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Published by: PharmaVentures Ltd.
Published: Feb. 1, 2003 - 83 Pages
Table of Contents
1 Introduction
1.1 Deal making in the pharmaceutical industry
1.2 Understanding value creation
1.3 Purpose of this guide
2 Valuation Methods
2.1 Integrated methodologies
2.2 Why use ENPV and Benchmarking?
2.3 Other methods
2.3.1 IRR
2.3.2 Payback
2.3.3 Options
2.3.4 Real Options
3 Benchmarking
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: Asthma
3.6.1 Drug Discovery
3.6.2 Preclinical drug candidate
3.6.3 Phase I Project
3.6.4 Summary
4 Expected Net Present Value
4.1 Basics
4.1.1 Cash flows
4.1.2 Relevant costs
4.1.3 Real vs nominal figures
4.2 Opportunity cost/time value
4.2.1 Example NPV calculation
4.3 Risk
4.4 Decision Tree Analysis
4.4.1 Example ENPV calculation
4.5 ENPV Summary
4.6 Example: valuation of erectile dysfunction drug
4.6.1 Input data and assumptions
4.6.2 The spreadsheet model
4.6.3 More complex models
4.7 Further refinement of the ENPV model
4.7.1 Sensitivity analysis
4.7.2 Monte-Carlo simulation
4.8 Real Options - which method to use?
5 Agreements Structure
5.1 Value sharing
5.2 Risk sharing
5.3 Deal components
5.3.1 Upfront payments
5.3.2 R&D funding
5.3.3 Licence 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 erectile dysfunction drug
6 Valuation 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
7 Conclusion
Appendix - Asthma deal for benchmarking
AbstractThis publication provides an essential grounding in how to use accepted and reliable methods for valuing pharmaceutical and biotech projects. Whether you are about to negotiate a licensing deal or need to perform a rigorous portfolio review, it is vital that you understand both the value of a project today and how that value can be built over time.
The methods presented here provide answers to both questions through the combination of historical analysis of what the market has been willing to pay for similar products and technologies, and forward looking projections that explicitly handle the issues of risk, time, cost and reward.
Potential elements of deals are also discussed, as are the appropriate levels of risk and reward sharing, and the significance of individual company needs and preferences. When incorporated into the valuation models that have been built, these elements will permit the development of deal structures that are attractive to both sides.
This publication is designed for:
Business development and licensing executives in pharmaceutical, biotech and drug delivery companies.
Technology transfer managers at universities and not-for-profit institutions.
R&D managers who wish to perform more rigorous economic portfolio analysis.
Anyone negotiating or about to negotiate a product or technology deal.
Anyone needing a robust and transparent method for portfolio analysis.
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