Getu Hailu, Alfons Weersink & Filip Cahlík
University of Guelph

The purpose of the article is to examine the prospects for the commercialization of soybeans peroxidase (SBP) from soybean hulls and to model uncertainty and strategic flexibility in biotechnology management and investment. The article provides an empirical application of the discounted cash flow and contingent claim approaches to a biotechnology investment. The present value of net benefits from an investment outlay of CAD$8.6 million1 in SBP extraction is approximately $1.4 million. While the extraction plant is financially feasible, the results are sensitive to the cost of the spray dryer to extract the SBP, which represents more than 90% of the investment cost and the price of SBP. The value of the project is also very sensitive to genetic improvement of peroxidase content; a 5% genetic improvement in peroxidase content leads to an approximately 100% increase in the value of the project (other things being constant). Given the uncertainty associated with bio-products such as SBP, the analysis is extended to incorporate uncertainty and managerial flexibility through a contingent claim analysis of the option to expand the scale of operation and option to delay production. The option values of waiting and expansion strategies are $3.56 and $34.1 million, respectively.

Key words: Soybean peroxidase, soybean hul