A real options approach to biotechnology investment policy-the case of developing a Campylobacter vaccine to poultry

- The real options analysis reveals opportunities for new policies to promote the development of animal vaccines.
- One approach might be to develop schemes combining stage-by-stage optimized subsidies in the individual development stages.
- An alternative approach to support the development of desirable animal vaccines could be to issue put options for the vaccine candidate.
- Investors' economic incentives and aversion against the economic risk from market volatility are of importance for the development of optimal support schemes.

The aim of the article is to identify and analyse public-private incentives for the development and marketing of new animal vaccines within a real options methodological framework, and to investigate how real options methodology can be utilized to support economic incentives for vaccine development in a cost-effective way. The development of a vaccine against Campylobacter jejuni in poultry is applied as a case study. Employing the real options methodology, the net present value of the vaccine R&D project becomes larger than a purely probabilistic expected present value throughout the different stages of the project − and the net present value becomes larger, when more types of real options are taken into consideration. The insight from the real options analysis reveals opportunities for new policies to promote the development of animal vaccines. One such approach might be to develop schemes combining stage-by-stage optimized subsidies in the individual development stages, with proper account taken of investors'/developers' economic incentives to proceed, sell or cancel the project in the respective stages. Another way of using the real options approach to support the development of desirable animal vaccines could be to issue put options for the vaccine candidate, enabling vaccine developers to hedge against the economic risk from market volatility.