Valuation of a r&d project with real options method in biotechnology sector in Turkey

Numerous countries have seriously started to rely on high-tech sectors and innovation-oriented growth strategies in order to have sustainable competition power in the race of economic development. Increasing population and changing demand structure recently bring forth the need for innovative applications and thus biotechnology sector has started to expand not only in developed world, but also in developing countries.Development of biotechnology industry has brought about the processes of technology transfers, licensing agreements, mergers and acquisitions, and joint R&D projects. As R&D projects being one of the most important assets of the biotechnology companies, the aforementioned processes necessitate the valuation of the R&D projects.. The traditional and most widely used metod of valuation is Discounted Cash Flow (DCF) method. However, in recent years, the Reel Options method, which was developed to eliminate the deficiencies of DCF method, has been started to be used extensively in valuing R&D projects in biotechnology sector. In valuation process, country and sector specific factors bear importance and so do the studies. However, in the relevant literature there is no studies on the valuation of R&D projects of the biotechnology companies in Turkey. Within its scope, this thesis aims to develop a valuation model for an incompleted real life R&D project of a biotechnology company in Turkey.The study composed of six sections. After the brief introduction section, the definition of biotechnology as well as its use in various sectors, and the contribution of the biotechnology sectors to the economies of the World and Turkey are covered in section two. Section three focuses on the concept of valuation, variety of processes that need valuation, types of valuation methods and the use of valuation in the biotechnology sector. The data, methodology, and computations of model parameters are presented in section four. In section five, the valuation with DCF and Real Options methods are done. The last section includes comparative analysis of results, sensitivity analyses, and overall assessment of the valuation process of a biotechnology firm given the specifics of Turkey.