Applying the real options to Death-valley strategy of biotech start-ups

One of start-up functions is more rapid commercialization of technology than large corporations do. However, its innovation depends on the inefficiency as the fecundity and many deaths. In Japan, the number of academic spin-offs has recently exceeded 1,000 companies due to the national reform of the technology-transfer system from universities. And the major business is the biotech area. At the same time, the increase of M&A activities of domestic pharmaceutical corporations can increase the partnership opportunity with them. Then, for example, more than ten biotech start-ups achieved the IPOs so far. In this dawn period of Japan’s biotech start-ups, this paper will specially examine a potential survival strategy of drug-discovery start-ups during the Death-valley as an initial negative cash flow period, from a viewpoint of real options analysis.