPD) process, and the valuationtechnique of “real options”, for use in value-basedmanagement of technology-intensive companies. A binomial option tree isintroduced that incorporates the flexibility and the risks inherent inthe NPD process into its evaluation in theoretically correct way. Theproposed options-based approach ties the valuation of hitech and lifesciences companies closer to the underlying growth opportunities andincorporates much of the “gut feel” of experienced industrypractitioners into the valuation. As a consequence, the approach leadsto more defensible valuations and allows powerful insights for thevalue-based management of technology-intensive companies. Finally, areal life situation from the biotechnology industry is described wherethe options-based approach was successfully applied in practice andadded considerable insight and value for the company
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