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Guide to Valuation of Pharmaceutical Licensing Deals 2015

The valuation of a deal is the most challenging aspect in the deal negotiation. The Guide to Valuation of Pharmaceutical Licensing Deals Report provides insight and solutions to the challenges faced by deal-makers in the biopharmaceutical industry when valuing projects at various development stages.


CHAPTER 1 INTRODUCTION
1.1 Dealmaking in the Pharmaceutical Industry
1.2 Understanding Value Creation
1.3 Purpose of the Report
CHAPTER 2 VALUATION METHODS
2.1 Integrated Methodologies
2.2 Why Use eNPV and Benchmarking?
2.3 Other Methods
2.3.1 Internal Rate of Return
2.3.2 Payback
2.3.3 Real Options
CHAPTER 3 BENCHMARKING
3.1 Introduction to Benchmarking
3.2 Feasibility
3.3 Data Gathering
3.3.1 Avoid the Benchmarking Pitfalls
3.4 Approximate Valuation
3.5 Refinement of the Valuation
3.6 Example Deals: 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
CHAPTER 4 EXPECTED NET PRESENT VALUE
4.1 The 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 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 Option Contracts – Which Method to Use?
CHAPTER 5 AGREEMENT 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 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 PRI-123
CHAPTER 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 Delivery Enhancement of PRI-123
CONCLUSION
7.0 REFERENCES
APPENDICES
A.1 Example Benchmarking Deals: Cancer A.2 Reference Deals Tables
FIGURES
Figure 1: Total partnering activity in the pharmaceutical industry.
Figure 2: Mean upfront and headline value by year and development phase.
Figure 3: Integrated valuation methods.
Figure 4: Binomial lattice modelling of Brownian movement in value.
Figure 5: eNPV decision tree model with scenario analysis for commercial risk.
Figure 6: Ideal benchmarking deal cluster.
Figure 7: Non-ideal benchmarking cluster.
Figure 8: IMS PharmaDeals database search engine.
Figure 9: Example pharmaceutical deal valuation force field.
Figure 10: Attrition by phase and therapeutic area.
Figure 11: Example decision tree.
Figure 12: Pharmaceutical product decision tree.
Figure 13: Example decision tree.
Figure 14: Monte-Carlo simulation for PRI-123.
Figure 15: The effect of time and risk on the value of deal components.
Figure 16: A rough guide to NPV split ratios.
Figure 17: Frequency of equity investment as financial component.
Figure 18: Enhanced revenues due to delivery technology.
Figure 19: Enhancement of patent life.
Figure 20: Drug discovery decision tree model.
Figure 21: Extended drug discovery decision tree model.
Figure 22: Drug discovery eNPV model.
TABLES
Table 1: Pros and cons of benchmarking and DCF-based methods.
Table 2: Benchmarking methodology overview.
Table 3: Sources of benchmarking information.
Table 4: Approximate benchmark valuation.
Table 5: Refined benchmark valuation.
Table 6: Phase I small molecule anticancer deals.
Table 7: Phase II small molecule anticancer deals.
Table 8: Phase III small molecule anticancer deals.
Table 9: Cost of capital (COC) for pharmaceutical firms.
Table 10: Example NPV calculation – part 1 Contribution.
Table 11: Example NPV calculation – part 2 NPV.
Table 12: Selected examples of data sources providing estimates for success and attrition in drug development.
Table 13: Example eNPV calculation.
Table 14: Cumulative probabilities.
Table 15: Example valuation – summary.
Table 16: eNPV spreadsheet valuation of PRI-123.
Table 17: Quarterly eNPV spreadsheet valuation of PRI-123.
Table 18: Valuation of PRI-123 using the binomial method.
Table 19: Sensitivity analysis of the PRI-123 model.
Table 20: PRI-123 deal structure and eNPV share.
Table 21: PRI-123 eNPV valuation and deal structure spreadsheet model.
Table 22: eNPV model for enhanced PRI-123 formulation.
Table A.1.1: Array BioPharma and Novartis Table
A.1.2: Ethical Oncology Science and Les Laboratoires Servier
Table A.1.3: Oryzon Genomics and Roche
Table A.1.4: Clavis Pharma and Clovis Oncology
Table A.1.5: Seattle Genetics and Millennium
Table A.1.6: Pharmacyclics and Janssen Biotech
Table A.1.7: Cell Therapeutics and Baxter
Table A.1.8: Onconova Therapeutics and Baxter
Table A.1.9: Threshold Pharmaceuticals and Merck KGaA
Table A.2.1 Discovery and Preclinical Deals
Table A.2.2 Phase I Deals
Table A.2.3 Phase II Deals
Table A.2.4 Phase III Deals
Table A.2.5 Registered Deals
Table A.2.6 Launched Deals
Table A.2.7 Option Deals
Table A.2.8 Drug Delivery Deals

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