The pharmaceutical landscape has changed, and new business models, based on alliances, are
increasingly being adopted in this industry. Biotechnology advances have pushed this development,
and pooling complementary resources coming from incumbents and newcomers is a key skill to
succeed: these are the premises for a quick spread of the open innovation (OI) paradigm in this
industry. R&D portfolio selection needs R&D project evaluation, and Real Options Analysis (ROA) is
acknowledged as a powerful tool to evaluate uncertain projects that have an intrinsic flexibility. The
present research aims to foster the use of ROA in the OI field in order to encourage firms to undertake
this innovation model; to achieve this goal the authors propose a closed-form model that is easy to
implement, to evaluate the OI initiative for selecting an optimal R&D portfolio. The study wants to
support managers in optimal R&D portfolio construction in terms of choosing the most promising
products, the means by which the related project has to be undertaken (in an open or closed manner;
i.e. licensing-in or not) and the self-financing policy. The proposed model can be easily implemented
into a spreadsheet, and the inputs needed to run it are usually requested to evaluate projects using the
most used net-present-value-based methods. Moreover, some parameters of the model allow strategic
aspects to be considered: for example the nature of the project (core/non-core), the impending project
phase, and the risk-sharing opportunity.
The results of the developed numerical example show that the selected portfolio is well balanced in
terms of development stages, core/non-core therapeutic areas and, licensing-in (an inbound open
innovation solution), is preferred in the case of products at their early stages of developmen