This article applies a real options approach to analyzing the impact of a firm's investment in appropriable technology (as represented by the intensity of its patenting activities and capital investment) on the firm's opportunities to create value through future investment (as represented by Tobin's q). Recognizing the mixed results with regard to the relationship between patenting and firm value, we argue that such investment may primarily create value by offering future technology options and that the relationship may be more appropriately modeled on the basis of real options theory. We argue that patenting creates and replenishes a firm's technology options whereas capital investment entails the exercise of such options. Three hypotheses are derived from a valuation model based on the real options approach and tested using a fixed-effects panel data procedure. The results of our empirical analysis using a sample of 161 U.S.-based biotechnology firms are consistent with our predictions. Copyright © 2010 Strategic Management Society.