Guide to Valuation of Pharmaceutical Licensing Deals
PharmaVentures Ltd.
February 1, 2009 SKU: PHV2122375
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Building on an established reputation in the area of deal negotiation and valuation, PharmaVentures is pleased to announce the release of their revised, best-selling Industry Standard Report.
This important Report takes into account all recent developments and focuses on the issues of most concern to business development and licensing professionals within the large pharmaceutical, biotechnology and academic network. It fully addresses financial modelling and provides detailed valuation examples. Its content has been formulated and thoroughly tested. The Report will:
- Provide a thorough understanding of robust valuation methodologies
- Enable more rigorous economic portfolio analysis
- Offer greater transparency in portfolio analysis
- Assist the formulation of attractive deal structures
- Permit accurate comparison of alternative deals
- Highlight the value creation process
- Minimise risk in future deals
It is an essential reference source for all those aiming to maximise deal values and minimise risk.
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- 1Introduction
- 1.1 Deal-making in the pharmaceutical industry
- 1.2 Understanding value creation
- 1.3 Purpose
- 2Valuation methods
- 2.1 Integrated methodologies
- 2.2 Why use eNPV and Benchmarking?
- 2.3 Other methods
- 2.3.1 Internal Rate of Return (IRR)
- 2.3.2 Payback
- 2.3.3 Real Options
- 3Benchmarking
- 3.1 Introduction to benchmarking
- 3.2 Feasibility
- 3.3 Data gathering
- 3.4 Approximate valuation
- 3.5 Refinement of the valuation
- 3.6 Example: Cancer
- 3.6.1 Phase I benchmarking example
- 3.6.2 Phase II benchmarking example
- 3.6.3 Phase III benchmarking example
- 3.6.4 Summary
- 4Expected Net Present Value (eNPV
- 4.1 Basics
- 4.2 Opportunity cost / time value
- 4.2.1 Example NPV calculation
- 4.3 Risk of R&D failure
- 4.4 Decision Tree Analysis
- 4.4.1 Example eNPV calculation
- 4.5 eNPV Summary
- 4.6 Example: Valuation of PRI-123
- 4.6.1 Input data and assumptions
- 4.6.2 The spreadsheet model
- 4.6.3 More complex models
- 4.6.4 Binomial model for PRI-123
- 4.7 Further refinement of the eNPV model
- 4.7.1 Sensitivity analysis
- 4.7.2 Monte-Carlo Simulation
- 4.8 Options contracts - which method to use?
- 5Agreement Structure
- 5.1 Value split
- 5.2 Risk sharing
- 5.3 Deal components
- 5.3.1 Upfront payments
- 5.3.2 R&D funding
- 5.3.3 License fees
- 5.3.4 Milestones
- 5.3.5 Royalties
- 5.3.6 Shared costs or benefits
- 5.3.7 Equity
- 5.4 Preferences (utility)
- 5.5 Example: Deal Structure for PRI-123
- 6Valuation of Technologies
- 6.1 Drug delivery technology
- 6.1.1 Enabling technology
- 6.1.2 Enhancing technology
- 6.1.3 Extension of patent life
- 6.2 Drug discovery technology
- 6.3 Example: Valuation of drug delivery enhancement
- of PRI-123
- 7Conclusion
- Appendix
- Figures
- 1 Total licensing activity in the pharmaceutical
- industry
- 2 Average upfront and headline value by year and
- phase
- 3 Integrated valuation methods
- 4 Binomial lattice modelling of Brownian movement
- in value
- 5 eNPV decision-tree model with scenario analysis
- for commercial risk
- 6 Ideal benchmarking deal cluster
- 7 Non-ideal benchmarking cluster
- 8 PharmaDeals® Agreements database search engine
- 9 Example pharmaceutical deal valuation force field
- 10 Attrition by phase and therapeutic area
- 11 Example decision tree
- 12 Pharmaceutical product decision tree
- 13 Example decision tree
- 14 Monte-Carlo simulation for PRI-123
- 15 The effect of time and risk on the value of deal components
- 16 A rough guide to NPV split ratios
- 17 Frequency of equity investment as financial component
- 18 Enhanced revenues due to delivery technology
- 19 Enhancement of patent life
- 20 Drug discovery decision tree model
- 21 Extended drug discovery decision tree model
- 22 Drug discovery eNPV model
- 23 Value of the PRI-123 delivery technology
- Tables
- 1 Pros and cons of benchmarking and DCF-based methods
- 2 Benchmarking methodology overview
- 3 Sources of benchmarking information
- 4 Useful websites
- 5 Approximate benchmark valuation
- 6 Refined benchmark valuation
- 7 Phase I small molecule anti-cancer deals
- 8 Phase II small molecule anti-cancer deals
- 9 Phase III small molecule anti-cancer deals
- 10 Cost of capital (COC) for pharmaceutical firms
- 11 Example NPV calculation - part 1: Contribution
- 12 Example NPV calculation - part 2: NPV
- 13 Selected examples of data sources providing estimates for success and attrition in drug development
- 14 Example eNPV calculation
- 15 Cumulative probabilities
- 16 Example valuation - summary
- 17 eNPV spreadsheet valuation of PRI-123
- 18 Quarterly eNPV spreadsheet for PRI-123
- 19 Valuation of PRI-123 using the binomial method
- 20 Sensitivity analysis of the PRI-123 model
- 21 PRI-123 deal structure and eNPV share
- 22 PRI-123 eNPV valuation and deal structure spreadsheet model
- 23 eNPV model for enhanced PRI-123 formulation
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